VATE · Read the filing

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 the information in our consolidated annual audited financial statements and the notes thereto, each of which are contained in Item 8. entitled "Financial Statements and Supplementary Data," and other financial information included herein. Some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section as well as the section below entitled "Special Note Regarding Forward-Looking Statements" for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Unless the context otherwise requires, in this Annual Report on Form 10-K, "INNOVATE" means INNOVATE Corp. (formerly known as HC2 Holdings, Inc.) and the "Company," "we" and "our" mean INNOVATE together with its consolidated subsidiaries. "U.S. GAAP" means accounting principles accepted in the United States of America.

Our Business and Our Operations

We are a diversified holding company with principal operations conducted through three operating platforms or reportable segments: Infrastructure ("DBMG"), Life Sciences ("Pansend"), and Spectrum, plus our Other segment, which includes businesses that do not meet the separately reportable segment thresholds.

For additional information on our business refer to Note 1. Organization and Business to the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference.

Cyclical Patterns

Our segments' operations can be highly cyclical. Our volume of business in our Infrastructure segment may be adversely affected by declines or delays in projects, which may vary by geographic region. Project schedules, particularly in connection with large, complex, and longer-term projects can also create fluctuations in the services provided, which may adversely affect us in a given period.

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

Examples of other items that may cause our results or demand for our services to fluctuate materially from quarter to quarter include: weather or project site conditions; financial condition of our customers and their access to capital; margins of projects performed during any particular period; rising interest rates and inflation; and economic, political and market conditions on a regional, national or global scale.

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

Recent Developments

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

Acquisitions and Dispositions

Infrastructure

Banker Steel Acquisition

On May 27, 2021, DBMG closed on the acquisition of 100% of Banker Steel Holdco LLC ("Banker Steel") for $145.0 million. The acquisition was financed with $64.1 million from a partial draw on the new $110.0 million revolving credit facility, $49.6 million of sellers' notes, $6.3 million of assumed debt of Banker Steel, and $25.0 million in cash received from INNOVATE in the settlement of certain intercompany balances.

Insurance

Sale of CIG

The sale of CIG closed on July 1, 2021 to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a former director of the Company who has also served as executive chairman of Continental since October 2020. Our previous Insurance segment, which primarily consisted of a closed block of long-term care insurance, had a book value, inclusive of intercompany eliminations, at the time of the sale of $544.0 million, inclusive of $344.0 million of Accumulated other comprehensive income ("AOCI"). The carrying value of the Insurance segment at the time of sale excluded cash of $62.5 million and investments of $26.7 million which were distributed to the Company through an extraordinary dividend immediately prior to the sale. The amount included in AOCI was reversed from equity at the time of the sale and offset the loss recognized.

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

Spectrum

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

On December 31, 2022, Broadcasting entered into that certain Mutual Release and Termination Agreement with Azteca International Corporation and TV Azteca, S.A.B. de C.V. (collectively, “TVA”), pursuant to which the parties agreed to terminate that certain Program Licensing Agreement entered into as of November 29, 2017 (the “PLA”), and the Binding Term Sheet: La Academia, dated as of November 10, 2019, and exchange mutual releases of any and all claims based on, arising out of or related to the PLA and certain other agreements to which HC2 Networks and TVA were previously parties.

Other

Sale of Beyond6

On January 15, 2021, the Company closed on the sale of Beyond6 to an affiliate of Mercuria Investments US, Inc. Net proceeds received by INNOVATE at closing was cash consideration of approximately $70.0 million. During the first quarter of 2021, the Company recognized a $39.2 million gain on the sale. During the third quarter of 2021, as a result of releases of related escrows and hold backs, the Company recognized an additional $0.5 million gain on the sale.

Sale of Remaining 19% Interest in HMN

Subsequent to year end, on March 6, 2023, the Company closed on the sale of its remaining 19% interest in HMN to subsidiaries and an affiliate of Hengtong Optic-Electric Co Ltd. The sale was consummated pursuant to the terms of a supplemental agreement entered into by the parties in June 2022. After taxes and transaction fees, INNOVATE received approximately $32 million in cash.

Debt Obligations and Financing

In 2021 and 2022, we refinanced several of our loans and credit facilities and obtained new capital financing at the corporate and subsidiary level. This financing helped us make the acquisitions described above, gave us better terms and provided needed capital for the operations of our subsidiaries.

Non-Operating Corporate

On February 1, 2021, the Company repaid its 11.50% senior secured notes due 2021 (the "2021 Senior Secured Notes"), and issued $330.0 million aggregate principal amount of 8.50% senior secured notes due 2026 (the "2026 Senior Secured Notes"). In addition, the Company entered into exchange agreements with certain holders of approximately $51.8 million aggregate principal amount of its existing $55.0 million 7.50% convertible senior notes due 2022 (the "2022 Convertible Notes"), pursuant to which the Company exchanged such holders' 2022 Convertible Notes for newly issued convertible notes due 2026 (the "2026 Convertible Notes"). On June 1, 2022, the 2022 Convertible Notes of $3.2 million matured, and the Company repaid the principal and accrued interest upon maturity.

On February 23, 2021, the Company entered into a third amendment for the line of credit with MSD PCOF Partners IX, LLC ("Revolving Credit Agreement"), increasing the aggregate principal amount to $20.0 million and extending the maturity to February 23, 2024. In May 2021, the Company drew $5.0 million under the Revolving Credit Agreement. The Company used the proceeds to fund the redemption of the Company's Series A and A-2 Preferred Stock. In July 2022, the Company drew an additional $15.0 million under the Revolving Credit Agreement.

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

Infrastructure

In May 2021, DBMG repaid its LIBOR plus 1.50% revolving line of credit with Wells Fargo Bank and its term loan due 2023 under a financing agreement with TCW Asset Management Company LLC. DBMG entered into a new credit facility with UMB Bank for a $110.0 million term loan ("UMB Term Loan") and $110.0 million revolving credit agreement ("UMB Revolving Line"). The proceeds received in 2021 were used to fully repay DBMG's existing debt obligations, fund a portion of the Banker Steel acquisition, and provide additional working capital capacity to DBMG. The 2021 extinguishment of the Wells Fargo revolving line and the TCW loan yielded a loss on extinguishment of debt in 2021 of $1.6 million included in Loss on extinguishment of debt in the Consolidated Statement of Operations.

Life Sciences

In February 2021, R2 received $10.0 million in funding from Huadong Medicine Company Limited (“Huadong”), a leading publicly traded Chinese pharmaceutical company. As part of its equity investment in R2, Huadong received exclusive distribution rights for R2’s products in the China and selected Asia-Pacific markets.

In July 2021, the Company provided an additional $15.0 million in Series C funding to R2. The investment was made through the Company’s Life Sciences subsidiary, Pansend Life Sciences, LLC.

In the summer of 2022, R2 Technologies entered into various note purchase agreements with Lancer Capital, LLC ("Lancer"), an entity controlled by Avram A. Glazer, the Chairman of INNOVATE's Board of Directors, for an aggregate $10.0 million loan at a 12.0% per annum interest rate. In December 2022, R2 Technologies closed on an additional $0.8 million 18.0% note with Lancer and also increased the borrowing rate on the $10.0 million note to 18.0%. In addition, the maturity date on the existing $10.0 million note was amended to the earlier of March 31, 2023 or within five business days after the date on which R2 Technologies receives an aggregate $20.0 million from the consummation of a debt or equity financing. All other terms were substantially unchanged. Subsequent to year end, on February 15, 2023 and February 28, 2023, R2 Technologies closed on an additional 18% $0.5 million and an additional 18% $0.4 million note with Lancer, respectively.

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

Spectrum

Notes

On August 30, 2021, Broadcasting repurchased $1.0 million of DTV America Corporation's ("DTV") outstanding notes payable to certain institutional investors, of which the debt is now eliminated in consolidation. Also on August 30, 2021, DTV extended its remaining outstanding notes by 60 days.

On October 21, 2021, Broadcasting entered into the Fifth Omnibus Amendment to Secured Notes, Consent and Second Amendment to Asset Sale Under Secured Notes and Intercreditor Agreement with its lenders, which, among other things, extended $52.2 million of its Senior Secured Notes, due October 21, 2021, through November 30, 2022. In addition, Broadcasting completed the last of a series of repurchases of all the outstanding secured and convertible promissory notes, inclusive of accrued interest, of DTV using a combination of cash on hand and proceeds from the sales on non-core assets.

In 2022, Broadcasting entered into two amendments to its Senior Secured Notes, which, among other things, extended the maturity date to May 31, 2024. The $52.2 million of Senior Secured Notes consisted of $19.3 million of 8.5% Senior Secured Notes and $32.9 million of 10.5% Senior Secured Notes. The other terms of the $19.3 million 8.5% Senior Notes remained the same. At the time of the extension, HC2 Broadcasting had accrued interest and other fees $6.9 million. The interest rate on the $32.9 million 10.5% Senior Notes was increased to 11.45% and accrued interest and fees of $17.5 million were capitalized into the principal balance with the transaction accounted for as a debt modification event. The new effective interest rates on the notes range from 12.8% to 19.6%. All other terms were essentially the same. Total outstanding principal after the refinancing was $69.7 million and $6.9 million of accrued interest and fees remain accrued, with total exit fees of $7.6 million which were recorded as original issue discount with a corresponding liability reflected in Other Liabilities. Interest is accrued and payable upon maturity of the principal.

Concurrently therewith and as part of the consideration for extending the 10.5% Senior Notes, HC2 Broadcasting amended warrants to purchase 145,825 shares of common stock of HC2 Broadcasting Holdings, Inc., or approximately 12% of diluted equity, held by the lenders of the 10.5% Senior Notes by extending the time to exercise such to the second half of 2026 and reducing the exercise price per share (i) from $140.00 to $0.01 in the case of the certain of the warrants and (ii) from $130.00 to $0.01 in the case of the remaining warrants. The change in the fair value of the warrants was recorded as original issue discount with a corresponding impact reflected in Noncontrolling interest of $3.1 million.

Other

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

Stockholders' Rights Agreement

On August 30, 2021, the Company entered into a Tax Benefits Preservation Plan (the "Plan"). The Plan is intended to help protect the Company's ability to use its tax net operating losses and other certain tax assets ("Tax Benefits") by deterring an "ownership change," as defined under Section 382 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder (the "Code"), by a person or group of affiliated or associated persons from acquiring beneficial ownership of 4.9% or more of the outstanding common shares. Refer to Note 18. Temporary Equity and Equity for further information.

COVID-19 Impact on our Business

The COVID-19 pandemic has continued to adversely affect the Company’s business. Labor shortages and supply chain disruptions have created significant delays in our ability to complete projects and deliver products, including in our Infrastructure and Life Sciences segments. Our receipt of materials from areas impacted by the pandemic was slowed or disrupted in 2022 and we expect our suppliers to continue to face similar challenges in fulfilling orders. Transportation costs continued to increase in 2022 as a result of COVID-19 and these costs may continue to rise. We have not been able to pass all of these cost increases on to our customers and, as a result, our margins have been adversely impacted. In addition, our Life Sciences segment was adversely affected in 2022 by continuing requirements to implement COVID-19 operational measures at clinical trial sites, which resulted in some clinical trials being delayed.

Financial Presentation Background

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, 2022 as compared to the year ended December 31, 2021.

Results of Operations

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

Years Ended December 31,

Revenue

Income (loss) from operations

Non-operating Corporate (19.6) (23.1) 3.5

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

Loss on extinguishment of debt — (12.5) 12.5

Loss from equity investees (1.3) (2.8) 1.5

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

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

Income tax expense (0.9) (5.6) 4.7

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

Net loss attributable to INNOVATE Corp. $ (35.9) $ (227.5) $ 191.6

Less: Preferred dividends and deemed dividends from conversions 4.9 2.2 2.7

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

Revenue: Revenue for the year ended December 31, 2022 increased $432.1 million to $1,637.3 million from $1,205.2 million for the year ended December 31, 2021. The increase in revenue was primarily due to the Infrastructure segment, led by the contribution from Banker Steel, which was acquired on May 27, 2021, and the execution of larger projects resulting from strong market demand at DBMG's commercial structural steel fabrication and erection business, partially offset by decreases at DBMG's industrial maintenance and repair, and construction modeling and detailing businesses due to the completion of unrepeated large projects in 2021, and a net decrease in revenues at Spectrum driven by a decrease at Azteca partially offset by an increase in station revenue.

Income (loss) from operations: Income from operations for the year ended December 31, 2022 increased $24.0 million to income of $13.4 million from a loss of $10.6 million for the year ended December 31, 2021. The increase was primarily attributable to the increase in income from operations of $22.3 million from our Infrastructure segment as a result of the contribution from Banker Steel and increases at DBMG's commercial structural steel fabrication and erection business. The increase in income from operations was also attributable to an improvement of $3.5 million from our Non-operating Corporate segment, which had decreases in SG&A, and an improvement of $1.4 million from our Other segment, primarily due to a decrease in professional fees. Partially offsetting these improvements were increases in loss from operations from our Spectrum and Life Sciences segments of $3.0 million and $0.2 million, respectively. Our Spectrum segment experienced decreased revenue, increased support fees and license royalty at the Azteca network, which was partially offset by an increase at station group driven by an increase in revenue, decrease in SG&A, offset by an increase in cost of revenues from a higher station count and a decrease in income from FCC reimbursements.

Interest expense: Interest expense for the year ended December 31, 2022 decreased $7.1 million to $52.0 million from $59.1 million for the year ended December 31, 2021. The decrease was primarily attributable to a decrease in interest expense at our Non-Operating Corporate segment of $7.8 million as a result of the refinancing of the 2021 Senior Secured Notes in the first quarter of 2021, which decreased the average cost of capital and the total principal outstanding, offset slightly by a higher balance on the line of credit. In addition, a decrease in interest expense at our Spectrum segment, which was offset by increases in interest expense at our Infrastructure and Life Science segments, driven by increased outstanding principal balances and new debt, respectively.

Loss on extinguishment of debt: Loss extinguishment of debt was zero and $12.5 million for the years ended December 31, 2022 and 2021, respectively. The expense for the year ended December 31, 2021 was driven by the write-off of deferred financing costs and original issuance discount in connection with the refinancing of the 2021 Senior Secured Notes and the 2022 Convertible Notes in the first quarter of 2021, as well as the refinancing of Infrastructure debt in conjunction with the Banker Steel acquisition in the second quarter of 2021. There were no debt extinguishments for the year ended December 31, 2022.

Loss from equity investees: Loss from equity investees for the year ended December 31, 2022 decreased $1.5 million to $1.3 million from $2.8 million for the year ended December 31, 2021. The decrease in the loss from equity investees was driven by higher equity method income recorded from our investment in Triple Ring and lower equity method losses recorded from our equity investment in MediBeacon. Pansend's net carrying amount of its investment in MediBeacon, inclusive of a $5.0 million loan, was reduced to zero in the current year, as losses incurred exceeded Pansend's net basis in MediBeacon, resulting in fewer losses recognized than in the prior year. This was partially offset by the equity investment in HMN, as it produced lower income than in the prior year, which is generally attributable to the timing of project work.

Other (expense) income, net: Other (expense) income, net for the year ended December 31, 2022 decreased $5.5 million to an expense of $1.2 million from income of $4.3 million for the year ended December 31, 2021. Other expense, net for the year ended December 31, 2022 was primarily comprised of a deemed distribution loss related to a former subsidiary, CGIC, from a tax sharing arrangement and consolidation on the 2021 tax return, and a fair value adjustment to an investment in our Life Sciences segment. Refer to Note 10. Discontinued Operations and Exit Activities in the Consolidated Financial Statements for additional information on CGIC. Other income, net, for the year ended December 31, 2021 was primarily driven by the income recognized on a litigation settlement and a gain on embedded derivatives recorded at our Corporate segment in the prior year.

Income tax expense: Income tax expense for the year ended December 31, 2022 decreased $4.7 million to $0.9 million from $5.6 million for the years ended December 31, 2021. The income tax expense recorded for the year ended December 31, 2022 primarily relates to the tax expense as calculated under ASC 740 for taxpaying entities, which was partially offset by the net tax savings of $3.1 million from the CGIC consolidation in the 2021 tax return, resulting in a partial release of the valuation allowance. Refer to Note 10. Discontinued Operations and Exit Activities in the Consolidated Financial Statements for additional information. The income tax expense recorded for the year ended December 31, 2021 primarily related to the tax expense as calculated under ASC 740 for taxpaying entities. The tax benefits associated with losses generated by the INNOVATE Corp. U.S. consolidated income tax return and certain other businesses have been reduced by a full valuation allowance as we do not believe it is more-likely-than-not that the losses will be utilized.

Segment Results of Operations

In the Company's Consolidated Financial Statements, other operating (income) loss includes: (i) (gain) loss on sale or disposal of assets; (ii) lease termination costs; (iii) asset impairment expense; (iv) accretion of asset retirement obligations; and (v) FCC reimbursements. Each table summarizes the results of operations of our operating segments and compares the amount of the change between the periods presented (in millions).

Infrastructure Segment

Years Ended December 31,

Depreciation and amortization 21.0 19.1 1.9

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

Revenue: Revenue for the year ended December 31, 2022 increased $434.6 million to $1,594.3 million from $1,159.7 million for the year ended December 31, 2021. The increase was primarily driven by the contribution from Banker Steel, which was acquired on May 27, 2021 and contributed $298.3 million of the increase in revenues, and the execution of large projects resulting from strong market demand at DBMG's commercial structural steel fabrication and erection business. The increases were partially offset by the industrial maintenance and repair, and construction modeling and detailing businesses due to the completion of unrepeated large projects in 2021.

Cost of revenue: Cost of revenue for the year ended December 31, 2022 increased $390.9 million to $1,392.5 million from $1,001.6 million for the year ended December 31, 2021. Higher levels of revenue contributed to the increase in cost of revenue; primarily driven by DBMG's commercial structural steel fabrication and erection business from the execution of large projects and Banker Steel, which contributed $272.1 million of the increase in cost of revenue. The increases were partially offset by the industrial maintenance and repair, and construction modeling and detailing businesses due to the completion of unrepeated large projects in 2021.

Selling, general and administrative: Selling, general and administrative expense ("SG&A") for the year ended December 31, 2022 increased $20.4 million to $123.9 million from $103.5 million for the year ended December 31, 2021. The increase in SG&A was largely driven by Banker Steel, which contributed approximately $5.9 million of the increase in SG&A. The increase was also attributable to costs from a one-time internal operational restructuring project and other streamlining activities in the current year, increases in salaries and wages, bonus expense and travel costs. Refer to Footnote 10. Discontinued Operations and Exit Activities in the Consolidated Financial Statements for additional information related to the one-time restructuring costs.

Depreciation and amortization: Depreciation and amortization for the year ended December 31, 2022 increased $1.9 million to $21.0 million from $19.1 million for the year ended December 31, 2021. The increase was primarily due to the additional amortization and depreciation of assets obtained in the acquisition of Banker Steel in May 2021, which contributed $2.4 million of the increase. The increase was partially offset by runoff of depreciation expense related to fully depreciated assets.

Other operating (income) loss: Other operating income from our Infrastructure segment for the year ended December 31, 2022 increased $0.9 million to income of $0.6 million from a loss of $0.3 million for the year ended December 31, 2021. The improvement was primarily driven by a gain on disposal of an asset in the current year.

Life Sciences Segment

Years Ended December 31,

Selling, general and administrative 20.6 20.7 (0.1)

Depreciation and amortization 0.3 0.2 0.1

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

Revenue: Revenue for the year ended December 31, 2022 increased $0.8 million to $4.3 million from $3.5 million for the year ended December 31, 2021. The increase in revenue was attributable to R2, which was driven by additional revenues from the launch of Glacial Spa systems and consumables outside the U.S. at the end of 2021, an increase in Glacial Rx system sales outside the U.S., and an increase in consumable sales in the U.S. This was partially offset by a decrease in Glacial Rx system sales within the U.S., as the comparable period benefited from a backlog of pre-orders due to the second quarter 2021 launch, which resulted in additional revenue recognition when those systems were shipped in 2021.

Cost of revenue: Cost of revenue for the year ended December 31, 2022 increased $1.0 million to $3.5 million from $2.5 million for the year ended December 31, 2021. The increase in cost of revenue was attributable to the increase in revenues as well as changes in the product mix and geographical market.

Spectrum Segment

Years Ended December 31,

Selling, general and administrative 15.5 19.1 (3.6)

Depreciation and amortization 5.8 6.0 (0.2)

Other operating loss 1.3 0.3 1.0

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

Revenue: Revenue from our Spectrum segment for the year ended December 31, 2022 decreased $3.3 million to $38.7 million from $42.0 million for the year ended December 31, 2021. The decrease was primarily driven by a decrease in advertising revenues at the Azteca network, which decreased from $23.4 million to $19.1 million, due to a decreased footprint and declines in paid programming. This was partially offset by an increase in station revenues, which increased from $18.6 million to $19.6 million, due to the launch of new customers and an increase in the number of operating stations.

Cost of revenue: Cost of revenue for the year ended December 31, 2022 increased $2.5 million to $19.9 million from $17.4 million for the year ended December 31, 2021. The overall increase was primarily due to increases in rent, facility and infrastructure costs related to a higher station count, and an increase in expenses at the Azteca network, which increased from $7.1 million to $7.8 million, primarily as a result of license royalty expense incurred under the PLA, which started in the first quarter of 2022.

Selling, general and administrative: Selling, general and administrative expense for the year ended December 31, 2022 decreased $3.6 million to $15.5 million from $19.1 million for the year ended December 31, 2021. The decrease was primarily driven by decreases in: legal expenses, severance expense, stock compensation, salaries and wages, and professional fees. The decreases in SG&A were partially offset by an increase in SG&A expenses at the Azteca network, which increased from $8.1 million to $8.4 million, primarily driven by shutdown termination costs and higher marketing costs, partially offset by decrease in commissions and salaries and benefits.

Other operating loss: Other operating loss for the year ended December 31, 2022 increased $1.0 million to $1.3 million from $0.3 million for the year ended December 31, 2021. The increase in loss was primarily related to a decrease in FCC reimbursements, impairment charges in the current year related to the HC2 Network PLA due to a decline in performance. This was partially offset by fewer right-of-use asset impairments in the current year.

Non-operating Corporate

Years Ended December 31,

Selling, general and administrative $ 19.5 $ 23.0 $ (3.5)

Depreciation and amortization 0.1 0.1 —

Loss from operations $ (19.6) $ (23.1) $ 3.5

Selling, general and administrative: Selling, general and administrative expenses for the year ended December 31, 2022 decreased $3.5 million to $19.5 million from $23.0 million for the year ended December 31, 2021. The decrease was driven by a decrease in disposition and acquisition expenses, bonus expense, legal expense, unrepeated proxy related expenses and a settlement expense for the Company's former CEO accrued in the prior year. This was partially offset by an increase in severance for the current year related to the Company's former Chief Legal Officer, increases in professional fees, and other compensation related items.

(Loss) Income from Equity Investees

Years Ended December 31,

Life Sciences $ (6.2) $ (8.1) $ 1.9

(Loss) from equity investees $ (1.3) $ (2.8) $ 1.5

Life Sciences: Loss from equity investees within our Life Sciences segment for the year ended December 31, 2022 decreased $1.9 million to $6.2 million from $8.1 million for the year ended December 31, 2021. The decrease in loss was primarily due to net higher equity method income recorded from our investment in Triple Ring and lower equity method losses recorded from our equity investment in MediBeacon. Pansend's net carrying amount of its investment in MediBeacon, inclusive of a $5.0 million loan, was reduced to zero in the current year, as losses incurred exceeded Pansend's net basis in MediBeacon, resulting in fewer losses recognized than in the prior year. MediBeacon experienced increased expenses as it performed its US Pivotal Study of the TGFR in 2022 to study the viability of real-time, direct monitoring of kidney function.

Other: Income from equity investees within our Other segment for the year ended December 31, 2022 decreased $0.4 million to $4.9 million from $5.3 million for the year ended December 31, 2021. The decrease was driven by the equity investment in HMN, as it produced lower income than in the prior year, which is generally attributable to the timing of project work.

Non-GAAP Financial Measures and Other Information

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

The calculation of Adjusted EBITDA, as defined by us, consists of Net income (loss) attributable to INNOVATE Corp., excluding discontinued operations; depreciation and amortization; other operating (income) loss, which is inclusive of (gain) loss on sale or disposal of assets, lease termination costs, asset impairment expense and FCC reimbursements; interest expense; other (income) expense, net; loss on extinguishment of debt; income tax expense (benefit); noncontrolling interest; share-based compensation expense; restructuring and exit costs; non-recurring items; costs associated with the COVID-19 pandemic; and acquisition and disposition costs.

(in millions) Year ended December 31, 2022

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

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

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

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

Share-based compensation expense — 0.5 — 1.9 — 2.4

Restructuring and exit costs 6.5 — 0.7 — — 7.2

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

(in millions) Year ended December 31, 2021

Net loss attributable to INNOVATE Corp. $ (227.5)

Less: Discontinued operations (149.9)

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

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

Other operating loss 0.4 — 0.2 — — 0.6

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

Loss on extinguishment of debt 1.5 — 1.0 10.0 — 12.5

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

Share-based compensation expense — 0.2 0.6 1.6 — 2.4

Nonrecurring items 0.5 — — 0.5 — 1.0

Acquisition and disposition costs 2.4 — 0.9 2.9 0.9 7.1

Infrastructure: Net income from our Infrastructure segment for the year ended December 31, 2022 increased $12.3 million to $29.2 million from $16.9 million for the year ended December 31, 2021. Adjusted EBITDA from our Infrastructure segment for the year ended December 31, 2022 increased $23.3 million to $101.7 million from $78.4 million for the year ended December 31, 2021. The increase in Adjusted EBITDA was primarily driven by the revenue increases combined with improvement in contribution from Banker Steel and our fabrication and erection business as a result of larger jobs with increased profits in the current year, and the completion of lower margin projects sold in the first half of 2021. The increase in Adjusted EBITDA was partially offset by an increase in SG&A, driven by Banker Steel, which was acquired in May of 2021, and to support the growth of the business, as well as reduced contributions from the construction modeling and detailing, and industrial maintenance and repair businesses due to the completion of unrepeated large projects in 2021. The increase in Adjusted EBITDA was also partially offset by an increase in SG&A, largely from Banker Steel, and to support the growth in the business. Refer to Footnote 10. Discontinued Operations and Exit Activities in the Consolidated Financial Statements for additional information related to the one-time restructuring costs.

Life Sciences: Net loss from our Life Sciences segment for the year ended December 31, 2022 decreased $0.6 million to $19.2 million from $19.8 million for the year ended December 31, 2021. Adjusted EBITDA loss from our Life Sciences segment for the year ended December 31, 2022 decreased $2.2 million to $25.4 million from $27.6 million for the year ended December 31, 2021. The improvement was primarily driven by an increase in equity method income recorded for Pansend's investment in Triple Ring and a decrease in the equity method losses recorded for Pansend's investment in MediBeacon. Pansend's net carrying amount of its investment in MediBeacon, inclusive of a $5.0 million loan was reduced to zero in the current year, as losses incurred exceeded Pansend's net basis in MediBeacon, resulting in fewer losses recognized than in the comparable period.

Spectrum: Net loss from our Spectrum segment for the year ended December 31, 2022 increased $0.4 million to $13.3 million from $12.9 million for the year ended December 31, 2021. Adjusted EBITDA from our Spectrum segment for the year ended December 31, 2022 decreased $2.4 million to $4.5 million from $6.9 million for the year ended December 31, 2021. The overall decrease in Adjusted EBITDA was primarily driven by the decrease in revenue at the Azteca network driven by a decreased footprint and a decline in paid programming, an increase in station costs as a result of new station builds, as well as an increase in expenses at the Azteca network as a result of higher support fees and license royalty expense incurred under the PLA, which started in the first quarter of 2022. This was partially offset by decreases in severance expense, salaries and wages, commissions and legal expenses, as well as higher station revenues as the station group launched new customers and grew the number of its operating stations.

Non-operating Corporate: Net loss from our Non-operating Corporate segment for the year ended December 31, 2022 decreased $28.9 million to $35.3 million from $64.2 million for the year ended December 31, 2021. Adjusted EBITDA loss from our Non-operating Corporate segment for the year ended December 31, 2022 decreased $1.3 million to $16.7 million from $18.0 million for the year ended December 31, 2021. The decrease in Adjusted EBITDA loss was driven by a decrease in bonus expense, legal expense, as well as the settlement expense for the Company's former CEO accrued in the prior period. This was partially offset by increased professional fees, additional severance expense in the current period related to the former Chief Legal Officer, and other compensation related items.

Other and Eliminations: Net income from our Other and Eliminations segment for the year ended December 31, 2022 increased $0.3 million to $2.7 million from $2.4 million for the year ended December 31, 2021. Adjusted EBITDA from our Other segment for the year ended December 31, 2022 decreased $0.2 million to $4.0 million from $4.2 million for the year ended December 31, 2021. The decrease in Adjusted EBITDA for our Other and Eliminations segment was primarily driven by our equity investment in HMN, as it produced lower income than in the prior year, which is generally attributable to the timing of project work.

Adjusted EBITDA by segment is summarized as follows:

(in millions): Years Ended December 31,

Non-Operating Corporate (16.7) (18.0) 1.3

Other and Eliminations 4.0 4.2 (0.2)

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.

InfrastructureSegment

As of December 31, 2022, DBMG's backlog was $1,782.3 million, consisting of $1,536.3 million under contracts or purchase orders and $246.0 million under letters of intent or notices to proceed. Approximately $927.2 million, representing 52.0% of DBMG’s backlog as of December 31, 2022, was attributable to five contracts, letters of intent, notices to proceed or purchase orders. If one or more of these projects terminate or reduce their scope, DBMG’s backlog could decrease substantially. DBMG includes an additional $10.4 million in its backlog that is not included in the remaining unsatisfied performance obligations disclosed in Note 3. Revenue and Contracts in Process. This additional backlog includes commitments under master service agreements that are estimated amounts of work to be performed based on customer communications, historic performance and knowledge of our customers' intentions.

Liquidity and Capital Resources

Short- and Long-Term Liquidity Considerations and Risks

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

As of December 31, 2022, the Company had $80.4 million of cash and cash equivalents, excluding restricted cash, compared to $45.5 million as of December 31, 2021. On a stand-alone basis, as of December 31, 2022, the Non-Operating Corporate segment had cash and cash equivalents, excluding restricted cash, of $9.1 million compared to $22.0 million at December 31, 2021.

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

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

On a stand-alone basis, as of December 31, 2022 and December 31, 2021, the Non-Operating Corporate segment had indebtedness of $401.8 million and $390.0 million, respectively, an increase of $11.8 million, driven by an increase in the amount drawn under our Revolving Credit Agreement of $15.0 million, partially offset by the $3.2 million repayment of the 2022 Convertible Note upon maturity. As of December 31, 2022, our Non-Operating Corporate segment's stand-alone indebtedness consists of the $330.0 million aggregate principal amount of 2026 Senior Secured Notes, $51.8 million aggregate principal amount of 2026 Convertible Notes, and $20.0 million aggregate principal amount drawn on its Revolving Credit Agreement. Our Non-Operating Corporate segment is required to make semi-annual interest payments on the 2026 Senior Secured Notes and 2026 Convertible Notes and quarterly interest payments on the Revolving Credit Agreement.

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

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

We have financed our growth and operations to date, and expect to finance our future growth and operations, through public offerings and private placements of debt and equity securities, credit facilities, vendor financing, capital lease financing and other financing arrangements, as well as cash generated from the operations of our subsidiaries. In the future, we may also choose to sell assets or certain investments to generate cash.

At this time, we believe that we will be able to continue to meet our liquidity requirements and fund our fixed obligations (such as debt service and lease commitments) and other cash needs for our operations for at least the next twelve months from the issuance of the Consolidated Financial Statements through a combination of available cash and distributions from our subsidiaries. The ability of INNOVATE’s subsidiaries to make distributions to INNOVATE is subject to numerous factors, including restrictions contained in each subsidiary’s financing agreements, availability of sufficient funds at each subsidiary and the approval of such payment by each subsidiary’s board of directors, which must consider various factors, including general economic and business conditions, tax considerations, strategic plans, financial results and condition, expansion plans, any contractual, legal or regulatory restrictions on the payment of dividends, and such other factors each subsidiary’s board of directors considers relevant. Although the Company believes, to the extent needed, that it will be able to raise additional debt or equity capital, refinance indebtedness or preferred stock, enter into other financing arrangements or engage in asset sales and sales of certain investments sufficient to fund any cash needs that we are not able to satisfy with the funds on hand or expected to be provided by our subsidiaries, there can be no assurance that it will be able to do so on terms satisfactory to the Company, if at all. Such financing options, if pursued, may also ultimately have the effect of negatively impacting our liquidity profile and prospects over the long-term and dilute the holders of common stock. Our ability to sell assets and certain of our investments to meet our existing financing needs may also be limited by our existing financing instruments. In addition, the sale of assets or the Company’s investments may also make the Company less attractive to potential investors or future financing partners.

Capital Expenditures

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

Years Ended December 31,

Life Sciences 0.8 0.5

Non-operating Corporate 0.1 —

Indebtedness

Non-Operating Corporate

2026 Senior Secured Notes

On February 1, 2021, our Non-Operating Corporate segment repaid the 2021 Senior Secured Notes and issued $330.0 million aggregate principal amount of 8.50% senior secured notes due February 1, 2026 (the "2026 Senior Secured Notes"). The 2026 Senior Secured Notes mature on February 1, 2026, and accrue interest at a rate of 8.50% per year, which interest is paid semi-annually on February 1 and August 1 of each year. For additional information on the terms and conditions of the 2026 Senior Secured Notes, including guarantees, ranking and collateral, refer to Note 13. Debt Obligations to the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference.

2026 Convertible Notes - Terms and Conditions

As of December 31, 2022, we had $51.8 million 2026 Convertible Notes outstanding. The 2026 Convertible Notes were issued under a separate indenture dated February 1, 2021, between the Company and U.S. Bank, as trustee (the "Convertible Indenture"). The 2026 Convertible Notes mature on August 1, 2026 unless earlier converted, redeemed or purchased. The 2026 Convertible Notes accrue interest at a rate of 7.5% per year, which interest is paid semi-annually on February 1 and August 1 of each year. For additional information on the terms and conditions of the 2026 Convertible Notes, including optional redemption, conversion rights guarantees, ranking and collateral, refer to Note 13. Debt Obligations to the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference.

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

Revolving Credit Agreement

We have a revolving credit agreement with MSD PCOF Partners IX, LLC ("Revolving Credit Agreement"). The Revolving Credit Agreements has a maximum commitment of $20.0 million, all of which had been drawn as of December 31, 2022. The Revolving Credit Agreement has a maturity date of February 23, 2024 and accrues interest at a rate of 5.75% per year, which is paid quarterly. For additional information on the terms and conditions of the Revolving Credit Facility, including guarantees, ranking and collateral, refer to Note 13. Debt Obligations to the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference.

Infrastructure

As of December 31, 2022, our Infrastructure segment had an aggregate principal amount of outstanding debt of $243.0 million. On August 2, 2022, DBMG negotiated and finalized an amendment to its UMB Revolving Line which included a retrospective change to the terms of the Fixed Coverage Ratio, and an increase in the UMB Revolving Line commitment from $110.0 million to $135.0 million, among other things. Refer to Note 13. Debt Obligations to the Consolidated Financial Statements included elsewhere in this Annual Report on the Form 10-K for additional details regarding the indebtedness of our Infrastructure segment, which is incorporated herein by reference.

Life Sciences

On June 27, 2022, R2 Technologies issued a $0.5 million short-term 90-day 12.0% bridge financing loan with Lancer Capital, LLC ("Lancer"), a related party, an entity controlled by Avram A. Glazer, the Chairman of the INNOVATE's Board of Directors. On July 13, 2022, R2 Technologies entered into a note purchase agreement with Lancer. The note payable bears interest at 12.0% per annum and was funded in two tranches. The first tranche of $5.0 million closed on July 13, 2022, and included the settlement of a $0.5 million short-term 90-day 12.0% bridge financing loan made on June 27, 2022 by Lancer, and an additional $4.5 million in cash. The second tranche of $5.0 million closed on August 8, 2022.

On December 13, 2022, R2 Technologies closed on an additional $0.8 million 18.0% note with Lancer Capital, LLC. In addition, the maturity date on the existing $10.0 million note was amended to the earlier of March 31, 2023 or within five business days after the date on which R2 Technologies receives an aggregate $20.0 million from the consummation of a debt or equity financing. All other terms were substantially unchanged. Subsequent to year end, on February 15, 2023 and February 28, 2023, R2 Technologies closed on an additional 18% $0.5 million and an additional 18% $0.4 million note with Lancer, respectively.

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

Spectrum

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

On December 30, 2022, Broadcasting entered into a Seventh Omnibus Amendment to Secured Notes which, among other things, extended the maturity date of $52.2 million of its Senior Secured Notes, due December 30, 2022 to May 31, 2024. The $52.2 million of Senior Secured Notes consisted of $19.3 million of 8.5% Senior Secured Notes and $32.9 million of 10.5% Senior Secured Notes. The other terms of the $19.3 million 8.5% Senior Notes remained the same. At the time of the extension, HC2 Broadcasting had accrued interest and other fees $6.9 million. The interest rate on the $32.9 million 10.5% Senior Notes was increased to 11.45% and accrued interest and fees of $17.5 million were capitalized into the principal balance with the transaction accounted for as a debt modification event. The new effective interest rates on the notes range from 12.8% to 19.6%. All other terms were essentially the same. Total outstanding principal after the refinancing was $69.7 million and $6.9 million of accrued interest and fees remain accrued, with total exit fees of $7.6 million which were recorded as original issue discount with a corresponding liability reflected in Other Liabilities. Interest is capitalized and payable upon maturity of the principal.

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

Refer to Note 13. Debt Obligations to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional details regarding the indebtedness of our Life Sciences and Spectrum segments.

Restrictive Covenants

The indenture governing the 2026 Senior Secured Notes dated February 1, 2021, by and among INNOVATE, the guarantors party thereto and U.S. Bank National Association, a national banking association, as trustee (the "Secured Indenture"), contains certain affirmative and negative covenants limiting, among other things, the ability of the Company, and, in certain cases, the Company’s subsidiaries, to incur additional indebtedness; create liens; engage in sale-leaseback transactions; pay dividends or make distributions in respect of capital stock; make certain restricted payments; sell assets; engage in transactions with affiliates; or consolidate or merge with, or sell substantially all of its assets to, another person. These covenants are subject to a number of important exceptions and qualifications.

The Company is also required to comply with certain financial maintenance covenants, which are similarly subject to a number of important exceptions and qualifications. These covenants include maintenance of (1) liquidity and (2) collateral coverage.

The maintenance of liquidity covenant provides that the Company will not permit the aggregate amount of (i) all unrestricted cash and Cash Equivalents of the Company and the Subsidiary Guarantors, (ii) amounts available for drawing under revolving credit facilities and undrawn letters of credit of the Company and the Subsidiary Guarantors and (iii) dividends, distributions or payments that are immediately available to be paid to the Company by any of its Restricted Subsidiaries to be less than the Company’s obligation to pay interest on the 2026 Senior Secured Notes and all other Debt, including Convertible Preferred Stock mandatory cash dividends or any other mandatory cash pay Preferred Stock but excluding any obligation to pay interest on Convertible Preferred Stock or any other mandatory cash pay Preferred Stock which, in each case, may be paid by accretion or in-kind in accordance with its terms of the Company and its Subsidiary Guarantors for the next six months. As of December 31, 2022, 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, 2022, the Company was in compliance with this covenant.

The instruments governing the Company’s Preferred Stock also limit the Company’s and its subsidiaries ability to take certain actions, including, among other things, to incur additional indebtedness; issue additional Preferred Stock; engage in transactions with affiliates; and make certain restricted payments. These limitations are subject to a number of important exceptions and qualifications.

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

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

Summary of Consolidated Cash Flows

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

December 31, Increase / (Decrease)

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

Cash provided by discontinued operating activities — 33.5 (33.5)

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

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

Cash used in discontinued investing activities — (221.3) 221.3

Cash provided by continuing financing activities 68.1 11.9 56.2

Cash used in discontinued financing activities — (7.6) 7.6

Cash provided by financing activities 68.1 4.3 63.8

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

Operating Activities

Cash used in continuing operating activities was $9.5 million for the year ended December 31, 2022, as compared to $6.5 million for the year ended December 31, 2021. The $3.0 million increase in cash used in operating activities was primarily due to working capital changes (primarily from accounts receivable, contract assets, contract liabilities, accrued liabilities and accounts payable) at our Infrastructure segment. These fluctuations resulted from changes in revenue resulting from the timing and volume of work performed, variability in the timing of customer billings, management of collection of receivables and settlement of payables, primarily from the increased activity as a result of the acquisition of Banker Steel at the end of May 2021 and growth of the business. The net decrease from changes in operating assets and liabilities was significantly offset by a decrease in net loss from improved operations.

Investing Activities

Cash used in continuing investing activities was $22.5 million for the year ended December 31, 2022 as compared to $1.9 million for the year ended December 31, 2021, an increase of $20.6 million. Capital expenditures for the year ended December 31, 2022 were $20.7 million, or $18.7 million, net of disposals, as compared to $24.1 million, or $10.9 million, net of disposals for the year ended December 31, 2021, for a net increase in cash used in investing activities from PP&E of $7.8 million, primarily as a result of unrepeated sales of non-core assets at our Spectrum segment in 2021. In addition, during the year ended December 31, 2022, our Life Sciences segment paid $4.5 million to purchase an additional convertible note from MediBeacon, whereas during the year ended December 31, 2021, we sold Continental and Beyond6 for aggregate net proceeds and dividends received of $136.5 million and we paid $128.5 million for the acquisition of Banker Steel.

Financing Activities

Cash provided by continuing financing activities was $68.1 million for the year ended December 31, 2022 as compared to $11.9 million for the year ended December 31, 2021, an increase of $56.2 million. The increase was driven primarily by a net increase of $61.1 million in credit facility related activity. Cash provided by financing activities for the year ended December 31, 2022 relates primarily to: our Infrastructure segment's increase on its revolving line of credit to fund working capital requirements on larger, more complex jobs, which provided $76.6 million in net proceeds, net of deferred financing charges; an increase on the Corporate credit facility of $15.0 million; and $10.8 million in proceeds from a short-term note at R2 from Lancer Capital; partially offset by: $28.3 million in principal payments on debt obligations; $5.2 million for payments for dividends; and $0.7 million for other financing activities. Cash provided by financing activities for the year ended December 31, 2021 was primarily due to: the 2021 refinancing of the Infrastructure notes in conjunction with the acquisition of Banker Steel; financing activities at our Life Sciences segment related to the $10.0 million investment by Huadong into R2 in the first quarter of 2021; and cash received by subsidiary to purchase preferred stock of $10.5 million; which was partially offset by: cash paid for the redemption of preferred stock of $10.4 million; $13.5 million for payments to noncontrolling interests; $2.9 million in payments for dividends; and $1.3 million for other financing activities.

Discontinued Operations

Cash from discontinued operations was zero for the year ended December 31, 2022 as compared to cash used by discontinued operations of $195.4 million for the year ended December 31, 2021. The $195.4 million decrease in cash used was primarily due to the 2021 sales of the Insurance segment and Beyond6, which did not have any activity in the current period.

Infrastructure

Cash Flows

Cash flows from operating activities are the principal source of cash used to fund DBMG’s operating expenses, interest payments on debt, and capital expenditures. DBMG's short-term cash needs are primarily for working capital to support operations including receivables, inventories, and other costs incurred in performing its contracts. DBMG attempts to structure the payment arrangements under its contracts to match costs incurred under the project. To the extent it is able to bill in advance of costs incurred, DBMG generates working capital through billings in excess of costs and recognized earnings on uncompleted contracts. DBMG relies on its credit facilities to meet its working capital needs. DBMG believes that its existing borrowing availability together with cash from operations will be adequate to meet all funding requirements for its operating expenses, interest payments on debt and capital expenditures for the foreseeable future. DBMG believes that its available funds, cash generated by operating activities and funds available under its bank credit facilities will be sufficient to fund its capital expenditures and its working capital needs. However, DBMG may expand its operations through future acquisitions and may require additional equity or debt financing.

DBMG is required to make monthly or quarterly interest payments on all of its debt. Based upon the December 31, 2022 debt balance, DBMG anticipates that its interest payments will be approximately $3.0 million each quarter of 2023.

Off- Balance Sheet Arrangements

We may enter into certain off-balance sheet arrangements in the ordinary course of business. Our off-balance sheet transactions may include, but are not limited to: leases that have not yet commenced, liabilities associated with non-cancelable operating leases with durations of less than twelve months, letter of credit obligations, surety, performance or payment bonds entered into in the normal course of business, and liabilities associated with multi-employer pension plans. Refer to Note 11. Leases, Note 15. Commitments and Contingencies and 16. Employee Retirement Plans to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information on leases, letters of credit and performance and/or payment bonds, and multi-employer pension plans, respectively, which notes are incorporated herein by reference.

Discontinued Operations

For the year ended December 31, 2021, Beyond6 and CIG were reported in discontinued operations. Accordingly, revenue, costs, and expenses of the discontinued operations were excluded from continuing operations. Cash flows from discontinued operations are reported in the Statement of Cash Flows as a separate line item within the Operating, Investing and Financing activities sections for each year presented. Refer to Note 10. Discontinued Operations and Exit Activities to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information on discontinued operations. In the absence of cash flows from the discontinued operations, the Company does not expect there to be an impact on liquidity at the Company.

New Accounting Pronouncements

For information on new accounting pronouncements refer to Note 2. Summary of Significant Accounting Policies to our Consolidated Financial Statements included in this Annual Report on Form 10-K, which note is incorporated herein by reference.

Critical Accounting Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the U.S. GAAP requires the use of estimates and assumptions that have an impact on the assets, liabilities, revenue and expense amounts reported. 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. Following is a review of the more significant assumptions and estimates used in the preparation of our consolidated financial statements. For all of these estimates, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. Refer to Note 2. Summary of Significant Accounting Policies to our Consolidated Financial Statements included in this Annual Report on Form 10-K, which discusses our significant accounting policies and is incorporated herein by reference.

Revenue Recognition - Estimated Costs to Complete

With respect to our Infrastructure segment (DBM Global Inc.), we recognize a significant portion of our revenue over time using the input method to measure the progress of costs incurred for our service and construction contracts. DBM Global Inc. performs its services primarily under fixed-price contracts and recognizes revenue over time using the input method to measure progress for its projects. The nature of the projects does not provide measurable value to the customer over time and control does not transfer to the customer at discrete points in time. The customer receives value over the term of the project based on the amount of work that has been completed towards the delivery of the completed project. The most reliable measure of progress is the cost incurred towards delivery of the completed project. Therefore, the input method provides the most reliable method to measure progress. Revenue recognition begins when work has commenced. Costs include all direct material and labor costs related to contract performance, subcontractor costs, indirect labor, and fabrication plant overhead costs, which are charged to contract costs as incurred. Revenues relating to changes in the scope of a contract are recognized when we and a customer or general contractor have agreed on both the scope and price of changes, the work has commenced, it is probable that the costs of the changes will be recovered and that realization of revenue exceeding the costs is assured beyond a reasonable doubt. Revisions in estimates during the course of contract work are reflected in the accounting period in which the facts requiring the revision become known. Provisions for estimated losses on uncompleted contracts are made in the period in which a loss on a contract becomes determinable.

Convertible Instruments

We evaluate and account for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities. Applicable U.S. Generally Accepted Accounting Principles ("GAAP") requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. A key component of this analysis includes an calculation of fair value of the embedded derivative instrument, which is performed using inputs that require estimates that management believes are reasonable, such as the projected risk free and volatility rates. These estimates impacting fair value could materially differ if unanticipated events impacting inputs to the fair value such as the risk free or volatility rates unfold differently than anticipated.

Income Taxes

Our annual tax rate is based on our income, statutory tax rates, exchange rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties under ASC No. 740, “Income Taxes” (“ASC 740”).

We review our tax positions quarterly and adjust the balances as new information becomes available. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. To provide insight, we use our historical experience and our short and long-range business forecasts. We believe it is more likely than not that a portion of the deferred income tax assets may expire unused and have established a valuation allowance against them. Although realization is not assured for the remaining deferred income tax assets, we believe it is more likely than not the deferred tax assets will be fully recoverable within the applicable statutory expiration periods. However, deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced.

We recognize deferred tax assets and liabilities for the expected future tax consequences of transactions and events. Under this method, deferred tax assets and liabilities are determined based on the difference between the book basis and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. If necessary, deferred tax assets are reduced by a valuation allowance to an amount that is determined to be more likely than not recoverable. We must make significant estimates and assumptions about future taxable income and future tax consequences when determining the amount of the valuation allowance. The additional guidance provided by ASC 740, clarifies the accounting for uncertainty in income taxes recognized in the financial statements. Expected outcomes of current or anticipated tax examinations, refund claims and tax-related litigation and estimates regarding additional tax liability (including interest and penalties thereon) or refunds resulting therefrom will be recorded based on the guidance provided by ASC 740 to the extent applicable.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. These assessments of uncertain tax positions contain judgments related to the interpretation of tax regulations in the jurisdictions in which we transact business. The judgments and estimates made at a point in time may change based on the outcome of tax audits, expiration of statutes of limitations, as well as changes to, or further interpretations of, tax laws and regulations.

In relation to tax effects for accumulated OCI, our policy is to release the tax effects of amounts reclassified from accumulated OCI to pre-tax income (loss) from continuing operations. Any remaining tax effect in accumulated OCI is released following a portfolio approach.

Refer to Note 14. Income Taxes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for further information.

Acquisitions

The Company’s acquisitions are accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. Estimates of fair value included in the Consolidated Financial Statements, in conformity with ASC 820, Fair Value Measurements and Disclosures, represent the Company’s best estimates and valuations developed, when needed, with the assistance of independent appraisers or, where such valuations have not yet been completed or are not available, industry data and trends and by reference to relevant market rates and transactions. Such estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of the Company. Accordingly, the Company cannot provide assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially.

Goodwill and Intangible Assets

Goodwill and intangible assets deemed to have indefinite lives are not amortized but, rather, are tested at least annually for impairment, or more often if events or changes in circumstances indicate that more likely than not the carrying amount of the asset may not be recoverable. Goodwill is tested for impairment at the reporting unit level. A reporting unit represents an operating segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a two-step quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.

We may elect not to perform the qualitative assessment for some or all reporting units and perform a quantitative impairment test. Fair value is determined based on discounted cash flow analyses. The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins, weighted average cost of capital, and future economic and market conditions. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. The amount of the impairment is the difference between the carrying value of the goodwill and the "implied" fair value, which is calculated as if the reporting unit had just been acquired and accounted for as a business combination.

The estimates of future cash flows involve considerable management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions, and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as capital markets. The actual cash flows could differ materially from management's estimates due to changes in business conditions, operating performance, and economic conditions.

Refer to Note 8. Goodwill and Intangibles, Net, to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information on goodwill and intangible assets.

Related Party Transactions

For a discussion of our Related Party Transactions, refer to Note 19. Related Partiesto our Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference.

Special Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains or incorporates a number of "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on current expectations, and are not strictly historical statements. In some cases, you can identify forward-looking statements by terminology such as "if," "may," "should," "believe," "anticipate," "future," "forward," "potential," "estimate," "opportunity," "goal," "objective," "growth," "outcome," "could," "expect," "intend," "plan," "strategy," "provide," "commitment," "result," "seek," "pursue," "ongoing," "include" or in the negative of such terms or comparable terminology. These forward-looking statements inherently involve certain risks and uncertainties and are not guarantees of performance, results, or the creation of stockholder value, although they are based on our current plans or assessments which we believe to be reasonable as of the date hereof.

Factors that could cause actual results, events and developments to differ include, without limitation: the ability of our subsidiaries (including, target businesses following their acquisition) to generate sufficient net income and cash flows to make upstream cash distributions, capital market conditions, our and our subsidiaries’ ability to identify any suitable future acquisition opportunities, efficiencies/cost avoidance, cost savings, income and margins, growth, economies of scale, combined operations, future economic performance, conditions to, and the timetable for, completing the integration of financial reporting of acquired or target businesses with INNOVATE or the applicable subsidiary of INNOVATE, completing future acquisitions and dispositions, litigation, potential and contingent liabilities, management’s plans, changes in regulations and taxes.

We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements.

Forward-looking statements are not guarantees of performance. You should understand that the following important factors, in addition to those discussed under the section entitled "Risk Factors" in this Annual Report on Form 10-K and the documents incorporated herein by reference, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements. You should also understand that many factors described under one heading below may apply to more than one section in which we have grouped them for the purpose of this presentation. As a result, you should consider all of the following factors, together with all of the other information presented herein, in evaluating our business and that of our subsidiaries.

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;

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

•the impact of covenants in the Indenture governing INNOVATE’s 2026 Senior Secured Notes, 2026 Convertible Notes, and Revolving Credit Agreement, the Certificates of Designation governing INNOVATE’s Preferred Stock and all other subsidiary debt obligations as summarized in Note 13. Debt Obligations to our Consolidated Financial Statements included in this Annual Report on Form 10-K and future financing agreements on our ability to operate our business and finance our pursuit of acquisition opportunities;

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

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

•our dependence on certain key personnel;

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

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

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

•the impact of a higher interest rate environment;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

•management’s plans, goals, forecasts, expectations, guidance, objectives, strategies and timing for future operations, acquisitions, synergies, asset dispositions, fixed asset and goodwill impairment charges, tax and withholding expense, selling, general and administrative expenses, product plans, performance and results;

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

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

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

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

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

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

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

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

•the impact of inflationary pressures;

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

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

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

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

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

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

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

Life Sciences / Pansend Life Sciences, LLC

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

•our Life Sciences segment’s ability to invest in development stage companies;

•our Life Sciences segment’s ability to develop products and treatments related to its portfolio companies;

•medical advances in healthcare and biotechnology;

•governmental regulation in the healthcare industry: and

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

Spectrum / HC2 Broadcasting Holdings Inc.

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

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

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

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

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

•FCC regulation of the television broadcasting industry.

We caution the reader that undue reliance should not be placed on any forward-looking statements, which speak only as of the date of this document. Neither we nor any of our subsidiaries undertake any duty or responsibility to update any of these forward-looking statements to reflect events or circumstances after the date of this document or to reflect actual outcomes, except as required by applicable law.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The report of the independent registered public accounting firm and consolidated financial statements listed in the accompanying index are included in Item 15 of this report. Refer to the Index to the Consolidated Financial Statements on page F-1 of this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 as amended (the "Exchange Act") as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2022, our disclosure controls and procedures were effective. Disclosure controls and procedures mean our controls and other procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed to provide reasonable assurance as to the reliability of its financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Because of the inherent limitations in any internal control, no matter how well designed, misstatements may occur and not be prevented or detected. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Further, the evaluation of the effectiveness of internal control over financial reporting described below was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may decline.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. This assessment was based on updated criteria for effective internal control over financial reporting set forth by the Committee of Sponsoring Organizations of the Treadway Commission Internal Control-Integrated Framework (2013). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.

Auditor Attestation Report

Our independent registered public accounting firm has issued an attestation report on the effectiveness of our internal control over financial reporting, which is on page F-4 of this report.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

None.

PART III

The information required by Part III will be provided in our definitive proxy statement for our 2023 annual meeting of stockholders ("2023 Proxy Statement"), which is incorporated herein by reference.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding this item will be set forth in our 2023 Proxy Statement and is incorporated herein by reference.

Code of Conduct

We have adopted a Code of Conduct applicable to all directors, officers and employees, including the Chief Executive Officer, senior financial officers and other persons performing similar functions. The Code of Conduct is a statement of business practices and principles of behavior that support our commitment to conducting business in accordance with the highest standards of business conduct and ethics. Our Code of Conduct covers, among other things, compliance resources, conflicts of interest, compliance with laws, rules and regulations, internal reporting of violations and accountability for adherence to the Code of Conduct. A copy of the Code of Conduct is available under the "Investor Relations-Corporate Governance" section of our website at www.innovatecorp.com. Any amendment of the Code of Conduct or any waiver of its provisions for a director or executive officer must be approved by the Board or a duly authorized committee thereof. We intend to post on our website all disclosures that are required by law or the rules of the NYSE concerning any amendments to, or waivers from, any provision of the Code of Conduct.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding this item will be set forth in our 2023 Proxy Statement and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information regarding this item will be set forth in our 2023 Proxy Statement and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information regarding this item will be set forth in our 2023 Proxy Statement and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding principal accountant fees and services will be set forth in our 2023 Proxy Statement and is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) List of Documents Filed as Part of This Report:

1) Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Loss

Consolidated Balance Sheets

Consolidated Statements of Stockholders’ Deficit

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

2) Financial Statement Schedules

Financial statement schedules have been omitted since they either are not required, not applicable, or the information is otherwise included.

(3) Exhibit Index

The following is a list of exhibits filed (including those incorporated by reference) or furnished as part of this Annual Report on Form 10-K.

ExhibitNumber Description

21.1 Subsidiaries of INNOVATE (filed herewith).

^ Indicates management contract or compensatory plan or arrangement.

ITEM 16. FORM 10-K SUMMARY

Not applicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INNOVATE Corp.

By: /S/ WAYNE BARR, JR.

POWER OF ATTORNEY

Each of the officers and directors of INNOVATE Corp., whose signature appears below, in so signing, also makes, constitutes and appoints each of Wayne Barr, Jr. and Michael J. Sena, and each of them, his true and lawful attorneys-in-fact, with full power and substitution, for him in any and all capacities, to execute and cause to be filed with the SEC any and all amendments to this Annual Report on Form 10-K, with exhibits thereto and other documents connected therewith and to perform any acts necessary to be done in order to file such documents, and hereby ratifies and confirms all that said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of March 14, 2023.

Signature Title

Wayne Barr, Jr.

Michael J. Sena

/S/ AVRAM A. GLAZER Director

Avram A. Glazer

/S/ WARREN H. GFELLER Director

Warren H. Gfeller

/S/ BRIAN S. GOLDSTEIN Director

Brian S. Goldstein

/S/ AMY WILKINSON Director

Amy Wilkinson

INNOVATE CORP.

INDEX TO FINANCIAL STATEMENTS

Consolidated Statements of Operations F-5

Consolidated Statements of Comprehensive Loss F-6

Consolidated Balance Sheets F-7

Consolidated Statements of Stockholders’ Deficit F-8

Consolidated Statements of Cash Flows F-9

Notes to Consolidated Financial Statements F-10

(1) Organization and Business F-10

(2) Summary of Significant Accounting Policies F-10

(3) Revenue and Contracts in Process F-17

(4) Accounts Receivable, Net F-23

(5) Inventory F-23

(6) Investments F-23

(7) Property, Plant and Equipment, Net F-24

(8) Goodwill and Intangibles, Net F-25

(9) Acquisitions F-26

(10) Discontinued Operations F-28

(12) Other Assets, Accrued Liabilities and Other Liabilities F-32

(13) Debt Obligations F-33

(14) Income Taxes F-38

(15) Commitments and Contingencies F-40

(16) Employee Retirement Plans F-43

(17) Share-Based Compensation F-44

(18) Temporary Equity and Equity F-45

(19) Related Parties F-50

(20) Operating Segments and Related Information F-51

(21) Basic and Diluted Loss Per Common Share F-52

(22) Fair Value of Financial Instruments F-53

(23) Supplementary Financial Information F-54

(24) Subsequent Events F-55

F-1

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

INNOVATE Corp.

New York, NY

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of INNOVATE Corp. and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ deficit, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 14, 2023, expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition - Estimated Costs to Complete for a Certain Segment

As described in Note 3 to the consolidated financial statements, with respect to the Company's Infrastructure segment (“DBMG”), the Company recognizes a significant portion of its revenue over time using the input method to measure progress for its service and construction contracts based on the costs incurred towards delivery to complete projects. The estimate of costs to complete these projects is based on direct materials and labor costs related to contract performance, subcontractor costs, indirect labor, and fabrication plant overhead costs. Changes in the scope of the contract and price changes, the timing of when work has commenced, and probability that cost changes will be recovered are among the factors that influence the estimate of progress for measuring service and construction contracts.

F-2

We identified estimated costs to complete on specific revenue contracts at DBMG as a critical audit matter. The determination of the total estimated costs to complete requires management to make significant estimates and assumptions regarding direct materials and labor, subcontract costs, indirect labor, and fabrication plant overhead costs. Changes in the estimates of these costs can have a significant impact on the revenue recognized each period. Auditing these elements involved especially challenging auditor judgment in evaluating the reasonableness of management’s assumptions and estimates over the duration of these contracts.

The primary procedures we performed to address this critical audit matter included:

•Testing the operating effectiveness of internal controls related to revenue recognition at DBMG, specifically controls over the formation and tracking of estimated costs to complete.

•Assessing the reasonableness of the estimated costs to complete for specific open projects through: (i) evaluating the reasonableness of project budgets and the nature of costs required to complete open projects, (ii) assessing the status of completion of respective projects through testing of a sample of project costs incurred to date, (iii) evaluating the reasonableness of project status by performing inquiries of project managers and assessing the nature of activities required to complete open projects, and (iv) performing retrospective review for open projects and investigating budget to actual variances.

•Assessing the reasonableness of changes in estimated costs to complete for specific projects during quarterly reviews and at year end and investigating reasons for changes in expected costs and project margins.

•Evaluating the reasonableness of project budgets for specific projects during the year through a retrospective review against actual performance.

We have served as the Company's auditor since 2011.

/s/ BDO USA, LLP

New York, NY

March 14, 2023

F-3

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

INNOVATE Corp.

New York, NY

Opinion on Internal Control over Financial Reporting

We have audited INNOVATE Corp. and subsidiaries’ (the “Company’s”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, stockholders’ deficit, and cash flows for each of the years then ended, and the related notes and our report dated March 14, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, LLP

New York, NY

March 14, 2023

F-4

INNOVATE CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

Years Ended December 31,

Operating expenses:

Selling, general and administrative 180.1 168.3

Depreciation and amortization 27.2 25.4

Other operating loss 0.7 0.6

Income (loss) from operations 13.4 (10.6)

Other (expense) income:

Loss on extinguishment of debt — (12.5)

Loss from equity investees (1.3) (2.8)

Other (expense) income, net (1.2) 4.3

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

Income tax expense (0.9) (5.6)

Loss from continuing operations (42.0) (86.3)

Net loss attributable to INNOVATE Corp. (35.9) (227.5)

Less: Preferred dividends and deemed dividends from conversions 4.9 2.2

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

Loss per common share - discontinued operations - basic and diluted $ — $ (1.93)

Loss per share - basic and diluted $ (0.53) $ (2.98)

Weighted average common shares outstanding - basic and diluted 77.5 77.1

The accompanying notes are an integral part of these consolidated financial statements.

F-5

INNOVATE CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in millions)

Years Ended December 31,

Other comprehensive loss

Foreign currency translation adjustment, net of tax (0.2) 2.1

Unrealized loss on available-for-sale securities, net of tax — (57.7)

Dispositions, net of tax — (334.0)

Other comprehensive loss $ (0.2) $ (389.6)

Comprehensive loss attributable to INNOVATE Corp. $ (36.4) $ (618.0)

The accompanying notes are an integral part of these consolidated financial statements.

F-6

INNOVATE CORP.

CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts)

December 31,

Assets

Current assets

Cash and cash equivalents $ 80.4 $ 45.5

Restricted cash 0.3 2.0

Assets held for sale — 1.5

Deferred tax asset 1.7 3.0

Property, plant and equipment, net 165.0 169.9

Liabilities, temporary equity and stockholders’ deficit

Current liabilities

Current portion of debt obligations 30.6 69.5

Other current liabilities 20.1 18.3

Deferred tax liability 9.1 9.1

Commitments and contingencies

Temporary equity

Redeemable noncontrolling interest 43.4 49.3

Total temporary equity 61.0 68.1

Stockholders’ deficit

Accumulated other comprehensive income 5.9 6.4

Total INNOVATE Corp. stockholders’ deficit (121.3) (84.3)

Noncontrolling interest 30.7 28.1

Total stockholders’ deficit (90.6) (56.2)

The accompanying notes are an integral part of these consolidated financial statements.

F-7

INNOVATE CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(in millions)

Shares Amount

Share-based compensation — — 2.4 — — — 2.4 — 2.4 —

Preferred stock dividend — — (2.2) — — — (2.2) — (2.2) —

Issuance of common stock 1.1 — 0.2 — — — 0.2 — 0.2 —

Issuance of preferred stock — — — — — — — — — 19.1

Issuance of redeemable controlling interest — — — — — — — — — 40.9

Purchase of preferred stock by subsidiary — — (0.3) — — — (0.3) — (0.3) —

Redemption of preferred shares — — — — — — — — — (10.4)

Other comprehensive (loss) income — — — — — (390.5) (390.5) 0.9 (389.6) —

Share-based compensation — — 2.4 — — — 2.4 — 2.4 —

Stock dividends — — (2.7) — — — (2.7) (1.3) (4.0) (1.2)

Issuance of common stock 1.0 — — — — — — — — —

Spectrum warrant modification — — — — — — — 3.1 3.1 —

Issuance of preferred stock for dividend — — (0.9) — — — (0.9) — (0.9) 0.9

Transactions with noncontrolling interests — — 0.2 — — — 0.2 (0.2) — 0.2

Other — — 0.3 — — — 0.3 — 0.3 —

Other comprehensive (loss) income — — — — — (0.5) (0.5) 0.2 (0.3) 0.1

(a) Inclusive of other comprehensive (loss) income, foreign currency cumulative translation adjustments totaled $7.1 million and $7.3 million as of December 31, 2022 and 2021, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

F-8

INNOVATE CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

Years Ended December 31,

Cash flows from operating activities

Less: Loss from discontinued operations, net of tax — (149.9)

Loss from continuing operations (42.0) (86.3)

Share-based compensation expense 2.4 2.4

Depreciation and amortization (including amounts in cost of revenue) 42.2 37.6

Amortization of deferred financing costs and debt discount 3.4 10.5

Loss on debt extinguishment — 12.5

Loss from equity investees 1.3 2.8

Asset impairment expense 2.1 2.8

VATE US Equity

VATE · 10-K · period ended 2022-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

ITEM 16. FORM 10-K SUMMARY

VATE US Equity☆

VATE · 10-K · period ended 2022-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

ITEM 16. FORM 10-K SUMMARY

VATE US Equity