Executive Summary / Key Takeaways

• Strategic Refinancing & Asset Optimization: INNOVATE Corp. is actively transforming its capital structure through comprehensive debt refinancing, extending maturities to 2027 and 2030, while pursuing strategic alternatives for its valuable, non-cash flowing assets like MediBeacon and R2 Technologies to achieve long-term sustainability.
• Diversified Growth Engines: The company's three core segments – Infrastructure, Life Sciences, and Spectrum – demonstrate operational momentum, with DBM Global securing a robust $1.3 billion backlog, R2 Technologies achieving significant revenue growth fueled by its Glacial Skin technology, and Spectrum expanding its network offerings and exploring next-gen broadcast technologies.
• Technological Edge & Market Opportunity: MediBeacon's FDA-approved Transdermal GFR system is a "first in kind" innovation, while R2's Glacial Skin devices boast superior social media engagement metrics against competitors, and Spectrum is at the forefront of ATSC 3.0 and 5G broadcast deployment, positioning these segments for future growth in their respective markets.
• Navigating Liquidity Challenges: Despite recent refinancing and a $27 million reduction in consolidated principal debt, INNOVATE faces a "substantial doubt" about its going concern status due to remaining near-term maturities and cross-default provisions, necessitating continued focus on asset monetization and capital raises.
• Outlook for H2 2025: Management anticipates continued strong performance from DBM Global, another robust quarter for R2 Technologies, improving ad sales for Spectrum, and the commercial launch of MediBeacon's TGFR system, alongside key regulatory decisions for 5G broadcast, signaling potential catalysts for value creation.

The Diversified Playbook: Assets, Innovation, and a Pivotal Juncture

INNOVATE Corp. (NYSE:VATE) operates as a diversified holding company, strategically positioned across three distinct segments: Infrastructure, Life Sciences, and Spectrum. This unique portfolio approach aims to generate long-term sustainable free cash flow and attractive returns for stakeholders. The company's journey, evolving from HC2 Holdings, Inc. to INNOVATE Corp. in 2021, has been marked by a deliberate focus on refining its asset base and, more recently, an intense effort to optimize its capital structure. This period is pivotal for INNOVATE, as it seeks to unlock the inherent value of its subsidiaries while addressing critical debt maturities.

The company's foundational strength lies in its ability to foster innovation and operational excellence within its diverse holdings. In Infrastructure, DBM Global Inc. (DBMG) stands as a leading integrated steel fabrication and construction service firm in North America. DBMG differentiates itself through comprehensive offerings, including industrial construction, structural steel fabrication and erection, facility maintenance, and advanced 3-D Building Information Modeling (BIM) and detailing. This integrated approach allows DBMG to provide end-to-end solutions for complex commercial, industrial, and infrastructure projects, from high-rise buildings to power plants. While the broader engineering and construction sector features formidable players like MYR Group Inc. (MYRG), Quanta Services Inc. (PWR), MasTec Inc. (MTZ), and Primoris Services Corporation (PRIM), DBMG's integrated digital engineering services offer a notable advantage in precision for complex constructions. However, its smaller scale compared to these larger, more specialized competitors can lead to higher costs per project and potentially slower market share capture in high-demand areas like specialized electrical infrastructure.

In Life Sciences, Pansend Life Sciences, LLC, holds controlling interests in R2 Technologies, Inc., which develops aesthetic and medical technologies for the skin, and an equity interest in MediBeacon Inc., a medical technology company. R2 Technologies' Glacial Skin devices are a key technological differentiator, offering controlled cooling for inflammation reduction, skin brightening, and pigment correction without downtime. This technology has demonstrated a significant competitive edge, with social media engagement growth outperforming industry competitors by 823% in Q2 2025, building on 774% in Q1 2025 and an impressive 1,694% in Q4 2024. This quantifiable outperformance in brand awareness is a powerful sales driver. MediBeacon's Transdermal GFR Measurement System (TGFR) is a "first in kind" product for real-time assessment of kidney function, a critical innovation that stands apart from current methodologies. Its next-generation sensor aims for enhanced user-friendliness and cost-effectiveness. The strategic intent behind these technologies is to capture significant market share through superior product performance and unique diagnostic capabilities.

The Spectrum segment, comprising HC2 Broadcasting Holdings Inc., strategically acquires and operates over-the-air (OTA) broadcasting stations. This segment is leveraging the evolving media landscape, particularly the "overcrowded streaming market," which is driving more content towards OTA platforms. Spectrum is actively engaged in exploring commercial applications for data casting, primarily utilizing ATSC 3.0 technology, and has launched its fourth ATSC 3.0 station. Furthermore, INNOVATE has filed a petition with the FCC to allow low-power TV stations to voluntarily convert to 5G broadcast technology. This initiative, supported by successful testing in Fort Wayne, Indiana, aims to enhance data rates, reduce latency, and improve connectivity, potentially transforming low-power broadcasting into a platform for enhanced programming, data casting, Internet connectivity, and public safety. This proactive stance in adopting next-generation broadcast standards positions Spectrum to capitalize on future value-creating opportunities in OTA spectrum, including potential deregulation and repurposing of UHF spectrum, as discussed by the new FCC chair.

Financial Performance and Strategic Imperatives

INNOVATE's recent financial performance reflects both the operational strengths of its subsidiaries and the overarching challenges of its capital structure. For the second quarter of 2025, consolidated revenue decreased by 22.7% year-over-year to $242.0 million, primarily due to project timing in Infrastructure and customer losses in Spectrum, partially offset by strong growth in Life Sciences. The company reported a net loss attributable to common stockholders of $22.0 million, or $1.67 per fully diluted share, compared to a net income of $14.1 million in the prior year period. Total adjusted EBITDA for Q2 2025 was $15.7 million, down from $26.7 million in Q2 2024.

The Infrastructure segment, DBM Global, saw Q2 2025 revenue decline by 23.6% to $233.1 million, with adjusted EBITDA falling 40.6% to $19.3 million. Gross margin compressed by 230 basis points to 17.9%, and adjusted EBITDA margin by 240 basis points to 8.3%. This was largely attributed to the timing and completion of large commercial construction projects that had higher activity in the comparable prior period. Despite this, DBMG delivered "better-than-expected margins" in Q2 and boasts a robust adjusted backlog of $1.3 billion as of June 30, 2025, up approximately $300 million year-over-year. A significant $400 million project is expected to be added to the adjusted backlog in Q3, underscoring continued demand. Management notes that DBMG typically locks in steel prices with mills, mitigating tariff impacts, and is actively pursuing opportunities in data centers and power infrastructure driven by cloud computing and AI growth.

The Life Sciences segment, driven by R2 Technologies, demonstrated impressive growth, with Q2 2025 revenue increasing 88.2% to $3.2 million. This surge was fueled by Glacial Spa and Glacial fx unit sales and consumables, particularly outside North America. The segment's adjusted EBITDA loss improved to $2.6 million from $4.8 million in Q2 2024, reflecting increased gross profit at R2 and lower selling, general, and administrative (SGA) expenses. R2 now holds a backlog of approximately 50 units globally, with patient treatments growing 115.1% and average monthly utilization per provider up 28.5% year-over-year.

Spectrum's Q2 2025 revenue decreased by $0.5 million to $5.7 million, and adjusted EBITDA fell to $1.0 million. This decline was primarily due to network cancellations and a decrease in direct response advertising, partially offset by new network launches. However, the segment is seeing "promising trends" with recent launches of Marathon Ventures' Nosey and Confess networks in April, and Lionsgate (LGF.A)'s MovieSphere Network in August, which are expected to bring new and exciting content to the OTA market.

Consolidated interest expense increased by $4.9 million to $21.4 million in Q2 2025, primarily due to higher exit fees and capitalized unpaid interest in Life Sciences and Spectrum, alongside increased interest rates in Infrastructure. The company also recognized a $4.4 million step-up gain related to MediBeacon's FDA approval, contributing to a positive "Other expense/income, net" for the six months ended June 30, 2025. Income tax expense increased due to projected pre-tax results and limitations on net operating loss (NOL) utilization.

Capital Structure and Liquidity Outlook

INNOVATE's most pressing strategic imperative is addressing its capital structure. As of June 30, 2025, the company reported $33.4 million in cash and cash equivalents, down from $48.8 million at year-end 2024. Consolidated principal indebtedness stood at $641.3 million, a $27.0 million decrease from year-end 2024, largely driven by DBMG's refinancing.

On August 4, 2025, INNOVATE successfully closed a series of indebtedness refinancing transactions, extending the maturities of approximately 81.7% of its total outstanding principal debt. This included new 10.5% Senior Secured Notes due 2027, 9.5% Convertible Senior Secured Notes due 2027, and extensions of its revolving credit agreement, CGIC note (now secured with a third-priority lien and a 16% interest rate, maturing April 30, 2027), Spectrum debt (maturing September 30, 2026), and R2 Technologies debt (maturing August 1, 2026, with a 12% interest rate and removal of prior exit/default fees).

Despite these significant efforts, the company acknowledges "substantial doubt about its ability to continue as a going concern within one year," primarily due to the remaining maturities of R2 Technologies' debt and cross-default provisions in its Senior Secured Notes. Management's plan to alleviate this involves pursuing asset sales, further debt refinancing at corporate and subsidiary levels, and raising additional capital. It is crucial to note that DBM Global, the largest subsidiary, remains operationally profitable and in good standing with its lenders, providing a degree of stability. The company also cured a non-compliance with its minimum liquidity covenant by liquidating $2.9 million in marketable securities post-quarter end.

Looking ahead, DBM Global is "well positioned in the second half of 2025 with a strong backlog and robust pipeline," with the potential to "outperform 2024" due to recent project awards. MediBeacon's TGFR system is on track for commercial sale in Q4 2025, with Lumitrace approval expected by year-end, and R2 Technologies is anticipated to deliver "another strong quarter in the third quarter." Spectrum's ad sales outlook for Q4 2025 is "very promising," and datacasting is expected to be revenue-generating by year-end, with an FCC decision on the 5G broadcast petition also anticipated by year-end. These operational and technological milestones are critical to the company's strategy of leveraging its assets to resolve its capital structure challenges.

Conclusion

INNOVATE Corp. is at a critical juncture, balancing the operational momentum and technological differentiation of its diverse subsidiaries against the urgent need to solidify its capital structure. The recent comprehensive debt refinancing is a significant step, providing extended runway to execute strategic plans, including the potential monetization of its Life Sciences assets like MediBeacon, which now boasts FDA approval, and R2 Technologies, which continues to demonstrate impressive growth and market traction.

While the "going concern" warning underscores the inherent risks and the ongoing need for asset sales or further capital raises, the underlying businesses exhibit compelling growth drivers and competitive advantages. DBM Global's strong backlog and strategic positioning in the growing data center and power infrastructure markets, coupled with R2's innovative Glacial Skin technology and MediBeacon's "first in kind" kidney monitoring system, present substantial long-term value potential. Spectrum's proactive embrace of ATSC 3.0 and 5G broadcast technologies also positions it favorably in an evolving media landscape. Investors should closely monitor the company's progress in asset monetization and its ability to achieve a sustainable capital structure, as these will be paramount to unlocking the full value of its innovative and operationally sound portfolio.