Earnings call transcript: Innovate Corp Q2 2025 sees stock surge despite losses

Innovate Corp, a diversified holding company, reported its Q2 2025 earnings, revealing a significant decline in both revenue and profitability. Despite the downturn, the company’s stock surged by 7.46% to close at $5.36. According to InvestingPro analysis, the stock appears undervalued compared to its Fair Value, though it maintains a "FAIR" overall financial health score. This movement comes amid strategic operational changes and promising developments in its product lines.

Key Takeaways

• Innovate Corp’s stock rose by 7.46% post-earnings despite a net loss.
• Revenue fell by 22.7% year-over-year to $242 million.
• New product approvals and launches in China are expected to drive future growth.
• The company completed significant debt refinancing, reducing outstanding debt.

Company Performance

Innovate Corp’s Q2 2025 results showed a challenging quarter, with consolidated revenues dropping to $242 million, a 22.7% decrease from the previous year. The company reported a net loss of $22 million, or $1.67 per share, contrasting sharply with a net income of $14.1 million in the same quarter last year. Despite these setbacks, the company made strategic advancements in its product offerings and operational efficiencies.

Financial Highlights

• Revenue: $242 million, down 22.7% year-over-year.
• Adjusted EBITDA: $15.7 million, down from $26.7 million.
• Net loss: $22 million, or $1.67 per share, compared to a net income of $14.1 million last year.
• Cash and cash equivalents: $33.4 million, down from $48.8 million.
• Total principal outstanding indebtedness: $641.3 million, reduced by $27 million.

Market Reaction

Despite posting a loss, Innovate Corp’s stock price increased by 7.46%, closing at $5.36. This surge reflects investor optimism about the company’s strategic initiatives and future product launches, particularly in the life sciences and medical aesthetics sectors. The stock remains below its 52-week high of $13.79 but shows resilience in the current market environment.

Outlook & Guidance

Looking forward, Innovate Corp anticipates robust growth in its DBM Global and R2 Glacial Skin segments. DBM Global has added $400 million to its backlog, indicating strong future demand. The company also expects continued growth in R2 Glacial Skin and a recovery in ad sales for its Spectrum segment by Q4 2025. InvestingPro analysis reveals a challenging current ratio of 0.44, suggesting the importance of these growth initiatives for improving liquidity. The strategic focus on debt refinancing and operational efficiency is expected to support these growth initiatives, with analysts maintaining a "Strong Buy" recommendation despite recent challenges.

Executive Commentary

Interim CEO Paul Voigt emphasized the company’s focus on execution across its operating segments, stating, "We remain focused on execution across each of our operating segments." He also highlighted the potential of the R2 Glacial Skin, noting, "We are very satisfied with R2’s achievements and maintain our belief that the market potential for R2 is substantial." CFO Mike Senna remarked on the debt refinancing efforts, saying, "This transaction allows for us to extend our debt maturities to continue to pursue our strategic plans."

Risks and Challenges

• Margin compression in the infrastructure segment could impact profitability.
• The company faces ongoing challenges in managing its high debt levels.
• Market saturation and competitive pressures in the medical aesthetics sector.
• Macroeconomic uncertainties that could affect consumer spending and investment.

Innovate Corp’s Q2 2025 earnings report reflects a company in transition, navigating financial challenges while positioning itself for future growth through strategic initiatives and product innovation.

Full transcript - Innovate Corp (VATE) Q2 2025:

Conference Operator: Good afternoon, and welcome to Innovate Corp’s Second Quarter twenty twenty five Earnings Conference Call. All participants will be in a listen only mode. After the prepared remarks and presentation, there will be a question and answer session. Please note this event is being recorded. I would now like to turn the conference call over to Neil Nick Sikka with Investor Relations.

Please go ahead.

Neil Nick Sikka, Investor Relations, Innovate Corp: Good afternoon. Thank you for being with us to review Innovate’s second quarter twenty twenty five earnings results. We are joined today by Paul Voigt, Innovate’s Interim CEO and Mike Senna, Innovate’s CFO. We have posted our earnings release and our slide presentation on our website at innovatecorp.com. We will begin our call with prepared remarks to be followed by a Q and A session.

This call is also being simulcast and will be archived on our website. During this call, management may make certain statements and assumptions which are not historical facts, will be forward looking and are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any such forward looking statements involve risks, assumptions and uncertainties and are subject to certain assumptions and risk factors that could cause Innovate’s actual results to differ materially from these forward looking statements. The risk factors that could cause these differences are more fully discussed in the cautionary statement that is included in our earnings release and the slide presentation and further detailed in our 10 ks and other filings with the SEC. In addition, the forward looking statements included in this conference call are only made as of the date of this call and as stated in our SEC reports.

Innovate disclaims any intent or obligation to update or revise these forward looking statements, except as expressly required by law. Management will also refer to certain non GAAP financial measures such as adjusted EBITDA. We believe that these measures provide useful supplemental data that, while not a substitute for GAAP measures, allow for greater transparency in the review of our financial and operational performance. At this point, it is my pleasure to turn things over to Paul Voigt.

Paul Voigt, Interim CEO, Innovate Corp: Good afternoon. We are pleased to report our second quarter twenty twenty five financial results and will provide you with an update on our three operating segments. Innovate delivered consolidated revenues of $242,000,000 and adjusted EBITDA of $15,700,000 in the second quarter. The second quarter continued to showcase our commitment to long term value creation. We took meaningful steps to allow us to focus on executing our strategic plans, including advancing a series of refinancing transactions to extend our debt maturities.

We remain focused on execution across each of our operating segments and I’m proud of the momentum our teams are building. To start the review of the subs at Infrastructure, DBM Global achieved revenues of $233,100,000 and adjusted EBITDA of $19,300,000 During the quarter, DBM has seen gross margin compression year over year of approximately two thirty basis points to 17.9% and adjusted EBITDA margin compression of approximately two forty basis points to 8.3% year over year. Despite the year over year decrease in margins, we remain impressed by the performance of DBMG who delivered better than expected margins in the second quarter. As far as our adjusted backlog, it has increased year over year by approximately $300,000,000 to just over $1,300,000,000 We also are happy to report that DBM has a sizable project that will add approximately $400,000,000 to adjusted backlog in the third quarter and we remain very optimistic on the pipeline. Given the deferment of awards in the 2024, the outcomes for DBM for the 2025 are aligned with what we anticipated.

DBM remains well positioned in the 2025 with a strong backlog and robust pipeline. Despite the fluctuating tariff situation, DBM continues to book projects into its backlog and are not seeing an impact to the demand from its customers. Operationally, the team remains focused on margin discipline and control as we manage through the inflationary pressure. Nevertheless, we continue to pursue strategic bids that align with our risk return profile. We remain confident in DBM’s positioning as one of the leading integrated steel fabrication and construction service firms in North America.

Within life sciences, MediBeacon continues to make steady traction in exploring the potential application for transdermal GFR monitoring systems with clinicians in hospitals and other settings. Additionally, we previously announced that the National Medical Products Emissions in China also approved MediBeacon, TGFR monitor and TGFR sensor. LUMITRACE continues to be under review and is on track for approval by the end of this year. The Journal of American Society of Nephrology, August print edition is expected to include transdermal GFR data published online earlier this year. MediBeacon’s TGFR system is still on track to be available for commercial sale in the fourth quarter of this year.

While we continue to make progress on our strategic alternatives, there is no further information on any strategic alternatives since our last call. R2 built on its recent momentum with another strong quarter, increasing top line revenue to $3,200,000 in the 2025 compared to $1,700,000 in the 2024. This momentum was fueled by increased shipments outside North America. R2 now carries a backlog of approximately 50 units globally positioning the company for continued growth. With this sizable backlog, another significant order received from its partner in China and growing consumable revenue associated with the continually increasing installed base that we expect R2 to return another strong quarter in the third quarter.

R2’s providers love Glacial Skin for the device’s unique ability to deliver controlled cooling for inflammation reduction, skin brightening and pigment correction all without any downtime. Along with providing stunning results for patients, Glacial Skin devices deliver impressive business outcomes for providers. In Q2 twenty twenty five, patient treatments grew 115.1, while average monthly utilization per provider increased 28.5% compared to the same period last year. Glacial Skin rising brand awareness is proven to be a powerful sales driver with social media engagements growth outperforming industry competitors by 823%. Supporting the surge, R2 saw quarter over quarter increases of 51.6% in social media mentions and 140.6% in web users.

We are very satisfied with R2’s achievements and maintain our belief that the market potential for R2 is substantial. We are extremely pleased with the progress the company has made over the past year. Moving to Spectrum, second quarter revenues was $5,700,000 and adjusted EBITDA was $1,000,000 While first half results were principally impacted by two network cancellations, we see promising trends with recent launches on our platform of three strong networks Marathon Ventures, Nosy and Confess, which both launched in April and are performing well, and the August 1 launch of Lions Gate’s Movie Sphere Network, a channel of mostly recent films which represent new and exciting content for the over the air market. We expect to see more over the air network content particularly from streaming space which has become overcrowded. Ad sales softness which the industry experienced in the first half year in the wake of volatility in the economy has started to improve with the outlook for the fourth quarter twenty twenty five looking very promising.

We continue to review data casting as a compelling long term opportunity for us and we are actively engaged in exploring commercial applications, principally using ATS three point zero for now. We continue to work closely with a large global network group that’s exploring broader commercial applications of broadcast data technology, focusing on gaming, entertainment, healthcare, and auto manufacturers among other sectors that have interest. We just launched our fourth ATS three point zero station in collaboration with them as we move toward commercial deployment. As before, we are open minded on technology protocols and have worked closely with Qualcomm in exploring five gs broadcast. We already have a station converted to five gs in Fort Wayne, Indiana and have done extensive and successful testing on carrying video signals to smartphones.

The petition we filed with the FCC to allow the voluntary adoption of five gs broadcast low power TVs received considerable support from broadcasters and vendors during the comment period ended 07/01/2025. We continue to expect a decision on the petition by the end of the year. With that, I’ll turn it over to Mike for a review of our financial and capital structure.

Mike Senna, CFO, Innovate Corp: Thanks, Paul. Consolidated total revenue for the 2025 was $242,000,000 a decrease of 22.7% compared to $313,100,000 in the prior year period. The decrease was driven by our Infrastructure segment and, to a lesser extent, our Spectrum segment, which was partially offset by an increase in our Life Sciences segment. Net loss attributable to common stockholders and participating preferred stockholders for the 2025 was $22,000,000 or $1.67 per fully diluted share compared to net income of $14,100,000 or $1.03 per fully diluted share in the prior year period, which has been retroactively adjusted to reflect the one for-ten reverse stock split affected on 08/08/2024. Total adjusted EBITDA was $15,700,000 in the 2025, a decrease from $26,700,000 in the prior year period.

The decrease was primarily driven by extent our Spectrum segment, which was partially offset by our Life Sciences segment and to a lesser extent our non operating Corporate segment. At Infrastructure, revenue decreased 23.6% to $233,100,000 from $305,200,000 in the prior year quarter. This decrease was primarily driven by the timing and size of projects at Bankers Steel, DBMG’s commercial structural steel fabrication and erection business, the industrial maintenance and repair business and the construction modeling and detail business, which had increased activity in the comparable period on certain large commercial construction projects that have since been completed or are nearing completion in the current period. Infrastructure adjusted EBITDA for the 2025 decreased to $19,300,000 from $32,500,000 in the prior year period. The decrease was primarily driven by a decrease in revenue and gross margins at DBMG’s commercial, structural, steel fabrication and erection business, a decrease in revenue at Banker Steel and a decrease in revenue and gross margin at the construction modeling and detailing business due to timing of certain large commercial construction projects that have since been completed or nearing completion in the current period.

This decrease was partially offset by an improvement in gross margins at the industrial maintenance and repair business and a decrease in recurring SG and A expenses, primarily driven by a decrease in compensation related expenses due to timing and, to a lesser extent, decreases in travel expenses and professional and consulting fees. As of 06/30/2025, reported backlog and adjusted backlog, which takes into consideration awarded but not contracts, was $1,300,000,000 compared to reported backlog of $1,000,000,000 and adjusted backlog of $1,100,000,000 at the 2024. EBMG ended the quarter with $115,200,000 in principal amount of debt, which is a decrease of $29,500,000 from the 2024, primarily driven by its refinancing and a decrease in their credit line. As a reminder, the credit line balance tends to fluctuate based on timing of DBMG collections. At the end of the second quarter, the balance dipped due to collection timing, but we expect it to increase again during the second half of the year.

At Life Sciences, revenue increased 88.2% to $3,200,000 from $1,700,000 in the prior year quarter. The increase in revenue was attributable to R2, primarily driven by increases in Glacial Spa unit sales, consumable sales and Glacial FX unit sales outside of North America, as well as an increase in Glacial FX unit sales and consumable sales in North America. The increase was partially offset by a decrease in Glacial Rx unit sales in North America. Life Sciences adjusted EBITDA losses decreased for the quarter, which was primarily driven by a decrease in equity method losses from MediBeacon as PanSend was unable to recognize any losses from MediBeacon due to PanSend’s net carrying amount of its investment in MediBeacon being zero, as well as an increase in gross profit at R2, primarily driven by the increase in revenue and a decrease in SG and A expenses at R2. At Spectrum, year over year revenue decreased $500,000 to $5,700,000 and adjusted EBITDA decreased $500,000 to 1,000,000 The decreases were primarily driven by the loss of certain customers and a decrease in direct response advertising, which was partially offset by the launch of new networks subsequent to the comparable period.

Net operating corporate adjusted EBITDA losses were $2,000,000 for the 2025, a $500,000 improvement from the 2024. The decrease in losses was primarily driven by a decrease in legal fees due to legal matters settled subsequent to the comparable period, as well as a slight decrease in employee related expenses, accounting and other professional expenses and insurance expense. At the end of the second quarter, the company had $33,400,000 of cash and cash equivalents, excluding restricted cash, compared to $48,800,000 as of 12/31/2024. On a stand alone basis, as of 06/30/2025, our non operating corporate segment had cash and cash equivalents of $3,100,000 compared to cash and cash equivalents of $13,800,000 at the 2024. Prior to the recently announced indebtedness refinancing transactions as of 06/30/2025, INNOVATE had total principal outstanding indebtedness of $641,300,000 down $27,000,000 from $668,300,000 at the 2024, driven by the decrease in infrastructure’s outstanding debt, which was partially offset by R2’s debt with Flancer Capital, which capitalizes unpaid interest into the principal balance.

Yesterday, we announced the early settlement of the indebtedness refinancing transactions. The refinancing transactions included the initial closing of an exchange of corporate’s senior secured notes, privately negotiated exchanges of certain of corporate’s convertible senior notes, amendment and extension of corporate’s credit line, amendment and extension of corporate’s note with CGIC, amendment and extension of the spectrum notes, and amendment and extension of the R2 notes. This transaction allows for us to extend our debt maturities to continue to pursue our strategic plans. We expect the final settlement of the exchange offer to occur on August 15, subject to all conditions to the exchange offer have been being satisfied or waived. With that, operator, we’d now like to open up the call for questions.

Conference Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. A confirmation tone will indicate your line is in the question queue. You may press star and two if you’d like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Ladies and gentlemen, we will wait for a moment while the question queue assembles. Ladies and gentlemen, a reminder, if you wish to ask a question, please press star and one. Ladies and gentlemen, as there are no questions in the queue, I now hand the conference over to Mike Sena for his closing comments.

Mike Senna, CFO, Innovate Corp: Thank you for joining the call this afternoon, and we look forward to providing further updates as they become available. Thank you.

Conference Operator: Thank you. Ladies and gentlemen, the conference of Innovate has now concluded. Thank you for your participation. You may now disconnect your lines.

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