Steel Partners Holdings Reports Third Quarter Financial Results and Declares Quarterly Distribution on its Series A Preferred Units

Third Quarter 2023 Results

• Revenue was $492.3 million, an increase of 15.6% as compared to the same period in the prior year
• Net income was $27.9 million, a decrease of 23.4% as compared to the same period in the prior year
• Net income attributable to common unitholders was $25.6 million, or $1.14 per diluted common unit
• Adjusted EBITDA^* decreased to $44.5 million from $60.2 million for the same period in the prior year; Adjusted EBITDA margin^* was 9.0%
• Net cash used in operating activities was $66.2 million
• Adjusted free cash flow^* totaled $85.5 million
• Total debt at quarter-end was $187.2 million; net debt,^* which includes, among other items, pension and preferred unit liabilities, and long-term investments was $29.5 million

YTD 2023 Results

• Revenue was $1,438.6 million, an increase of 13.0% as compared to the same period in the prior year
• Net income was $111.3 million, a decrease of 16.4% as compared to the same period in the prior year
• Net income attributable to common unitholders was $109.6 million, or $4.68 per diluted common unit
• Adjusted EBITDA^* decreased to $181.2 million from $183.8 million for the same period in the prior year; Adjusted EBITDA margin^* was 12.6%
• Net cash used in operating activities was $11.7 million
• Adjusted free cash flow^* was $148.4 million

NEW YORK–(BUSINESS WIRE)–Steel Partners Holdings L.P. (NYSE: SPLP) (the “Company”), a diversified global holding company, today announced operating results for the third quarter ended September 30, 2023. The financial results of Steel Connect, Inc. (“Steel Connect” or “STCN”) have been included in the Company’s consolidated financial statements since the exchange transaction on May 1, 2023.

“Steel Partners continues to deliver strong results driven by increased revenue in our Financial Services segment and favorable impact from the newly acquired Supply Chain segment,” said Executive Chairman Warren Lichtenstein. “We have seen erosion of both income and EBITDA year over year, and our management team is focused on reducing costs and expenses. We continue to strategically deploy our capital, and we are thrilled to bring online our brand new, state-of-the-art plant for Lucas Milhaupt in Cudahy, Wisconsin, which is part of our Diversified Industrial segment.”

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)

Revenue

Revenue for the three months ended September 30, 2023 increased $66,581, or 15.6%, as compared to the same period last year, as a result of higher revenue from Financial Services and favorable impact from the recently added Supply Chain segment, partially offset by lower sales from the Diversified Industrial segment and lower revenue from the Energy segment.

Revenue for the nine months ended September 30, 2023 increased $165,724, or 13.0%, as compared to the same period last year, as a result of higher revenue from both Financial Services and Energy segments, as well as favorable impact of the recently added Supply Chain segment, partially offset by lower sales from the Diversified Industrial segment including the impact from the divestiture of the SLPE business in April 2022.

Cost of Goods Sold

Cost of goods sold for the three months ended September 30, 2023 increased $9,628, or 3.5%, as compared to the same period last year, resulting from the recently added Supply Chain segment, partially offset by lower sales from the Diversified Industrial segment, primarily from its Building Materials business unit and lower revenue volume from the Energy segment.

Cost of goods sold for the nine months ended September 30, 2023 increased $3,337, or 0.4%, as compared to the same period last year, resulting from the recently added Supply Chain segment and higher revenue from the Energy segment, partially offset by lower sales discussed above from the Diversified Industrial segment.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) for the three months ended September 30, 2023 increased $31,300, or 33.4%, as compared to the same period last year. The increase was primarily due to higher expenses from the Financial Services segment of $17,800 and Diversified Industrial segment of $4,800, and impact of the recently added Supply Chain segment of $7,100,. The increase for the Financial Services segment was primarily due to higher credit performance fees due to higher credit risk transfer (“CRT”) balances and higher personnel expenses related to incremental headcount. The higher expenses from the Diversified Industrial segment was primarily driven by higher personnel costs.

SG&A for the nine months ended September 30, 2023 increased $95,653, or 34.1%, as compared to the same period last year. The increase was primarily driven by higher SG&A expenses from the Financial Services segment of $68,800 as discussed above and Diversified Industrial segment of approximately $18,700, primarily due to higher personnel costs for the nine months ended September 30, 2023, despite the impact of the divestiture of SLPE business of $5,000, as well as the recently added Supply Chain segment of $15,900 as mentioned above, partially offset by lower Corporate SG&A expenses of $8,400 due primarily to lower legal fees as compared to the last year period.

Asset Impairment Charges

An impairment charge of $329 was recognized during the nine months ended September 30, 2023, related to a piece of unused equipment in the Building Materials business unit from the Diversified Industrial segment. The Company recorded asset impairment charges of $2,449 and $2,884 for the three and nine months ended September 30, 2022, respectively, primarily related to the implementation costs of an ERP project associated with the Kasco business unit from the Diversified Industrial segment.

Interest Expense

Interest expense decreased $995, or 19.5% and increased $1,482 or 10.3% for the three and nine months ended September 30, 2023, respectively, as compared to the same periods last year. The decrease for the three month period was primarily driven by lower average debt level, partially offset by higher average interest rates. The increase for the nine month period was primarily due to higher average interest rates, partially offset by lower average debt level.

Realized and Unrealized (Gains) Losses on Securities, Net

The Company recognized gains of $8,665 for the three months ended September 30, 2023, as compared to gains of $3,641 in the same period of 2022. The Company recorded gains of $6,151 for the nine months ended September 30, 2023, as compared to losses of $22,570 in the same period of 2022. These gains and losses were due to unrealized gains and losses related to the mark-to-market adjustments on the Company’s portfolio of securities.

All Other Expense, Net

All other expense, net totaled $58,539 for the three months ended September 30, 2023, as compared to $9,736 in the same period of 2022 and $96,667 for the nine months ended September 30, 2023, as compared to $16,056 in the same period of 2022. The incremental all other expense, net for the three and nine months ended September 30, 2023 was primarily due to higher provisions for credit losses of $30,376 and $36,221 and finance interest expense of $17,601 and $46,888 related to the Financial Service segment, as compared to the same periods of 2022, respectively.

Income Tax (Benefit) Provision

The Company recorded an income tax benefit of $981 for the three months ended September 30, 2023 and an income tax provision of $9,211 for the same period in 2022. The Company recorded an income tax benefit of $1,707 for the nine months ended September 30, 2023 and an income tax provision of $56,256 for the same period in 2022. The Company’s effective tax rate was (1.4)% and 29.4% for the nine months ended September 30, 2023 and 2022, respectively. The lower effective tax rate for the nine months ended September 30, 2023 is primarily due to the change in U.S. income tax expense related to unrealized gains and losses on investments and the deferred tax movements resulting from the addition of Steel Connect. As a limited partnership, the Company is generally not responsible for federal and state income taxes, and its profits and losses are passed directly to its limited partners for inclusion in their respective income tax returns. Provisions have been made for federal, state, local or foreign income taxes on the results of operations generated by our consolidated subsidiaries that are taxable entities. Significant differences between the statutory rate and the effective tax rate include partnership losses for which no tax benefit is recognized, tax expense related to unrealized gains and losses on investment, state taxes, changes in deferred tax valuation allowances, deferred tax movements resulting from the addition of Steel Connect in an exchange transaction and other permanent differences.

Loss (income) of Associated Companies, Net of Taxes

The Company recorded losses from associated companies, net of taxes, of $3,140 and $11,944 for the three and nine months ended September 30, 2023, respectively, as compared to income from associated companies, net of taxes, of $616 and loss from associated companies, net of taxes, of $1,767 for the three and nine months ended September 30, 2022, respectively. The fluctuations for these periods were primarily due to the changes in fair value of the Company’s investment in Steel Connect. The net of tax loss for the three month ended September 30, 2023 was related to the Company’s PCS-Mosaic investment based on the most recent valuation analysis.

Purchases of Property, Plant and Equipment (Capital Expenditures)

Capital expenditures for the three and nine months ended September 30, 2023 totaled $13,116, or 2.7% of revenue and $36,667, or 2.5% of revenue, respectively as compared to $11,718, or 2.8% of revenue and $30,188, or 2.4% of revenue, respectively, in the same periods of 2022.

Common Units Repurchase Program

During the three months ended September 30, 2023, the Company repurchased 111,118 common units for $4,891. From the inception of the Repurchase Program the Company has purchased 7,800,608 common units for an aggregate price of approximately $164,086. As of September 30, 2023, there were approximately 969,632 common units that may yet be purchased under the Repurchase Program.

Additional Non-GAAP Financial Measures

Adjusted EBITDA was $44,464 for the three months ended September 30, 2023, as compared to $60,167 for the same period of 2022 and $181,201 for the nine months ended September 30, 2023, as compared to $183,785 for the same period of 2022. Adjusted EBITDA decreased by $15,703 and $2,584 for the three and nine months ended September 30, 2023, respectively. The decrease for the three month period was primarily due to 1) higher credit loss provisions and finance interest, as well as higher personnel costs, partially offset by higher revenue impact at the Financial Services segment; 2) lower profit at both Diversified Industrial and Energy segments driven by lower sales; 3) favorable impact from the newly acquired Supply Chain segment; and 4) lower SG&A costs from Corporate as compared to the same period of 2022. The decrease for the nine month period was primarily due to lower profit from the Diversified Industrial segment driven by lower sales, largely offset by 1) lower SG&A costs from Corporate; 2) favorable impact from the newly acquired Supply Chain segment; 3) higher revenue at the Financial Services segment that was partially offset by higher finance interest and credit loss provisions, as well as higher personnel costs; and 4) strong revenue at the Energy segment primarily resulting from higher volume and favorable pricing, as compared to the same period of 2022. For the three and nine months ended September 30, 2023, adjusted free cash flow were $85,536 and $148,393, as compared to $48,011 and $116,012, respectively for the same periods in 2022.

Liquidity and Capital Resources

As of September 30, 2023, the Company had approximately $403,500 in availability under its senior credit agreement, as well as $356,299 in cash and cash equivalents, excluding WebBank cash, and approximately $39,373 in long-term investments.

As of September 30, 2023, total debt was $187,184, an increase of approximately $6,860, as compared to December 31, 2022. As of September 30, 2023, net debt totaled $29,456, a decrease of approximately $18,175, primarily driven by the change of long term investments for the 2023 period. Total leverage (as defined in the Company’s senior credit agreement) was approximately 1.4x as of both September 30, 2023 and December 31, 2022.

Quarterly Cash Distribution on Series A Preferred Units

On November 9, 2023, the Company’s board of directors declared a regular quarterly cash distribution of $0.375 per unit, payable December 15, 2023, to unitholders of record as of December 1, 2023, on its 6% Series A Preferred Units, no par value (“Series A Preferred”).

Any future determination to declare distributions on its units of Series A Preferred, and any determination to pay such distributions in cash or in kind, or a combination thereof, will remain at the discretion of Steel Partners’ board of directors and will be dependent upon a number of factors, including the Company’s results of operations, cash flows, financial position, and capital requirements, among others.

About Steel Partners Holdings L.P.

Steel Partners Holdings L.P. (www.steelpartners.com) is a diversified global holding company that owns and operates businesses and has significant interests in various companies, including diversified industrial products, energy, defense, supply chain management and logistics, banking and youth sports. At Steel Partners, our culture and core values of Teamwork, Respect, Integrity, and Commitment guide our Kids First purpose, which is to forge a path of success for the next generation by instilling values, building character, and teaching life lessons through sports.

(Financial Tables Follow)

Contacts

Investor Relations Contact

Jennifer Golembeske

212-520-2300

[email protected]

Read full story here