First Quarter 2023 Results
- Revenue totaled $445.4 million, an increase of 9.8% as compared
to the same period in the prior year
- Net income was $24.8 million, an increase of 446.2% as compared
to the same period in the prior year
- Net income attributable to common unitholders was $24.8
million, or $1.09 per diluted common unit
- Adjusted EBITDA* decreased to $63.1 million from $64.6 million
for the same period in the prior year; Adjusted EBITDA margin* was
14.2%
- Net cash used in operating activities was $48.2 million
- Adjusted free cash flow* totaled $33.4 million
- Total debt at quarter-end was $183.3 million; net debt,* which
includes, among other items, pension and preferred unit
liabilities, and marketable securities and long term investment
assets totaled $63.6 million
Steel Partners Holdings L.P. (NYSE: SPLP), a diversified global
holding company, today announced operating results for the first
quarter ended March 31, 2023.
Q1 2023
Q1 2022
($ in thousands)
$445,371
$405,745
Revenue
24,803
4,541
Net income
24,846
4,565
Net income attributable to common
unitholders
63,131
64,570
Adjusted EBITDA*
14.2%
15.9%
Adjusted EBITDA margin*
10,708
7,746
Purchases of property, plant and
equipment
33,362
33,623
Adjusted free cash flow*
*See reconciliations to the
nearest GAAP measure included in the financial tables. See "Note
Regarding Use of Non-GAAP Financial Measurements" below for the
definition of these non-GAAP measures.
"Despite facing challenging economic headwinds, our company
remains committed to achieving sustainable growth through a
diligent approach to cost containment and operational efficiency,"
said Executive Chairman Warren Lichtenstein. "We are pleased to
report that we continued our momentum from 2022 into the first
quarter of 2023, which reflects the effectiveness of these
measures, with minimal erosion of our adjusted EBITDA. We are
confident in our ability to navigate the current economic landscape
and deliver solid results for our stakeholders."
Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
(unaudited)
(Dollar amounts in table and commentary in
thousands, unless otherwise indicated)
Three Months Ended
March 31,
2023
2022
Revenue
$
445,371
$
405,745
Cost of goods sold
261,293
268,170
Selling, general and administrative
expenses
114,954
86,124
Asset impairment charge
—
403
Interest expense
5,986
4,524
Realized and unrealized (gains) losses on
securities, net
(607
)
27,726
All other expense, net*
20,371
2,005
Total costs and expenses
401,997
388,952
Income from operations before income
taxes and equity method investments
43,374
16,793
Income tax provision
14,604
7,609
Loss of associated companies, net of
taxes
3,967
4,643
Net income from continuing
operation
$
24,803
$
4,541
* includes finance interest, provision for
loan losses, and other expense from the consolidated statements of
operations
Revenue
Revenue for the three months ended March 31, 2023 increased
$39,626, or 9.8%, as compared to the same period last year, as a
result of higher revenue from both Financial Services and Energy
segments, partially offset by lower sales from the Diversified
Industrial segment, as well as the impact of divestiture of SLPE
business in April 2022.
Cost of Goods Sold
Cost of goods sold for the three months ended March 31, 2023
decreased $6,877, or 2.6%, as compared to the same period last
year, resulting from lower sales from the Diversified Industrial
segment primarily due to the impact of divestiture of SLPE business
mentioned above, partially offset by higher material costs. The
decrease was partially offset by the impact of higher revenue from
the Energy segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") for
the three months ended March 31, 2023 increased $28,830, or 33.5%,
as compared to the same period last year. The increase was
primarily due to higher expenses from the Financial Services
segment and, to a lesser extent, higher expenses for the
Diversified Industrial segment. SG&A expenses for the Financial
Services segment increased approximately $21,500, primarily due to
higher credit performance fees due to higher credit risk transfer
("CRT") balances and higher personnel costs. SG&A expenses for
the Diversified Industrial segment increased approximately $9,000,
primarily due to higher personnel costs and professional fees,
partially offset by the impact of divestiture of SLPE business.
Asset Impairment Charges
An impairment charge of $403 was recorded for the three months
ended March 31, 2022 related to an idle piece of equipment
associated with the Joining Materials business unit from the
Diversified Industrial segment. There were no asset impairment
charges in the 2023 period.
Interest Expense
Interest expense for the three months ended March 31, 2023
increased $1,462, or 32.3%, as compared to the same period last
year. The increase was primarily due to higher average interest
rates, partially offset by lower average debt levels, as compared
to the same period of 2022.
Realized and Unrealized (Gains) Losses on Securities,
Net
The Company recorded gains of $607 for the three months ended
March 31, 2023, as compared to losses of $27,726 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, primarily related to the Company's
investment in Aerojet, in these periods.
All Other Expense, Net
All other expense, net totaled $20,371 for the three months
ended March 31, 2023, as compared to $2,005 in the same period of
2022. Higher all other expense, net for the three months ended
March 31, 2023 was primarily due to higher finance interest expense
and provisions for credit losses related to the Financial Services
segment, as compared to the same period of 2022.
Income Tax Provision
The Company recorded income tax provisions of $14,604 and $7,609
for the three months ended March 31, 2023 and 2022, respectively.
The Company's effective tax rate was 33.7% and 45.3% for the three
months ended March 31, 2023 and 2022, respectively. The lower
effective tax rate for the three months ended March 31, 2023 is
primarily due to the change in U.S. income tax expense related to
unrealized gains and losses on investments.
Loss of Associated Companies, Net of Taxes
The Company recorded loss from associated companies, net of
taxes, of $3,967 for the three months ended March 31, 2023, as
compared to $4,643 in the same period of 2022. The fluctuations for
these periods were primarily due to the changes in fair value of
the Company's investment in Steel Connect.
Purchases of Property, Plant and Equipment (Capital
Expenditures)
Capital expenditures for the three months ended March 31, 2023
totaled $10,708, or 2.4% of revenue, as compared to $7,746, or 1.9%
of revenue, in the same period of 2022.
Common Units Repurchase Program
In the three months ended March 31, 2023, the Company
repurchased 75,504 common units for $3,248. Since inception of the
Repurchase Program the Company had purchased 7,421,496 common units
for an aggregate price of approximately $147,606. As of March 31,
2023, there were approximately 348,744 common units that may yet be
purchased under the Repurchase Program.
Additional Non-GAAP Financial Measures
Adjusted EBITDA was $63,131 for the three months ended March 31,
2023, as compared to $64,570 for the same period of 2022. Adjusted
EBITDA decreased by $1,439 primarily due to decreases in the
Diversified Industrial segment primarily driven by lower sales and
higher material and personnel costs, as well as the impact from
divestiture of SLPE business. That decrease was partially offset
by: 1) 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 2) strong
revenue at the Energy segment primarily resulting from higher
volume and favorable pricing. For the three months ended March 31,
2023, adjusted free cash flow was $33,362 as compared to $33,623
for the same period in 2022.
Liquidity and Capital Resources
As of March 31, 2023, the Company had approximately $408,300 in
availability under its senior credit agreement, as well as $54,453
in cash and cash equivalents, excluding WebBank cash, and
approximately $305,960 in long-term investments (including
marketable securities).
As of March 31, 2023, total debt was $183,259, an increase of
approximately $2,935, as compared to December 31, 2022. As of March
31, 2023, net debt totaled $63,618, an increase of approximately
$15,987, primarily driven by higher working capital and capital
expenditure spending for the 2023 period. Total leverage (as
defined in the Company's senior credit agreement) was approximately
1.5x as of March 31, 2023 as compared to approximately 1.4x as of
December 31, 2022.
Quarterly Cash Distribution on Series A Preferred
Units
On May 4, 2023, the Company's board of directors declared a
regular quarterly cash distribution of $0.375 per unit, payable
June 15, 2023, to unitholders of record as of June 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)
Consolidated Balance Sheets (unaudited)
(in thousands, except common
units)
March 31, 2023
December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
$
305,054
$
234,448
Trade and other receivables - net of
allowance for doubtful accounts of $2,315 and $2,414,
respectively
199,595
183,861
Loans receivable, including loans held for
sale of $694,993 and $602,675, respectively, net
1,314,173
1,131,745
Inventories, net
220,911
214,084
Prepaid expenses and other current
assets
42,444
41,090
Total current assets
2,082,177
1,805,228
Long-term loans receivable, net
495,572
423,248
Goodwill
125,910
125,813
Other intangible assets, net
91,370
94,783
Other non-current assets
162,045
195,859
Property, plant and equipment, net
240,108
238,510
Operating lease right-of-use assets
49,716
42,711
Long-term investments
305,960
309,697
Total Assets
$
3,552,858
$
3,235,849
LIABILITIES AND CAPITAL
Current liabilities:
Accounts payable
$
120,080
$
109,572
Accrued liabilities
106,898
112,744
Deposits
1,572,301
1,360,477
Short-term debt
987
685
Current portion of long-term debt
67
67
Other current liabilities
67,197
65,598
Total current liabilities
1,867,530
1,649,143
Long-term deposits
281,900
208,004
Long-term debt
182,205
179,572
Other borrowings
31,692
41,682
Preferred unit liability
152,908
152,247
Accrued pension liabilities
87,864
84,948
Deferred tax liabilities
48,161
41,055
Long-term operating lease liabilities
42,756
35,512
Other non-current liabilities
38,001
42,226
Total Liabilities
2,733,017
2,434,389
Commitments and Contingencies
Capital:
Partners' capital common units: 21,667,031
and 21,605,093 issued and outstanding (after deducting 17,980,183
and 17,904,679 units held in treasury, at cost of $312,505 and
$309,257), respectively
969,425
952,094
Accumulated other comprehensive loss
(150,781
)
(151,874
)
Total Partners' Capital
818,644
800,220
Noncontrolling interests in consolidated
entities
1,197
1,240
Total Capital
819,841
801,460
Total Liabilities and Capital
$
3,552,858
$
3,235,849
Consolidated Statements of Operations
(unaudited)
(in thousands, except common units and
per common unit data)
Three Months Ended
March 31,
2023
2022
Revenue:
Diversified Industrial net sales
$
304,426
$
327,249
Energy net revenue
48,164
38,317
Financial Services revenue
92,781
40,179
Total revenue
445,371
405,745
Costs and expenses:
Cost of goods sold
261,293
268,170
Selling, general and administrative
expenses
114,954
86,124
Asset impairment charges
—
403
Finance interest expense
13,741
1,164
Provision for credit losses
7,806
1,282
Interest expense
5,986
4,524
Realized and unrealized (gains) losses on
securities, net
(607
)
27,726
Other income, net
(1,176
)
(441
)
Total costs and expenses
401,997
388,952
Income from operations before income
taxes and equity method investments
43,374
16,793
Income tax provision
14,604
7,609
Loss of associated companies, net of
taxes
3,967
4,643
Net income
24,803
4,541
Net loss attributable to noncontrolling
interests in consolidated entities
43
24
Net income attributable to common
unitholders
$
24,846
$
4,565
Net income per common unit -
basic
Net income attributable to common
unitholders
$
1.15
$
0.21
Net income per common unit -
diluted
Net income attributable to common
unitholders
$
1.09
$
0.20
Weighted-average number of common units
outstanding - basic
21,685,794
22,209,071
Weighted-average number of common units
outstanding - diluted
25,541,246
22,643,016
Supplemental Balance Sheet Data (March
31, 2023 unaudited)
(in thousands, except common and
preferred units)
March 31,
December 31,
2023
2022
Cash and cash equivalents
$
305,054
$
234,448
WebBank cash and cash equivalents
250,601
174,257
Cash and cash equivalents, excluding
WebBank
$
54,453
$
60,191
Common units outstanding
21,667,031
21,605,093
Preferred units outstanding
6,422,128
6,422,128
Supplemental Non-GAAP Disclosures
(unaudited)
Adjusted EBITDA Reconciliation:
(in thousands)
Three Months Ended
March 31,
2023
2022
Net income from continuing
operations
$
24,803
$
4,541
Income tax provision
14,604
7,609
Income from continuing operations
before income taxes
39,407
12,150
Add (Deduct):
Loss of associated companies, net of
taxes
3,967
4,643
Realized and unrealized (gains) losses on
securities, net
(607
)
27,726
Interest expense
5,986
4,524
Depreciation
9,355
9,899
Amortization
3,588
4,264
Asset impairment charge
—
403
Non-cash pension expense (income)
2,980
(1,901
)
Non-cash equity-based compensation
(11
)
119
Other items, net
(1,534
)
2,743
Adjusted EBITDA
$
63,131
$
64,570
Total revenue
$
445,371
$
405,745
Adjusted EBITDA margin
14.2
%
15.9
%
Net Debt Reconciliation:
(in thousands)
March 31,
December 31,
2023
2022
Total debt
$
183,259
$
180,324
Accrued pension liabilities
87,864
84,948
Preferred unit liability
152,908
152,247
Cash and cash equivalents, excluding
WebBank
(54,453
)
(60,191
)
Long-term investments
(305,960
)
(309,697
)
Net debt
$
63,618
$
47,631
Adjusted Free Cash Flow
Reconciliation:
(in thousands)
Three Months Ended
March 31,
2023
2022
Net cash used in operating activities
$
(48,248
)
$
(13,310
)
Purchases of property, plant and
equipment
(10,708
)
(7,746
)
Net increase in loans held for sale
92,318
54,679
Adjusted free cash flow
$
33,362
$
33,623
Segment Results (unaudited)
(in thousands)
Three Months Ended
March 31,
2023
2022
Revenue:
Diversified Industrial
$
304,426
$
327,249
Energy
48,164
38,317
Financial Services
92,781
40,179
Total revenue
$
445,371
$
405,745
Income (loss) from continuing
operations before interest expense and income taxes:
Diversified Industrial
$
21,138
$
34,082
Energy
5,240
3,952
Financial Services
25,852
13,927
Corporate and other
(6,837
)
(35,287
)
Income from continuing operations
before interest expense and income taxes:
45,393
16,674
Interest expense
5,986
4,524
Income tax provision
14,604
7,609
Net income from continuing
operations
$
24,803
$
4,541
Loss of associated companies, net of
taxes:
Corporate and other
$
3,967
$
4,643
Total
$
3,967
$
4,643
Segment depreciation and
amortization:
Diversified Industrial
$
10,015
$
11,361
Energy
2,540
2,521
Financial Services
216
128
Corporate and other
172
153
Total depreciation and amortization
$
12,943
$
14,163
Segment Adjusted EBITDA:
Diversified Industrial
$
31,923
$
47,564
Energy
7,321
5,619
Financial Services
26,212
13,728
Corporate and other
(2,325
)
(2,341
)
Total Adjusted EBITDA
$
63,131
$
64,570
Note Regarding Use of Non-GAAP Financial Measurements
The financial data contained in this press release includes
certain non-GAAP financial measurements as defined by the SEC,
including "Adjusted EBITDA," "Net Debt" and "Adjusted Free Cash
Flow." The Company is presenting these non-GAAP financial
measurements because it believes that these measures provide useful
information to investors about the Company's business and its
financial condition. The Company defines Adjusted EBITDA as net
income or loss from continuing operations before the effects of
income or loss from investments in associated companies and other
investments held at fair value, interest expense, taxes,
depreciation and amortization, non-cash pension expense or income,
and realized and unrealized gains or losses on securities, and
excludes certain non-recurring and non-cash items. The Company
defines Net Debt as the sum of total debt, accrued pension
liabilities and preferred unit liability, less the sum of cash and
cash equivalents (excluding those used in WebBank's banking
operations), and long-term investments. The Company defines
Adjusted Free Cash Flow as net cash provided by or used in
operating activities of continuing operations less the sum of
purchases of property, plant and equipment, and net increases or
decreases in loans held for sale. The Company believes these
measures are useful to investors because they are measures used by
the Company's Board of Directors and management to evaluate its
ongoing business, including in internal management reporting,
budgeting and forecasting processes, in comparing operating results
across the business, as internal profitability measures, as
components in assessing liquidity and evaluating the ability and
the desirability of making capital expenditures and significant
acquisitions, and as elements in determining executive
compensation.
However, the measures are not measures of financial performance
under generally accepted accounting principles in the U.S. ("U.S.
GAAP"), and the items excluded from these measures are significant
components in understanding and assessing financial performance.
Therefore, these non-GAAP financial measurements should not be
considered substitutes for net income or loss, total debt, or cash
flows from operating, investing or financing activities. Because
Adjusted EBITDA is calculated before recurring cash charges,
including realized losses on investments, interest expense, and
taxes, and is not adjusted for capital expenditures or other
recurring cash requirements of the business, it should not be
considered as a measure of discretionary cash available to invest
in the growth of the business. There are a number of material
limitations to the use of Adjusted EBITDA as an analytical tool,
including the following:
- Adjusted EBITDA does not reflect the Company's tax provision or
the cash requirements to pay its taxes;
- Adjusted EBITDA does not reflect income or loss from the
Company's investments in associated companies and other investments
held at fair value;
- Adjusted EBITDA does not reflect the Company's interest
expense;
- Although depreciation and amortization are non-cash expenses in
the period recorded, the assets being depreciated and amortized may
have to be replaced in the future, and Adjusted EBITDA does not
reflect the cash requirements for such replacement;
- Adjusted EBITDA does not reflect the Company's net realized and
unrealized gains and losses on its investments;
- Adjusted EBITDA does not include non-cash charges for pension
expense and equity-based compensation;
- Adjusted EBITDA does not include amounts related to
noncontrolling interests in consolidated entities;
- Adjusted EBITDA does not include certain other non-recurring
and non-cash items; and
- Adjusted EBITDA does not include the Company's discontinued
operations.
In addition, Net Debt assumes the Company's cash and cash
equivalents (excluding those used in WebBank's banking operations),
marketable securities and long-term investments are immediately
convertible in cash and can be used to reduce outstanding debt
without restriction at their recorded fair value, while Adjusted
Free Cash Flow excludes net increases or decreases in loans held
for sale, which can vary significantly from period-to-period since
these loans are typically sold after origination and thus represent
a significant component in WebBank's operating cash flow
requirements.
The Company compensates for these limitations by relying
primarily on its U.S. GAAP financial measures and using these
measures only as supplemental information. The Company believes
that consideration of Adjusted EBITDA, Net Debt and Adjusted Free
Cash Flow, together with a careful review of its U.S. GAAP
financial measures, is a well-informed method of analyzing SPLP.
Because Adjusted EBITDA, Net Debt and Adjusted Free Cash Flow are
not measurements determined in accordance with U.S. GAAP and are
susceptible to varying calculations, Adjusted EBITDA, Net Debt and
Adjusted Free Cash Flow, as presented, may not be comparable to
other similarly titled measures of other companies.
Forward-Looking Statements
This press release contains certain "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, that reflect SPLP's current expectations and projections
about its future results, performance, prospects and opportunities.
SPLP identifies these forward-looking statements by using words
such as "expect," "anticipate," "intend," "plan," "believe,"
"seek," "estimate," and similar expressions. These forward-looking
statements are only predictions based upon the Company's current
expectations and projections about future events, and are based on
information currently available to the Company and are subject to
risks, uncertainties, and other factors that could cause its actual
results, performance, prospects, or opportunities in 2023 and
beyond to differ materially from those expressed in, or implied by,
these forward-looking statements. These factors include, without
limitation: disruptions to the Company’s business as a result of
economic downturns; the significant volatility of crude oil and
commodity prices; the effects of rising interest rates; the
Company’s subsidiaries’ sponsor defined pension plans, which could
subject the Company to future cash flow requirements; the ability
to comply with legal and regulatory requirements, including
environmental, health and safety laws and regulations, banking
regulations and other extensive requirements to which the Company
and its businesses are subject; risks associated with the Company’s
wholly-owned subsidiary, WebBank, as a result of its Federal
Deposit Insurance Corporation ("FDIC") status, highly-regulated
lending programs, and capital requirements; the ability to meet
obligations under the Company's senior credit facility through
future cash flows or financings; the risk of management diversion,
increased costs and expenses, and impact on profitability in
connection with the Company's business strategy to make
acquisitions; the impact of losses in the Company's investment
portfolio; the Company’s ability to protect its intellectual
property rights and obtain or retain licenses to use others'
intellectual property on which the Company relies; the Company’s
exposure to risks inherent to conducting business outside of the
U.S.; the impact of any changes in U.S. trade policies; the adverse
impact of litigation or compliance failures on the Company's
profitability; a significant disruption in, or breach in security
of, the Company’s technology systems or protection of personal
data; the loss of any significant customer contracts; the Company’s
ability to maintain effective internal control over financial
reporting; adverse impacts of the ongoing COVID-19 pandemic on
business, results of operations, financial condition, and cash
flows; the rights of unitholders with respect to voting and
maintaining actions against the Company or its affiliates;
potential conflicts of interest arising from certain interlocking
relationships amount us and affiliates of the Company’s Executive
Chairman; the Company’s dependence on the Manager and impact of the
management fee on the Company’s total partners’ capital; the impact
to the development of an active market for the Company’s units due
to transfer restrictions and other factors; the Company’s tax
treatment and its subsidiaries’ ability to fully utilize their tax
benefits; the loss of essential employees; and other risks detailed
from time to time in filings we make with the SEC. These statements
involve significant risks and uncertainties, and no assurance can
be given that the actual results will be consistent with these
forward-looking statements. Investors should read carefully the
factors described in the "Risk Factors" section of the Company's
filings with the SEC, including the Company's Form 10-K for the
year ended December 31, 2022 and subsequent quarterly reports on
Form 10-Q and annual reports on Form 10-K, for information
regarding risk factors that could affect the Company's results. Any
forward-looking statement made in this press release speaks only as
of the date hereof, and investors should not rely upon
forward-looking statements as predictions of future events. Except
as otherwise required by law, the Company undertakes no obligation
to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, changed
circumstances, or any other reason.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230504005967/en/
Investor Relations Jennifer Golembeske 212-520-2300
jgolembeske@steelpartners.com
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