Business Wire | May 14, 2021 08:43AM EDT

Steel Partners Holdings Reports First Quarter Financial Results

May 14, 2021

NEW YORK--(BUSINESS WIRE)--May 14, 2021--Steel Partners Holdings L.P. (NYSE: SPLP), a diversified global holding company, today announced operating results for the first quarter ended March 31, 2021.

Q1 2021 Q1 2020 ($ in thousands)

$314,493 $347,210 Revenue

53,342 (36,479) Net income (loss) from continuing operations

52,951 (60,878) Net income (loss) attributable to common unitholders

49,776 37,717 Adjusted EBITDA^*

15.8% 10.9% Adjusted EBITDA margin^*

4,901 6,994 Purchases of property, plant and equipment

5,473 2,795 Adjusted free cash flow^*

^* See reconciliations to the nearest GAAP measure included in the financialtables. See "Note Regarding Use ofNon-GAAP Financial Measurements" below for the definition of these non-GAAPmeasures.

"As we head into 2021, we continue to see increased EBITDA and cash flow from our efforts to reduce costs and increase operational performance despite lower sales volume," said Executive Chairman Warren Lichtenstein. "Our team is focused on working safely to deliver quality products on time to our customers as we continue to increase unitholder value."

Results of Operations

Comparison of the Three Months Ended March 31, 2021 and 2020 (unaudited)

(Dollar amounts in table and commentary in Three Months Endedthousands, unless otherwise indicated) March 31,

2021 2020

Revenue $ 314,493 $ 347,210

Cost of goods sold 208,685 220,848

Selling, general and administrative expenses 68,800 75,928

Asset impairment charges - 617

Interest expense 5,466 8,627

Realized and unrealized losses on securities, net 23,249 18,002

All other (income) expense, net (33,522) 28,604

Total costs and expenses 272,678 352,626

Income (loss) from continuing operations before income taxes and equity method

investments 41,815 (5,416)

Income tax provision (benefit) 14,594 (3,444)

(Income) loss of associated companies, net of taxes (26,121) 34,507

Net income (loss) from continuing operations $ 53,342 $ (36,479)

Revenue

Revenue for the three months ended March 31, 2021 decreased $32,717, or 9.4%, as compared to the same period last year, due to lower sales volume across all the reportable segments. Diversified Industrial net sales decreased $13,121 primarily due to lower sales volume from the Electrical Products business and to a lesser extent the Performance Materials business, partially offset by the Joining Materials business. Energy net revenue decreased by $6,516 primarily due to the lower demand from the energy sector. Financial Services revenue decreased by $13,080 primarily due to decreases in interest income and fees due to lower origination volume, as compared to the same period of 2020.

Cost of Goods Sold

Cost of goods sold for the three months ended March 31, 2021 decreased $12,163, or 5.5%, as compared to the same period last year, due to decreases in the Diversified Industrial and Energy segments. The decreases in the Diversified Industrial and Energy segments in the three months ended March 31, 2021 were primarily due to the lower sales volume discussed above, and the Company's cost reduction efforts initiated in the prior year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") for the three months ended March 31, 2021 decreased $7,128, or 9.4%, as compared to the same period last year. The decrease was primarily due to lower sales volume and cost reduction initiatives from all the segments.

Asset Impairment Charges

No asset impairment charge was recorded for the three months ended March 31, 2021. During the first quarter of 2020, as a result of COVID-19 related declines in our youth sports business within the Energy segment, intangible assets of $617, primarily customer relationships, were fully impaired.

Interest Expense

Interest expense for the three months ended March 31, 2021 decreased $3,161, or 36.6%, as compared to the same period last year. The decrease for the three months ended March 31, 2021 was primarily due to lower interest rates and lower debt levels, as compared to the same period of 2020.

Realized and Unrealized Losses on Securities, Net

The Company recorded losses of $23,249 for the three months ended March 31, 2021, as compared to losses of $18,002 in the same period of 2020. These losses were primarily due to unrealized losses related to the mark-to-market adjustments on the Company's portfolio of securities in both periods, as well as a realized loss on the sale of securities in the 2020 period.

All Other (Income) Expense, Net

All other income, net totaled $33,522 for the three months ended March 31, 2021, as compared to All other expenses, net that totaled $28,604 in the same period of 2020. All other income, net for the three months ended March 31, 2021 is primarily due to: (1) $19,740 one-time dividend from Aerojet, (2) a pre-tax gain of $8,096 on the sale of OMG's Edge business and (3) a pre-tax gain of $6,646 on the sale of an idle facility in the Joining Materials business. All other expenses, net for the three months ended March 31, 2020 was primarily due to provisions for loan losses.

Income Tax Provision (Benefit)

The Company recorded an income tax provision of $14,594 and a benefit of $3,444 for the three months ended March 31, 2021 and 2020, respectively. As a limited partnership, we are generally not responsible for federal and state income taxes, and our profits and losses are passed directly to our 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, state taxes, changes in deferred tax valuation allowances and other permanent differences.

(Income) Loss of Associated Companies, Net of Taxes

The Company recorded income from associated companies, net of taxes, of $26,121 for the three months ended March 31, 2021, as compared to a loss, net of tax of $34,507 in the same period of 2020.

Purchases of Property, Plant and Equipment (Capital Expenditures)

Capital expenditures for the first three months of 2021 totaled $4,901, or 1.6% of revenue, as compared to $6,994, or 2.0% of revenue, in the first three months of 2020.

Additional Non-GAAP Financial Measures

For the three months ended March 31, 2021, Adjusted EBITDA and Adjusted EBITDA margin were $49,776 and 15.8%, respectively, as compared to $37,717 and 10.9% for the same period in 2020. Adjusted EBITDA increased by $12,059 primarily due to an increase in Financial Services partially offset by a decrease in Diversified Industrial. For the three months ended March 31, 2021, adjusted free cash flow was $5,473 versus $2,795 for the same period in 2020.

Liquidity and Capital Resources

As of March 31, 2021, the Company had $355.7 million in available liquidity under its senior credit agreement, as well as $18.7 million in cash and cash equivalents, excluding WebBank cash, and approximately $273.9 million in marketable securities and long-term investments.

As of March 31, 2021, total debt was $294.6 million, a decrease of approximately $39.5 million, as compared to December 31, 2020. As of March 31, 2021, net debt totaled $295.0 million, a decrease of approximately $59.9 million, as compared to December 31, 2020. Total leverage (as defined in the Company's senior credit agreement) was 2.2x as of March 31, 2021 as compared to 2.4x as of December 31, 2020.

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, direct marketing, banking and youth sports.

(Financial Tables Follow)

Consolidated Balance Sheets (unaudited)

(in thousands, except common units) March 31, December 31, 2021 2020

ASSETS

Current assets:

Cash and cash equivalents $ 200,238 $ 135,788

Marketable securities 126 106

Trade and other receivables - net of allowancefor doubtful accounts of $3,345 and $3,368, 186,071 164,106 respectively

Receivables from related parties 2,883 2,073

Loans receivable, including loans held for sale 340,136 306,091 of $91,316 and $88,171, respectively, net

Inventories, net 151,573 137,086

Prepaid expenses and other current assets 56,165 58,053

Total current assets 937,192 803,303

Long-term loans receivable, net 2,549,961 2,183,017

Goodwill 148,030 150,852

Other intangible assets, net 133,416 138,581

Deferred tax assets 52,211 66,553

Other non-current assets 40,829 42,068

Property, plant and equipment, net 221,768 228,992

Operating lease right-of-use assets 28,677 29,715

Long-term investments 273,776 291,297

Total Assets $ 4,385,860 $ 3,934,378

LIABILITIES AND CAPITAL

Current liabilities:

Accounts payable $ 136,442 $ 100,759

Accrued liabilities 57,661 69,967

Deposits 347,518 285,393

Payables to related parties 4,083 4,080

Short-term debt 853 397

Current portion of long-term debt 10,323 10,361

Other current liabilities 45,468 46,044

Total current liabilities 602,348 517,001

Long-term deposits 85,665 70,266

Long-term debt 283,446 323,392

Other borrowings 2,467,657 2,090,223

Preferred unit liability 147,553 146,892

Accrued pension liabilities 145,458 183,462

Deferred tax liabilities 2,148 2,169

Long-term operating lease liabilities 20,755 21,845

Other non-current liabilities 38,120 39,906

Total Liabilities 3,793,150 3,395,156

Commitments and Contingencies

Capital:

Partners' capital common units: 22,949,392 and22,920,804 issued and outstanding (after deducting 14,916,635 and

14,916,635 units held in treasury, at cost of 760,623 707,309$219,245 and $219,245), respectively

Accumulated other comprehensive loss (172,866) (172,649)

Total Partners' Capital 587,757 534,660

Noncontrolling interests in consolidated entities 4,953 4,562

Total Capital 592,710 539,222

Total Liabilities and Capital $ 4,385,860 $ 3,934,378

Consolidated Statements of Operations (unaudited)

(in thousands, except common units and per common Three Months Endedunit data) March 31,

2021 2020

Revenue:

Diversified Industrial net sales $ 248,489 $ 261,610

Energy net revenue 32,086 38,602

Financial Services revenue 33,918 46,998

Total revenue 314,493 347,210

Costs and expenses:

Cost of goods sold 208,685 220,848

Selling, general and administrative expenses 68,800 75,928

Asset impairment charges - 617

Finance interest expense 2,232 3,434

(Benefit from) provision for loan losses (715) 26,137

Interest expense 5,466 8,627

Realized and unrealized losses on securities, net 23,249 18,002

Other income, net (35,039) (967)

Total costs and expenses 272,678 352,626

Income (loss) from continuing operations before income taxes and equity

method investments 41,815 (5,416)

Income tax provision (benefit) 14,594 (3,444)

(Income) loss of associated companies, net of (26,121) 34,507 taxes

Net income (loss) from continuing operations 53,342 (36,479)

Discontinued operations

Loss from discontinued operations, net of taxes - (2,301)

Net loss on deconsolidation of discontinued - (21,968) operations

Net loss from discontinued operations, net of - (24,269) taxes

Net income (loss) 53,342 (60,748)

Net income attributable to noncontrolling interests in consolidated entities

(continuing operations) (391) (130)

Net income (loss) attributable to common $ 52,951 $ (60,878) unitholders

Net income (loss) per common unit - basic

Net income from continuing operations $ 2.34 $ (1.46)

Net loss from discontinued operations - (0.97)

Net income (loss) attributable to common $ 2.34 $ (2.43) unitholders

Net income (loss) per common unit - diluted

Net income from continuing operations $ 1.60 $ (1.46)

Net loss from discontinued operations - (0.97)

Net income (loss) attributable to common $ 1.60 $ (2.43) unitholders

Weighted-average number of common units 22,619,764 25,020,854 outstanding - basic

Weighted-average number of common units 34,930,146 25,020,854 outstanding - diluted

Supplemental Balance Sheet Data (March 31, 2021 unaudited)

(in thousands, except common and preferred units) March 31, December 31,

2021 2020

Cash and cash equivalents $ 200,238 $ 135,788

WebBank cash and cash equivalents 181,510 117,553

Cash and cash equivalents, excluding WebBank $ 18,728 $ 18,235

Common units outstanding 22,949,392 22,920,804

Preferred units outstanding 6,422,128 6,422,128

Supplemental Non-GAAP Disclosures (unaudited)

Adjusted EBITDA Reconciliation:



(in thousands) Three Months Ended March 31,

2021 2020

Net income (loss) from continuing operations $ 53,342 $ (36,479)

Income tax provision (benefit) 14,594 (3,444)

Income from continuing operations before income taxes 67,936 (39,923)

Add (Deduct):

(Income) loss of associated companies, net of taxes (26,121) 34,507

Realized and unrealized losses on securities, net 23,249 18,002

Interest expense 5,466 8,627

Depreciation 10,361 10,953

Amortization 4,768 5,282

Non-cash asset impairment charges - 617

Non-cash pension expense (1,500) 552

Non-cash equity-based compensation 363 206

Other items, net (34,746) (1,106)

Adjusted EBITDA $ 49,776 $ 37,717



Total revenue $ 314,493 $ 347,210

Adjusted EBITDA margin 15.8% 10.9%

Net Debt Reconciliation:

(in thousands)

March 31,

December 31,

2021

2020

Total debt

$

294,622

$

334,150

Accrued pension liabilities

145,458

183,462

Preferred unit liability

147,553

146,892

Cash and cash equivalents, excluding WebBank

(18,728)

(18,235)

Marketable securities

(126)

(106)

Long-term investments

(273,776)

(291,297)

Net debt

$

295,003

$

354,866

Net Debt Reconciliation:



(in thousands) March 31, December 31,

2021 2020

Total debt $ 294,622 $ 334,150

Accrued pension liabilities 145,458 183,462

Preferred unit liability 147,553 146,892

Cash and cash equivalents, excluding WebBank (18,728) (18,235)

Marketable securities (126) (106)

Long-term investments (273,776) (291,297)

Net debt $ 295,003 $ 354,866

Adjusted Free Cash Flow Reconciliation:

(in thousands)

Three Months EndedMarch 31,

2021

2020

Net cash provided by operating activities of continuing operations

$

7,229

$

166,046

Purchases of property, plant and equipment

(4,901)

(6,994)

Net increase (decrease) in loans held for sale

3,145

(156,257)

Adjusted free cash flow

$

5,473

$

2,795

Segment Results (unaudited)

Adjusted Free Cash Flow Reconciliation:



(in thousands) Three Months Ended March 31,

2021 2020

Net cash provided by operating activities of $ 7,229 $ 166,046 continuing operations

Purchases of property, plant and equipment (4,901) (6,994)

Net increase (decrease) in loans held for sale 3,145 (156,257)

Adjusted free cash flow $ 5,473 $ 2,795

Segment Results (unaudited)

(in thousands) Three Months Ended March 31,

2021 2020

Revenue:

Diversified Industrial $ 248,489 $ 261,610

Energy 32,086 38,602

Financial Services 33,918 46,998

Total revenue $ 314,493 $ 347,210



Income (loss) from continuing operations before interest expense and income taxes:

Diversified Industrial $ 27,704 $ 15,151

Energy 2,817 202

Financial Services 20,449 4,006

Corporate and other 22,432 (50,655)

Income (loss) from continuing operations before 73,402 (31,296) interest expense and income taxes

Interest expense 5,466 8,627

Income tax provision 14,594 (3,444)

Net income (loss) from continuing operations $ 53,342 $ (36,479)



(Income) loss of associated companies, net of taxes:

Corporate and other $ (26,121) $ 34,507

Total $ (26,121) $ 34,507



Segment depreciation and amortization:

Diversified Industrial $ 11,972 $ 12,267

Energy 2,994 3,756

Financial Services 124 171

Corporate and other 39 41

Total depreciation and amortization $ 15,129 $ 16,235



Segment Adjusted EBITDA:

Diversified Industrial $ 24,810 $ 28,049

Energy 5,248 4,523

Financial Services 20,340 4,174

Corporate and other (622) 971

Total Adjusted EBITDA $ 49,776 $ 37,717

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 U.S. Securities and Exchange Commission ("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 investments, 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), marketable securities 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 "may," "should," "expect," "hope," "anticipate," "believe," "intend," "plan," "estimate," "will" and similar expressions. These forward-looking statements 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 2021 and beyond to differ materially from those expressed in, or implied by, these forward-looking statements. These factors include, without limitation, the impact of COVID-19 on business activity generally and on the Company's financial condition and operations, including whether facilities considered to be essential retain that designation, the continued decline of crude oil prices, customers' acceptance of our new and existing products, our ability to deploy our capital in a manner that maximizes unitholder value, the ability to consolidate and manage the Company's newly acquired businesses, the potential fluctuation in the Company's operating results, the Company's ongoing cash flow requirements for defined benefit pension plans, the cost of compliance with extensive federal and state regulatory requirements and any potential liability thereunder, the Company's need for additional financing and the terms and conditions of any financing that is consummated, the ability to identify suitable acquisition candidates or investment opportunities for our core businesses, the impact of losses in the Company's investment portfolio, the effect of fluctuations in interest rates and the phase-out of LIBOR, our ability to protect the Company's intellectual property rights, the Company's ability to manage risks inherent to conducting business internationally, the outcome of litigation or other legal proceedings in which we are involved from time to time, a significant disruption in, or breach in security of, our technology systems, labor disputes and the ability to recruit and retain experienced personnel, general economic conditions, fluctuations in demand for our products and services, the inability to realize the benefits of net operating losses of our affiliates and subsidiaries, the possible volatility of our common or preferred unit trading prices 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, 2020 and Form 10-Q for the quarterly period ended March 31, 2021, 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. 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/20210514005299/en/

CONTACT: Investor Relations Jennifer Golembeske 212-520-2300 jgolembeske@steelpartners.com