Steel Partners Holdings Reports Financial Results for 2018 and Fourth Quarter; Provides Outlook for 2019

Company Posts Record Revenue of $1.6 Billion

NEW YORK–(BUSINESS WIRE)–Steel Partners Holdings L.P. (NYSE: SPLP), a diversified global
holding company, today announced operating results for the year and
fourth quarter ended December 31, 2018.

Revenue for the year ended December 31, 2018 increased to a record $1.6
billion from $1.4 billion in 2017. Loss before income taxes and equity
method investments was $9.4 million in 2018, compared with income of
$40.4 million in 2017. Net loss attributable to the Company’s common
unitholders for the year was $32.6 million, or $1.25 per diluted common
unit, compared with breakeven, a year ago.

Steel Partners generated a 12.0% increase in Adjusted EBITDA to $183.8
million for 2018 from $164.0 million in 2017. The Company is presenting
Adjusted EBITDA to assist investors with their understanding of Steel
Partners’ results of operations and financial condition. See “Note
Regarding Use of Non-GAAP Financial Measurements” below for the
definition of Adjusted EBITDA.

Revenue for the 2018 fourth quarter increased to $378.6 million from
$335.3 million for the same period in 2017. Loss before income taxes and
equity method investments was $11.8 million for the 2018 fourth quarter,
compared with a loss of $1.6 million in the comparable 2017 period. Net
loss attributable to the Company’s common unitholders for the 2018
fourth quarter was $30.5 million, or $1.19 per diluted common unit,
compared with a net loss of $14.2 million, or $0.55 per diluted common
unit, a year ago.

Steel Partners posted $38.7 million in Adjusted EBITDA for the fourth
quarters of both 2018 and 2017. The 2018 quarter’s Adjusted EBITDA
reflected higher contributions from the Company’s Financial Services and
Energy segments, partially offset by a decline from the Diversified
Industrial segment, along with higher corporate expenses principally
related to financing activities, information technology transformations
and other costs to enhance efficiencies.

2018 Highlights

  • Book value at year-end was $516 million, equal to $20.39 per unit.
  • Net operating loss carryforwards for 2018 amounted to $397 million.
  • Two acquisitions were completed, Dunmore Corporation for $70 million
    and PST Group for $5 million; Steel Partners purchased the minority
    interest in WebFinancial for $21 million.
  • The board of directors authorized expansion of the Company’s unit
    buy-back program by an additional one million units; thus far under
    the program, a total of 1.6 million common units have been purchased
    for $27 million.
  • The Company entered into amendments to its senior secured revolving
    credit facility to increase availability, allowing for continued
    growth through strategic acquisitions and other investments.
  • The Company’s pension deficit has been reduced to $206 million from
    $268 million.
  • Capital expenditures for the year totaled $47 million, of which $21
    million was for maintenance and the balance was for growth.
  • Total debt and preferred stock, net of holding company cash and
    investments, increased to $350 million from $182 million.
  • At year-end 2018, Steel Partners had 5,300 employees, working from 32
    manufacturing plants and 38 other locations in North America, Europe
    and Asia.

“Our principal business segment, Diversified Industrial, which
represents approximately 81.2 percent of 2018 revenues, had a mixed year
and negatively impacted our operating results,” said Warren
Lichtenstein, Executive Chairman of Steel Partners. “Three of our
industrial businesses missed their plans due to ERP implementations,
unexpected lost customers and major plant moves, including footprint
consolidation; the four other industrial businesses performed above
plan. WebBank posted an excellent year, with increased revenues, the
addition of new partners and strong financial returns. Steel Energy
improved its results for the year and maintained its excellent safety
record.

“As 2019 unfolds, we expect to focus on, and achieve, further progress
with our strategic initiatives, which include continuing the passionate
implementation of LEAN processes in all our businesses; finishing the
implementation of our new ERP systems; following through on SteelGrow
and aggressively recruiting new people; improving working capital;
achieving organic sales growth; and continuing to buy back our common
units, which we believe hold significant intrinsic worth. Additionally,
we diligently monitor each of the companies in which we invest, and as
appropriate, engage with the management teams and boards to help enhance
their businesses. This includes our recent investment in Babcock &
Wilcox, which has not performed to our expectations. Our objective
remains aligned with the interests of all our stakeholders, namely, to
enhance long-term value,” Lichtenstein added.

2019 Outlook

Based on current information, Steel Partners expects 2019 first quarter
revenue between $375 million and $395 million and Adjusted EBITDA
between $31 million and $39 million. The Company anticipates revenue for
the full 2019 year between $1.6 billion and $1.7 billion and Adjusted
EBITDA between $209 million and $232 million.

Financial Summary (unaudited)

(in thousands, except per common unit)    

Three Months Ended

December 31,

   

Year Ended

December 31,

2018     2017 2018     2017
Revenue $ 378,613 $ 335,277 $ 1,584,614 $ 1,372,027
Costs and expenses, excluding realized and unrealized losses
(gains) on securities
375,890 336,807 1,531,450 1,332,394
Realized and unrealized losses (gains) on securities, net 14,557   45   62,586   (790 )
Total costs and expenses 390,447   336,852   1,594,036   1,331,604  
(Loss) income before income taxes and equity method investments (11,834 ) (1,575 ) (9,422 ) 40,423  
Income tax provision 3,519 24,124 12,559 51,299
Loss (income) of associated companies, net of taxes 14,650   (8,186 ) 9,509   (16,888 )
Net (loss) income (30,003 ) (17,513 ) (31,490 ) 6,012
Net (income) loss attributable to noncontrolling interests in
consolidated entities
(470 ) 3,313   (1,114 ) (6,028 )
Net loss attributable to common unitholders $ (30,473 ) $ (14,200 ) $ (32,604 ) $ (16 )
 
Net loss per common unit – basic and diluted $ (1.19 ) $ (0.55 ) $ (1.25 ) $  
 
Capital expenditures $ 13,488 $ 16,822 $ 47,085 $ 54,737

Balance Sheet Data (unaudited)

(in thousands, except common and preferred units)       December 31,
2018     2017
Cash and cash equivalents $ 334,884 $ 418,755
WebBank cash and cash equivalents 281,566   303,883
Cash and cash equivalents, excluding WebBank 53,318 114,872
Marketable securities 1,439 58,313
Long-term investments 258,044 236,144
Total debt 481,989 414,667
Preferred unit liability 180,340 176,512
Common units outstanding 25,294,003 26,348,420
Preferred units outstanding 7,927,288 7,952,660

Supplemental Non-GAAP Disclosures (unaudited)

Adjusted EBITDA Reconciliation:                  
 
(in thousands)

Three Months Ended

December 31,

Year Ended

December 31,

2018 2017 2018 2017
Net (loss) income $ (30,003 ) $ (17,513 ) $ (31,490 ) $ 6,012
Income tax provision 3,519   24,124   12,559   51,299  
(Loss) income before income taxes (26,484 ) 6,611 (18,931 ) 57,311
Add (Deduct):
Loss (income) of associated companies, net of taxes 14,650 (8,186 ) 9,509 (16,888 )
Realized and unrealized losses (gains) on securities, net 14,557 45 62,586 (790 )
Interest expense 10,920 8,358 39,234 22,804
Depreciation 13,297 10,676 50,465 42,193
Amortization 7,094 7,047 29,858 29,743
Non-cash asset impairment charges 8,108 2,028 8,108 2,028
Non-cash pension expense 834 5,787 2,923 9,647
Non-cash equity-based compensation 137 5,781 644 11,477
Amortization of fair value adjustments to acquisition-date
inventories
128 1,019
Other items, net (4,584 ) 574   (1,638 ) 6,523  
Adjusted EBITDA $ 38,657   $ 38,721   $ 183,777   $ 164,048  

Segment Results (unaudited)

(in thousands)    

Three Months Ended

December 31,

   

Year Ended

December 31,

2018     2017 2018     2017
Revenue:
Diversified industrial $ 298,078 $ 276,672 $ 1,286,665 $ 1,156,187
Energy 41,942 36,151 175,950 135,461
Financial services 38,593   22,454   121,999   80,379  
Total revenue $ 378,613   $ 335,277   $ 1,584,614   $ 1,372,027  
 
(Loss) income before income taxes:
Diversified industrial $ (5,599 ) $ 3,116 $ 42,661 $ 50,104
Energy (1,663 ) (8,555 ) (6,342 ) (21,514 )
Financial services 19,011 13,192 54,544 41,328
Corporate and other (38,233 ) (1,142 ) (109,794 ) (12,607 )
(Loss) income before income taxes (26,484 ) 6,611 (18,931 ) 57,311
Income tax provision 3,519   24,124   12,559   51,299  
Net (loss) income $ (30,003 ) $ (17,513 ) $ (31,490 ) $ 6,012  
 
(Loss) income of associated companies, net of taxes:
Energy $ (2,004 ) $ (1,359 ) $ (1,685 ) $ 593
Corporate and other (12,646 ) 9,545   (7,824 ) 16,295  
Total $ (14,650 ) $ 8,186   $ (9,509 ) $ 16,888  
 
Segment depreciation and amortization:
Diversified industrial $ 15,262 $ 12,627 $ 59,582 $ 50,741
Energy 5,002 4,982 20,214 20,735
Financial services 94 82 397 294
Corporate and other 33   32   130   166  
Total depreciation and amortization $ 20,391   $ 17,723   $ 80,323   $ 71,936  
 
Segment Adjusted EBITDA:
Diversified industrial $ 21,811 $ 26,105 $ 131,218 $ 128,650
Energy 1,815 522 11,219 4,098
Financial services 19,213 13,343 56,202 41,742
Corporate and other (4,182 ) (1,249 ) (14,862 ) (10,442 )
Total Adjusted EBITDA $ 38,657   $ 38,721   $ 183,777   $ 164,048  

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.” The Company is
presenting Adjusted EBITDA because it believes that it provides useful
information to investors about SPLP, its business and its financial
condition. The Company defines Adjusted EBITDA as net income or loss
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 believes
Adjusted EBITDA is useful to investors because it is one of the measures
used by the Company’s Board of Directors and management to evaluate its
business, including in internal management reporting, budgeting and
forecasting processes, in comparing operating results across the
business, as an internal profitability measure, as a component in
evaluating the ability and the desirability of making capital
expenditures and significant acquisitions and as an element in
determining executive compensation.

However, Adjusted EBITDA is not a measure of financial performance under
generally accepted accounting principles in the U.S. (“U.S. GAAP”), and
the items excluded from Adjusted EBITDA are significant components in
understanding and assessing financial performance. Therefore, Adjusted
EBITDA should not be considered a substitute for net income or loss, 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; and
  • Adjusted EBITDA does not include certain other non-recurring and
    non-cash items.

The Company compensates for these limitations by relying primarily on
its U.S. GAAP financial measures and by using Adjusted EBITDA only as
supplemental information. The Company believes that consideration of
Adjusted EBITDA, together with a careful review of its U.S. GAAP
financial measures, is the most informed method of analyzing SPLP.

The Company reconciles Adjusted EBITDA to net income or loss, which does
not include amounts reported under U.S. GAAP related to noncontrolling
interests in consolidated entities, and that reconciliation is set forth
above. Because Adjusted EBITDA is not a measurement determined in
accordance with U.S. GAAP and is susceptible to varying calculations,
Adjusted EBITDA, as presented, may not be comparable to other similarly
titled measures of other companies. Revenues and expenses are measured
in accordance with the policies and procedures described in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2018.

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 leading companies in various
industries, including diversified industrial products, energy, defense,
supply chain management and logistics, banking and youth sports.

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 has tried to
identify these forward-looking statements by using words such as “may,”
“should,” “expect,” “hope,” “anticipate,” “believe,” “intend,” “plan,”
“estimate” and similar expressions. These forward-looking statements are
based on information currently available to the Company and are subject
to a number of risks, uncertainties and other factors that could cause
its actual results, performance, prospects or opportunities in 2019 and
beyond to differ materially from those expressed in, or implied by,
these forward-looking statements. These factors include, without
limitation, SPLP’s need for additional financing and the terms and
conditions of any financing that is consummated, customers’ acceptance
of its new and existing products, the risk that the Company and its
subsidiaries will not be able to compete successfully, the possible
volatility of the Company’s common or preferred unit price and the
potential fluctuation in its operating results. Although SPLP believes
that the expectations reflected in these forward-looking statements are
reasonable and achievable, such 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, 2018, for information
regarding risk factors that could affect the Company’s results. Except
as otherwise required by federal securities laws, SPLP 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.

Contacts

Investor: PondelWilkinson Inc.
Roger S. Pondel, 310-279-5965
[email protected]

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