Steel Partners Holdings Reports Third Quarter Financial Results

Third Quarter 2020 Highlights

• Revenue totaled $330.0 million, a decrease of 11.1%
• Net income from continuing operations was $37.4 million
• Net income attributable to common unitholders was $38.3 million, or $0.79 per diluted common unit
• Adjusted EBITDA^* increased to $73.3 million; Adjusted EBITDA margin^* was 22.2%
• Net cash provided by operating activities of continuing operations was $36.3 million
• Adjusted free cash flow^* totaled $40.6 million
• Total debt was $302.7 million; net debt,^* which includes, among other items, pension and preferred unit liabilities, totaled $447.2 million

YTD 2020 Highlights

• Revenue totaled $973.3 million, a decrease of 12.5%
• Net income from continuing operations was $0.5 million
• Net loss attributable to common unitholders was $25.3 million, or $1.02 per common unit
• Adjusted EBITDA^* was $149.1 million; Adjusted EBITDA margin^* was 15.3%
• Net cash provided by operating activities of continuing operations was $296.2 million
• Adjusted free cash flow^* totaled $135.8 million

NEW YORK–(BUSINESS WIRE)–Steel Partners Holdings L.P. (NYSE: SPLP), a diversified global holding company, today announced operating results for the third quarter and nine months ended September 30, 2020.

^* 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.

The Company continues to evaluate the global risks and the slowdown in business activity related to COVID-19, including the potential impacts on its employees, customers, suppliers and financial results. The severity of the impact on the Company’s business for the remainder of 2020 and beyond will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, the continued disruption to the demand for our businesses’ products and services, and the impact of the global business and economic environment on liquidity and the availability of capital, all of which are uncertain and cannot be predicted. To help mitigate the financial impact of the COVID-19 pandemic, the Company initiated cost reduction actions, including the reduction and waiver of board and management fees, hiring freezes, staffing and force reductions, Company-wide salary reductions, bonus payment deferrals and temporary 401(k) match suspension. The Company has fully restored the prior salary reductions; however, management continues its focus on cash management and liquidity, which includes the elimination of discretionary spending, aggressive working capital management, strict approvals for capital expenditures and borrowing from its revolving credit facilities, if needed, as a precautionary measure to preserve financial flexibility. The Company will evaluate further actions if circumstances warrant.

“As we continue to manage through the COVID-19 pandemic, our top priorities are to ensure the health and safety of our employees,” said Warren Lichtenstein, Executive Chairman of Steel Partners. “Our employees have continued to go above and beyond to deliver quality products and services to our customers during these challenging times.”

“In the third quarter, we saw a continued recovery. All our business segments showed significant improvements compared to the prior quarter and on a year-over-year basis, with the exception of Energy, which showed significant improvement over the prior quarter but continues to face the headwinds of lower oil prices. Our flexibility and operational focus have allowed us to deliver solid results and positioned us for growth coming out of the downturn.”

Results of Operations

Revenue

Revenue for the three months ended September 30, 2020 decreased $41.1 million, or 11.1%, as compared to the same period last year, due to lower sales volume across all the reportable segments, primarily due to the impact of COVID-19.

Revenue for the nine months ended September 30, 2020 decreased $139.3 million, or 12.5%, as compared to the same period last year, due to lower sales volume across all the reportable segments, primarily due to the impact of COVID-19.

Cost of Goods Sold

Cost of goods sold for the three months ended September 30, 2020 decreased $20.2 million, or 8.5%, 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 September 30, 2020 were primarily due to the lower sales volume discussed above, and the Company’s cost reduction efforts to offset the impact of COVID-19.

Cost of goods sold for the nine months ended September 30, 2020 decreased $94.9 million, or 13.0%, 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 nine months ended September 30, 2020 were primarily due to the lower sales volume discussed above, and the Company’s cost reduction efforts to offset the impact of COVID-19.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) for the three months ended September 30, 2020 decreased $8.8 million, or 11.6%, 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.

SG&A for the nine months ended September 30, 2020 decreased $37.0 million, or 14.5%, as compared to the same period last year, primarily due to the lower sales volume and cost reduction initiatives from Diversified Industrial and Energy segments, partially offset by a $14.0 million environmental reserve charge recorded in the second quarter of 2020 in the Diversified Industrial segment related to a legacy, non-operating site and higher SG&A from the Financial Services segment driven by increased credit performance fees associated with the larger loan balances, partially offset by lower personnel expenses driven by cost reduction actions due to the economic impact of COVID-19. There was also a $12.5 million expense associated with a legal settlement in the Corporate and Other segment during the 2019 period associated with a historical acquisition.

Goodwill Impairment Charges

As a result of declines in customer demand and in the performance of the packaging business during the three months ended September 30, 2019, the Company determined that it was more likely than not that the fair value of the packaging business was below its carrying amount. The Company performed an assessment using a discounted cash flow approach and determined that the difference between the carrying amount and fair value of the packaging business was greater than the amount of goodwill allocated to that business. Accordingly, the Company recorded a $24.2 million charge in the consolidated statements of operations for the three and nine months ended September 30, 2019.

Asset Impairment Charges

As a result of COVID-19 related declines in our youth sports business within the Energy segment, intangible assets of $0.6 million, primarily customer relationships, were fully impaired during the first quarter of 2020. The asset impairment charges from the 2019 periods were primarily related to unused software in the Diversified Industrial segment’s cutting replacement products and services business.

Interest Expense

Interest expense for the three months ended September 30, 2020 decreased $2.6 million, or 27.4%, as compared to the same period last year. The lower interest expense for the three months ended September 30, 2020 was primarily due to lower interest rates during the third quarter of 2020.

Interest expense for the nine months ended September 30, 2020 decreased $7.1 million, or 23.5%, as compared to the same period last year. The lower interest expense for the nine months ended September 30, 2020 was primarily due to lower interest rates during the 2020 period.

Realized and Unrealized (Gains) Losses on Securities, Net

The Company recorded gains of $1.0 million for the three months ended September 30, 2020, as compared to gains of $30.2 million in the same period of 2019 and losses of $25.5 million for the nine months ended September 30, 2020, as compared to gains of $68.7 million in 2019. The change in realized and unrealized (gains) losses on securities was primarily due to a realized loss on the sale of securities in the 2020 period, as well as mark-to-market adjustments on the Company’s portfolio of securities in both periods.

All Other (Incomes) Expenses, Net

All other (incomes), net totaled $(8.7) million for the three months ended September 30, 2020, as compared to net expenses totaling $14.8 million in the same period of 2019, due primarily to a net improvement in the (benefit from) provision for loan losses, as the Company has seen lower than expected losses related to COVID-19 and higher debt paydowns, as well as lower finance interest expense, as compared to the prior period.

All other expenses, net decreased $8.5 million for the nine months ended September 30, 2020, as compared to the same period of 2019, due primarily to higher investment income, lower finance interest expense and lower provision for loan losses, as compared to the prior period.

Income Tax Provision

The Company recorded income tax provisions of $14.8 million and $13.7 million for the three months ended September 30, 2020 and 2019, respectively, and $10.0 million and $31.5 million for the nine months ended September 30, 2020 and 2019, 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 $3.2 million and a loss from associated companies, net of taxes of $26.4 million for the three and nine months ended September 30, 2020, respectively, as compared to a loss of $1.9 million and income of $0.4 million in the same periods of 2019.

Purchases of Property, Plant and Equipment (Capital Expenditures)

Capital expenditures for the third quarter of 2020 totaled $4.5 million, or 1.4% of revenue, as compared to $10.1 million, or 2.7% of revenue, in the third quarter of 2019. For the nine months ended September 30, 2020, capital expenditures were $15.6 million, or 1.6% of revenue, as compared to $26.5 million, or 2.4% of revenue, for the nine months ended September 30, 2019.

Additional Non-GAAP Financial Measures

Adjusted EBITDA for the third quarter of 2020 was $73.3 million versus $59.2 million for the same period in 2019. Adjusted EBITDA margin increased to 22.2% in the quarter from 15.9% in the third quarter of 2019, primarily due to the Company’s continued focus on cost management and the lower than expected loan losses noted above. Adjusted free cash flow was $40.6 million for the third quarter of 2020 versus $53.3 million for the same period in 2019.

For the nine months ended September 30, 2020, Adjusted EBITDA and Adjusted EBITDA margin were $149.1 million and 15.3%, respectively, as compared to $152.4 million and 13.7% for the same period in 2019. For the nine months ended September 30, 2020, adjusted free cash flow was $135.8 million versus $80.5 million for the same period in 2019.

Liquidity and Capital Resources

As of September 30, 2020, the Company had $254.4 million in available liquidity under its senior credit agreement, as well as $19.1 million in cash and cash equivalents, excluding WebBank cash, and approximately $219.3 million in marketable securities and long-term investments.

As of September 30, 2020, total debt was $302.7 million, a decrease of approximately $35.4 million, as compared to December 31, 2019. As of September 30, 2020, net debt totaled $447.2 million, an increase of approximately $32.3 million, as compared to December 31, 2019. Total leverage (as defined in the Company’s senior credit agreement) was 2.68x as of September 30, 2020 versus 3.17x as of December 31, 2019.

During the quarter ended September 30, 2020, WebBank continued issuing loans under the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) authorized under the Coronavirus Aid, Relief, and Economic Security Act. As of September 30, 2020, the total PPP loans and associated liabilities are $2.1 billion and $2.2 billion, respectively. The loans were funded by the PPP Liquidity Facility, have terms of between 2 and 5 years, and their repayment is guaranteed by the SBA. Loans can be forgiven in whole or part (up to full principal and any accrued interest) if certain criteria are met. The timing of loan forgiveness is uncertain at this time, but borrower forgiveness applications and SBA processing is expected over the next several quarters.

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)

Contacts

Investor Relations Contact
Jennifer Golembeske

212-520-2300

jgolembeske@steelpartners.com

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