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

Second Quarter 2022 Results

• Revenue totaled $441.4 million, an increase of 14.2% as compared to the same period in the prior year

• Net income was $92.1 million, an increase of 234.2% as compared to the same period in the prior year

• Net income attributable to common unitholders was $92.1 million, or $3.52 per diluted common unit

• Adjusted EBITDA^* decreased to $59.0 million from $74.4 million for the same period in the prior year; Adjusted EBITDA margin^* was 13.4%

• Net cash used in operating activities was $87.6 million

• Adjusted free cash flow^* totaled $34.4 million

• Total debt at quarter-end was $176.4 million; net debt,^* which includes, among other items, pension and preferred unit liabilities, and marketable securities and long term investment assets totaled $114.4 million

First Half 2022 Results

• Revenue totaled $847.2 million, an increase of 20.9%, as compared to the same period in the prior year

• Net income was $96.7 million, an increase of 19.5% as compared to the same period in the prior year

• Net income attributable to common unitholders was $96.6 million, or $3.82 per diluted common unit

• Adjusted EBITDA^* decreased slightly to $123.6 million from $124.1 million for the same period in the prior year; Adjusted EBITDA margin^* was 14.6%

• Net cash used in operating activities of continuing operations was $100.9 million

• Adjusted free cash flow^* totaled $68.0 million

NEW YORK–(BUSINESS WIRE)–Steel Partners Holdings L.P. (NYSE: SPLP), a diversified global holding company, today announced operating results for the second quarter ended June 30, 2022.

“During the first half of 2022, we have continued to execute our long term strategies,” said Executive Chairman Warren Lichtenstein. “We have generated record revenue, reduced debt, and invested capital back into our businesses. Our focus on creating value for all our stakeholders is reflected in our strong results.”

Proposed Merger with Steel Connect

On June 12, 2022, Steel Connect, Inc. (“Steel Connect”), the Company and SP Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”), entered into an agreement and plan of merger (the “Merger Agreement”), pursuant to which Merger Sub will merge with and into Steel Connect (the “Merger”), with Steel Connect surviving the Merger as a wholly-owned subsidiary of the Company. The Merger Agreement provides that each share of Steel Connect’s common stock issued and outstanding immediately prior to the effective time of the Merger (other than dissenting shares and shares owned by Steel Connect, the Company or any of their respective subsidiaries) will, subject to the terms and conditions set forth in the Merger Agreement, be converted into the right to receive (i) $1.35 in cash, without interest and (ii) one contingent value right to receive a pro rata share of the proceeds received by Steel Connect, the Company or any of their affiliates with respect to the sale, transfer or other disposition of all or any portion of the assets currently owned by ModusLink within two years of the Merger’s closing date, to the extent such proceeds exceed $80 million plus certain related costs and expenses. The Company and certain of its affiliates have also entered into a Voting and Support Agreement pursuant to which, among other things, they have agreed to vote all shares of common stock and Series C Preferred Stock beneficially owned by them in favor of the adoption of the Merger Agreement and the Merger and any alternative acquisition agreement approved by Steel Connect’s board of directors (acting on the recommendation of the STCN Special Committee).

The Merger Agreement includes a “go-shop” period, during which the Company could actively solicit and consider alternative acquisition proposals. The “go-shop” period expired at 11:59 p.m. Eastern time on July 12, 2022.

The closing of the Merger is conditioned upon receipt of approval of the Merger from (i) the holders of a majority in voting power of the outstanding shares of common stock and Series C Preferred Stock of Steel Connect (voting on an as converted to shares of common stock basis), voting together as a single class, (ii) a majority of the outstanding shares of common stock of Steel Connect not owned, directly or indirectly, by the Company and its affiliates and related parties, and any other officers or directors of Steel Connect and (iii) the holders of a majority of the outstanding shares of Series C Preferred Stock of Steel Connect, voting as a separate class, as well as other customary closing conditions. Accordingly, there can be no assurance that the Company will be able to complete the Merger on the expected timeline or at all.

Subject to the satisfaction of all of the conditions to closing, including the receipt of the Steel Connect stockholder approvals, the Merger is expected to close in the second half of 2022.

Revenue

Revenue for the three months ended June 30, 2022 increased $54,975, or 14.2%, as compared to the same period last year, as a result of higher sales across all the reportable segments despite the divestiture of the SLPE business in April 2022 . The increases were primarily due to: (1) $27,060 higher sales for the Building Materials business unit due primarily to the impact of favorable pricing; (2) $8,814 from the Financial Services segment primarily due to higher credit risk transfer and held for sale balances, as well as higher non-interest income related to increased volume as compared to the three months ended June 30, 2021; these increases were partially offset by lower non-interest income due to fewer warrant sales as compared to the three months ended June 30, 2021; and (3) $5,256 from the Energy segment primarily due to favorable pricing driven by higher demand from the energy sector as a result of higher energy prices.

Revenue for the six months ended June 30, 2022 increased $146,227, or 20.9%, as compared to the same period last year, as a result of higher sales across all the reportable segments despite the divestiture of the SLPE business in April 2022 . The increases were primarily due to: (1) $70,741 higher sales for the Building Materials business unit primarily due to the impact of favorable pricing, and to a lesser extent increased demand for its roofing products; (2) $15,075 from the Financial Services segment primarily due to increased interest income on higher credit risk transfer balances, asset based lending and held for sale balances, as well as higher non-interest income related to increased volume; these increases were partially offset by lower non-interest income due to fewer warrant sales as compared to the six months ended June 30, 2021; (3) $14,687 higher sales for the Electrical Products business unit driven by higher demand from its aerospace & defense, oil & gas, and medical sectors, as well as favorable pricing, partially offset by the impact of divestiture of SLPE business from the Diversified Industrial segment; and (4) $11,487 from the Energy segment primarily due to favorable pricing and higher rig hours driven by higher demand from the energy sector as a result of higher energy prices.

Cost of Goods Sold

Cost of goods sold for the three months ended June 30, 2022 increased $38,216, or 15.2%, as compared to the same period last year, primarily driven by higher sales discussed above, as well as higher material and labor costs in the Diversified Industrial and Energy segments, partially offset by the impact of divestiture of the SLPE business.

Cost of goods sold for the six months ended June 30, 2022 increased $97,701, or 21.3%, as compared to the same period last year, due to increases in the Diversified Industrial and Energy segments. The increases in the Diversified Industrial and Energy segments in the six months ended June 30, 2022 were primarily due to the higher sales volume discussed above, partially offset by the impact of divestiture of SLPE business.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) for the three months ended June 30, 2022 increased $26,253, or 35.2%, 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 Corporate. SG&A expenses for the Financial Services segment increased approximately $14,100 primarily due to higher credit performance fees due to higher credit risk transfer (“CRT”) balances as well as higher personnel costs. SG&A expenses for Corporate increased by approximately $10,400 primarily due to higher legal fees.

SG&A for the six months ended June 30, 2022 increased $43,577, or 30.4%, , as compared to the same period last year. The increase was primarily driven by trends similar to the quarter ended June 30, 2022.

Asset Impairment Charges

The Company recorded an impairment charge of $435 for the six months ended June 30, 2022 for idle equipment associated with the Joining Materials business unit from the Diversified Industrial segment. There were no impairment charges for the respective periods of 2021.

Interest Expense

Interest expense for the three and six months ended June 30, 2022 decreased $686, or 12.5% and $1,628 or 14.8%, respectively, as compared to the same periods last year. The decreases were primarily due to lower average debt levels, as compared to the same periods of 2021.

Gains from sales of businesses

The Company recorded a pre-tax gain of $85,185 for the three and six months ended June 30, 2022, primarily related to the sale of the SLPE business from the Diversified Industrials segment. The sales price of SLPE was $144.5 million, subject to working capital adjustments.The Company recorded a pre-tax gain of $8,096 for the six months ended June 30, 2021 related to the divestiture of the Edge business from the Diversified Industrial segment.

Realized and Unrealized Losses on Securities, Net

The Company recorded gains of $1,515 for the three months ended June 30, 2022, as compared to gains of $4,470 in the same period of 2021. The Company recorded losses of $26,211 for the six months ended June 30, 2022, as compared to losses of $18,779 in the same period of 2021. These gains and losses were primarily due to unrealized gains and losses related to the mark-to-market adjustments on the Company’s portfolio of securities in these periods.

All Other Expense (Income), Net

All other expense, net was $4,315 for the three months ended June 30, 2022, as compared to all other expense, net of $206 in the same period of 2021. All other expense (income), net for the three and six months ended June 30, 2022 was primarily due to net provisions for loan losses and finance interest. All other income, net for the six months ended June 30, 2021 was primarily due to (1) a $19,740 one-time dividend from Aerojet, (2) a pre-tax gain of $6,646 on the sale of an idle facility in the Joining Materials business.

Income Tax Provision

The Company recorded income tax provisions of $39,436 and $35,413 for the three months ended June 30, 2022 and 2021, respectively. The Company recorded income tax provisions of $47,045 and $50,007 for the six months ended June 30, 2022 and 2021, respectively. The Company’s effective tax rate was 30.5% and 59.0% for the three months ended June 30, 2022 and 2021, respectively, and was 32.2% and 49.1% for the six months ended June 30, 2022 and 2021, respectively. The lower effective tax rate for the six months ended June 30, 2022 is primarily due to the change in U.S. income tax expense related to unrealized gains and losses on investment, and the net capital gain recognized as a result of the disposal of consolidated subsidiaries that took place during the quarter. 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 and other permanent differences.

(Income) loss of Associated Companies, Net of Taxes

The Company recorded income of associated companies, net of taxes, of $2,260 and loss of associated companies, net of tax, of $2,383 for the three and six months ended June 30, 2022, respectively, as compared to income from associated companies, net of taxes, of $2,840 and $28,961 for the three and six months ended June 30, 2021, respectively. 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 June 30, 2022 totaled $10,724, or 2.4% of revenue, as compared to $9,024, or 2.3% of revenue, in the same period of 2021. Capital expenditure for the six months ended June 30, 2022 totaled $18,470, or 2.2% of revenue, as compared to $13,925, or 2.0% of revenue for the same period of 2021.

Additional Non-GAAP Financial Measures

Adjusted EBITDA was $59,048 for the three months ended June 30, 2022, as compared to $74,364 for the same period of 2021. Adjusted EBITDA decreased by $15,316 primarily due to decreases in the Financial Service segment due to higher loan loss provisions and higher credit performance fees as a result of higher credit risk transfer balances as well as higher personnel costs and in the Corporate driven by higher legal fees, partially offset by increase from the Energy segment primarily driven by strong sales performance. For the three months ended June 30, 2022, adjusted free cash flow was $34,378 as compared to $48,520 for the same period in 2021. Adjusted free cash flow decreased by $14,142 primarily due to lower EBITDA performance, partially offset by improved management of working capital.

Adjusted EBITDA was $123,618 for the six months ended June 30, 2022, as compared to $124,140 for the same period of 2021. Adjusted EBITDA decreased by $522 primarily due to decreases in the Financial Service segment due to higher loan loss provisions and higher credit performance fees as a result of higher credit risk transfer balances as well as higher personnel costs and in the Corporate driven by higher legal fees, partially offset by increases from the Diversified Industrial and Energy segments primarily driven by strong sales performance. For the six months ended June 30, 2022, adjusted free cash flow was $68,001 as compared to $53,993 for the same period in 2021. Adjusted free cash flow increased by $14,008 primarily due to improved management of working capital.

Liquidity and Capital Resources

As of June 30, 2022, the Company had approximately $415,000 in availability under its senior credit agreement, as well as $30,655 in cash and cash equivalents, excluding WebBank cash, and approximately $257,069 in long-term investments (including marketable securities).

As of June 30, 2022, total debt was $176,420, a decrease of approximately $94,601, as compared to December 31, 2021. As of June 30, 2022, net debt totaled $114,390, a decrease of approximately $110,723, primarily driven by payments on Company’s senior credit facility using proceeds from the sale of SLPE. Total leverage (as defined in the Company’s senior credit agreement) was approximately 1.1x as of June 30, 2022 as compared to approximately 1.6x as of December 31, 2021.

Quarterly Cash Distribution on Series A Preferred Units

On August 5, 2022, the Company’s board of directors declared a regular quarterly cash distribution of $0.375 per unit, payable September 15, 2022, to unitholders of record as of September 1, 2022, 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

Jennifer Golembeske

212-520-2300

jgolembeske@steelpartners.com

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