Steel Partners Holdings Reports Second Quarter 2020 Financial Results

Second Quarter 2020 Highlights

• Revenue totaled $295.4 million, a decrease of 23.4%
• Net loss from continuing operations was $0.4 million
• Net loss attributable to common unitholders was $1.9 million, or $0.07 per common unit
• Adjusted EBITDA^* decreased to $38.9 million; Adjusted EBITDA margin^* was 13.2%
• Net cash provided by operating activities from continuing operations was $93.8 million
• Adjusted free cash flow^* totaled $92.4 million
• Total debt was $365.0 million; net debt^* totaled $475.9 million

First Half 2020 Highlights

• Revenue totaled $643.3 million, a decrease of 13.2%
• Net loss from continuing operations was $36.9 million
• Net loss attributable to common unitholders was $63.6 million, or $2.55 per common unit
• Adjusted EBITDA^* decreased to $75.9 million; Adjusted EBITDA margin^* was 11.8%
• Net cash provided by operating activities from continuing operations was $259.9 million
• Adjusted free cash flow^* totaled $95.2 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 and six months ended June 30, 2020. We encourage investors to read our 2020 Mid-Year Update Letter, which is posted under the “Investor Relations” section of our website (www.steelpartners.com).

^* 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 spread of the COVID-19 outbreak has caused significant disruptions in the U.S. and global economies. 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. As the situation surrounding COVID-19 remains fluid, it is expected to continue having a negative impact to the Company, however, it is difficult to predict the duration of the pandemic and its continued impact on the Company’s business, operations, financial condition, and cash flows. As the COVID-19 pandemic progressed, the Company initiated cost reduction actions, including the waiver of management and board fees, hiring freezes, employee furloughs, staffing and force reductions, salary reductions, bonus payment deferrals, and 401(k) match suspension to help mitigate the financial impact of the COVID-19 pandemic. The Company also froze all discretionary spend, implemented strict approvals for capital expenditures, and is aggressively managing working capital. The Company continues to evaluate further actions as circumstances warrant.

The COVID-19 pandemic has adversely affected our consolidated financial results for the first six months of 2020. We anticipate COVID-19 may continue to have an adverse impact on our business through the third quarter and potentially beyond. While the Company developed and implemented, and continues to develop and implement, health and safety protocols, business continuity plans, and crisis management protocols in an effort to try to mitigate the negative impact of COVID-19 to its employees and business, the severity of the impact of the COVID-19 pandemic on the Company’s business in the remaining quarters of 2020 and beyond will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, governmental actions that have been taken, or may be taken in the future, in response to the pandemic, and the extent and severity of the impact on the Company’s customers and suppliers, all of which are uncertain and cannot be predicted.

“Our top priorities are the health and safety of our employees and fulfilling customer commitments,” said Warren Lichtenstein, Executive Chairman of Steel Partners. “Throughout the COVID-19 pandemic and economic slowdown, our teams have remained flexible, positive and focused.”

“The pandemic had significant adverse impacts across each of our segments; however, as we exited the second quarter, overall demand in our Diversified Industrial segment has returned to near pre-crisis levels. Our Energy business continues to generate positive operating results, despite the significant headwinds from the decline in energy prices and storage issues. And, WebBank’s results for June showed year-over-year improvement, despite the loan performance deterioration associated with the pandemic during the second quarter. We remain confident that the actions we have taken to control expenses and maintain liquidity will position our business to withstand a potentially prolonged economic downturn.”

Results of Operations

Revenue

Revenue for the three months ended June 30, 2020 decreased $90.3 million, or 23.4%, as compared to the same period last year, due to lower sales volume across all the operating segments, primarily due to the impact of COVID-19.

Revenue for the six months ended June 30, 2020 decreased $98.2 million, or 13.2%, as compared to the same period last year. The decrease was primarily driven by the Diversified Industrial and Energy segments due to the impact of COVID-19 during the second quarter of 2020.

Cost of Goods Sold

Cost of goods sold for the three months ended June 30, 2020 decreased $57.3 million, or 22.7%, 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 June 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 six months ended June 30, 2020 decreased $74.7 million, or 15.2%, 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 six months ended June 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 June 30, 2020 decreased $22.5 million, or 23.1%, 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, partially offset by an environmental reserve charge of $14.0 million in the Diversified Industrial segment related to a legacy, non-operating site. There was also a $12.5 million expense associated with a legal settlement in the Corporate segment during the 2019 period.

SG&A for the six months ended June 30, 2020 decreased $28.2 million, or 15.7%, as compared to the same period last year, primarily due to the lower sales volume and cost reduction initiatives from all the segments, partially offset by the environmental reserve charge in the Diversified Industrial segment noted above. There was also an expense associated with a legal settlement in the Corporate segment during the 2019 period as noted above.

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.

Interest Expense

Interest expense for the three months ended June 30, 2020 decreased $2.6 million, or 24.8%, as compared to the same period last year. The lower interest expense for the three months ended June 30, 2020 was primarily due to lower interest rates during the second quarter of 2020, partially offset by higher borrowing levels.

Interest expense for the six months ended June 30, 2020 decreased $4.4 million, or 21.7%, as compared to the same period last year. The lower interest expense for the six months ended June 30, 2020 was primarily due to lower interest rates during the first half of 2020, partially offset by higher borrowing levels.

Realized and Unrealized Losses (Gains) on Securities, Net

The Company recorded losses of $8.5 million for the three months ended June 30, 2020, as compared to gains of $36.4 million in the same period of 2019 and losses of $26.5 million for the six months ended June 30, 2020, as compared to gains of $38.5 million in 2019. The change in realized and unrealized losses (gains) 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 Expenses, Net

All other expenses were relatively flat for the three months ended June 30, 2020, as compared to the same period of 2019. Higher provision for loan losses were offset by lower finance interest expense and higher investment income, as compared to the prior period.

All other expenses increased $15.0 million for the six months ended June 30, 2020, as compared to the same period of 2019. Higher provision for loan losses were partially offset by lower finance interest expense and higher investment income, as compared to the prior period.

Income Tax (Benefit) Provision

The Company recorded an income tax benefit of $1.3 million and income tax provision of $14.8 million for the three months ended June 30, 2020 and 2019, respectively, and an income tax benefit of $4.7 million and income tax provision of $17.8 million for the six months ended June 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. Provision has been made for federal, state, local, or foreign income taxes on the results of operations generated by our consolidated subsidiaries that are taxable entities. The difference between the effective tax rate and statutory federal rate of 21% is principally due to partnership losses for which no tax benefit is recognized, as well as changes in certain deferred tax valuation allowances and various other permanent differences.

(Income) Loss of Associated Companies, Net of Taxes

The Company recorded income from associated companies, net of taxes of $4.9 million and a loss from associated companies, net of taxes of $29.6 million for the three and six months ended June 30, 2020, respectively, as compared to a loss of $7.1 million and income of $2.3 million in the same periods of 2019.

Purchases of Property, Plant and Equipment (Capital Expenditures)

Capital expenditures for the second quarter of 2020 totaled $4.0 million, or 1.4% of net sales, compared to $9.8 million, or 2.5% of net sales, in the second quarter of 2019. For the six months ended June 30, 2020, capital expenditures were $11.0 million, or 1.7% of net sales, compared to $16.4 million, or 2.2% of net sales, for the six months ended June 30, 2019.

Additional Non-GAAP Financial Measures

Adjusted EBITDA for the second quarter of 2020 was $38.9 million versus $51.3 million for the same period in 2019. The Adjusted EBITDA margin decreased to 13.2% in the quarter from 13.3% in the second quarter of 2019 primarily due to lower volumes stemming from the impact of COVID-19. Adjusted free cash flow was $92.4 million for the second quarter of 2020 versus $14.3 million for the same period in 2019.

For the six months ended June 30, 2020, Adjusted EBITDA and Adjusted EBITDA margin were $75.9 million and 11.8%, respectively, compared to $93.2 million and 12.6% for the same period in 2019. For the six months ended June 30, 2020, adjusted free cash flow was $95.2 million versus $27.2 million for the same period in 2019.

Liquidity and Capital Resources

As of June 30, 2020, the Company had $231.5 million in available liquidity under its senior credit agreement, as well as $56.5 million in cash and cash equivalents, excluding WebBank cash, and approximately $214.9 million in marketable securities and long-term investments.

As of June 30, 2020, consolidated debt was $365.0 million, an increase of approximately $27.0 million compared to December 31, 2019. As of June 30, 2020, net debt totaled $475.9 million, a decrease of approximately $61.0 million compared to December 31, 2019. Total leverage (as defined in the Company’s senior credit agreement) was 2.83x as of June 30, 2020 versus 3.17x as of December 31, 2019.

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.

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 2020 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 U.S. Securities and Exchange Commission (“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, 2019 and Form 10-Q for each of the 2020 quarterly periods, 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, 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 contact:

Steel Partners Holdings L.P.

Jennifer Golembeske, 212-520-2300

jgolembeske@steelpartners.com

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