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

Second Quarter 2023 Results

  • Revenue was $500.9 million, an increase of 13.5% as compared to the same period in the prior year
  • Net income was $58.6 million, a decrease of 36.4% as compared to the same period in the prior year
  • Net income attributable to common unitholders was $59.2 million, or $2.44 per diluted common unit
  • Adjusted EBITDA* increased to $73.6 million from $59.0 million for the same period in the prior year; Adjusted EBITDA margin* was 14.7%
  • Net cash used in operating activities was $6.3 million
  • Adjusted free cash flow* totaled $29.5 million
  • Total debt at quarter-end was $185.1 million; net debt,* which includes, among other items, pension and preferred unit liabilities, and long-term investments was $78.6 million

First Half 2023 Results

  • Revenue was $946.3 million, an increase of 11.7% as compared to the same period in the prior year
  • Net income was $83.4 million, a decrease of 13.7% as compared to the same period in the prior year
  • Net income attributable to common unitholders was $84.0 million, or $3.53 per diluted common unit
  • Adjusted EBITDA* increased to $136.7 million from $123.6 million for the same period in the prior year; Adjusted EBITDA margin* was 14.4%
  • Net cash used in operating activities was $54.5 million
  • Adjusted free cash flow* was $62.9 million

Steel Partners Holdings L.P. (NYSE: SPLP), a diversified global holding company, today announced operating results for the second quarter ended June 30, 2023. The financial results of Steel Connect, Inc. ("Steel Connect" or "STCN") have been included in the Company's consolidated financial statements since the exchange transaction on May 1, 2023.

Q2 2023

 

Q2 2022

 

($ in thousands)

 

YTD 2023

 

YTD 2022

$500,925

 

$441,408

 

Revenue

 

$946,296

 

$847,153

58,615

 

92,113

 

Net income

 

83,418

 

96,654

59,150

 

92,078

 

Net income attributable to common unitholders

 

83,996

 

96,643

73,606

 

59,048

 

Adjusted EBITDA*

 

136,737

 

123,618

14.7%

 

13.4%

 

Adjusted EBITDA margin*

 

14.4%

 

14.6%

12,843

 

10,724

 

Purchases of property, plant and equipment

 

23,551

 

18,470

29,495

 

34,378

 

Adjusted free cash flow*

 

62,857

 

68,001

*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.

"Our Financial Services and Energy segments have continued to deliver favorable results," said Executive Chairman Warren Lichtenstein. "With the current economic headwinds, we are focused on reducing costs, paying down debt, and strategically investing our capital to ensure we deliver quality products and services to our customers and long-term value to our stakeholders."

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)

(Dollar amounts in table and commentary in thousands,

unless otherwise indicated)

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

2023

 

2022

 

2023

 

2022

Revenue

$ 500,925

 

$ 441,408

 

$ 946,296

 

$ 847,153

Cost of goods sold

289,399

 

288,813

 

550,692

 

556,983

Selling, general and administrative expenses

136,364

 

100,841

 

251,318

 

186,965

Asset impairment charges

329

 

32

 

329

 

435

Interest expense

5,833

 

4,818

 

11,819

 

9,342

Realized and unrealized losses (gains) on securities, net

3,121

 

(1,515)

 

2,514

 

26,211

Gain from sale of business

 

(85,185)

 

 

(85,185)

All other expense, net*

17,757

 

4,315

 

38,128

 

6,320

Total costs and expenses

452,803

 

312,119

 

854,800

 

701,071

Income from operations before income taxes and equity

 

 

 

method investments

48,122

129,289

91,496

146,082

Income tax (benefit) provision

(15,330)

 

39,436

 

(726)

 

47,045

Loss (income) of associated companies, net of taxes

4,837

 

(2,260)

 

8,804

 

2,383

Net income

$ 58,615

 

$ 92,113

 

$ 83,418

 

$ 96,654

* includes finance interest, provision for loan losses, and other expense from the consolidated statements of operations

Revenue

Revenue for the three months ended June 30, 2023 increased $59,517, or 13.5%, as compared to the same period last year, as a result of higher revenue from both Financial Services and Energy segments, as well as favorable impact from the newly acquired Supply Chain segment, partially offset by lower sales from the Diversified Industrial segment.

Revenue for the six months ended June 30, 2023 increased $99,143, or 11.7%, as compared to the same period last year, as a result of higher revenue from both Financial Services and Energy segments, as well as favorable impact of the newly acquired Supply Chain segment, partially offset by lower sales from the Diversified Industrial segment including the impact from the divestiture of the SLPE business in April 2022.

Cost of Goods Sold

Cost of goods sold for the three months ended June 30, 2023 increased $586, or 0.2%, as compared to the same period last year, resulting from newly acquired Supply Chain segment and higher revenue volume from the Energy segment, largely offset by lower sales from the Diversified Industrial segment, primarily from its Building Materials business unit.

Cost of goods sold for the six months ended June 30, 2023 decreased $6,291 , or 1.1%, as compared to the same period last year, primarily driven by lower sales discussed above from the Diversified Industrial segment, partially offset by the impact of newly acquired Supply Chain segment and higher revenue from the Energy segment.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") for the three months ended June 30, 2023 increased $35,523, or 35.2%, as compared to the same period last year. The increase was primarily due to higher expenses from the Financial Services segment of $29,700 and impact of newly acquired Supply Chain segment of $8,900. The increase for the Financial Services segment was primarily due to higher credit performance fees due to higher credit risk transfer ("CRT") balances and higher personnel expenses related to incremental headcount.

SG&A for the six months ended June 30, 2023 increased $64,353, or 34.4%, as compared to the same period last year. The increase was primarily driven by higher SG&A expenses from the Financial Services segment of $51,000 and newly acquired Supply Chain segment of $8,900 as mentioned above. SG&A expenses for the Diversified Industrial segment also increased by approximately $11,700, primarily due to higher personnel costs for the six months ended June 30, 2023, despite the impact of the divestiture of SLPE business of $5,000.

Asset Impairment Charges

An impairment charge of $329 was recognized for the three and six months ended June 30, 2023, primarily related to a piece of unused equipment in the Building Materials business unit from the Diversified Industrial segment. An impairment charge of $435 was recognized during the six months ended June 30, 2022, primarily related to an idle piece of equipment in the Joining Materials business unit from the Diversified Industrial segment.

Interest Expense

Interest expense increased $1,015, or 21.1% and $2,477 or 26.5% for the three and six months ended June 30, 2023, respectively, as compared to the same periods last year. The increases were primarily due to higher average interest rates, partially offset by lower average debt level, as compared to the same periods of 2022.

Realized and Unrealized Losses (Gains) on Securities, Net

The Company recognized losses of $3,121 for the three months ended June 30, 2023, as compared to gains of $1,515 in the same period of 2022. The Company recorded losses of $2,514 for the six months ended June 30, 2023, as compared to losses of $26,211 in the same period of 2022. These gains and losses were due to unrealized gains and losses related to the mark-to-market adjustments on the Company's portfolio of securities.

All Other Expense, Net

All other expense, net was $17,757 for the three months ended June 30, 2023, as compared to $4,315 in the same period of 2022. Higher all other expense, net for the three months ended June 30, 2023 was primarily due to higher finance interest expense related to the Financial Service segment, as compared to the same period of 2022.

All other expense, net was $38,128 for the six months ended June 30, 2023, as compared to $6,320 in the same period of 2022. Higher all other expense, net for the six months ended June 30, 2023 was primarily due to higher finance interest expense and provisions for credit losses related to the Financial Services segment, as compared to the same period of 2022.

Income Tax (Benefit) Provision

The Company recorded income tax benefit of $15,330 for the three months ended June 30, 2023 and income tax provision of $39,436 for the same period in 2022. The Company recorded income tax benefit of $726 for the six months ended June 30, 2023 and income tax provision of $47,045 for the same period in 2022. The Company's effective tax rate was (0.8)% and 32.2% for the six months ended June 30, 2023 and 2022, respectively. The lower effective tax rate for the six months ended June 30, 2023 is primarily due to the change in U.S. income tax expense related to unrealized gains and losses on investments and the deferred tax movements resulting from the acquisition of Steel Connect. 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, deferred tax movements resulting from the acquisition of Steel Connect in an exchange transaction and other permanent differences.

Loss (Income) of Associated Companies, Net of Taxes

The Company recorded losses from associated companies, net of taxes, of $4,837 and $8,804 for the three and six months ended June 30, 2023, respectively, as compared to income from associated companies, net of taxes, of $2,260 and loss from associated companies, net of taxes, of $2,383 for the three and six months ended June 30, 2022, 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 and six months ended June 30, 2023 totaled $12,843, or 2.6% of revenue and $23,551, or 2.5% of revenue, respectively as compared to $10,724, or 2.4% of revenue and $18,470, or 2.2% of revenue, respectively, in the same periods of 2022.

Common Units Repurchase Program

During the three months ended June 30, 2023, the Company repurchased 267,994 common units for $11,588. From the inception of the Repurchase Program the Company has purchased 7,689,490 common units for an aggregate price of approximately $159,194. As of June 30, 2023, there were approximately 1,080,750 common units that may yet be purchased under the Repurchase Program.

Additional Non-GAAP Financial Measures

Adjusted EBITDA was $73,606 for the three months ended June 30, 2023, as compared to $59,048 for the same period of 2022 and $136,737 for the six months ended June 30, 2023, as compared to $123,618 for the same period of 2022. Adjusted EBITDA increased by $14,558 and $13,119 for the three and six months ended June 30, 2023, respectively. The increase for the three month period was primarily due to 1) higher revenue at the Financial Services segment that was partially offset by higher finance interest and higher personnel costs; and 2) strong revenue at the Energy segment primarily resulting from higher volume and favorable pricing, favorable impact from the newly acquired Supply Chain segment, partially offset by decreases in the Diversified Industrial segment primarily driven by lower sales. The increase for the six month period was primarily due to 1) higher revenue at the Financial Services segment that was partially offset by higher finance interest and credit loss provisions, as well as higher personnel costs; and 2) strong revenue at the Energy segment primarily resulting from higher volume and favorable pricing, favorable impact from the newly acquired Supply Chain segment, partially offset by decreases in the Diversified Industrial segment primarily driven by lower sales. For the three and six months ended June 30, 2023, adjusted free cash flow were $29,495 and $62,857, as compared to $34,378 and $68,001, respectively for the same periods in 2022.

Liquidity and Capital Resources

As of June 30, 2023, the Company had approximately $405,700 in availability under its senior credit agreement, as well as $110,289 in cash and cash equivalents, excluding WebBank cash, and approximately $239,842 in long-term investments.

As of June 30, 2023, total debt was $185,138, an increase of approximately $4,814, as compared to December 31, 2022. As of June 30, 2023, net debt totaled $78,636, an increase of approximately $31,005 primarily driven by the change of long term investments for the 2023 period. Total leverage (as defined in the Company's senior credit agreement) was approximately 1.4x as of both June 30, 2023 and December 31, 2022.

Quarterly Cash Distribution on Series A Preferred Units

On August 9, 2023, the Company's board of directors declared a regular quarterly cash distribution of $0.375 per unit, payable September 15, 2023, to unitholders of record as of September 1, 2023, 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)

Consolidated Balance Sheets (unaudited)

 

(in thousands, except common units)

June 30, 2023

 

December 31, 2022

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

353,157

 

 

$

234,448

 

Trade and other receivables - net of allowance for doubtful accounts of $2,425 and $2,414, respectively

 

254,986

 

 

 

183,861

 

Loans receivable, including loans held for sale of $743,594 and $602,675, respectively, net

 

1,428,283

 

 

 

1,131,745

 

Inventories, net

 

224,102

 

 

 

214,084

 

Prepaid expenses and other current assets

 

44,396

 

 

 

41,090

 

Total current assets

 

2,304,924

 

 

 

1,805,228

 

Long-term loans receivable, net

 

462,729

 

 

 

423,248

 

Goodwill

 

148,027

 

 

 

125,813

 

Other intangible assets, net

 

123,347

 

 

 

94,783

 

Other non-current assets

 

165,980

 

 

 

195,859

 

Property, plant and equipment, net

 

246,503

 

 

 

238,510

 

Operating lease right-of-use assets

 

75,531

 

 

 

42,711

 

Long-term investments

 

239,842

 

 

 

309,697

 

Total Assets

$

3,766,883

 

 

$

3,235,849

 

LIABILITIES AND CAPITAL

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

135,932

 

 

$

109,572

 

Accrued liabilities

 

136,082

 

 

 

112,744

 

Deposits

 

1,613,022

 

 

 

1,360,477

 

Short-term debt

 

283

 

 

 

685

 

Current portion of long-term debt

 

67

 

 

 

67

 

Other current liabilities

 

90,012

 

 

 

65,598

 

Total current liabilities

 

1,975,398

 

 

 

1,649,143

 

Long-term deposits

 

304,809

 

 

 

208,004

 

Long-term debt

 

184,788

 

 

 

179,572

 

Other borrowings

 

25,715

 

 

 

41,682

 

Preferred unit liability

 

153,576

 

 

 

152,247

 

Accrued pension liabilities

 

90,053

 

 

 

84,948

 

Deferred tax liabilities

 

15,956

 

 

 

41,055

 

Long-term operating lease liabilities

 

61,736

 

 

 

35,512

 

Other non-current liabilities

 

38,970

 

 

 

42,226

 

Total Liabilities

 

2,851,001

 

 

 

2,434,389

 

Commitments and Contingencies

 

 

 

Capital:

 

 

 

Partners' capital common units: 21,413,749 and 21,605,093 issued and outstanding (after deducting 18,248,177

 

 

 

 

 

and 17,904,679 units held in treasury, at cost of $324,093 and $309,257), respectively

1,017,276

952,094

Accumulated other comprehensive loss

 

(150,956

)

 

 

(151,874

)

Total Partners' Capital

 

866,320

 

 

 

800,220

 

Noncontrolling interests in consolidated entities

 

49,562

 

 

 

1,240

 

Total Capital

 

915,882

 

 

 

801,460

 

Total Liabilities and Capital

$

3,766,883

 

 

$

3,235,849

 

Consolidated Statements of Operations (unaudited)

 

(in thousands, except common units and per common unit

data)

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

2023

 

2022

 

2023

 

2022

Revenue:

 

 

 

 

 

 

 

Diversified Industrial net sales

$

315,046

 

 

$

346,664

 

 

$

619,472

 

 

$

673,913

 

Energy net revenue

 

50,314

 

 

 

47,024

 

 

 

98,478

 

 

 

85,341

 

Financial Services revenue

 

105,384

 

 

 

47,720

 

 

 

198,165

 

 

 

87,899

 

Supply Chain revenue

 

30,181

 

 

 

 

 

 

30,181

 

 

 

 

Total revenue

 

500,925

 

 

 

441,408

 

 

 

946,296

 

 

 

847,153

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of goods sold

 

289,399

 

 

 

288,813

 

 

 

550,692

 

 

 

556,983

 

Selling, general and administrative expenses

 

136,364

 

 

 

100,841

 

 

 

251,318

 

 

 

186,965

 

Asset impairment charges

 

329

 

 

 

32

 

 

 

329

 

 

 

435

 

Finance interest expense

 

18,382

 

 

 

1,672

 

 

 

32,123

 

 

 

2,836

 

Provision for credit losses

 

3,204

 

 

 

3,883

 

 

 

11,010

 

 

 

5,165

 

Gain from sale of business

 

 

 

 

(85,185

)

 

 

 

 

 

(85,185

)

Interest expense

 

5,833

 

 

 

4,818

 

 

 

11,819

 

 

 

9,342

 

Realized and unrealized losses (gains) on securities, net

 

3,121

 

 

 

(1,515

)

 

 

2,514

 

 

 

26,211

 

Other income, net

 

(3,829

)

 

 

(1,240

)

 

 

(5,005

)

 

 

(1,681

)

Total costs and expenses

 

452,803

 

 

 

312,119

 

 

 

854,800

 

 

 

701,071

 

Income from operations before income taxes and equity

 

 

 

 

 

 

 

 

 

 

 

 

 

method investments

48,122

129,289

91,496

146,082

Income tax (benefit) provision

 

(15,330

)

 

 

39,436

 

 

 

(726

)

 

 

47,045

 

Loss (income) of associated companies, net of taxes

 

4,837

 

 

 

(2,260

)

 

 

8,804

 

 

 

2,383

 

Net income

 

58,615

 

 

 

92,113

 

 

 

83,418

 

 

 

96,654

 

Net loss (income) attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

in consolidated entities

535

(35

)

578

(11

)

Net income attributable to common unitholders

$

59,150

 

 

$

92,078

 

 

$

83,996

 

 

$

96,643

 

Net income per common unit - basic

 

 

 

 

 

 

 

Net income attributable to common unitholders

$

2.75

 

 

$

4.03

 

 

$

3.89

 

 

$

4.29

 

Net income per common unit - diluted

 

 

 

 

 

 

 

Net income attributable to common unitholders

$

2.44

 

 

$

3.52

 

 

$

3.53

 

 

$

3.82

 

Weighted-average number of common units outstanding -

basic

 

21,506,699

 

 

 

22,846,677

 

 

 

21,595,730

 

 

 

22,529,635

 

Weighted-average number of common units outstanding -

diluted

 

25,462,813

 

 

 

27,061,579

 

 

 

25,501,513

 

 

 

26,931,547

Supplemental Balance Sheet Data (June 30, 2023 unaudited)

(in thousands, except common and preferred units)

June 30,

 

 

December 31,

 

2023

 

2022

Cash and cash equivalents

$

353,157

 

$

234,448

WebBank cash and cash equivalents

 

242,868

 

 

174,257

Cash and cash equivalents, excluding WebBank

$

110,289

 

$

60,191

Common units outstanding

 

21,413,749

 

 

21,605,093

Preferred units outstanding

 

6,422,128

 

 

6,422,128

Supplemental Non-GAAP Disclosures (unaudited)

Adjusted EBITDA Reconciliation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

2023

 

2022

 

2023

 

2022

Net income

$

58,615

 

 

$

92,113

 

 

$

83,418

 

 

$

96,654

 

Income tax (benefit) provision

 

(15,330

)

 

 

39,436

 

 

 

(726

)

 

 

47,045

 

Income before income taxes

 

43,285

 

 

 

131,549

 

 

 

82,692

 

 

 

143,699

 

Add (Deduct):

 

 

 

 

 

 

 

Loss (income) of associated companies, net of taxes

 

4,837

 

 

 

(2,260

)

 

 

8,804

 

 

 

2,383

 

Realized and unrealized losses (gains) on securities, net

 

3,121

 

 

 

(1,515

)

 

 

2,514

 

 

 

26,211

 

Interest expense

 

5,833

 

 

 

4,818

 

 

 

11,819

 

 

 

9,342

 

Depreciation

 

9,612

 

 

 

9,619

 

 

 

18,967

 

 

 

19,518

 

Amortization

 

4,185

 

 

 

3,729

 

 

 

7,773

 

 

 

7,993

 

Asset impairment charge

 

329

 

 

 

32

 

 

 

329

 

 

 

435

 

Non-cash pension expense (income)

 

2,989

 

 

 

(1,705

)

 

 

5,969

 

 

 

(3,606

)

Non-cash equity-based compensation

 

419

 

 

 

354

 

 

 

408

 

 

 

473

 

Gain from sale of business

 

 

 

 

(85,185

)

 

 

 

 

 

(85,185

)

Other items, net

 

(1,004

)

 

 

(388

)

 

 

(2,538

)

 

 

2,355

 

Adjusted EBITDA

$

73,606

 

 

$

59,048

 

 

$

136,737

 

 

$

123,618

 

 

 

 

 

 

 

 

 

Total revenue

$

500,925

 

 

$

441,408

 

 

$

946,296

 

 

$

847,153

 

Adjusted EBITDA margin

 

14.7

%

 

 

13.4

%

 

 

14.4

%

 

 

14.6

%

Net Debt Reconciliation:

 

 

 

 

 

 

 

(in thousands)

June 30,

 

December 31,

 

2023

 

2022

Total debt

$

185,138

 

 

$

180,324

 

Accrued pension liabilities

 

90,053

 

 

 

84,948

 

Preferred unit liability

 

153,576

 

 

 

152,247

 

Cash and cash equivalents, excluding WebBank

 

(110,289

)

 

 

(60,191

)

Long-term investments

 

(239,842

)

 

 

(309,697

)

Net debt

$

78,636

 

 

$

47,631

 

Adjusted Free Cash Flow Reconciliation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

2023

 

2022

 

2023

 

2022

Net cash used in operating activities

$

(6,263

)

 

$

(87,551

)

 

$

(54,511

)

 

$

(100,861

)

Purchases of property, plant and equipment

 

(12,843

)

 

 

(10,724

)

 

 

(23,551

)

 

 

(18,470

)

Net increase in loans held for sale

 

48,601

 

 

 

132,653

 

 

 

140,919

 

 

 

187,332

 

Adjusted free cash flow

$

29,495

 

 

$

34,378

 

 

$

62,857

 

 

$

68,001

Segment Results (unaudited)

(in thousands)

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

2023

 

2022

 

2023

 

2022

Revenue:

 

 

 

 

 

 

 

Diversified Industrial

$

315,046

 

 

$

346,664

 

 

$

619,472

 

 

$

673,913

 

Energy

 

50,314

 

 

 

47,024

 

 

 

98,478

 

 

 

85,341

 

Financial Services

 

105,384

 

 

 

47,720

 

 

 

198,165

 

 

 

87,899

 

Supply Chain

$

30,181

 

 

$

 

 

$

30,181

 

 

$

 

Total revenue

$

500,925

 

 

$

441,408

 

 

$

946,296

 

 

$

847,153

 

 

 

 

 

 

 

 

 

Income (loss) before interest expense and income taxes:

 

 

 

 

 

 

 

Diversified Industrial

$

25,121

 

 

$

121,952

 

 

$

46,259

 

 

$

156,034

 

Energy

 

4,031

 

 

 

3,677

 

 

 

9,271

 

 

 

7,629

 

Financial Services

 

24,982

 

 

 

13,709

 

 

 

50,834

 

 

 

27,636

 

Supply Chain

 

1,835

 

 

 

 

 

 

1,835

 

 

 

 

Corporate and other

 

(6,851

)

 

 

(2,971

)

 

 

(13,688

)

 

 

(38,258

)

Income before interest expense and income taxes:

 

49,118

 

 

 

136,367

 

 

 

94,511

 

 

 

153,041

 

Interest expense

 

5,833

 

 

 

4,818

 

 

 

11,819

 

 

 

9,342

 

Income tax (benefit) provision

 

(15,330

)

 

 

39,436

 

 

 

(726

)

 

 

47,045

 

Net income

$

58,615

 

 

$

92,113

 

 

$

83,418

 

 

$

96,654

 

 

 

 

 

 

 

 

 

Loss (income) of associated companies, net of taxes:

 

 

 

 

 

 

 

Corporate and other

$

4,837

 

 

$

(2,260

)

 

$

8,804

 

 

$

2,383

 

Total

$

4,837

 

 

$

(2,260

)

 

$

8,804

 

 

$

2,383

 

 

 

 

 

 

 

 

 

Segment depreciation and amortization:

 

 

 

 

 

 

 

Diversified Industrial

$

10,061

 

 

$

10,392

 

 

$

20,076

 

 

$

21,753

 

Energy

 

2,452

 

 

 

2,643

 

 

 

4,992

 

 

 

5,164

 

Financial Services

 

209

 

 

 

133

 

 

 

425

 

 

 

261

 

Supply Chain

 

910

 

 

 

 

 

 

910

 

 

 

 

Corporate and other

 

165

 

 

 

180

 

 

 

337

 

 

 

333

 

Total depreciation and amortization

$

13,797

 

 

$

13,348

 

 

$

26,740

 

 

$

27,511

 

 

 

 

 

 

 

 

 

Segment Adjusted EBITDA:

 

 

 

 

 

 

 

Diversified Industrial

$

34,866

 

 

$

44,413

 

 

$

66,789

 

 

$

91,977

 

Energy

 

7,225

 

 

 

7,046

 

 

 

14,546

 

 

 

12,665

 

Financial Services

 

25,773

 

 

 

13,471

 

 

 

51,985

 

 

 

27,199

 

Supply Chain

 

2,871

 

 

 

 

 

 

2,871

 

 

 

 

Corporate and other

 

2,871

 

 

 

(5,882

)

 

 

546

 

 

 

(8,223

)

Total Adjusted EBITDA

$

73,606

 

 

$

59,048

 

 

$

136,737

 

 

$

123,618

 

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 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 securities, 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), 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 "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," and similar expressions. These forward-looking statements are only predictions based upon the Company's current expectations and projections about future events, and 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 2023 and beyond to differ materially from those expressed in, or implied by, these forward-looking statements. These factors include, without limitation: disruptions to the Company’s business as a result of economic downturns; the significant volatility of crude oil and commodity prices; the effects of rising interest rates; the Company’s subsidiaries’ sponsor defined pension plans, which could subject the Company to future cash flow requirements; the ability to comply with legal and regulatory requirements, including environmental, health and safety laws and regulations, banking regulations and other extensive requirements to which the Company and its businesses are subject; risks associated with the Company’s wholly-owned subsidiary, WebBank, as a result of its Federal Deposit Insurance Corporation ("FDIC") status, highly-regulated lending programs, and capital requirements; the ability to meet obligations under the Company's senior credit facility through future cash flows or financings; the risk of recent events affecting the financial services industry, including the closures or other failures of several large banks; the risk of management diversion, increased costs and expenses, and impact on profitability in connection with the Company's business strategy to make acquisitions; the impact of losses in the Company's investment portfolio; the Company’s ability to protect its intellectual property rights and obtain or retain licenses to use others' intellectual property on which the Company relies; the Company’s exposure to risks inherent to conducting business outside of the U.S.; the impact of any changes in U.S. trade policies; the adverse impact of litigation or compliance failures on the Company's profitability; a significant disruption in, or breach in security of, the Company’s technology systems or protection of personal data; the loss of any significant customer contracts; the Company’s ability to maintain effective internal control over financial reporting; adverse impacts of the ongoing COVID-19 pandemic on business, results of operations, financial condition, and cash flows; the rights of unitholders with respect to voting and maintaining actions against the Company or its affiliates; potential conflicts of interest arising from certain interlocking relationships amount us and affiliates of the Company’s Executive Chairman; the Company’s dependence on the Manager and impact of the management fee on the Company’s total partners’ capital; the impact to the development of an active market for the Company’s units due to transfer restrictions and other factors; the Company’s tax treatment and its subsidiaries’ ability to fully utilize their tax benefits; the loss of essential employees; 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, 2022 and subsequent quarterly reports on Form 10-Q and annual reports on Form 10-K, 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, and investors should not rely upon forward-looking statements as predictions of future events. 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.

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