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Steel Partners Holdings Reports Fourth Quarter and Full Year Results

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Fourth Quarter 2021 Results

  • Revenue totaled $431.9 million, an increase of 27.5%, as compared to the same period in the prior year

  • Net income from continuing operations was $29.6 million

  • Net income attributable to common unitholders was $28.9 million, or $1.25 per diluted common unit

  • Adjusted EBITDA* totaled $63.2 million; Adjusted EBITDA margin* was 14.6%

  • Net cash provided by operating activities of continuing operations was $18.7 million

  • Adjusted free cash flow* totaled $25.4 million

  • Total debt was $271.0 million; net debt,* which also includes our pension and preferred unit liabilities, less cash and investments, totaled $225.1 million

Full Year 2021 Results

  • Revenue totaled $1.5 billion, an increase of 16.3%, as compared to the same period in the prior year

  • Net income from continuing operations was $132.4 million

  • Net income attributable to common unitholders was $131.4 million, or $4.97 per diluted common unit

  • Adjusted EBITDA* totaled to $259.8 million; Adjusted EBITDA margin* was 17.0%

  • Net cash provided by operating activities of continuing operations was $77.6 million

  • Adjusted free cash flow* totaled $135.8 million

NEW YORK, March 10, 2022--(BUSINESS WIRE)--Steel Partners Holdings L.P. (NYSE: SPLP), a diversified global holding company, today announced operating results for the fourth quarter and year ended December 31, 2021.

Q4 2021

Q4 2020

($ in thousands)

FY 2021

FY 2020

$431,857

$338,719

Revenue

$1,524,896

$1,310,636

29,565

85,272

Net income from continuing operations

132,440

83,477

28,917

99,429

Net income attributable to common unitholders

131,408

72,675

63,202

67,082

Adjusted EBITDA*

259,833

213,739

14.6%

19.8%

Adjusted EBITDA margin*

17.0%

16.3%

32,770

7,645

Purchases of property, plant and equipment

52,326

23,226

25,370

13,843

Adjusted free cash flow*

135,768

149,648

* 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.

"Steel Partners had a tremendous 2021," said Executive Chairman Warren Lichtenstein. "We were able to realize outstanding revenue and EBITDA growth, and continued strong cash flow. Our team focused on delivering quality products and services for our customers despite the challenging circumstances from the COVID pandemic and global supply chain issues."

Results of Operations

Comparisons of the Three Months and Years Ended December 31, 2021 and 2020

(Dollar amounts in table and commentary in thousands, unless otherwise indicated)

Three Months Ended December 31,

Year Ended December 31,

2021

2020

2021

2020

Revenue

$

431,857

$

338,719

$

1,524,896

$

1,310,636

Cost of goods sold

291,992

222,158

1,004,093

859,863

Selling, general and administrative expenses

80,220

75,317

304,013

290,784

Goodwill impairment charges

1,100

1,100

Asset impairment charges

(11

)

606

Interest expense

6,191

6,176

22,250

29,514

Realized and unrealized (gains) losses on securities, net

(16,188

)

(51,158

)

24,044

(25,643

)

All other expenses (income), net *

1,811

(6,595

)

(30,369

)

29,013

Total costs and expenses

364,026

246,987

1,324,031

1,185,237

Income before income taxes and equity method investments

67,831

91,732

200,865

125,399

Income tax provision

27,654

29,094

84,089

38,136

Loss (income) of associated companies, net of taxes

10,612

(22,634

)

(15,664

)

3,786

Net income from continuing operations

29,565

85,272

132,440

83,477

Net gain (loss) from discontinued operations, net of taxes

3

14,191

138

(10,199

)

Net income

29,568

99,463

132,578

73,278

Net income attributable to noncontrolling interests in consolidated entities (continuing operations)

(651

)

(34

)

(1,170

)

(603

)

Net income attributable to common unitholders

$

28,917

$

99,429

$

131,408

$

72,675

* includes finance interest, provision (benefit) for loan losses, and other income from the consolidated statements of operations

Revenue

Revenue for the three months ended December 31, 2021 increased $93.1 million, or 27.5%, as compared to the same period last year, due to higher sales volume across all segments, primarily due to the economic recovery from COVID-19.

Revenue for the year ended December 31, 2021 increased $214.3 million, or 16.3%, as compared to 2020, due to higher sales volume across all segments, primarily due to the economic recovery following impacts from the COVID-19 pandemic during 2020.

Cost of Goods Sold

Cost of goods sold for the three months ended December 31, 2021 increased $69.8 million, or 31.4%, as compared to the same period last year, due to increases in the Diversified Industrial and Energy segments, primarily due to higher sales volume.

Cost of goods sold in the year ended December 31, 2021 increased $144.2 million, or 16.8%, as compared to 2020, due to increases in the Diversified Industrial and Energy segments, primarily due to the higher sales volume discussed above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") for the three months ended December 31, 2021 increased $4.9 million, or 6.5%, as compared to the same period last year, primarily due to impact of higher sales volume as discussed above, partially offset by a gain as a result of a litigation settlement of $8.8 million in 2021 for the three months ended December 31, 2021.

SG&A in 2021 increased $13.2 million, or 4.5%, as compared to 2020, primarily due to the impact of higher sales volume as discussed above, partially offset by a gain as a result of a litigation settlement of $8.8 million in 2021, as well as a $14.0 million environmental reserve charge recorded in 2020 in the Diversified Industrial segment related to a legacy, non-operating site.

Goodwill Impairment Charges

No goodwill impairment charges were recorded in 2021. As a result of declines in customer demand and the performance of the performance materials business during 2020, the Company recorded a $1.1 million charge in the consolidated statements of operations for the year ended December 31, 2020.

Asset Impairment Charges

No asset impairment charges were recorded in 2021. 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 in 2020.

Interest Expense

Interest expense for both the three months ended December 31, 2021 and 2020 was $6.2 million. Interest expense for the years ended December 31, 2021 and 2020 was $22.3 million and $29.5 million, respectively. The lower interest expense during the year ended December 31, 2021 was primarily due to lower interest rates and lower average debt levels.

Realized and Unrealized (Gains) Losses on Securities, Net

The Company recorded gains of $16.2 million for the three months ended December 31, 2021, as compared to $51.2 million in 2020, and losses of $24.0 million and gains of $25.6 million for the years ended December 31, 2021 and 2020, respectively. The changes in realized and unrealized (gains) losses on securities, net over the respective periods are primarily due to mark-to-market adjustments on the Company's portfolio of securities, which are required to be recorded in earnings under generally accepted accounting principles in the U.S. ("U.S. GAAP").

All Other Expenses (Income), Net

All other expenses, net increased $8.4 million, primarily driven by higher provision for loan losses for the three months ended December 31, 2021. All other income, net totaled $30.4 million for the year ended December 31, 2021 and is primarily comprised of: (1) a $19.7 million one-time dividend from Aerojet; (2) a pre-tax gain of $8.1 million on the sale of OMG’s Edge business; and (3) a pre-tax gain of $6.6 million on the sale of an idle facility in the Joining Materials business, partially offset by (4) finance interest expense of $7.7 million. All other expense, net totaled $29.0 million for the year ended December 31, 2020 was primarily comprised of provision for loan losses and finance interest expense.

Income Taxes

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. The Company's tax provision represents the income tax expense or benefit of its consolidated corporate subsidiaries. For the year ended December 31, 2021, a tax provision of $84.1 million was recorded, as compared to $38.1 million in 2020. The Company's effective tax rate was 41.9% and 30.4% for the years ended December 31, 2021 and 2020, respectively. The higher effective tax rate for the year ended December 31, 2021 is primarily due to an increase in U.S. tax expense related to unrealized gains on investment from related parties which are eliminated for financial statement purposes.

Loss (Income) of Associated Companies, Net of Taxes

The Company recorded a loss from associated companies, net of taxes of $10.6 million for the three months ended December 31, 2021, as compared to income, net of taxes, of $22.6 million for the same period of 2020. The Company recorded income from associated companies, net of taxes, of $15.7 million in 2021, as compared to losses, net of taxes of $3.8 million in 2020.

Purchases of Property, Plant and Equipment (Capital Expenditures)

Capital expenditures for the three months ended December 31, 2021 totaled $32.8 million, or 7.6% of revenue, as compared to $7.6 million, or 2.3% of revenue, in the three months ended December 31, 2020. For the year ended December 31, 2021, capital expenditures were $52.3 million, or 3.4% of revenue, as compared to $23.2 million, or 1.8% of revenue, for the year ended December 31, 2020. Capital expenditures were lower in the prior year due to less capital investments in response to the impact of COVID-19.

Additional Non-GAAP Financial Measures

Adjusted EBITDA for the three months ended December 31, 2021 was $63.2 million, as compared to $67.1 million for the same period in 2020. Adjusted EBITDA margin decreased to 14.6% in the quarter from 19.8% in the three months ended December 31, 2020, primarily due to lower profitability from the Financial Service segment driven by benefit from lower provision for loan losses in the fourth quarter of 2020, partially offset by improved profitability from Diversified Industrials segment as a result of higher sales volume in 2021. Adjusted free cash flow was $25.4 million for the three months ended December 31, 2021, as compared to $13.8 million for the same period in 2020.

For the year ended December 31, 2021, Adjusted EBITDA and Adjusted EBITDA margin were $259.8 million and 17.0%, respectively, as compared to $213.7 million and 16.3% in 2020. For year ended December 31, 2021, higher adjusted EBITDA and Adjusted EBITDA margin were primarily due to improved profitability from both Diversified Industrial and Energy Segments as a result of higher sales volume, as well as from the Financial Services segment driven by lower financial interest expense and lower provision for loan losses. Adjusted free cash flow was $135.8 million, as compared to $149.6 million for the same period in 2020.

Liquidity and Capital Resources

As of December 31, 2021, the Company had $321.0 million in available liquidity under its senior credit agreement, as well as $16.8 million in cash and cash equivalents, excluding WebBank cash, and $261.1 million in long-term investments.

As of December 31, 2021, total debt was $271.0 million, a decrease of $63.1 million, as compared to December 31, 2020. Total debt decreased from the prior year primarily due to the paydown of debt. During the three months ended December 31, 2021 the Company amended and extended its credit agreement with a syndicate of banks led by PNC Bank, National Association ("New Credit Agreement"). The New Credit Agreement has a five-year term and provides for a senior secured revolving credit facility in an aggregate principal amount not to exceed $600.0 million. As of December 31, 2021, net debt totaled $225.1 million, a decrease of $129.8 million, as compared to December 31, 2020. Net debt decreased from the prior year primarily due to: (1) a $101.1 million decrease in pension obligations primarily due to $51.7 million of actual returns on plan assets and $41.4 million of Company contributions and (2) a $63.1 million decrease of total debt due to the paydown of debt. These decreases were partially offset by $30.2 million of lower investment balances compared to the prior year. Total leverage (as defined in the Company's senior credit agreement) was approximately 1.6x as of December 31, 2021 versus 2.4x as of December 31, 2020.

During 2021 and continuing in 2022, WebBank has issued loans under the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") authorized under the Coronavirus Aid, Relief, and Economic Security Act. As of December 31, 2021, the total PPP loans and associated liabilities are $328.7 million and $334.0 million, respectively. The loans were funded by the PPP Liquidity Facility, have terms of between two and five years, and their repayment is guaranteed by the SBA. Loans can be forgiven in whole or part (up to the full principal and any accrued interest) if certain criteria are met. The Bank has received forgiveness payments from the SBA, sold, and received payments from borrowers of $2.8 billion comprising 89.3% of its PPP portfolio during the year ended December 31, 2021.

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, banking, defense, supply chain management and logistics, and youth sports.

(Financial Tables Follow)

Consolidated Balance Sheets

December 31, 2021

December 31, 2020

ASSETS

Current assets:

Cash and cash equivalents

$

325,363

$

135,788

Marketable securities

106

Trade and other receivables - net of allowance for doubtful accounts of $3,510 and $3,368, respectively

193,976

164,106

Receivables from related parties

2,944

2,073

Loans receivable, including loans held for sale of $198,632 and $88,171, respectively, net

529,529

306,091

Inventories, net

184,271

137,086

Prepaid expenses and other current assets

48,019

58,053

Total current assets

1,284,102

803,303

Long-term loans receivable, net

511,444

2,183,017

Goodwill

148,018

150,852

Other intangible assets, net

119,830

138,581

Deferred tax assets

66,553

Other non-current assets

79,143

42,068

Property, plant and equipment, net

234,976

228,992

Operating lease right-of-use assets

36,636

29,715

Long-term investments

261,080

291,297

Total Assets

$

2,675,229

$

3,934,378

LIABILITIES AND CAPITAL

Current liabilities:

Accounts payable

$

123,282

$

100,759

Accrued liabilities

86,848

69,967

Deposits

447,152

285,393

Payables to related parties

1,885

4,080

Short-term debt

100

397

Current portion of long-term debt

1,071

10,361

Other current liabilities

54,674

46,044

Total current liabilities

715,012

517,001

Long-term deposits

377,735

70,266

Long-term debt

269,850

323,392

Other borrowings

333,963

2,090,223

Preferred unit liability

149,570

146,892

Accrued pension liabilities

82,376

183,462

Deferred tax liabilities

13,674

2,169

Long-term operating lease liabilities

27,511

21,845

Other non-current liabilities

36,490

39,906

Total Liabilities

2,006,181

3,395,156

Commitments and Contingencies

Capital:

Partners' capital common units: 21,018,009 and 22,920,804 issued and outstanding (after deducting 16,810,932 and 14,916,635 units held in treasury, at cost of $264,284 and $219,245), respectively

795,140

707,309

Accumulated other comprehensive loss

(131,803

)

(172,649

)

Total Partners' Capital

663,337

534,660

Noncontrolling interests in consolidated entities

5,711

4,562

Total Capital

669,048

539,222

Total Liabilities and Capital

$

2,675,229

$

3,934,378

Consolidated Statements of Operations

Unaudited

Three Months Ended December 31,

Year Ended December 31,

2021

2020

2021

2020

Revenue:

Diversified industrial net sales

$

346,464

$

271,607

$

1,207,183

$

1,058,745

Energy net revenue

44,312

32,548

164,028

107,831

Financial services revenue

41,081

34,564

153,685

144,060

Total revenue

431,857

338,719

1,524,896

1,310,636

Costs and expenses:

Cost of goods sold

291,992

222,158

1,004,093

859,863

Selling, general and administrative expenses

80,220

75,317

304,013

290,784

Goodwill impairment charges

1,100

1,100

Asset impairment charges

(11

)

606

Finance interest expense

1,044

2,287

7,693

11,733

Provision (benefit) for loan losses

1,968

(8,759

)

123

21,946

Interest expense

6,191

6,176

22,250

29,514

Realized and unrealized (gains) losses on securities, net

(16,188

)

(51,158

)

24,044

(25,643

)

Other income, net

(1,201

)

(123

)

(38,185

)

(4,666

)

Total costs and expenses

364,026

246,987

1,324,031

1,185,237

Income before income taxes and equity method investments

67,831

91,732

200,865

125,399

Income tax provision

27,654

29,094

84,089

38,136

Loss (income) of associated companies, net of taxes

10,612

(22,634

)

(15,664

)

3,786

Net income from continuing operations

29,565

85,272

132,440

83,477

Discontinued operations

Income (loss) from discontinued operations, net of taxes

3

14,191

138

(2,808

)

Net loss on deconsolidation of discontinued operations

(7,391

)

Income (loss) from discontinued operations, net of taxes

3

14,191

138

(10,199

)

Net income

29,568

99,463

132,578

73,278

Net income attributable to noncontrolling interests in consolidated entities (continuing operations)

(651

)

(34

)

(1,170

)

(603

)

Net income attributable to common unitholders

$

28,917

$

99,429

$

131,408

$

72,675

Net income (loss) per common unit - basic

Net income from continuing operations

$

1.39

$

3.45

$

6.09

$

3.34

Net income (loss) from discontinued operations

0.57

(0.41

)

Net income attributable to common unitholders

$

1.39

$

4.02

$

6.09

$

2.93

Net income (loss) per common unit - diluted

Net income from continuing operations

$

1.25

$

2.06

$

4.96

$

1.85

Net income (loss) from discontinued operations

0.33

0.01

(0.20

)

Net income attributable to common unitholders

$

1.25

$

2.39

$

4.97

$

1.65

Weighted-average number of common units outstanding - basic

20,802,636

24,707,411

21,561,200

24,809,751

Weighted-average number of common units outstanding - diluted

25,682,447

42,930,970

28,920,258

51,390,972

Consolidated Statements of Cash Flows

(in thousands)

Year Ended December 31,

2021

2020

Cash flows from operating activities:

Net income

$

132,578

$

73,278

Gain (loss) from discontinued operations

138

...