8-K: Steel Partners Holdings Announces Quarterly Distribution and Strong Q3 Results

Steel Partners Holdings L.P. declared a regular quarterly cash distribution on its Series A Preferred Units and reported a 5.7% increase in revenue and a 32.2% increase in net income for the third quarter of 2024.

Summary

• Steel Partners Holdings L.P. announced a regular quarterly cash distribution of $0.375 per unit on its 6% Series A Preferred Units, payable on December 15, 2024, to unitholders of record as of December 1, 2024.
• The company reported a 5.7% increase in revenue to $520.4 million for the third quarter of 2024, compared to the same period last year.
• Net income for the quarter increased by 32.2% to $36.9 million, with net income attributable to common unitholders at $36.4 million, or $1.65 per diluted common unit.
• Adjusted EBITDA for the quarter totaled $76.0 million, with an adjusted EBITDA margin of 14.6%.
• Net cash provided by operating activities was $101.8 million, and adjusted free cash flow was $34.3 million for the quarter.
• Year-to-date revenue reached $1.5 billion, a 6.4% increase compared to the same period last year, with net income at $196.6 million, a 76.6% increase.
• Year-to-date net income attributable to common unitholders was $187.0 million, or $8.02 per diluted common unit.
• Adjusted EBITDA for the year-to-date was $218.3 million, with an adjusted EBITDA margin of 14.3%.
• The company's total debt at quarter-end was $120.2 million, and net cash was $5.9 million.
• The company repurchased 13,813 common units for $547 and 76,146 preferred units for $1,830 during the nine months ended September 30, 2024.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, including increased revenue and net income, and a declared dividend. However, there are some concerns about decreased free cash flow and the energy segment's performance, which temper the overall sentiment.

Positives

• The company experienced a significant increase in revenue and net income for both the third quarter and year-to-date periods.
• The Diversified Industrial segment saw significant growth in net sales.
• The Financial Services segment delivered increased profits.
• The company's debt decreased by approximately $71.2 million compared to December 31, 2023.
• The company's leverage ratio improved to 1.0x as of September 30, 2024, compared to 1.5x as of December 31, 2023.
• The company's effective tax rate was (19.4%) for the nine months ended September 30, 2024, primarily due to a non-cash income tax benefit of $73.5 million for the reduction in the valuation allowance against Steel Connect's deferred tax assets.

Negatives

• Adjusted free cash flow decreased for both the three and nine-month periods due to higher working capital usage and capital expenditures.
• The Energy segment experienced lower net revenue.
• The company's net cash decreased by approximately $50.5 million compared to December 31, 2023, primarily due to treasury stock purchases and higher capital expenditures.
• The company recorded losses of $2.1 million for the three months ended September 30, 2024, as compared to gains of $8.7 million for the same period in 2023, due to unrealized gains and losses related to the mark-to-market adjustments on the company's portfolio of securities.

Risks

• The company's future distributions on the Series A Preferred Units are dependent on various factors, including results of operations, cash flows, financial position, and capital requirements.
• The company is exposed to risks inherent to conducting business outside of the U.S.
• The company is subject to the negative impact of inflation and supply chain disruptions.
• The company is exposed to the significant volatility of crude oil and commodity prices.
• The company is exposed to 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 company is exposed to risks associated with its wholly-owned subsidiary, WebBank, as a result of its FDIC status, highly-regulated lending programs, and capital requirements.
• The company is exposed to the risk of recent events affecting the financial services industry, including the closures or other failures of several large banks.
• The company is exposed to 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 company is exposed to the impact of losses in its investment portfolio.
• The company is exposed to the risk of a significant disruption in, or breach in security of, the company's technology systems or protection of personal data.
• The company is exposed to the risk of the loss of any significant customer contracts.
• The company is exposed to the risk of potential conflicts of interest arising from certain interlocking relationships amount us and affiliates of the company's Executive Chairman.
• The company is exposed to the risk of the impact to the development of an active market for the company's units due to transfer restrictions and other factors.
• The company is exposed to the risk of the potential negative impact on our operations of changes in tax rates, laws or regulations, including U.S. government tax reform.

Future Outlook

The company's future distributions on the Series A Preferred Units are dependent on various factors, including results of operations, cash flows, financial position, and capital requirements. The company also provided forward-looking statements regarding its ability to deliver shareholder value and build momentum across the business, but cautioned that actual results could differ materially from those expressed or implied.

Management Comments

• Executive Chairman Warren Lichtenstein stated that the company is proud to announce continued record revenue this quarter, driven by robust performance across multiple segments.
• He also noted that the Financial Services segment delivered increased profits, while the Diversified Industrial segment saw significant growth in net sales.
• He emphasized that these achievements underscore the strength of the company's strategic initiatives and its commitment to delivering value for its shareholders.

Industry Context

Steel Partners Holdings operates in a diversified range of industries, including industrial products, energy, defense, supply chain management, and financial services. The company's performance reflects the trends in these sectors, with growth in industrial and financial services offsetting some weakness in the energy sector. The inclusion of Steel Connect's financials since May 1, 2023, also impacts the overall results.

Comparison to Industry Standards

• Steel Partners' revenue growth of 5.7% in Q3 2024 is solid, but it is important to compare this to peers in each of its operating segments. For example, industrial companies like 3M or Honeywell have seen varying growth rates depending on their specific markets.
• The 32.2% increase in net income is a strong result, but it is important to compare this to the performance of other diversified holding companies such as Berkshire Hathaway or Icahn Enterprises, which have different business models and investment strategies.
• The adjusted EBITDA margin of 14.6% is a key metric to compare against peers in the industrial and financial services sectors. Companies like Danaher or Blackstone may have different margin profiles due to their specific business mix.
• The company's debt reduction is a positive sign, but it is important to compare its leverage ratio of 1.0x to other companies in its peer group to assess its financial health. Companies like General Electric or Siemens have different debt levels and capital structures.
• The company's adjusted free cash flow of $34.3 million is a key metric to compare against peers in the industrial and financial services sectors. Companies like Caterpillar or Goldman Sachs may have different cash flow profiles due to their specific business mix.

Stakeholder Impact

• Shareholders will benefit from the declared quarterly cash distribution on the Series A Preferred Units.
• Shareholders will also benefit from the increased revenue and net income.
• Employees may benefit from the company's improved financial performance.
• Customers may benefit from the company's continued investment in its businesses.
• Creditors may benefit from the company's reduced debt levels.

Next Steps

• The company will continue to monitor its results of operations, cash flows, financial position, and capital requirements to determine future distributions on the Series A Preferred Units.
• The company will continue to execute its strategic initiatives to deliver value for its shareholders and build momentum across the business.

Key Dates

Keywords

financial results, quarterly distribution, revenue, net income, EBITDA, preferred units, cash flow, debt, Steel Partners Holdings, SPLP