10-K: Steel Partners Holdings L.P. Reports Strong Net Income for 2024, Driven by Diversified Industrial and Financial Services Segments

Steel Partners Holdings L.P. announces increased net income for the fiscal year ended December 31, 2024, driven by growth in its Diversified Industrial and Financial Services segments.

Summary

• Steel Partners Holdings L.P. (SPLP) reported a net income of $271.2 million for the year ended December 31, 2024, compared to $154.0 million in 2023.
• Revenue increased by 6.4% to $2.03 billion, driven by higher sales in the Diversified Industrial and Financial Services segments.
• The Diversified Industrial segment saw a 4.1% increase in net sales, while the Financial Services segment experienced a 9.0% revenue increase.
• The Energy segment's revenue decreased by 19.2%, while the Supply Chain segment showed revenue of $185.6 million.
• Selling, general, and administrative expenses increased by 8.4% due to higher expenses in the Financial Services and Supply Chain segments.
• The company repurchased 2,360,634 common units during the year ended December 31, 2024, for an aggregate purchase price of $109.4 million.
• WebBank's lending programs depend on relationships with Marketing Partners, and the two highest grossing contractual lending programs combined accounted for approximately 16.9% of WebBank's total net revenue.
• The Company expects capital expenditures in the range of $34 million to $44 million in 2025.
• The minimum required contribution to the Company's pension plans for the year ending December 31, 2025, is $6.03 million.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with strong financial results, but also acknowledges various risks and uncertainties. The sentiment is moderately positive.

Positives

• Net income attributable to common unitholders increased to $261.6 million in 2024 from $150.8 million in 2023.
• Revenue increased by 6.4% to $2.03 billion, driven by higher sales in the Diversified Industrial and Financial Services segments.
• The Diversified Industrial segment saw a 4.1% increase in net sales, while the Financial Services segment experienced a 9.0% revenue increase.
• Interest expense decreased from $18.4 million in 2023 to $8.0 million in 2024.
• The Company's effective tax rate for the year ended December 31, 2024 was a benefit of 23.8% as compared to a benefit of 1.0% for the year ended December 31, 2023.

Negatives

• The Energy segment's revenue decreased by 19.2% due to lower rig hours.
• Selling, general, and administrative expenses increased by 8.4% due to higher expenses in the Financial Services and Supply Chain segments.

Risks

• Economic downturns in various sectors could disrupt and materially harm our businesses.
• Inflation and supply chain disruptions have, and may continue to negatively impact our business and results of operations.
• Significant volatility in prices of, and declines in customer demand for, crude oil due to factors beyond our control have materially and adversely affected our diversified industrial and energy business segments, and any prolonged instability in the oil industry could negatively impact our business, operations and financial condition.
• Rising interest rates may negatively impact our investments and have an adverse effect on our business, financial condition, results of operations and cash flows.
• Certain of the Company’s subsidiaries sponsor defined benefit pension plans, which could subject the Company to substantial cash funding requirements in the future.
• We are subject to risks associated with environmental, health and safety matters.
• We could incur significant costs, as a result of complying with or failing to comply with other extensive regulations, including banking regulations, to which our businesses are subject.
• Future cash flows from operations or through financings may not be sufficient to enable the Company to meet its obligations under its senior credit facility, and this would likely have a material adverse effect on its businesses, financial condition and results of operations, and credit market volatility may affect our ability to refinance our existing debt, borrow funds under our existing lines of credit or incur additional debt.
• Our business strategy includes acquisitions, and acquisitions entail numerous risks, including the risk of management diversion and increased costs and expenses, all of which could negatively affect the Company’s profitability.
• Divestitures and contingent liabilities from divested businesses could adversely affect our business and financial results.
• We may sustain losses in our investment portfolio, which could have an adverse effect on our results of operations, financial condition and liquidity.
• If our businesses are unable to adequately obtain or protect the intellectual property and licenses upon which they rely, or other third parties claim that our businesses have infringed upon or otherwise violated their intellectual property, we could face material adverse effects to our financial condition, businesses and results of operations.
• We conduct business outside of the United States, which may expose us to additional risks not typically associated with companies that operate solely in the United States.
• Global trade issues and changes in and uncertainties with respect to trade policies, trade sanctions, tariffs and international trade disputes, may significantly increase the costs or limit supplies of materials and products used in our operations.
• Litigation or compliance failures could adversely affect our profitability.
• A significant disruption in, or breach in security of, our technology systems could adversely affect our business.
• Current and proposed laws and regulations regarding the protection of personal data could result in increased risks of liability or increased cost to us or could limit our service offerings.
• Labor disputes, as well as the continued or further unionization of our, and our suppliers, workforce could increase our costs and cause work stoppages that may have an adverse effect on our business.
• WebBank's status as lender of the loans it offers, and the ability of assignees to collect interest, may be challenged, and these challenges could negatively impact WebBank’s ongoing and future business.
• WebBank is subject to capital requirements, and SPLP could be called upon by the FDIC to infuse additional capital into WebBank to the extent that WebBank fails to satisfy its capital requirements.
• WebBank's lending programs depend on relationships with Marketing Partners.
• WebBank is subject to risks of litigation from its borrowers or others regarding the processing of loans for the Paycheck Protection Program, or PPP, and risks that the Small Business Administration may not fund some or all PPP loan guaranties.
• We are subject to credit and interest rate risk in connection with our lending activities, and our financial condition and results of operations may be negatively impacted by factors that adversely affect our borrowers.
• Our businesses have been, and may in the future be, adversely affected by conditions in the financial services industry.
• Changes in Steel Connects relationships with significant clients, including the loss or reduction in business from one or more of them, could have a material adverse impact on its business.
• Our subsidiaries do not have long-term contracts with all of their customers, and the loss of customers with which we do not have long-term contracts could materially adversely affect our financial condition, business and results of operations.
• Failure to maintain effective internal control over financial reporting could result in material misstatements in our financial statements, and a failure to meet its reporting and financial obligations, each of which could adversely affect our results of operations and financial condition.
• Epidemics, pandemics, outbreaks of disease and other adverse public health developments have, and may in the future have, an adverse effect on our business, results of operations, financial condition and cash flows.
• Loss of essential employees could have a significant negative impact on our business.
• The unitholders have limited recourse to maintain actions against the General Partner, the Board of Directors, our officers and the Manager.
• Our Partnership Agreement contains certain provisions that may limit the voting rights of some unitholders.
• There are certain interlocking relationships among us and certain affiliates of Warren G. Lichtenstein, our Executive Chairman, which may present potential conflicts of interest.
• Certain members of our management team may be involved in other business activities that may involve conflicts of interest, possibly diverting their attention from the Company’s operations.
• We depend on Warren G. Lichtenstein, the Chairman and Chief Executive Officer of the Manager, and Jack L. Howard, the President of the Manager, in running our businesses. The loss of their services could have a material adverse effect on our business, results and financial condition.
• We cannot determine the amount of the Management Fee that will be paid or Class C partnership units that will be issued over time with any certainty.
• Our Manager’s liability is limited under the Management Agreement, and we have agreed to indemnify our Manager against certain liabilities. Such indemnification may incentivize our Manager to take unnecessary risks with respect to actions for which it will be indemnified.
• The Partnership Agreement limits the General Partner’s fiduciary duties to our unitholders.
• We may issue additional common or preferred units, or other series of units, in the future without the consent of unitholders and at a discount to the market price of such units. In particular, sales of significant amounts of the common or preferred units may cause the respective prices of the units to decline.
• Transfer restrictions contained in the Company’s Partnership Agreement and other factors could hinder the development of an active market for our common or preferred units.
• The preferred units give the holders thereof liquidation and distribution preferences over our common unitholders.
• Our common unitholders may be subject to U.S. federal, state and other income tax on their share of our taxable income, regardless of whether they receive any cash distributions from us.
• The Company and its current unitholders may be liable for adjustments to the Company's prior year tax returns as a result of centralized partnership audit procedures.
• Changes in tax rates, laws or regulations, including U.S. government tax reform, could have a negative impact on our results of operations.
• Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes and is not assured. If we are taxed as a corporation for U.S. federal income tax purposes, it could adversely impact our results of operations.
• Our structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available.
• Tax-exempt entities and non-U.S. persons face unique tax issues from owning common units that may result in adverse tax consequences to them.
• Our interests in certain of our businesses are held in intermediate holding companies treated as corporations for U.S. federal income tax purposes; such corporations may be liable for significant taxes and may create other adverse tax consequences, which could potentially adversely affect the value of our common units.
• Our subsidiaries may not be able to fully utilize their tax benefits, which could result in increased cash payments for taxes in future periods.
• Holders of our common units may be subject to state, local, and foreign taxes and return filing requirements as a result of owning such units.

Future Outlook

The Company believes that it and its operating subsidiaries have access to adequate resources to meet their needs for normal operating costs, capital expenditures, pension payments, debt obligations and working capital for their existing business, as well as to fund its taxes, legal and environmental matters, for at least the next twelve months.

Industry Context

The report provides insights into the performance of a diversified holding company with interests in various sectors, including industrial products, energy, and financial services, reflecting the cyclical nature and competitive dynamics within these industries.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or comparable companies.
• Without specific benchmarks, it's challenging to assess whether SPLP's performance aligns with or deviates from industry norms.
• A more detailed analysis would require comparing SPLP's financial metrics (e.g., revenue growth, profit margins, return on equity) against those of its peers in each of its operating segments.
• For example, WebBank's performance could be compared to other industrial banks or fintech lenders, while the Diversified Industrial segment could be benchmarked against similar manufacturing companies.
• Specific companies such as Berkshire Hathaway, 3M, or ITT could be used as benchmarks for the diversified industrial segment.
• For the Energy segment, companies like Halliburton or Schlumberger could be used for comparison.

Legal Proceedings

• The Company and certain of the Company's subsidiaries are defendants in certain legal proceedings and environmental investigations and have been designated as potentially responsible parties by federal and state agencies with respect to certain sites with which they may have had direct or indirect involvement.
• On December 13, 2024, the Court approved the Settlement and approved an award of $1,154 in fees and expenses to plaintiff's counsel, and granted a mootness fee to plaintiff's counsel of $463 (collectively, 'Counsel's Awards').
• On June 27, 2024, the Company and the other defendants paid their portion of the settlement to the State.
• On December 6, 2018, the State filed a complaint against SLI related to the Pennsauken Site.
• The parties have substantially completed the fact and expert discovery, including the exchange of competing expert reports.

Related Party Transactions

• SPLP is managed by the Manager, pursuant to the terms of the Management Agreement, which receives a fee at an annual rate of 1.5% of total Partners' capital.
• In 2012, SPLP issued to the Manager partnership profits interests in the form of Incentive Units which entitle the holder generally to share in 15% of the increase in the equity value of the Company.
• The Class C units have the same rights as the LP Units, including, without limitation, with respect to partnership distributions and allocations of income, gain, loss and deduction, in all respects, except that liquidating distributions made by the Company to such holder may not exceed the amount of its capital account allocable to such Class C units and such Class C units may not be sold in the public market, until they have converted into LP Units.
• At such time that the amount of the capital account allocable to a Class C unit is equal to the amount of the capital account allocable to an LP Unit, such Class C unit shall convert automatically into an LP Unit.
• The Manager has selected Mutual Securities, Inc. as an introducing broker and may direct a substantial portion of the managed entities' trades to such firm, among others.
• An officer of the Manager and SPH GP is affiliated with Mutual Securities, Inc.
• The commissions paid by SPLP to Mutual Securities, Inc. were $228 and $167 for the years ended December 31, 2024 and 2023, respectively.
• At December 31, 2024 and 2023, several related parties and consolidated subsidiaries had deposits totaling $27 and $110 at WebBank, respectively.

Stakeholder Impact

• The report provides information relevant to shareholders, employees, customers, suppliers, and creditors, offering insights into the company's financial health and future prospects.
• The company works with its businesses to increase corporate value over the long term for all stakeholders by implementing its unique strategy.

Next Steps

• Continue to implement improvements using the Steel Business System throughout all the Company's operations to increase sales and operating efficiencies.
• Support profitable sales growth both organically and potentially through acquisitions.
• Evaluate from time to time and as appropriate, strategic alternatives with respect to the Company's businesses and/or assets.

Key Dates