10-Q: Steel Partners Holdings L.P. Reports Strong Second Quarter 2024 Results Driven by Diversified Growth

Steel Partners Holdings L.P. announces increased revenue and net income for the second quarter of 2024, driven by growth across multiple segments and a significant tax benefit.

Summary

• Steel Partners Holdings L.P. (SPLP) reported a revenue of $533.16 million for the three months ended June 30, 2024, a 6.4% increase compared to the same period last year.
• Net income attributable to common unitholders was $116.34 million, or $5.72 per basic unit, for the quarter, compared to $59.15 million, or $2.75 per basic unit, in the prior year.
• For the six months ended June 30, 2024, revenue reached $1.01 billion, a 6.7% increase year-over-year, with net income attributable to common unitholders at $150.57 million, or $7.33 per basic unit.
• The company's diversified industrial segment saw a 6.2% increase in net sales for the quarter, while the financial services segment experienced a 9.7% revenue increase.
• The supply chain segment, which includes ModusLink, contributed significantly to revenue growth due to its consolidation, while the energy segment saw a decrease in net revenue.
• A one-time non-cash income tax benefit of $71.55 million was recorded due to the release of Steel Connect's valuation allowance on its deferred tax assets.
• The company repurchased 43,557 common units for $1.65 million during the quarter and 76,146 preferred units for $1.83 million during the six month period.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, particularly in net income and revenue growth. The strategic consolidation of the supply chain segment and the tax benefit further enhance the positive sentiment. However, the challenges in the energy sector and the increase in operating expenses temper the overall optimism.

Positives

• The diversified industrial segment experienced a 6.2% increase in net sales for the quarter.
• The financial services segment saw a 13.8% increase in revenue for the six months ended June 30, 2024.
• The company's net income per common unit increased significantly year-over-year.
• The company's total availability under the Credit Agreement was approximately $511.6 million as of June 30, 2024.
• The company is in compliance with all financial and nonfinancial covenants under its Credit Agreement.
• WebBank's capital ratios continue to exceed the well-capitalized minimum capital requirements.

Negatives

• The energy segment experienced a 26.5% decrease in net revenue for the quarter and a 30% decrease for the six month period.
• Selling, general and administrative expenses increased by 2.4% for the quarter and 9.4% for the six month period.
• Interest expense decreased significantly due to lower average debt outstanding, but still represents a cost.
• The company's working capital decreased from $562.22 million to $470.97 million since the end of 2023.

Risks

• The company's profitability is sensitive to changes in crude oil and commodity prices.
• The company is subject to various legal proceedings and environmental investigations.
• The company's ability to meet obligations under its senior credit facility depends on future cash flows or financings.
• The company's goodwill at its Electrical Products reporting unit is at risk for future impairment if cash flow projections are not met.
• The company's pension plans could subject it to future cash flow requirements.
• The company is exposed to risks inherent to conducting business outside of the U.S.
• The company's tax treatment and its subsidiaries ability to fully utilize their tax benefits are subject to change.

Future Outlook

The company believes it has access to adequate resources to meet its needs for normal operating costs, capital expenditures, pension payments, debt obligations and working capital for its existing business, as well as to fund its taxes, legal and environmental matters, for at least the next twelve months. The company expects full-year capital expenditures in the range of $70 million to $77 million in 2024.

Management Comments

• Management plans to use strategies to enhance liquidity, including implementing improvements using the Steel Business System, supporting profitable sales growth, and evaluating strategic alternatives.
• Management believes it will remain in compliance with the Credit Agreement's covenants for the next twelve months.
• Management believes that the Holding Company 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 reflects a mixed performance across different sectors, with strong growth in diversified industrial and financial services, while the energy sector faces challenges due to lower oil prices. The consolidation of the supply chain segment through ModusLink is a strategic move to enhance the company's overall capabilities. The financial services sector's performance is in line with the broader trend of increased interest rates benefiting banking operations.

Comparison to Industry Standards

• The diversified industrial segment's growth is comparable to other industrial companies experiencing moderate growth in the current economic environment.
• The financial services segment's performance, particularly WebBank, is strong compared to other regional banks, benefiting from higher interest rates and strategic lending programs.
• The energy segment's decline is consistent with the challenges faced by the oil and gas industry due to fluctuating commodity prices.
• The supply chain segment's growth is a result of the consolidation of ModusLink, which is a strategic move to enhance the company's overall capabilities and is not directly comparable to industry standards.
• The company's overall performance is better than some diversified holding companies, due to its strategic investments and operational improvements.

Legal Proceedings

• The company and certain of its subsidiaries are defendants in certain legal proceedings and environmental investigations.
• The company is working with the Connecticut Department of Energy and Environmental Protection with respect to its obligations under a 1989 consent order.
• The company is investigating and remediating property in Montvale, New Jersey under an administrative consent order.
• The company is involved in litigation related to a former subsidiary, SL Surface Technologies, Inc., in Pennsauken, New Jersey.
• The company is participating in environmental assessment and cleanup at a commercial facility located in Wayne, New Jersey.
• The company is involved in the Reith v. Lichtenstein, et al. litigation.
• A subsidiary of BNS Holdings Liquidating Trust has been named as a defendant in multiple alleged asbestos-related toxic-tort claims.

Related Party Transactions

• SPLP is managed by SP General Services LLC, which receives a management fee.
• Steel Services Ltd provides services to subsidiaries and related parties.
• Securities transactions for SPLP are allocated to brokers, including Mutual Securities, Inc.

Stakeholder Impact

• Shareholders benefit from increased net income and earnings per unit.
• Employees may see potential benefits from the company's growth and strategic initiatives.
• Customers may experience improved services and products due to operational enhancements.
• Suppliers may see increased business opportunities due to the company's growth.
• Creditors are likely to have confidence in the company's ability to meet its obligations due to its strong financial performance and compliance with covenants.

Next Steps

• The company will continue to implement improvements using the Steel Business System.
• The company will support profitable sales growth both internally and potentially through acquisitions.
• The company will evaluate strategic alternatives with respect to its businesses and/or assets.
• The company will continue to monitor the impact of the current economic environment on its loan portfolio.
• The company will continue to work with the Connecticut Department of Energy and Environmental Protection to address a final workplan for the Fairfield, Connecticut site.
• The company will continue to investigate and remediate the soil and groundwater at the Montvale, New Jersey property.
• The company will continue to participate in environmental assessment and cleanup at a commercial facility located in Wayne, New Jersey.
• The company will continue to assert all legal and procedural defenses available to it in the Reith v. Lichtenstein, et al. litigation.

Key Dates

Keywords

Steel Partners Holdings, SPLP, financial results, quarterly report, diversified industrial, energy, financial services, supply chain, WebBank, ModusLink, net income, revenue, common units, credit agreement, tax benefit, repurchase program