Steel Partners(US:SPLP)2022-11-09 22:22Company Overview - Steel Partners Holdings L.P. operates through three segments: Diversified Industrial, Energy, and Financial Services, with significant interests in various industries [164]. Mergers and Acquisitions - WebBank, a wholly-owned subsidiary, completed the acquisition of Security Premium Finance for a purchase price of $35,298, which includes a premium of approximately $1,593 and a profit share interest valued at approximately $1,250 [178]. - The proposed merger with Steel Connect involves converting each share of Steel Connect's common stock into $1.35 in cash and a contingent value right, with the merger expected to close in Q4 2022, subject to shareholder approvals [171][177]. Financial Performance - Revenue for the three months ended September 30, 2022 increased by $33,560, or 8.6%, compared to the same period last year, driven by higher sales across all reportable segments [187]. - Revenue for the nine months ended September 30, 2022 increased by $179,787, or 16.4%, compared to the same period last year, due to higher sales across all reportable segments [187]. - Total revenue for the three months ended September 30, 2022 was $425,673, an increase of 8.5% from $392,113 in the same period of 2021 [203]. - Financial Services revenue for the three months ended September 30, 2022 increased by $22,284, or 56.0%, compared to the same period of 2021 [213]. - Adjusted EBITDA for the three months ended September 30, 2022 was $60,167, compared to $72,491 for the same period last year [185]. - Adjusted EBITDA for the nine months ended September 30, 2022 was $183,785, compared to $196,631 for the same period last year [185]. - Adjusted EBITDA for the nine months ended September 30, 2022 was $183,785, a decrease of $12,846 from $196,631 in the same period of 2021 [202]. Costs and Expenses - Cost of goods sold for the three months ended September 30, 2022 increased by $20,838, or 8.2%, primarily due to higher sales and increased material and labor costs [188]. - Cost of goods sold for the nine months ended September 30, 2022 increased by $118,539, or 16.6%, driven by higher sales and increased material and labor costs [189]. - Selling, general and administrative expenses for the three months ended September 30, 2022 increased by $13,229, or 16.5%, primarily due to higher expenses in the Financial Services segment [190][191]. - Selling, general and administrative expenses for the nine months ended September 30, 2022 increased by $56,806, or 25.4%, driven by higher expenses in the Financial Services segment [192]. - The company recorded asset impairment charges of $2,449 for the three months ended September 30, 2022, primarily related to an ERP project [193]. Cash Flow and Capital Expenditures - Net cash used in operating activities during the nine months ended September 30, 2022 was $58,524, a decrease of $117,408 compared to $58,884 generated in the same period of 2021 [220]. - Net cash used in investing activities for the nine months ended September 30, 2022 was $85,649, primarily due to purchases of investments totaling $284,884 [222]. - Net cash provided by financing activities during the nine months ended September 30, 2022 was $181,923, primarily due to an increase in deposits of $606,626 [223]. - Capital expenditures for the nine-month period ended September 30, 2022, were $30,188, compared to $19,556 for the same period in 2021 [228]. - The Company expects full year capital expenditures in the range of $46,000 to $52,000 for 2022, down from $52,326 in 2021 [228]. Economic and Regulatory Environment - WebBank has observed economic disruption and loan performance deterioration due to inflation, rising interest rates, and recession risks, which may negatively impact credit losses [168]. - The ongoing COVID-19 pandemic continues to disrupt the U.S. and global economies, affecting business operations and economic recovery [179][180]. - The company is subject to significant regulatory requirements, including those related to environmental laws and banking regulations, which could impact future cash flows [163]. - The company has significant exposure to risks associated with conducting business outside the U.S., including changes in trade policies and economic downturns [163]. Internal Controls and Financial Health - The company has a material weakness identified in its internal control over financial reporting, which could affect its financial results [163]. - The Company believes it has adequate resources to meet its operating costs and obligations for at least the next twelve months [226]. - As of September 30, 2022, the Company's working capital was $267,196, a decrease from $569,090 as of December 31, 2021 [227]. - Total availability under the Credit Agreement was approximately $413,000 as of September 30, 2022 [227]. - WebBank had $321,959 in cash and cash equivalents as of September 30, 2022, an increase from $308,589 as of December 31, 2021 [229]. - WebBank's total cash, lines of credit, and access to the Federal Reserve Bank discount window amounted to $541,671 as of September 30, 2022, representing approximately 30.7% of its total assets [229]. - The Credit Agreement, which includes a senior secured revolving credit facility of up to $600,000, is subject to financial covenants that the Company was in compliance with as of September 30, 2022 [225]. Segment Performance - Net sales for the Diversified Industrial segment for the three months ended September 30, 2022 increased by $5,729, or 1.9%, compared to the same period of 2021 [204]. - Net revenue for the Energy segment for the three months ended September 30, 2022 increased by $5,547, or 12.1%, compared to the same period of 2021 [210]. - Segment operating income for the Financial Services segment for the three months ended September 30, 2022 decreased by $2,941 compared to the same period of 2021 [215]. Goodwill and Fair Value - The Electrical Products reporting unit had goodwill of $46,445 as of September 30, 2022, with a fair value exceeding its net book value by 15% as of December 31, 2021 [232].