Steel Partners(SPLP) - 2023 Q1 - Quarterly Report

Company Overview - Steel Partners Holdings L.P. (SPLP) operates through three segments: Diversified Industrial, Energy, and Financial Services, with significant interests in various industries[168]. WebBank Operations - WebBank, a wholly-owned subsidiary, is an FDIC-insured bank that engages in a full range of banking activities, including originating loans and issuing credit cards, and has observed economic disruption due to inflation and rising interest rates[172]. - As of March 31, 2023, WebBank's total Paycheck Protection Program (PPP) loans amounted to $36,013,000, with associated liabilities of $31,692,000[173]. - WebBank had total cash, lines of credit, and access to the Federal Reserve Bank discount window amounting to $642,556 as of March 31, 2023, representing approximately 28.9% of its total assets[215]. Financial Performance - Revenue for the three months ended March 31, 2023, increased by $39,626, or 9.8%, compared to the same period last year, driven by higher revenue from Financial Services and Energy segments[186]. - Net income from continuing operations for the three months ended March 31, 2023, was $24,803, compared to $4,541 in the same period of 2022[186]. - Revenue from the Financial Services segment increased by $52,602, or 130.9%, primarily due to higher interest income and fees[203]. - Energy segment revenue increased by $9,847, or 25.7%, driven by higher demand and favorable pricing[200]. - Adjusted EBITDA for the three months ended March 31, 2023, was $63,131, a decrease of $1,439 from $64,570 in the same period of 2022[195]. - Segment operating income for Q1 2023 increased by $11,925 compared to Q1 2022, primarily due to higher revenue, partially offset by increased SG&A costs and provision for credit losses[204]. - Segment Adjusted EBITDA for Q1 2023 rose by $12,484 compared to the same period in 2022, driven by higher revenue[205]. Expenses and Costs - Cost of goods sold decreased by $6,877, or 2.6%, primarily due to lower sales from the Diversified Industrial segment, partially offset by higher material costs[187]. - Selling, general and administrative expenses increased by $28,830, or 33.5%, mainly due to higher expenses in the Financial Services segment[188]. - Interest expense increased by $1,462, or 32.3%, due to higher average interest rates[190]. Cash Flow and Capital Management - Net cash used in operating activities for Q1 2023 was $(48,248), a significant increase from $(13,310) in Q1 2022[207]. - Net cash used in investing activities for Q1 2023 was $(153,963), compared to cash generated of $35,482 in Q1 2022[209]. - Net cash provided by financing activities for Q1 2023 was $272,717, contrasting with $(145,864) in Q1 2022[210]. - As of March 31, 2023, working capital was $214,647, up from $156,085 as of December 31, 2022[214]. - Capital expenditures for Q1 2023 were $10,708, compared to $7,746 in Q1 2022, with full-year expectations set between $54,000 to $67,000[214]. - The Company plans to contribute $5,814 to its pension plans during the remainder of 2023, following a $2,000 contribution made on April 13, 2023[214]. - The Company’s total availability under the Credit Agreement was approximately $408,300 as of March 31, 2023[214]. Risks and Governance - SPLP's financial condition and results of operations are subject to various risks, including economic downturns and volatility in crude oil prices[167]. - The Company emphasizes the importance of maintaining effective internal control over financial reporting to mitigate risks associated with its operations[167]. - A Stockholders' Agreement was executed concurrently with the Exchange Agreement, establishing governance aspects for STCN, including the creation of an Independent Audit Committee[177]. - The Stockholders' Agreement stipulates that 70% of net proceeds from the resolution of the Reith litigation will be distributed to STCN's stockholders, with SP Investors waiving their portion[179]. - The SP Investors, owning a majority of STCN's voting power, have agreed to vote in favor of the Nasdaq Proposal, ensuring its approval[180]. Share Exchange and Stockholder Actions - On April 30, 2023, SPLP exchanged 3,597,744 shares of Aerojet for 3,500,000 shares of newly created Series E convertible preferred stock of STCN, with a liquidation preference of $58.1087 per share[175]. - The Series E Preferred Stock will be convertible into approximately 184,891,318 shares of common stock of STCN upon stockholder approval[176]. - Loss from associated companies, net of taxes, decreased to $3,967 for the three months ended March 31, 2023, from $4,643 in the same period of 2022[194]. - The effective tax rate for the three months ended March 31, 2023, was 33.7%, down from 45.3% in the same period of 2022[193].