Steel Partners(SPLP) - 2021 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements (unaudited) Unaudited Q1 2021 financials show a turnaround to net income, driven by cost reductions and gains, despite revenue decline Consolidated Balance Sheets Total assets increased to $4.39 billion by March 31, 2021, driven by loans receivable, with liabilities and capital also rising Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $4,385,860 | $3,934,378 | | Cash and cash equivalents | $200,238 | $135,788 | | Long-term loans receivable, net | $2,549,961 | $2,183,017 | | Total Liabilities | $3,793,150 | $3,395,156 | | Other borrowings | $2,467,657 | $2,090,223 | | Total Capital | $592,710 | $539,222 | Consolidated Statements of Operations Q1 2021 net income of $53.0 million marks a significant turnaround from a prior-year loss, driven by cost reductions and gains Q1 2021 vs Q1 2020 Performance (in thousands, except per unit data) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Total Revenue | $314,493 | $347,210 | | Total Costs and Expenses | $272,678 | $352,626 | | Net Income (Loss) from Continuing Operations | $53,342 | $(36,479) | | Net Income (Loss) Attributable to Common Unitholders | $52,951 | $(60,878) | | Diluted EPS Attributable to Common Unitholders | $1.60 | $(2.43) | - Revenue declined across all segments: Diversified Industrial ($248.5M vs $261.6M), Energy ($32.1M vs $38.6M), and Financial Services ($33.9M vs $47.0M)[10] Consolidated Statements of Cash Flows Q1 2021 operating cash flow sharply decreased, while investing activities used more cash, and financing provided significant inflow from PPP loans Cash Flow Summary (in thousands) | Activity | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,229 | $164,655 | | Net cash used in investing activities | $(353,960) | $(8,435) | | Net cash provided by financing activities | $411,795 | $100,154 | Notes to Consolidated Financial Statements Notes detail business structure, COVID-19 impact, accounting policies, 2020 financial restatement, and loan portfolio specifics - The company is a diversified holding company with three segments: Diversified Industrial, Energy, and Financial Services[18] - The COVID-19 pandemic adversely affected financial results for Q1 2021, and its future impact remains uncertain[20] - Previously issued 2020 interim financial statements were restated to correct errors primarily related to the Electrical Products business, which involved improper valuation of inventories, revenue recognition, and accounts payable[24][26][160] - On January 31, 2020, the company deconsolidated its API subsidiaries, which entered administration and bankruptcy proceedings. These operations are now reported as discontinued[27][42] - On February 1, 2021, the company sold its Edge business for $16.0 million, recognizing a pre-tax gain of $8.1 million[46] - The Allowance for Loan Losses (ALLL) decreased by $7.1 million (26%) in Q1 2021, driven by lower than expected losses related to COVID-19 and higher paydowns[53] - As of March 31, 2021, the company had $2.46 billion in PPP loans and associated liabilities on its balance sheet[60] - The company's Board approved an increase to its common unit repurchase program, with 1.5 million units available for purchase as of May 12, 2021[102] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2021 performance, noting revenue decrease but significant net income improvement due to cost reductions and one-time gains Q1 2021 vs Q1 2020 Results Summary (in thousands) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Revenue | $314,493 | $347,210 | | Net Income (Loss) from Continuing Operations | $53,342 | $(36,479) | | Adjusted EBITDA | $49,776 | $37,717 | - Revenue decreased by $32.7 million (9.4%) YoY due to lower sales volume across all segments[187] - The increase in profitability was driven by a $19.7M one-time dividend from Aerojet, an $8.1M gain on the sale of the Edge business, and a $6.6M gain on the sale of an idle facility[194] - The Financial Services segment's operating income increased by $16.4 million, mainly due to a $26.9 million lower provision for loan losses as COVID-related reserves were partially released[205] - The company maintains strong liquidity with working capital of $334.8 million and total availability under its Credit Agreement of $355.7 million as of March 31, 2021[220] Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures have occurred since the most recent Annual Report on Form 10-K - There were no material changes to market risk disclosures from the most recent Annual Report on Form 10-K[226] Controls and Procedures Disclosure controls and procedures were ineffective as of March 31, 2021, due to material weaknesses, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2021, due to previously identified material weaknesses[227] - The material weaknesses are linked to errors at the Electrical Products business division and include an ineffective control environment, inadequate control activities (e.g., poor segregation of duties), and communication failures[229][231] - Remediation efforts in Q1 2021 include hiring a new president and CFO for the Electrical Products business and initiating company-wide training on internal controls[232] - Despite the material weaknesses, management believes the Q1 2021 financial statements are fairly presented in all material respects[228] PART II — OTHER INFORMATION Legal Proceedings The company is involved in various legal actions, with details provided in Note 16 of the financial statements - The company is party to various legal actions. For detailed information, refer to Note 16 - "Commitments and Contingencies" in the financial statements[234] Risk Factors No material changes to risk factors have occurred since the last Annual Report on Form 10-K - No material changes to risk factors have occurred since the last Annual Report on Form 10-K[235] Unregistered Sales of Equity Securities and Use of Proceeds The company has an active common unit repurchase program, with 1.5 million units available for future purchase - The Board of SPH GP has an approved common unit repurchase program with no termination date[237] - In April 2021, the company repurchased 661,053 common units for $10.1 million[238] - On May 12, 2021, the Board increased the repurchase program authorization, leaving 1,500,000 common units available for future purchase[238] Exhibits This section lists exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and Inline XBRL data - Key exhibits filed include Sarbanes-Oxley certifications (302 and 906) and Inline XBRL documents[239] Signatures The report was signed on May 14, 2021, by Jason Wong, Chief Financial Officer of Steel Partners Holdings L.P - The Form 10-Q was signed on May 14, 2021, by Jason Wong, Chief Financial Officer[243][245]