Steel Partners Holdings L.P. (NYSE:SPLP) is a diversified global holding company that has demonstrated remarkable resilience and strategic adaptability amidst evolving market dynamics. With operations spanning across multiple industries, including diversified industrial products, energy, financial services, and supply chain management, SPLP has carved out a unique position as a highly diversified conglomerate capable of navigating complex challenges.
The Company’s History: A Legacy of Transformation and Innovation
SPLP’s origins can be traced back to 1990, when it was founded by Warren Lichtenstein, who continues to serve as the Executive Chairman. Initially focused on the steel industry, the company has undergone a remarkable transformation over the decades, strategically expanding its portfolio to encompass a wide range of industries and business segments. Through a combination of organic growth, strategic acquisitions, and operational excellence, SPLP has evolved into a formidable player, leveraging its diverse revenue streams to weather economic storms and capitalize on emerging opportunities.
In the early 2000s, SPLP navigated through a period of restructuring and reorganization, which included streamlining operations, divesting non-core assets, and focusing on its key business segments. The company demonstrated its resilience during the 2008 financial crisis, successfully weathering the storm through prudent risk management and operational efficiency measures.
A major milestone in SPLP’s history was the acquisition of WebBank in 2007, which has since become a crucial part of the company’s Financial Services segment. WebBank’s banking activities, including its lending programs with unaffiliated companies, have contributed significantly to SPLP’s growth and diversification.
Financial Strength and Resilience
Financials
SPLP’s financial performance has been a testament to its strategic acumen and operational discipline. As of the most recent fiscal year (2023), the company reported total revenue of $1.91 billion, a 12.4% increase compared to the prior year. Net income for the same period stood at $150.83 million, showcasing the company’s ability to drive profitability across its diversified business segments.
In the most recent quarter (Q3 2024), SPLP demonstrated continued growth with revenue of $520.42 million, representing a 5.7% increase year-over-year. Net income for the quarter reached $36.42 million, a significant 32.2% increase compared to the same period in the previous year. This strong performance underscores the company’s ability to execute its strategic initiatives effectively and capitalize on market opportunities.
The company’s operating cash flow (OCF) for the fiscal year 2023 was $21.22 million, while free cash flow (FCF) stood at -$30.23 million. However, in the most recent quarter (Q3 2024), SPLP showed substantial improvement in cash generation, with OCF of $101.76 million and FCF of $64.41 million, highlighting the company’s enhanced operational efficiency and cash management strategies.
It’s worth noting that SPLP’s revenues are primarily derived from domestic sources, with foreign revenues accounting for 10.8% of total revenue in 2023. The company’s international presence, while modest, provides some geographic diversification to its revenue streams.
Liquidity
The company’s balance sheet remains robust, with total assets of $3.99 billion as of the end of 2023. SPLP’s debt-to-equity ratio of 0.16 as of September 30, 2024, highlights its prudent approach to leverage, providing ample financial flexibility to pursue growth initiatives and weather potential market volatility. The company’s cash position stood at $388.12 thousand as of September 30, 2024.
SPLP’s liquidity position is further bolstered by its $600 million senior secured revolving credit facility, of which $470 million was available as of September 30, 2024. This substantial credit line provides the company with additional financial flexibility to fund operations and strategic investments.
The company’s current ratio of 1.27 and quick ratio of 1.16 as of September 30, 2024, indicate a solid ability to meet short-term obligations and maintain operational stability.
Diversified Business Model: A Competitive Advantage
SPLP’s diversified business model is a key competitive advantage, allowing the company to navigate various industry dynamics and economic cycles. The Diversified Industrial segment, which includes manufacturers of engineered niche industrial products, contributed $945.58 million, or 62.0%, to the company’s total revenue in the first nine months of 2024. This segment saw a 2.9% increase in net sales and an 8.4% increase in operating income compared to the same period in 2023.
The Energy segment, which provides drilling and production services to the oil and gas industry, generated $109.18 million, or 7.1%, of total revenue for the first nine months of 2024. Despite facing challenges, including lower rig hours, this segment continues to be an important part of SPLP’s portfolio.
The Financial Services segment, anchored by SPLP’s wholly-owned subsidiary WebBank, contributed $338.57 million, or 22.1%, to the top line for the first nine months of 2024, representing an 11.2% increase compared to the prior year period. This segment’s strong performance was driven by higher asset-based lending, credit risk transfer, and increased interest rates.
The Supply Chain segment, which includes the operations of Steel Connect, Inc.’s wholly-owned subsidiary ModusLink, added $136.59 million, or 8.9%, to the company’s revenue for the first nine months of 2024. This segment, acquired in May 2023, has shown promising growth, with a 94.6% increase in revenue compared to the same period in 2023.
This diversified revenue stream has been instrumental in SPLP’s ability to withstand industry-specific challenges and capitalize on growth opportunities across various market segments. As one segment may face headwinds, the company’s other business units can often offset the impact, providing a degree of stability and resilience to the overall organization.
Navigating Challenges in the Energy Segment
While SPLP’s diversified business model has been a significant advantage, the company has not been immune to challenges within its Energy segment. The volatility in crude oil prices, compounded by the ongoing geopolitical tensions and the global energy transition, has had a notable impact on the financial performance of this business unit. In the first nine months of 2024, the Energy segment’s revenue declined by 24.8% to $109.18 million, and its operating income decreased compared to the prior year period.
SPLP’s management team has responded proactively to these challenges, implementing cost-optimization strategies and exploring opportunities to diversify the Energy segment’s offerings. The company’s investment in its youth sports business, which is part of the Energy segment, represents a strategic move to expand its presence in adjacent sectors and reduce its reliance on the cyclical oil and gas industry.
Strategic Acquisitions and Investments
SPLP’s growth strategy has been characterized by a judicious approach to acquisitions and investments. The company’s recent majority investment in Steel Connect, Inc. and its wholly-owned subsidiary ModusLink, which operates in the Supply Chain segment, is a prime example of SPLP’s ability to identify and integrate complementary businesses that enhance its overall capabilities and market position.
The acquisition of Steel Connect not only expanded SPLP’s footprint in the supply chain management and logistics space but also provided opportunities for synergies and cross-selling between the company’s existing business segments. This strategic move underscores SPLP’s commitment to driving inorganic growth and leveraging its financial resources to capitalize on emerging market trends.
Commitment to Shareholder Value
SPLP has demonstrated a steadfast commitment to enhancing shareholder value. The company’s common unit repurchase program, first announced in 2016 and expanded in 2024, is a clear indication of management’s confidence in the long-term prospects of the business. Since the inception of the program, SPLP has repurchased 8.80 million common units for an aggregate price of approximately $206.08 million.
Furthermore, the company’s regular quarterly cash distributions on its 6% Series A Preferred Units, which have been maintained during periods of market volatility, highlight SPLP’s focus on providing consistent returns to its investors.
Conclusion
Steel Partners Holdings L.P. (NYSE:SPLP) has evolved into a diversified global holding company with a proven track record of navigating complex market environments. Its strategic agility, diversified business model, and commitment to shareholder value have positioned the company as a formidable player in its respective industries. The strong performance across its various segments, particularly in the Diversified Industrial and Financial Services sectors, demonstrates the effectiveness of SPLP’s business strategy.
As SPLP continues to leverage its operational expertise and financial resources, investors can look forward to the company’s ongoing journey of growth, innovation, and value creation. The company’s solid liquidity position, combined with its available credit facilities, provides a strong foundation for future investments and strategic initiatives. While challenges persist in certain segments, such as Energy, SPLP’s diversified portfolio and proactive management approach position it well to navigate these headwinds and capitalize on emerging opportunities across its various business units.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.