Icahn Enterprises L.P. (NASDAQ:IEP) Q2 2023 Earnings Call Transcript

Icahn Enterprises L.P. (NASDAQ:IEP) Q2 2023 Earnings Call Transcript August 4, 2023

Operator: Good morning and welcome to the Icahn Enterprises L.P. Second Quarter 2023 Earnings Call with Jesse Lynn, General Counsel; David Willetts, President and CEO; and Ted Papapostolou, Chief Financial Officer. I would now like to hand the conference over to Jesse Lynn, who will read their opening statement.

Jesse Lynn: Thank you, operator. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statement we make in this presentation, including statements regarding our future performance and plans for our businesses and potential acquisitions. Forward-looking statement may be identified by words such as expects, anticipates, intends, plans, believes, seeks, estimates, will or words of similar meaning and include but are not limited to statements about the expected future business and financial performance of Icahn Enterprises L.P. and its subsidiaries. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors that are discussed in our filings with the Securities and Exchange Commission, including economic competitive, legal and other factors.

Accordingly, there is no assurance that our expectations will be realized. We assume no obligation to update or revise any forward-looking statement, should circumstances change except as otherwise required by law. This presentation also includes certain non-GAAP financial measures. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the back of this presentation. I’ll now turn it over to David Willetts, our Chief Executive Officer.

David Willetts: Thank you, Jesse. Good morning and welcome to the second quarter 2023 Icahn Enterprises earnings conference call. Joining me on today’s call is Ted Papapostolou, our Chief Financial Officer. I’ll provide a brief overview of the second quarter results and then Ted and I will be available for questions. All net income and EBITDA amounts we’ll discuss are attributable to Icahn Enterprises, unless we otherwise specify. For Q2 2023, we had a net loss of $269 million and an adjusted EBITDA of $34 million, compared to a net loss of $128 million and an adjusted EBITDA of $126 million for Q2 2022. The loss was attributable to the performance of the investment segment and additional losses related to the bankruptcy of Auto Plus, which is nearing completion.

On a positive note, we see continued EBITDA improvements in our automotive segment and Food Packaging segments. Our indicative net asset value as of June quarter end, decreased to $5 billion as compared to $5.6 billion at the end of December 31, 2022. Indicative net asset value includes, among other things, changes in the fair value of certain subsidiaries, which are not included in our GAAP earnings reported above. For Q2 2023, our investment funds had a negative return of $215 million, or 5.4%. We are encouraged by the results to date in July, which served to underscore the volatility inherent in the market. CVR Energy posted solid results for the 2023 second quarter, though commodity pricing led to moderate declines versus prior quarter and prior year quarter.

Given the company’s cash position, the CVR Energy board declared a $0.50 regular dividend and a special $1 dividend for the quarter. CVR Partners achieved solid results for the 2023 second quarter, led by strong production offset by lower fertilizer pricing during the quarter. Our automotive segment posted strong year-over-year performance on an income and adjusted EBITDA. Automotive Services continues to show progress on its improvement plan, and its results are fully in line with our expectations. After consideration, the IEP board declared a $1 quarterly distribution payable in cash for additional units. With that, let me turn it over to Ted for a detailed discussion of all of our segments.

Ted Papapostolou: Thank you, David. I will begin by reviewing our consolidated results and then highlight the performance of our operating segments and comment on the strength of our balance sheet. For Q2 ’23, we had a net loss of $269 million, which was a decline of $141 million from the prior year quarter. Q2 ’23 includes a one-time $116 million loss related to the loan receivable from Auto Plus in connection with the bankruptcy, which will be included in our holding company segment. I will now provide more detail regarding the performance of our individual segments. The investment funds had a negative return of 5.4% for the quarter, which was driven primarily by the negative performance of a broad market hedge and the negative performance of two single-name long positions.

For the quarter, long and other positions had a net negative performance attribution of 2.6% and short positions had a negative performance attribution of 2.8%. The investment funds had a net short notional exposure of 18% at the end of the quarter compared to a net short notional exposure of 47% at year end. Our investment in the funds was approximately $3.8 billion as of quarter end and now to our Energy segments. In Q2 ’23, our Energy segment reported net sales of $2.2 billion compared to $3.1 billion in the prior year quarter. Adjusted EBITDA was $173 million for Q2 ’23 compared to $273 million in Q2 ’22. CVI declared a $0.50 per share cash dividend and a $1 per share special dividend. Q2 ’23, refining margin per throughput barrel was $18.21 compared to $26.10 in the prior year quarter.

This decrease was primarily due to declining crack spreads. The cost of rents continued to have a negative impact on our refining business with $90 million of related expense for the quarter. Q2 ’23 average realized gate prices for UAN decreased by 43% to $316 per ton and ammonia decreased by 40% to $707 per ton when compared to the prior year quarter. And now to our Automotive segment; Q2 ’23 adjusted EBITDA was $32 million, a $19 million improvement as compared to Q2 ’22. Q2 ’23 net sales and other revenues for the auto segment were $425 million, a decrease of $196 million from the prior year quarter. The decrease in revenue is primarily due to the deconsolidation of Auto Plus, which occurred in Q1 ’23. Automotive services revenues were down $1 million and auto parts revenues were down $195 million as compared to the prior year quarter.

During the quarter, a wholly owned subsidiary of IEP within the auto segment acquired $10 million of assets, mainly comprised of aftermarket parts inventory from the Auto Plus auction. This inventory will be managed and sold by the Icahn automotive team. And now to our Real Estate segment; Q2 ’23 net sales and other revenues increased by $3 million compared to the prior year quarter. Adjusted EBITDA was $5 million for Q2 ’23 compared to $4 million for Q2 ’22. The main drivers of the increase in EBITDA were due to the performance of the country club, which experienced membership growth, and our resort in Aruba had higher occupancy. During the quarter, a triggering event for potential impairment occurred at one of our properties. We access the carrying value of the this long lived asset for recoverability and concluded the asset was not impaired.

The management team is highly focused on achieving its long term occupancy goals. And now to our Other segments; Q2 ’23 net sales and other revenues for all other operating segments were relatively flat compared to a prior year quarter. Adjusted EBITDA was $27 million for Q2 ’23 compared to $18 million for Q2 ’22. This case’s adjusted EBITDA improved by $6 million or 50% for Q2 ’23 as compared to the prior year quarter. The company continues to improve manufacturing efficiencies and has reduced distribution costs compared to the prior year period. Home fashions’ adjusted EBITDA was flat at $2 million as compared to the prior year quarter. They continue to be negatively impacted by products within its retail business, particularly in e-commerce.

Management has done a good job of offsetting the decline in volume with cost-cutting initiatives. SG&A improved by $1 million as compared to the prior year’s quarter. The Pharma segment’s adjusted EBITDA for Q2 ’23 improved by $3 million as compared to the prior year quarter, mainly due to Pancreaze’s margin improvement and Qsymia’s script growth. And now to our liquidity; we maintain liquidity at the holding company and each of our operating subsidiaries to take advantage of attractive opportunities. We ended the quarter with cash, cash equivalents, our investment in the investment funds, and revolver availability totalling approximately $6.6 billion. Our subsidiaries have approximately $914 million in cash and $360 million on joint credit facilities to enable them to take advantage of attractive opportunities.

In summary, we continue to focus on building asset value and maintaining liquidity to enable us to capitalize on opportunities within and outside our existing operating segments. Thank you. Operator, can you please open up the call for questions?

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Q&A Session

Operator: [Operator instructions] Our first question comes from the line of Daniel Fannon with Jeffries. Please proceed.

Dan Fannon: Thanks. Good morning. So, just a question on first just on the dividend, $1 versus $2, I guess just curious about how you can — the reason behind or the coming up with $1 and as you think about, what the cash flows from the underlying businesses are to support that, can you talk about the obligations as you think as both the debt as well as the dividend and then where you see the sources of cash flow to support the current dividend as you said today?

David Willetts: Good morning, Dan. Thanks for that. I think you’ve asked several questions there. So let me unpack that. As we’ve always done historically, we look at a number of different factors, right? Obviously, business performance, economic macros, obligations under the indentures, cash flows from the underlying companies. We look at the entire situation. Obviously, the world has changed at least for us given a number of the news articles that were in the first quarter, second quarter and so, we’ve taken all of that and with the board have looked at and determined that for this quarter, it made sense to adjust the dividend to a $1 distribution per unit, right? As we look forward, as we do every quarter, we take those same factors and we reassess what the dividend or distribution should be.

Now, to your specific questions with regards to sources, there are several different sources, but, ultimately, what you take a look at is this is a lumpy, long-term business, right? We have, large wins from time to time and we have volatility in the market. We are not a company that necessarily has steady, predictable cash flow chunking in and out every quarter. So, given that unpredictability and lumpiness, we take a look at all the factors I mentioned to determine how we actually set a dividend or distribution. When it comes to sources, obviously, we have sizable amounts of cash on hand today. We have a large number of securities in our hedge funds and we have new operating companies, all of which can be sources of profit or sources of capital to return to shareholders or unit holders as we look forward; anything else to add to it?

Ted Papapostolou: You’re spot on Dave.

Dan Fannon: So just to follow-up on that, is that implied that we should see more variability in the dividends on a quarterly or annual basis that we have seen historically?

Ted Papapostolou: I wouldn’t read into it one way or the other, right. I think, when you take a look at a quarterly reevaluation every quarter, we have had the benefit in over the past number of years of having a fairly predictable, constant distribution. That said, I think we’ve always cautioned that we reevaluate that quarterly, and it’s subject to change. There are no guarantees, but we have certainly served to provide a very healthy return to our unit holders over time with very attractive dividend yields and even when you take a look at the dividend yield, that would be implied based on share prices and per unit, it remains a healthy and attractive dividend yield. So I can’t predict the future, but I think take everything I’ve said, as we’re not changing our practice going forward, we’re going to continue to do exactly what we’ve done, which is assessed things critically quarterly.

Dan Fannon: Understood. And then on the investment front, can you be more specific on what you have done in terms of the investment strategy that’s different because it sounded very similar to what we’ve heard in the past, where the hedges are kind of broad and macro, and obviously the loans didn’t contribute to positive returns either this quarter, but just so we understand going forward, how the investment strategy is potentially still utilizing hedging as ultimately, if it’s really that different than what you’ve been doing on a long return basis?