Q4 2022 Icahn Enterprises LP Earnings Call

February 24, 2023

Okay.

Good morning, and welcome to the Icahn Enterprises L. P Q4, 2022 earnings call with Brockman director of accounting, David Willetts, President and CEO and tip off of Barcelona, Chief Financial Officer, I will now.

I'd like to hand, the call over to Russ Lynn, who will read the opening statement.

Thank you operator.

The private Securities Litigation Reform Act of $19 95 provides a safe harbor for forward looking statements. We make in this presentation, including statements regarding our future performance and plans for our businesses and potential acquisitions.

Forward looking statements maybe 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, including the severity magnitude and duration of the COVID-19 pandemic.

Accordingly, there is no assurance that our expectations will be realized.

We assume no obligation to update or revise any forward looking statements 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 Willis, our Chief Executive Officer.

Thank you Robert.

Welcome to the fourth quarter 2022, Icahn Enterprises earnings Conference call.

Joining me on today's call is Ted <unk>, our Chief Financial Officer, together will provide an overview of Q4 results and then be available for questions.

Before we get into the results I'd like to reemphasize that we believe activism to divest paradigm for investing we're putting our activist principles into effect, both on majority of controlled and our minority positions held in our investment segment.

We strongly believe in hedging our positions to mitigate risk, especially in the volatile markets that we're living in today.

For the sake of revenue all net income and EBITDA amounts will discuss our attributable to icahn enterprises unless otherwise specified.

Now on to the numbers.

Full year 2022, net loss was 183 million, which represents a year over year improvement of 335 plan.

Full year adjusted EBITDA for 2022 was $758 million, which represents a year over year improvement of 485 million.

For Q4, 2022, we had a net loss of $255 million and adjusted EBITDA of negative $54 million compared to a net loss of $396 million and an adjusted EBITDA of negative $443 million in the prior year period.

Our indicative net asset value at quarter end increased by 522 million to $5 6 billion as compared to December 31 2021.

The change in 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.

Regarding our segments year to date, our investment funds had a negative return of two 4%.

For comparison, the S&P 500 was down approximately 18% for the year.

CVI ended the quarter with continued strong performance largely due to a $20, 42% increase in crack spreads in quarter 422 versus 2021 with flat volumes.

<unk> have been increased to <unk> 50 per share per quarter for 2022, bringing the total 2022 dividends to about $5 30 per share.

CVR partners performed strongly in Q4, 'twenty two largely due to strong pricing markets for ammonia and <unk>, both of which were up versus Q4 2021 by approximately 30 plus percent.

For automotive services revenue growth remained strong at over 13% for the full year of 2000.

In Q4, the team executed the first phase of efficiency actions targeting corporate SG&A costs.

Although additional efficiency actions are planned in the first half of 2023, the company ish intensifying its focus on customer service and upgrading its premium services offerings.

CEO and CFO are now in place at the company and the overall leadership team is rapidly executing the plan for 2023 performance.

The IEP board declared a $2 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.

Thank you David.

Ill 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 Q4, 'twenty, two we had net loss of $255 million and adjusted EBITDA of negative $54 million compared to net loss of $396 million and adjusted EBITDA of negative $443 million in the prior year period.

I'll now provide more detail regarding the performance of our segments.

The investment funds had a negative return of four 6% for the quarter, which was driven by the negative performance of our short positions offset in part by certain long positions.

Quarter long positions had a positive performance attribution of four 5%, while short and other had a negative performance attribution of nine 2%.

The investment funds had a net short notional exposure of 47% at the end of the year compared to a net short notional exposure of 54% at the end of Q3.

Our investment in the funds was approximately $4 2 billion as of yearend.

And now to our energy segment.

In Q4, 'twenty to our energy segment reported net sales of $2 7 billion compared to $2 1 billion in the prior year quarter.

<unk> EBITDA was 168 million for Q4 dollars 22 compared to $40 million in Q4 'twenty one.

<unk> declared a <unk> 50 per share cash dividend and CVR partners declared a fourth quarter cash distribution of $10 50 per unit.

Q4, 'twenty two refining margin per throughput barrel was $17 14.

Compared to $7 13 in the prior year quarter.

This increase was primarily due to widening crack spreads.

The cost of Rins continue to have a negative impact on our refining business with $142 million of related expense for the quarter.

Q4, 'twenty two average realized gate prices for UAS improved by 31% to $455 per ton and ammonia improved by 30% to $967 per ton when compared to the prior year quarter.

Now to our automotive segment.

Q4, 22, net sales and other revenues for the automotive segment was $585 million, an increase of $22 million from the prior year quarter.

Q4, 22, adjusted EBITDA was negative $43 million compared to negative $97 million in Q4 'twenty one.

Q4, 'twenty two automotive service revenue increased by $43 million as compared to the prior year period due to price increases offset by lower volumes.

Q4, 'twenty two aftermarket part sales decreased by $25 million as compared to the prior year period, mainly due to lower volumes.

During the quarter. This segment was negatively impacted by increased inventory reserves and out of period adjustments.

Subsequent to year end auto plus and aftermarket parts distributor held within the segment filed a voluntary chapter 11 bankruptcy. This proceeding is limited to auto plus and we will not have a significant impact of Icahn enterprises.

Now to our real estate segment.

Q4, 22, net sales and other revenues increased by $8 million compared to the prior year quarter.

Adjusted EBITDA was 3 million for Q4 dollars 22 compared to negative 3 million for Q4 'twenty one.

Segment continued the strong performance and management the management team is highly focused on increasing occupancy across the portfolio.

Now turning to our other segments.

Q4, 22, net sales and other revenues for all other operating segments were.

Were relatively flat compared to the prior year quarter. Adjusted EBITDA was $6 million for Q4 dollars 22 compared to $12 million for Q4 'twenty one.

This case improved during Q4, 'twenty, two as compared to the prior year quarter, mainly due to price increases, which more than offset inflationary pressures in energy and raw materials.

Management continues to prioritize manufacturing productivity and efficiencies across the company.

During the quarter.

Home fashion was negatively impacted by products within its retail business, particularly in e-commerce.

Management has decided to exit unprofitable retail products to focus on its hospitality business and reduce overhead costs.

Now to our liquidity.

We maintain ample liquidity at the holding company and at 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 totaling approximately $6 8 billion.

Our subsidiaries have approximately $617 million of cash and $305 million of Undrawn credit facilities to enable them to take advantage of attractive opportunities and.

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.

And ladies and gentlemen, as a reminder to ask a question simply press star one one on your telephone to get into Q1 moment, while we compile the Q&A roster.

One moment for our first question comes from Daniel Fannon.

Hi, good morning.

Okay.

Hey, guys.

On the just the fund and the positioning given the short position heading into this year.

Actually not a good start.

Just given what beta has done so.

Just curious about just kind of a framework of how youre thinking about there.

Kind of the broader macro backdrop.

Obviously, a lot going on but just.

Is this.

Is there can you kind of inform us on kind of your views as you think about the year and the kind of investment outlook.

Sure. Thanks, Dan.

I think I mean, this is always the most difficult at least satisfying question.

Because it's really crystal ball.

There are a number of factors that were all aware of question marks on interest rates.

Really less on will they go up then on when they will go up.

What ripple effects that has the underlying operating economy.

We are always at least for the last several years.

Look to hedge both specific positions.

And broad market positions due to the uncertainty.

So our outlook doesn't remain radically changed its an uncertain environment that said, that's an environment in which they are often opportunities that are very rifle shot in nature. So we are quite focused on folks that may be in a.

A distressed situation based on all of these changes, but bought our hedging depending on the quarter.

Certainly either helps us it hurts us, but but our view is to be hedged appropriately we will manage out as much risk as we can while we execute.

Different phases.

Understood and I guess.

Similar to <unk> question, as we think about activist investing in at a higher rate environment I assume that presents more opportunities in terms of companies that might call on harder times that could benefit from some change, but also as you think about buying power and how your ability to generate the returns you need that obviously.

He is also potentially impacted by higher rates. So just wanted to do you think how you guys are thinking about that backdrop, and whether thats with rates, where they are and have been as you said potentially going higher would that maybe means for you.

The businesses.

Interest rates moving up as does present more opportunities and it does present, a realistic operating costs for our debt I think the one thing that we have to continually snapped back to us even though there is a market difference in interest rates certainly now.

In 2023 as compared to 2020 'twenty one.

Really still not at an abnormally high interest rate environment, but we're really just recalibrating back to environments that we've all lived in for many many many years. So yes. It is not welcome to pay more interest obviously, but it's we're not at.

Nose bleed levels at this point so it requires us to be as disciplined as we've ever been in terms of choosing investments that have a double digit return and <unk>.

Making sure we execute those quickly.

It's a concern but it's not one that we would say is extraordinary based on how we normally operate we've just gotten a tailwind from some unusually favorable interest rate environment in the last few years.

Understood and then just last one.

The the bankruptcy of the auto parts not being significant.

I guess just is there a way to quantify that.

Consolidated within your business, so just a little bit more color on what that means and how that should play through.

As that process unfolds that would be helpful. Thank you.

Yes.

Ted do you want to take that one yes, we don't breakout the auto plus business in our financials, but we did deem it auto plus was not a significant subsidiary of Icahn enterprises, and Norway that a strategic shift.

Getting rid of that subsidiary.

So it would not be a significant impact, but we can't quantify it at this time and it was a subsequent event so maybe during the Q1 earnings.

We'll be able to provide more color.

Okay. Thank you.

Thank you one moment for our next question. Please.

And it comes from the line of Andrew Burd.

Post Advisory group.

Hey, Thanks, guys just circling back on the investment funds for a moment.

It looked like to me on a single name.

Long positions you guys did reasonably well and obviously the biggest thing is probably hurt you was the was the equity short was a seven point change in net notional predominantly an adjustment to that equity sure.

Did you adjust in other areas.

I think the only the only thing that you really see running through here as the shorts as you pointed out did not perform well certainly quarter four was volatile as has been the last several quarters. So the shorts did not perform particularly well, but the longs did perform relatively well so I think on our overall positioning.

It doesn't reflect a fundamental change in our positions just relative performance between them in terms of the equities.

Okay, and I guess, I guess, you'll see it in the queue.

What the change was between the.

Index funds and the.

And the CBS shorts.

Well in terms of the <unk> shorts, maybe provide a bit broader context.

Those fees over time, so over time, if you would if you go back to certainly 2021 and 2022, our exposure to the <unk> Schwartz is naturally declined as those.

Those wind down so we see an impact and we certainly have seen an impact over the last several quarters thats been more pronounced than in past years, just as those those hard just easing in larger numbers and that is a.

That's a planned and predictable.

So.

I wouldn't read too much into that other than the natural the natural course for that security.

Okay.

My numbers suggest that that was probably.

Somewhere breakeven in the quarter. So I don't think it was significant.

Detracted from performance.

I might be wrong.

When we look at real estate.

$6 million swing in EBITDA.

What exactly is driving that.

It's great to see the improvement I'm, just wondering what was the.

What was the improvement there.

I mean.

The good news is that.

We have been focused on real estate.

And there is still opportunities certainly in one or two areas, but we've seen continued progress in our development companies they've done very well despite interest rate environments, they've done very well they continue to move forward.

We continue to be excited about our strategy and development.

Of of the type that we do and then over the course of really 'twenty to 'twenty one versus 'twenty. Two we've had continued progress in select net lease properties really leasing those out where they were idle we still have plenty of space to lease out and we're focused on that but what I would say is real estate.

<unk> has has started to come more into its own.

And stay tuned on that area, where we want to see that continued to perform well.

Okay, Great and then lastly, just looking at the asset values that you guys provide.

There was sort of three big areas, where we.

We saw that indicative value change.

<unk>.

One of which was in automotive owned real estate.

And you mentioned on the call that there were certain write downs that were taken.

Can you quantify those write downs and given the auto plus stuff happened subsequent to quarter end I just wanted to understand.

That decline in value that you show in automotive a little bit better.

Think about it from <unk> to <unk>.

Sure.

I mean, I think the biggest move that is represented there.

We'll separate it into what I consider the operating companies in the real estate.

NAV is evaluation based approach, which is obviously non-GAAP and.

In real estate, we value once a year and given the movement in cap rates.

Which has been relatively significant.

We adjusted.

Our net asset values down in the real estate sector doesn't really change any of the underlying economics for that sector for our ability to get market rents that we're getting in the past, but the reality is when you do an independent valuation and you look at cap rates.

As much as you may not wish do you have to recognize that based on our methodology. So that was the that was the single biggest change in in the automotive real estate sector.

I'd say in terms of the operations.

There were a number of items.

That I would characterize as.

Stemming from a new leadership team.

Particularly in the <unk>.

Services.

We've been focused on.

A full balance sheet review cleaning our processes.

Ensuring that controller ship is where it needs to be and as we really looked back we saw a number of items that were not to our liking and so several additional reserves.

Were posted.

Which I would characterize some of them as methodology change for example, let's post in excess and obsolete inventory methodology, let's reevaluate some of the capitalized items Youll for inventory. Those are just reevaluation of methodology and then frankly there are other other items that.

We had to recognize that should have been recognized perhaps a little bit more promptly than they had been.

<unk> Q4, and Q1, two and three.

Okay. So it was pretty much new management coming in in a bit of a cleanup that makes sense, it's a bit of a clean up got it. Thanks again.

Really focused on.

The integrity of the numbers there.

Okay helpful.

Okay. Thank you one moment for our next question.

Okay.

And it comes from the line of Bruce Moorhead with North East Investor Group.

Hi, guys can you hear me Okay, Yes, we can good morning, Bruce Okay. Great. Thanks, Thanks, as always for hosting the call and hopefully okay.

Packaging question.

Nice to see that.

The improvement in this case then.

Both the EBITDA and the marketing of the value that's great great a question on sort of Osceola.

Inning, or how is it going with.

Production there what inning are you in and that would you say maybe thats first question.

With regards to the plants.

Particularly the North American plants, here's what I would say the law.

A line that has been a source of consternation.

<unk> is running consistently at volumes.

There is still scrap rate issues that were muscling through they were close to but not at plan for scrap rates, but the reality is that that's not a material driver.

It's just an opportunity so I would say I.

I would still say, we're very much in the first inning and.

Baseball's around maybe were in the first quarter, what I'd say is we have taken many stabilization actions, we replace select personnel, we've gotten discipline on gauge R&R items on most of our indicators and.

Indicators of line performance, we're not done there yet, but we're at the point, where the plant is performing the plants are performing not wonderfully, but they're performing consistently I would say the next phase still very much in the first quarter.

It is now we need to make consistent improvements upward.

Good news is that OE and Oes always has its issues, but it's a general measure of efficiency, we've seen to sustain I believe it's a three month five percentage point increase in OE.

It's not it's not entirely where we'd like it to be but we're seeing small step function improvements.

My experience in plants is rarely do you get a big Bang unless its a scheduling opportunity when you have a plant with multiple issues with labor with machine reliability with scheduling you get it in two to five percentage point step functions. So I'd say, we're still in the first quarter, but we're not at square one.

Mix to mix my analogies here, we are making steady reliable progress.

I can say that one factor that we always worry about is power interruption and weather certainly for first quarter. There had been blips of weather related issues, but not something that that gives us concern for the overall trajectory for first quarter.

Okay, and I'm, sorry, well OE stands for.

It's basically equipment efficiency.

Okay overall.

Sure.

And then.

In terms of how management budgeting for 'twenty three.

Do we.

Do you do it off do they do it off of.

Off of for Q, and say, Okay, <unk> is back up and running and what's go off of that and budget. Some improvements do you do it off of.

Off of last year last year <unk> was pretty good but obviously it was down so how are you going to how are they going about budgeting would be a question. If you can answer that so budget.

The budgeting as always.

It's not so much a science as mark, but but effectively we've asked management and they have delivered us a year over year improvement plan that is based on multiple factors some of which are plant improvements some of which are sourcing some of which are costs some of which are.

Youll focused on rearranging the mix, so we get a richer mix across all of our comments when we take a look at how do we budget. We don't taken at an average for 2022. For example, we look at exit run rates and compare that versus the plans that have actually.

Been fully executed.

And the plans that are to be executed so I think thats, a little bit convoluted, but the short version is we don't just taken average we look fairly scientifically at what what is the plant is supposed to do or what are the initiatives supposed to do where do we exit the year. So that we're not letting management Sandler.

Sandbag.

The button.

Caution is we wanted a highly achievable.

In 2023.

<unk> showed meaningful growth.

But that had a 75% to 85% confidence factor and risks and opportunities that balanced.

So.

That's a long winded answer to the question you asked.

Thanks very.

Very much appreciated Greg again, congratulations and Asia had some FX headwinds in the quarter. So.

Got other things there, but I appreciate the chance to ask questions. Thank you.

Welcome.

Thank you and with that I will conclude the Q&A session I will turn the call back to David when it for final remarks, great.

Thank you. Thank you very much everyone for attending as always if you have questions that we werent able to get to.

For you to our website and there are several means in which you can.

Yeah.

Ask your questions or concerns or comments and we will attempt to get back to you in a reasonable timeframe. Okay. Thank you very much and we look forward to talking in roughly three months take care.

And with that we conclude our conference for today. Thank you for participating and you may now disconnect. Thank you and good day.

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

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Q4 2022 Icahn Enterprises LP Earnings Call

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