Q2 2023 Icahn Enterprises LP Earnings Call
Okay.
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 <unk>.
<unk> Chief Financial Officer, I would now like to hand, the conference older to Jesse Lynn who will read the opening statement. Thank you operator, the private Securities Litigation Reform Act of 1995 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 expected future business and financial performance of Icahn Enterprises L. P and its subsidiaries actual events results at all.
It comes 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 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 Willetts, Our Chief Executive Officer.
Thank you Jessie good morning, and welcome to the second quarter 2023, Icahn Enterprises earnings conference call joining.
Joining me on today's call is Ted <unk>, our Chief Financial Officer.
I'll provide a brief overview of second quarter results, and then Ted and I will be available for questions.
All net income and EBITDA amounts will discuss our attributable to icahn enterprises, unless otherwise specified.
For Q2, 2023, we had a net loss of 269 million.
And adjusted EBITDA of $34 million compared to a net loss of $128 million and 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.
Water and decreased to $5 million as compared to $5 6 billion as of December 31, 2022.
Negative net asset value includes among other things changes in the fair value of certain subsidiaries, which are not included in our GAAP earnings reported about.
For Q2 2023, our investment funds had a negative return of 2200 $15 million or five 4%.
We're encouraged by the results to date in July which serve to underscore the volatility inherent in the market.
CVR energy posted solid results for the 2023 second quarter low 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 <unk> 50, <unk> 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.
Motive segment posted strong year over year performance on net income and adjusted EBITDA Automotive services continues to show progress on its implement improvement plan and its results are fully in line with our expectations.
After consideration of the IAP Board declared a $1 quarterly distribution payable in cash or additional units.
With that let me turn it over to Ted for a detailed discussion of all of our segments.
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, 'twenty. Three we had a net loss of $269 million, which was a decline of $141 million from the prior year quarter Q2, 23 includes a onetime $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 five 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 preferreds attribution of two 6% and short positions had a negative performance attribution of two 8%.
<unk> 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 fund was approximately $3 8 billion as of quarter end.
Now to our energy segment.
In Q2, 'twenty three our energy segment reported net sales of $2 2 billion compared to $3 1 million in the prior year quarter. Adjusted EBITDA was $173 million for Q2 dollars 23 compared to $2 73 in Q2 'twenty to <unk>.
<unk> declared a <unk> 50 per share cash dividend of $1 per share special dividend.
Q2, 2003 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 Rins continue to have a negative impact on our refining business with $90 million of related expense for the quarter.
Q2, 'twenty three average realized gate prices for UAS decreased by 43% to $316 per ton.
On 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 of $19 million improvement as compared to Q2 'twenty to.
Q2, 'twenty three 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 revenues, primarily due to the deconsolidation of <unk>, plus which occurred in Q1 of 'twenty three.
<unk> services revenues were down $1 million in auto parts revenues were down $195 million as compared to the prior year quarter.
During the quarter, our 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, 'twenty three net sales and other revenues increased by $3 million compared to the prior year quarter. Adjusted EBITDA was 5 million for Q2 dollars 23, compared to 4 million for Q2 'twenty two the main drivers of the increase in EBIT due to the performance of the country club, which experienced membership growth and our resort in Aruba higher.
Occupancy.
During the quarter, a triggering event for potential impairment occurred at one of our properties, we assess the carrying value of its 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, 2003, net sales and other revenues for all other operating segments were relatively flat compared to the prior year quarter.
Adjusted EBITDA was $27 million for Q2, 'twenty three compared to $18 million for Q2 2002.
This case is adjusted EBITDA improved by $6 million or 50% for Q2, 'twenty three 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 continued 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.
The prior year's quarter.
The pharma segment's adjusted EBITDA for Q2, 'twenty, three improved by $3 million as compared to the prior year quarter, mainly due to <unk> margin improvement <unk> script growth.
And now to our liquidity.
We maintain liquidity at the holding company in each of our operating subsidiaries to take advantage of a truck attractive opportunities. We ended the quarter with cash cash equivalents our investment in the investment funds.
And revolver availability totaling approximately $6 6 billion.
Our subsidiaries have approximately $914 million in cash and $360 million of Undrawn credit facilities to enable them to take advantage of attractive opportunities in.
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.
Operators can you. Please open up the call for questions.
Thank you.
Ladies and gentlemen to ask a question you will need to press star one one on your telephone and wait for your name to be announced.
One moment, while we compile the Q&A roster.
Again that is star one one to getting mchugh.
All right. Our first question comes from the line of Daniel Fannon with Jefferies. Please proceed.
Thanks. Good morning, So just a question on first just on the dividend.
Dollar versus $2.
Just curious about how you can the reason behind or the <unk>.
Coming up with a $1 and you think about what the <unk>.
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 that.
The current dividend as you step today.
Good morning, again, thanks for that and I think.
You've asked several questions. There so let me let me unpack that.
As we've always done historically.
Look at a number of different factors that mean, obviously business performance economic macros obligations under the indentures.
Cash flows from the underlying companies we look at look at the entire situation. Obviously the world is world has changed at least for US given a number of these articles.
That were in 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 as.
As we look forward as we do every quarter, we take those same factors and re reassess what the dividend or distribution should be not to your specific questions with regards to sources.
I mean, there are several different sources, but I mean, ultimately what you take a look at is this is a lumpy long term business.
We have large wins from time to time, and we have volatility in the market. We're not a company that necessarily has steady predictable cash flow chunking in and out every quarter, so given given that unpredictability and lumpiness.
We take a look at all the factors I mentioned to determine.
How we actually set a dividend distribution.
When it comes to sources, obviously, we have sizable amounts of cash on hand today, we have a large number of securities.
Our hedge funds and we have your 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.
But on Dave.
So just to follow up on that does that imply that we should see more variability in the dividends on a quarterly or annual basis, and we've seen historically.
I wouldn't read into it one way or the other.
I think when.
When you take a look at a quarterly reevaluation every quarter, we've had the benefit.
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, but.
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.
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 assess things critically quarterly.
Yeah.
Understood and then on the investment fund 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 broader macro.
Obviously, the lungs 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 and ultimately if it if it is really that different than what you've been doing on a longer term basis.
I think much.
I appreciate the question because it's an important question.
When you look at what we do which is activism or view on activism Hasnt changed we have I'd have to count them, probably eight to 10 companies that we have invested in where we have a degree of board representation.
Those companies are in different stages of maturity in terms of what we're doing and you can look at any number of the ones that are out there.
When you take a look at what happened in the second quarter sometimes.
The company's move in predictable ways, sometimes they do not in quarter. Two we had a confluence of events that across multiple positions. We had reductions in many of the positions right when I look at the.
Actual.
<unk> plan and the actual capability and management and what they are looking to do over the next not just months or quarters and years, we remain actually very encouraged by our positions.
We do adjust them from time to time, but I would say with our long positions.
I'm very proud of a number of the positions that we have but you can point to each one of them.
And.
I think a clear progression over time, but it is overtime turnarounds, which is effectively what we're doing with activism oftentimes are bumpy in of themselves, but we're very comfortable in our in our long positions right. We do reassess it and not everyone is a winner, but we're comfortable in where we're headed.
So nothing has really changed in terms of our long as we continue to execute the play that we've executed.
When I take a look at it the short positions I think Thats, where you do see a change not necessarily in strategy. The philosophy has been.
We want to make sure we.
The attempt to balance risk with.
Between our long and short positions I think as Carl put out in the earnings release.
And we have said several times, we need to adjust those because it was overly bearish. So specifically what has changed it's not the degree of interest in hedging our position is to have a rational balanced portfolio, but we said level needs to change. So just just to quote some numbers and I refer you to the documents that will be filed in the queue.
This afternoon I think.
Four o'clock Youll see that the overall size of the short position has hasnt materially changed if you go back to December quarter, four right just directional numbers. The Q will have the specific ones.
I believe last year at the end it was a net negative 47% right you get to the end of quarter. One it's negative 38 at the end of quarter. Two it's negative 18%. So you see a market reduction in the shorts.
Through that time now obviously some of that was because loans performed differently in quarter, one quarter, two but the primary mover of that was the shorts.
So I'd say the strategy Hasnt changed in what we're doing with longs I think the strategy of shorting still makes sense, but as we've acknowledged that needed to change in terms of your overall balance.
And we are constantly.
Constantly reviewing the shorts.
We're obviously, taking a very hard look at what is the right position to have not just on a macro basis, but within different sectors.
And we reevaluate it.
Now that to clarify that that's sorry, Dan.
Im remiss because I've been talking about our invested companies and our shorts, but I think the operating companies also youll bear some mentioned.
Obviously CVI, we continue to believe strongly in CVI and our operating companies have been the subject of a turnaround right. If you look at Pep Boys. If you look at this case on other metrics for some of the other companies and they're all generating cash flow increasing amounts of cash flow. So our strategy on the owned companies has been.
To accelerate and improve the pace of performance across each one of them and it's evident in <unk> and.
And many different metrics some more than others. So much more cash so much more income.
So I'm, sorry that was a little long winded, but I felt that question deserved a longer more robust answer.
Understood and then just to clarify on the the shorts or is it more of the market or broader hedges have come down and the shorts are more reflective of offsetting longs to be more hedged within the context of the investment portfolio directly.
Both are true right the broad market hedges have come down materially.
Still have a level of them because we think it makes sense because not everything is hedgeable on a name by name basis, but we have very specific name by name hedges sector hedges.
To attempt to offset any risk that we see with specific loans in that sector of that specific market itself.
Understood. Okay. Thank you.
Thank you one moment for our next question. Please.
Alright any comes from the line of Bruce Mann Rod with Northeast Investors' Trust. Please proceed.
Hi, guys can you hear me okay. We.
We can good morning Bruce.
Good morning, and a question on food packaging if thats okay.
So obviously the outs.
Outstanding numbers out of this case.
So we use that.
Is the production probably it seems like Tim has nailed it on the production or was there also help on the revenue side pricing or whats behind it all.
The answer is yes.
Sure.
What I'd say is Tim and the team I think have done a very very good job on multiple levers now not every every initiative is where we would want it to be but I think when you take a look at how that team has skillfully managed to offset headwinds.
Headwinds or surprises you.
You can basically see that performance is up right.
The bumper sticker is they have been very good at thoughtfully looking at their gross margin percentages and increasing them and thats not just price. That's also working with our customers to make sure they are selling.
<unk> Skus are the right items jettisoning low value to the customer negative or low value to this case products. So gross margin management has been obviously, a very very strong performance factor. The plants, we have a new team on the plants I mean, this isn't as of today.
But it's over the course of this year and they are getting their arms around the production issues. I think we have a very coherent clear plan to continue to get our yields and rates and efficiencies where they need to be they are not being entirely where I think tim wants them to be but theyre, making steady and measured progress.
A series of fairly complex.
Process and technical issues.
When you take a look at.
Volume.
Generally speaking there are puts and takes depending on which region, you look at or which commodity which substrate you look at but the team has done very well at balancing I think the entire book of business and running it like a professional operation.
I'm also pleased with the cash flow they continue to generate cash flow work through inventory and work to pay down the <unk>.
Liabilities. So I think broadly speaking the team has done a fantastic job.
Well that's good that's great and these are obviously your top two comparison.
Comparisons of the year. So this is great.
On the November call you you talked about a cocktail when things were good I'll tell you that I will be having a cocktail tonight.
If you want to hop on a plane and come on up and join me, but thank you.
Very good thanks Bruce.
Thank you one moment for our next question. Please.
Yes.
Alright, and it comes from the line of Andrew Berg with post Advisory Group. Please proceed.
If I can follow up a little bit of Dan's questions to start.
Excuse me with respect to the hedges and I guess, we'll see it in the Q. Later is there any reason to believe you guys would have materially changed the short view with respect to.
The commercial real estate.
Safe to assume you guys still maintain that negative position negative view.
Yeah.
You are referring to the <unk> position.
Correct.
Yes.
We obviously still have a CMV exposition.
If you know.
If you know anything about <unk>. It is a very intricate series of securities and they don't move in a traditional fashion.
So what I would say what I would say is yes, we are still in it obviously there is good news and there's bad news, it's very specific to that particular tranche of <unk>.
Several anchor malls within each one.
Every day is bringing grim news for some malls across the country, whereas others are able to refinance and continue on with <unk>.
Very happy position. So it's a very active position that we monitor and manage.
But.
It's all it's all contingent upon the health of the underlying malls and the ability to refinance.
Okay.
With respect to the dividend.
Given that you get dividends coming up out of CBI, you get dividends coming up out of some of the other subsidiaries.
It would strike me that.
The actual cash.
The amount of dividends that you guys would pay on an annual basis is probably somewhere less than $100 million now safe to assume Karl has not changed his view on taking his dividends.
And stock versus cash and if thats correct in the right way to think about it is.
Maybe net 100 million or so of cash dividends going out the door versus your liquidity, which I think you said it was $1 5 million of cash at the holding company almost $1 six at the end of the quarter.
$1 five roughly $1 5 billion.
Yes.
I guess two answers to that question.
<unk>.
I think I think the first answer is.
Until all the shareholders elect we rarely never know who is taking what cash and who is taking what end securities. So.
The history the history would suggest some of the numbers that you've quoted when.
When we take a look at going forward.
I think for this quarter Carl has indicated although it hasnt made a final determination that he is likely to take some mix of cash and securities, but his final election.
Hasnt hasnt been determined and obviously beyond this quarter there is no.
No no.
No communication as to what his indications are right and historically from time to time Carl has taken distributions.
So this is also in line with past practice.
Okay.
And then from an operational basis.
Segments with respect to automotive.
On the services side revenues were basically flat.
Are you able to address what the EBITDA.
Coming out of the services business and how that May have moved in the quarter.
Do we do.
We don't disclose that specifically, we don't disclose that but but currently the automotive segment is pretty much because auto plus was deconsolidation. During Q1. So Q2 is probably the first time, where you can see.
The majority of it is the service business in Q2.
Right.
Specifically addressing your question right.
Here's how I think about the services business.
Right.
The services business has gone through a few changes and this will be a little worried that the context is important when I take a look at 2000 22021 and early 'twenty. Two there was a reduction in terms of the store count as loss performing stores were shut.
<unk> down and jettison footprint was reconfigured right. So revenue coming down is not necessarily alarming and another itself.
But what we have seen is the revenue, although very slightly down this quarter for services, it's really youll pricing has pricing and margin management has been significantly up it's been a large driver of the year to date performance volume has been a slight negative although we're actually pretty encouraged that it's up.
To 3% on a same store basis.
As of late June and July So I think revenue wise.
I'm actually pretty pleased with where our Pep boys is the service company as I look towards the next several quarters. They have they started in late 2022.
<unk> dipping their feet back in the water of opening Greenfields. So I know the CEO is currently in Indianapolis to celebrating the opening of I think its two locations there and they've sort of been on a little bit of a roadshow. So as I looked at the future I think some of the volume issues are going to be ameliorated by the increased greenfields that I've said going forward we need.
To have more.
It's just the company wasn't necessarily in a position to really commit to that I've also taken a look at.
Stuart will rather Scott has ticked the CEO has taken a look at store hours looked at refining the marketing really dialing in the marketing spend in so we're actually pretty encouraged by what we're seeing in terms of same store sales volume potential so thats sort along with it but you asked about EBITDA EBITDA roughly speaking was up in quarter one versus prior year.
<unk> in quarter, two it's flat versus prior year, which is great Thats in line with plan. The team has been focused on.
A whole host of of of execution of our actions and we're actually very pleased at what they've done with cash generation cash was our first and foremost priority to get the company generating cash and the difference year over year couldnt be starker, So I'm less worried about major EBITDA at least in the first half.
Andrew.
Then I was about cash now there is rock solid in terms of what they're generating very pleased that's going to continue as I looked at Q3 and Q4, that's where I think.
I anticipate being able to provide better and clearer news in terms of EBITDA growing right.
So short version EBITDA has been basically flat to slightly up depending on whether you're looking at Q1 Q2 cash generation is up very substantially.
<unk> revenue, although slightly down that that that doesn't account for new greenfields and that shows an offset from a number of stores that were closed so worthy, but does that help.
Yes, no that definitely helps and it's nice to hear that you guys can make some progress there.
Especially from the cash generation side.
We look forward to hopefully seeing that EBITDA growth in the next couple of quarters.
I appreciate all the color today guys. Thank you.
Okay. Thanks, Andrew.
Thank you and with that I will and take Q&A. Thank you I'll pass it back to David Willetts fore sight.
You may now disconnect.
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