Q3 2023 Icahn Enterprises LP Earnings Call

November 3, 2023

Good morning, and welcome to the Icahn Enterprises L. P third quarter 2023 earnings call with Jesse Lynn General Counsel, David Willetts precedent N C E O and Roxanne director of accounting.

I would now like to hand, the call over 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 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 statements should circumstances change, except as otherwise required by law.

The presentation also includes certain non-GAAP financial measures, including adjusted EBITDA.

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. We also present indicative net asset value indicative net asset value includes among other things changes in the fair value of certain subsidiaries, which are not included in our GAAP earnings all net income.

And EBITA amounts, we will discuss our attributable to icahn enterprises, unless otherwise specified.

I'll now turn it over to David <unk>, our Chief Executive Officer.

Thank you Jessie joining.

Joining me on the call today is Rob Flint, our director of accounting, who is filling in for Tim today.

I'll provide a brief overview of our quarter three results and then will be available for questions. After yet.

We're pleased with third quarter performance, which shows improvement over last year and last quarter.

Third quarter's net loss was $6 million, which is an improvement of $117 million over Q3 2002 <unk>.

Adjusted EBITDA was $272 million, which is an increase of 202 million compared to Q3 'twenty two.

Our operating companies have performed well with each of them posting solid gains on a year over year basis.

CVI has benefited by continued strong crack spreads good operating utilization reduced rental cost and has authorized a $2 total dividend.

Our automotive segment posted strong year over year performance on both net income and adjusted EBITA.

As Carlos previously indicated we're continuing to restructure the portfolio and have exited a number of positions in the quarter.

This quarter the investment funds had a negative return of four 4%, primarily driven by energy sector shorts.

Indicative net asset value ended the quarter at $5 2 billion, which is up $147 million versus Q2, 23 and is down 474 million versus Q4 2002.

The board approved a $1 quarterly distribution per depository unit, which is consistent with last quarter.

With that let me turn it over to Rob for a detailed discussion of all of our segments.

Thank you David I.

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 Q3, 'twenty three we had a net loss of $6 million, which was an improvement of $117 million from the prior year quarter.

Q3, adjusted EBITDA was $272 million, an increase of $202 million compared to Q3 'twenty two.

I will now provide more detail regarding the performance of our individual segments.

The investment funds had a negative return of four 4% for the quarter, which was driven primarily by the negative performance of energy sector shorts and offset in part by broad market hedges.

For the quarter long and other positions had a net negative performance attribution of 1% and short positions had a negative performance attribution of three 4%.

The investment funds had a net short notional exposure of 41% 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 6 billion as of quarter end.

And now to our energy segment.

In Q3 23, our energy segment reported net sales of $2 5 billion compared to $2 7 billion in the prior year quarter.

Adjusted EBITDA was 347 million for Q3 dollars 23 compared to $124 million in Q3 dollars 22.

Q3, 'twenty three refining margin per throughput barrel was $31 <unk> compared to $16 56 in the prior year quarter.

This increase was primarily due to lower rins related expense and favorable inventory valuations offset in part by lower crack spreads as compared to the prior year quarter.

Q3, 23 average realized gate prices for <unk> decreased by 48% to $223 per ton and ammonia decreased by 56% to $365 per ton when compared to the prior year quarter.

CVI declared a <unk> 50 per share cash dividend and a $1 50 per share special dividend.

Now turning to our automotive segment.

Automotive Q3 dollars 23, net sales and other revenues were $444 million, a decrease of $181 million from the prior year quarter.

Adjusted EBITDA was 32 million for the quarter of $31 million improvement as compared to the prior year quarter.

Automotive service revenues were down $4 million compared to Q3, 'twenty two driven by the closure of unprofitable locations and reduced car count offset in part by improved pricing.

Aftermarket parts revenues were down $178 million as compared to Q3, 'twenty two primarily driven by the deconsolidation of auto plus on January 31 2023.

Now turning to our real estate segment.

Q3, 23, net sales and other revenues increased by $18 million compared to prior year quarter, driven by the sale of them of an investment property of $17 million increased occupancy and hotel rates at our resort and increased membership fees at our country club.

Adjusted EBITDA was $14 million for the quarter compared to $7 million for Q3, 22, driven by increased development home sales.

Now I will turn to our other operating segments.

Q3, 23, net sales and other revenues for all other operating segments increased by $3 million compared to prior year quarter.

Adjusted EBITDA was 24 million for Q3 dollars 23 compared to $5 million for the prior year quarter.

Food packaging adjusted EBITDA improved by $3 million or 27% for Q3 dollars 23 as compared to prior year quarter, primarily due to improved gross margin management and reductions in distribution costs.

Home fashion, adjusted EBITDA increased by $8 million as compared to prior year quarter, primarily due to lower material costs and pricing initiatives.

The pharma segment's adjusted EBITDA for Q3, 23 improved by $8 million as compared to prior year quarter, mainly due to margin improvement.

Now turning to our liquidity.

We maintain 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 $1 1 billion in cash and $329 million of Undrawn 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 the call for questions.

Thank you and as a reminder to ask a question simply press Star one one on your telephone and wait for your name to the announce one moment. Please.

Our first question comes from the line of Daniel Fannon with Jefferies. Please proceed.

Hi, good morning.

I was wanting to talk about the fund.

You talked about.

We see that the performance the net exposure being short.

Started the quarter still being short the market was down.

And the funds still underperforms. The I think you. Initially said you have made some changes to the portfolio.

Just curious as to where you are in the process of getting to where you would think it will be based upon.

What you outlined previously last quarter in terms of change in strategy.

Good morning, Dan Thank.

Thank you for the question.

Here's what I'd say about the phones.

There are two drivers in the maybe three drivers in the funds this quarter.

The broad market hedges.

Been taken down every quarter for the last well since the beginning of the year.

<unk>.

First quarter second quarter, and third quarter broad market hedges has come down.

Secondly, as you've probably seen a number of our longer held long positions. We've been exiting as we've been scrutinizing every position that we have and evaluating it.

Versus what we think.

He is an appropriate hurdle rate if it doesn't meet the bar we've been exiting the possession, so it'd been skinning down along as our cash balances have been building up there.

The third item, which when you take a look at the funds or they are down slightly this quarter negative 4% or so.

That includes specific.

<unk>.

Specific positions in terms of bulk commodities in a single names that are intended to offset.

Any movements in CVI to manage volatility so when we take a look at it.

We've executed the strategy, we continue to execute the strategy.

Generally.

In a pretty pretty good position when we look at where we are versus where we'd want to be we're going to continue to execute.

On repositioning our our longs and shorts as we go into the fourth quarter.

And just to follow up on that does that.

Should we still think about the shorts as being broad market shorts.

In terms of that net exposure or more single name.

We still have broad market hedges, but when I take a look at it.

Overall short positions.

Broad market has been coming down our single name shorts.

Frankly, outweigh our broad market hedges. So that has been a change that has crept in over the last few quarters.

Understood and then just shifting to your balance sheet can you tell us or remind us.

Your next maturity is for your debt.

And as you think about your liquidity position here opportunities to buyback debt in the market.

Versus.

Your investment in the fund or what Youre seeing opportunistically to utilize the liquidity you have today.

Sure we have $111 1 billion of unsecured bonds coming due in September of this coming year, we have $1 $8 billion of cash on hand, and our AP and we're evaluating right now as you can see the bond market isn't particularly favor.

Favorable.

So we're evaluating what options, we have but we're in a position where we have options either to redeem or to refinance.

That's what we're watching as we get through the next months.

And of course.

Understood and then just on the distribution of $1 per unit.

As we think about sustainability of that and how the board and the management team is looking at what can be paid out.

Should we just be looking at the cash flows coming off of the underlying businesses should be incorporating the liquidity.

The balance sheet, just trying to understand the support of the dividend and where you see it coming from.

If we were to if you are to maintain this on a sustainable basis.

The board looks at all of those factors and several more every quarter.

So performance liquidity on hand.

Economic projections for our positions going forward, we're looking at each one of those every single quarter.

Okay. Thank you.

Thank you thank you Dan.

For next question please.

It comes from the line of Kathryn Mckenzie with northeast investors.

Good morning, Jonathan.

Hi, good morning, guys.

Just had a question for you on this case.

Good quarter year over year continued so that's great. Thank you and I'm curious just a little bit on like the sequential it's down a little bit.

Versus the first two quarters of the year.

And so I'm just sort of curious I think you had mentioned that there were still some improvements coming on the last call and you and your comment said improved gross margins, which I assume is year over year. So I guess I'm. Just wondering if you can provide any additional color on what's probably top line, if it's pricing or volumes or just sort of what youre seeing as the years progressed from that.

Hi, Brian sure.

<unk>.

Several things to think about.

There are revenue headwinds right now.

The volumes demands are down.

Obviously, that's not just a this case problem, you'll see that across the market.

Folks are doing a little of Destocking, but it's also based on what what proteins consumers are choosing chicken has been a bit cheaper than some of the pork based or b space.

The product set that to us.

<unk> our casings.

Revenue revenue top line has been a bit.

Yes.

Youll, Russia, and Ukraine, We finally had embargoes put in place on any cross border sales of casings, which was not present in Q1 and Q2. So revenue is softer than we had predicted and hopes.

That said the second issue is it gets hot.

Further up the hill to climb the harder it gets so we're able to take.

Very very straightforward margin opportunities in Q1, Q2 Q3 as you take those it gets harder.

Have to stretch a little bit further to get the next chunk that said there are more things that were doing certainly with regards to factory productivity certainly with regards to modernization of our equipment.

All of those are in the works, but theyre going to be parsed out the gains will be I think a bit slower to be realized and we felt in Q1 Q2 and thats just the challenge of being successful.

I would say.

The team continues to do a very very good job of it in spite of some of that revenue headwind has been contract margin management. They have been very very very focused on making sure that this case earns what is an appropriate return on its contracts and they have been working aggressively with customers to exit the underperforming economically.

Casings, and giving the customers something that is actually value add to them, where both parties succeed so they've been very good at that and that continues to power a lot of the results.

In Q3 as it has in Q1 and Q2 does that help.

That's great.

Very helpful. Thank you so much.

Youre welcome. Thank you.

Our next question please.

Comes from the line of Andrew Berg with post Advisory Group. Please proceed.

Thanks, guys, Hey, going back to the investment segment.

Can you parse out what the returns were in the quarter.

If you were to strip out the energy shorts.

I can we had originally was all of that decline pretty much the energy shorten X being short that position you are actually up in the quarter on everything else.

What I don't want to do Cavalierly, Andrew has come up with a precise figure so what I'll say is directionally.

Directionally the fund would have been up if you adjusted out the energy shorts related to CVI.

But I'd, rather not give a precise figure because.

We haven't we haven't done a drill that precisely calculated for this call.

Good enough.

Expecting something in the up low single digit area, but obviously, it's not factored in the energy short. So it's kind of that would strike me as in line with what expectations would have been otherwise.

And then.

Willing to comment on.

Where you are with those energy short silex.

Expressing that negative sentiment any change or don't want to say because it's in the middle of the quarter.

With the energy shorts.

Yeah.

Hi.

Right now our position frankly, Andrew is we are long in CVI and we have one or two other longs in the energy area. So we're not trying to make a particular bet on energy shortz. What we're trying to do is we're trying to manage the volatility. So that we don't have wild swings in our <unk>.

From an earnings.

With your energy positions, that's the point of our energy shortages, it's not a specific investment saying energy is going to go down is it's trying to balance the long and short exposure.

Okay with.

With respect to automotive.

The $32 million of adjusted EBITDA versus the one is that an apples to apples basis, reflecting just the automotive services or is that a reflection of the deconsolidation of aftermarket and if it's the latter can you give us any commentary on what the services adjusted EBITDA was on a stand alone.

This year over year.

I have to be a little careful.

Use some terms a little casually.

But I will answer the spirit of the question. So the services business today also.

It has contributed.

EBITDA has gone up significantly year over year, and what I'd say is if I'm looking at the sub segment detail.

The majority of the earnings for this segment this quarter were from services.

These services business very very small piece de minimis from the parts from residual parts operations. So when I try to contrast, what happened year over year on EBITDA, you have two things auto plus which was losing.

Very sizable amount of money last year went away and services has frankly woken up and it's starting to really put some very good numbers on the board.

So revenue when you look at the revenue line that is clearly the impact of auto plus going away some of the services.

Revenue was <unk>.

Basically flat EBITDA, however, I'd say roughly half of it is due to the services improvement half of it is due to auto plus going away.

Okay.

And then lastly, with respect to prior question someone asked with respect to the balance sheet.

Unlike most companies.

Operating businesses.

Who have concerns about that going current on the balance sheet. Obviously, you guys have a ton of liquidity.

To cover the four and three quarters, they're not callable till June next year, and so the expectation would be that that that will go current in.

As I recall, you guys tend to.

Sure.

Wait closer to maturities to deal with refinancing because of the breakage costs that should be the same expectation here shouldnt.

That I think is our historical pattern the markets are so unusual right now.

I would just underscore we look at this month by month.

To determine exactly when the right window is to refinance if there is the right window to refinance it.

I would just say past past is accurate we're closely monitoring every month to determine what we do.

Okay sounds good. Thank you guys for all the information.

Thank you.

Thank you and with that ladies and gentlemen, I will conclude our Q&A session and turn it back to David Willetts for comments.

Okay. Good well. Thank you everyone for joining us for the Q3 results look forward to speaking to you all.

When we talk about the quarter four results everyone have a good afternoon take care.

And thank you for participating you may now disconnect.

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Good morning, and welcome to the Icahn Enterprises L. P third quarter 2023 earnings call with Jesse Lynn General Counsel, David Willetts, President and CEO and Rob plant director of accounting I would now like to hand, the call over to Jesse Lynn who will read the opening statement.

Thank you operator.

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.

Date or revise any forward looking statements should circumstances change except as otherwise required by law. This presentation also includes certain non-GAAP financial measures, including adjusted EBITDA.

All net income and EBITDA amounts, we will discuss our attributable to icahn enterprises unless otherwise specified.

I'll now turn it over to David <unk>, our Chief Executive Officer.

Thank you Jesse.

Joining me on the call today is Rob Flint, our director of accounting, who is filling in for Tim today.

I'll provide a brief overview of quarter three results and then will be available for questions at that yet.