Q2 2024 Icahn Enterprises LP Earnings Call

August 7, 2024

Operator: Good morning, and welcome to Icahn Enterprises LP's second quarter 2024 earnings call with Andrew Teno, President and CEO, Ted Papapostolou, Chief Financial Officer, and Robert Flint, Chief Accounting Officer. I would now like to hand the call over to Robert Flint, who will read the opening statements. Please go ahead.

Speaker Change: Good morning and welcome to Icahn Enterprises LP second quarter 2024 earnings call.

Speaker Change: with Andrew Teno, President and CEO , Ted Papapostolou, Chief Financial Officer, and Robert Flint, Chief Accounting Officer. I would now like to hand the call over to Robert Flint, who will read the opening statements. Please go ahead.

Robert Flint: 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 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 LP and its subsidiaries.

Robert Flint: 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.

Robert Flint: Forward-looking statements may be identified by words such as expects,

Robert Flint: anticipates

Robert Flint: and Thames.

Robert Flint: Plans, Believes

Robert Flint: Sikhs

Robert Flint: Estimates

Robert Flint: Will

Speaker Change: or words of similar meaning and include, but are not limited to, statements about the expected future business and financial performance of Icahn Enterprises LP and its subsidiaries.

Robert Flint: 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.

Speaker Change: 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.

Speaker Change: 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.

Robert Flint: 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, 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 an indicative net asset value. The indicative net asset value includes, among other things, changes in the fair value of certain subsidiaries which are not included in our gap earnings. All net income and EBITDA amounts we will discuss are attributable to Icahn Enterprises, unless otherwise specified. I'll now turn it over to Andrew Teno, our Chief Executive Officer.

Speaker Change: This 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.

Speaker Change: 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 gap earnings.

Andrew Teno: All net income and EBITDA amounts we will discuss are attributable to Icahn Enterprises unless otherwise specified. I'll now turn it over to Andrew Teno, our Chief Executive Officer.

Andrew Teno: Clearly, the quarter wasn't up to expectations. Between a significant decline in CVI and a few names in our investment segment, NAV went down $969 million from the prior quarter. As we have stated before, our investment returns will be volatile given both the concentration inherent in our portfolio and our activist strategy. However, we continue to believe our positions will outperform over the longer term. CVI was unfortunately impacted by a fire at Winnewood that impacted the quarter's profitability.

Andrew Teno: Clearly, the quarter wasn't up to expectations. Between a significant decline in CVI and a few names in our investment segment, NAV went down $969 million from the prior quarter.

Speaker Change: As we have stated before, our investment returns will be volatile given both the concentration inherent in our portfolio and our activist strategy. We continue to believe our positions will outperform over the longer term.

Speaker Change: CVI was unfortunately impacted by a fire at Winnewood that impacted the quarter's profitability. In addition, the entire U.S. refining industry saw cracks decline to more normalized levels, and regional bases detracted further for CVI's refineries.

Andrew Teno: In addition, the entire U.S. refining industry saw cracks decline to more normalized levels, and regional basis detracted further for CVI's refineries. CVI, like its small-cap peers, underperformed our hedge basket, which helped offset some, but not all, of the decline. More recently, CVI has received good news from litigation regarding small refinery exemptions in the D.C. Circuit.

Speaker Change: CVI, like its small-cap peers, underperformed our hedge basket, which helped offset some, but not all, of the decline. More recently, CVI has received good news from litigation regarding small refinery exemptions in the DC circuit.

Andrew Teno: We hope that this will help reduce the outstanding RIN obligation. Last quarter, we discussed potential strategic actions involving CVI. While CVI is hard at work, we have no updates at this time.

Speaker Change: We hope that this will help reduce the outstanding RIN obligation.

Speaker Change: Last quarter, we discussed potential strategic actions involving CVI. While CVI is hard at work, we have no updates at this point.

Andrew Teno: The investment portfolio was hurt by performance in a few names, including Bausch, Southwest, and Illumina. Our best performers in the quarter were our Refining Hedges and IFA. We exited our position in conduit while adding exposure to central.

Speaker Change: The investment portfolio was hurt by performance in a few names, including Bausch, Southwest, and Illumina. Our best performers in the quarter were our Refining Hedges and IFF.

Speaker Change: We exited our position in Conduit while having exposure to Century.

Andrew Teno: Regarding the fund's notional exposure, our net short exposure was 16%. Excluding refining hedges, our exposure was net long 13% at quarter end. This compares to net long exposure of 7% as of Q1, excluding the refining hedges. On the automotive side, EBITDA was slightly up as headwinds and top-line revenue were offset by cost-cutting efforts. We expect that the cost-cutting and sourcing initiatives will drive EBITDA improvement in the back half of the year.

Speaker Change: Regarding the fund's notional exposure, our net short exposure was 16%.

Speaker Change: Excluding refining hedges, our exposure was net long 13% at quarter end. This compares to net long exposure of 7% as of Q1 excluding the refining hedges.

Speaker Change: On the automotive side, EBITDA was slightly up as headwinds and top line revenue were offset by cost-cutting efforts.

Speaker Change: We expect that the cost cutting and sourcing initiatives will drive EBITDA improvement in the back half of the year. We continue to make progress in our transformation plan. Our leasing pipeline continues to ramp up, and we currently have 25 leases that are signed, but rent has not yet commenced.

Andrew Teno: We continue to make progress in our transformation. Our leasing pipeline continues to ramp up, and we currently have 25 leases that are signed, but rent has not yet been. On the balance sheet at quarter end, we had $1.5 billion of cash at the holding company and $1.6 billion at the fund. During the quarter, we also refinanced our 2025 notes, and our next maturity is in May 2020. Given our cash position and belief in our investment portfolio, we are comfortable maintaining the $1 distribution for the quarter. I will now hand it over to Ted to discuss the financials in more detail.

Speaker Change: On the balance sheet at quarter end, we had $1.5 billion of cash at the holding company and $1.6 billion at the funds. During the quarter, we also refinanced our 2025 notes, and our next maturity is in May 2026.

Speaker Change: Given our cash position and belief in our investment portfolio, we are comfortable maintaining the $1 distribution for the quarter.

Speaker Change: I will now hand it over to Ted to discuss the financials in more detail.

Ted Papapostolou: Thank you, Andrew. I'll begin by reviewing the performance of our segments and comment on the strength of our balance. Turning to our investment sector, the funds had a negative return of 8.1% for the quarter. Long and other positions had a negative performance attribution of 17.2%, while short positions had a positive performance attribution of 9.1%. The holding company's interest in the funds was approximately $2.9 billion as of quarter end.

Ted: Thank you, Andrew. I'll begin by reviewing the performance of our segments and comment on the strength of our balance sheet.

Ted: The holding company's interest in the funds was approximately $2.9 billion as of quarter end.

Ted Papapostolou: And now to our energy segment. Energy segment EBITDA was $46 million for Q2'24 compared to $173 million in Q2'23. Q2-24 refining margin per throughput barrel was $10.94 compared to $18.21 in the prior year quarter. This decrease was primarily driven by lower refining margins due to a decrease in crack threads and reduced throughputs related to a fire at the Winnie Wood refiner. Q2-24 average realized gate prices for UAN decreased by 15% to $268 per ton, and ammonia decreased by 26% to $520 per ton when compared to the prior year quarter. CVI declared a second quarter cash dividend of 50 cents per share.

Speaker Change: And now to our energy segment.

Ted: Energy segments EBITDA was $46 million for Q2'24 compared to $173 million in Q2'23.

Ted: Q2-24 refining margin per throughput barrel was $10.94 compared to $18.21 in the prior year quarter. This decrease was primarily driven by lower refining margins due to a decrease in cracks threads and reduced throughputs related to a fire at the Winnie Wood Refinery.

Ted Papapostolou: Now to our automotive section. Q2'24 net sales and other revenues decreased by $42 million compared to the prior year quarter, primarily driven by reduced consumer spending on automotive repairs and maintenance. These trends are not dissimilar from those of our industry peers. Adjusted EBITDA improved $2 million for Q2-24 compared to Q2-23. Automotive Services was able to improve EBITDA through cost-cutting and margin initiatives which offset the reduced car cost. Now, turning to our other operating sites.

Ted Papapostolou: Real estate's Q2'24 adjusted EBITDA decreased by $1 million compared to the prior year quarter, primarily driven by reduced sales of single-family homes. At one of our country clubs, our single-family home inventory is limited as we're almost sold out in the development.

Ted Papapostolou: While the recently acquired Country Club is ramping up its development, and we are expecting to have sales at the end of 2024 or beginning of 2025, Food packaging's adjusted EBITDA decreased by $5 million for Q2-24 as compared to the prior year quarter, driven by a weaker mix of business. Although volumes were similar to the prior year period, the mix of business was at lower, less attractive margins. Materials and energy continue to be stable, and there are opportunities to improve labor and efficiency at the plant.

Ted: Although volumes were similar to the prior year period, the mix of business was at lower, less attractive margins.

Speaker Change: Materials and energy continue to be stable and there are opportunities to improve labor and efficiency at the plants. The management team is working on a capital plan to modernize some of the lines in certain plants which will greatly enhance efficiency and productivity.

Ted Papapostolou: The management team is working on a capital plan to modernize some of the lines in certain plants, which will greatly enhance efficiency and productivity. Home fashions adjusted EBITDA decreased by $1 million as compared to the prior year quarter, mainly driven by lower demand from our international business.

Ted Papapostolou: During the quarter, we invested in a small strategic acquisition in the UK to grow the hospitality business and to broaden our global footprint. Pharma segments adjusted EBITDA for Q224 improved by 3 million as compared to the prior year quarter, mainly due to higher prescription growth. VVS's U.S. patent exclusivity for Qsimia broadens to two competitors at the end of 2024 and mid-2025, respectively. These two competitors will likely launch generic versions, which will erode product margins.

Speaker Change: VVS's U.S. patent exclusivity of Qsimia broadens to two competitors at the end of 2024 and mid-2025 respectively. These two competitors will likely launch generic versions which will erode product margins.

Ted Papapostolou: Management has taken actions, such as product launches starting in Europe and eventually to other international markets while planning domestic cost-cutting initiatives and potential strategic partners. Now, turning to our liquid. We maintain liquidity at the holding company and at each of our operating subsidiaries to take advantage of attractive opportunities. As of quarter end, the holding company had cash and investment in funds of $4.4 billion, and our subsidiaries had cash and revolver availability of $1.1 billion.

Speaker Change: Management has taken actions such as product launches starting in Europe and eventually to other international markets while planning domestic cost-cutting initiatives and potential strategic partnerships.

Ted Papapostolou: 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 segment. Thank you. Operator, can you please open up the call for questions? Thank you so much.

Operator: Thank you so much. And as a reminder, if you do have a question, press star 1-1 on your telephone and wait for your name to be announced. To remove yourself from the queue, press star 1-1 again. Please stand by for our first question, and Icahn from the line of Dan Fannon with Jeffreys. Please proceed. Thanks.

Speaker Change: Thank you. Operator, can you please open up the call for questions?

Speaker Change: Any calls from the line of Dan Fannon with Jeffries, please proceed.

Daniel Fannon: Thanks, good morning. So I wanted to just follow up on the fund and not so much on the performance for the quarter, which you kind of outlined, but obviously, the last week or so has been quite volatile. As you think about the context of how you positioned and or transitioned the fund with the hedges, more macro, and, you know, and some of the changes that you've made, I guess, any additional thoughts, given the different backdrop we might be in today versus, you know, just a short while ago?

Speaker Change: a week or so has been quite volatile as you think about the context of how you positioned and or transition the fund with the hedges more macro and you know and some of the changes that you've made I guess any I guess additional thoughts given the different backdrop. We might be in today versus you know just a short while ago

Andrew Teno: Again, morning. So, um,

Andrew Teno: I would say, you know... The markets are volatile. We've been looking at them for quite some time. And I'd say the way we're going to try and position ourselves is, very much keep our book hedged, and then, you know, we have to believe in our longs and believe in our activist strategy. So if you look at our significant holdings, the top five that we have listed on the page, you know, Southwest Gas. You have a utility. It should be very stable.

Speaker Change: Hey Dan, morning. So, um, I would say, you know...

Speaker Change: The markets are volatile. We've been looking at them for quite some time. And I'd say the way we're going to try and position ourselves is...

Speaker Change: very much keep our book hedged, and then, you know, we have to believe in our longs and believe in our activist strategy, right? So if you look at our significant holdings, you know, the top five that we have listed in the page...

Speaker Change: You know, Southwest Gas, you have a utility, it should be very stable, earnings should improve. As they bridge their ROE gap, they've had a bit of a hiccup on this.

Andrew Teno: Earnings should improve. As they bridge their ROE gap, they've had a bit of a hiccup on this Century separation, but it is a very good business and one that we think can unlock value over the long run. If you look at AEP, we very much think there's an ROE improvement story. It's got a new CEO who should improve regulatory operations. It's got a fantastic asset base and has a bit of an A.I. tailwind.

Speaker Change: Century Separation, but it is a very good business and one that we think can unlock value over the long run.

Speaker Change: If you look at AEP, we very much think there's a ROE improvement story. It's got a new CEO who should improve regulatory operations. It's got a fantastic asset base and

Andrew Teno: If we look at Caesars, this is a company that is just about

Speaker Change: has a bit of an A.I. tailwind.

Speaker Change: If we look at Caesars, this is a company that is just about to hit its, you know, CapEx is declining, EBITDA is growing, free cash flow is inflecting.

Andrew Teno: is just about to hit its, you know, CapEx is declining, EBITDA is growing, and free cash flow is inflating. IFF is a business that, you know, even this morning's results were, I'd say, pretty darn good and showing the impact of a new CEO. And if you look at Bausch, obviously, it's a complicated situation, but there's a lot of inherent value in BL

Speaker Change: And if you look at Bausch, obviously it's a complicated situation, but there's a lot of inherent value in BLCO.

Andrew Teno: So, in a long-winded way of saying, we believe in our longs. We believe our longs have catalysts. And we believe our longs will outperform the hedge basket over time. And some of these names, you know, you have easier names to edge, right? Like giant electric utilities, plenty of those for AP; others, you have to kind of rely more on the broad market index.

Speaker Change: So, a long-winded way of me saying, we believe in our longs, we believe our longs have catalysts, and we believe our longs will outperform the hedge basket over time.

Speaker Change: like Giant Electric Utilities, plenty of those for AP, others you have to kind of rely more on broad market indexes.

Daniel Fannon: Okay, I understand. That's helpful. Just a question on the auto business and trying to understand where you think you are in the kind of turnaround, cost cutting has been a focus, you gave a few stats around leases coming online, but just, I don't know if you want to use a baseball analogy or kind of where we think we are and just in terms of the kind of evolution of that business.

Speaker Change: Just a question on the auto business and trying to understand where you think you are.

Andrew Teno: So if I look at Pep Boys and think about the service business,

Speaker Change: So if I look at Pep Boys and I think about the service business, you know, EBITDA margins there, you know, whether it's four percent or four and a half.

Andrew Teno: business, EBITDA margins there, whether it's 4% or 4 and 12. You know, we look at peers, and we think, over time, we're talking multi-years, there's no reason that that shouldn't get closer to 10%. There are a lot of moving pieces to that, and you've got to work on that cost-cutting effort. The market has to turn around a bit. I think you should

Speaker Change: You know, we look at peers and we think, over time, we're talking multi-years, there's no reason that that shouldn't get closer to 10%.

Speaker Change: There's a lot of moving pieces to that, and you've got to work on the cost-cutting efforts. The market has to turn around a bit. I think you look at peers, the industry volumes aren't doing us any favors. And then we have to start clicking on our real estate efforts, right? So...

Andrew Teno: The industry volumes aren't doing us any favors. And now we have to start clicking on our real estate efforts, right?

Andrew Teno: We have the leases that are, where you have signed leases that need to commence, and then we've got a bunch of empty boxes we need to fill. So on the empty boxes we need to fill, I'd say we need to fill them. The way that my real estate team explains it to me is, you know, we get started; we find the large national retailers who would like to be located next to us. We identify a host of locations, could be 20, 25 that they'd like to occupy.

Speaker Change: We have the leases that are, where you have signed leases that need to commence, and then we've got a bunch of empty boxes we need to fill. So on the empty boxes we need to fill, I'd say, we need to fill.

Speaker Change: You know

Speaker Change: The way that my real estate team explains to me is...

Speaker Change: be located next to us, we identify a host of locations, could be 20, 25, that they'd like to occupy, and then we work on one lease. And if we can get that across, then all of a sudden, it should be able to flip into meaningfully more numbers.

Andrew Teno: And then we work on one lease. And if we can get that across, then all of a sudden, it should be able to flip into meaningfully more numbers. So, I think we're at the point where we've probably done the maximum amount of work with maybe the least amount to show for it, and I'd hope that over the pending quarters it gets better, you know, the results get better and better.

Speaker Change: So, I think we're at the point where we've probably done the max amount of work with maybe the least amount to show for it, and I'd hope that over the pending quarters it gets better.

Speaker Change: You know, the results get better and better and reflect that.

Operator: Okay. Thanks for taking my question.

Andrew Berg: Our next question comes from the line of Andrew Berg with the Post Advisory Group.

Speaker Change: You got it. Thank you.

Speaker Change: Our next question comes from the line of Andrew Berg with Post Advisory Group.

Andrew Berg: Thanks. Just a quick question with respect to cash at the holding company being down a couple hundred million. Obviously, the liquidity across the entity is robust, and I know you guys can have pretty significant swings in the hedge fund on any particular day. But that 200 million, was that moved into the hedge fund and just the movements of other equities? And the fund masks the money going in there, or what was the movement for?

Andrew Berg: Thanks. Just a quick question with respect to cash at the holding company. It was down a couple hundred million. Obviously, the liquidity across the entity is robust.

Andrew Berg: And I know you guys can have pretty significant swings in the hedge fund on any particular day. But that $200 million, was that moved into the hedge fund and just the movements of other equities?

Speaker Change: and the fund masks the money going in there or what was the what was the movement for?

Andrew Teno: Andrew, so the big movement to cash in the holding company with a payment of

Andrew: Hey Andrew, so the big movement to cash the holding company were the payment of two distributions in the quarter. It's just a kind of an odd timing thing where we don't pay out a distribution in the first quarter, we pay out two of them in the second.

Andrew Teno: with a payment of two distributions in the quarter. It's just kind of an odd timing thing where we don't pay out a distribution in the first quarter; we pay out two of them. Perfect.

Andrew Berg: Perfect. Thank you.

Andrew: Perfect. Thank you.

Operator: One moment for our next question, and it comes from the line of Bruce Monrad with Northeast Investment Management.

Speaker Change: One moment for our next question.

Speaker Change: And it comes from the line of Bruce Monrad with Northeast Investment Management.

Bruce Monrad: Hi everybody, thanks for holding the call. I have a question about food packaging, and I see in the slides the reference to softening demand, but I thought I heard you say that units were mostly flat. Is that right? Can you help me with that?

Bruce Monrad: Hi everybody, thanks for holding the call. A question if it's okay on food packaging, and I see in the slides the reference to softening demand, but I thought I heard you say that units were mostly flat, is that right? Can you help me on that?

Ted Papapostolou: Yeah, the number of kilometers is flat, but the margins are down. So volume is there, the pricing softened up a bit, and I could give you more.

Speaker Change: Yeah, the kilometer is flat, but the margins are down, so volume is there, the pricing softened up a bit.

Ted Papapostolou: I'll give you more context around the quarter. The $5 million of EBITDA drop I mentioned, which is year over year on a quarterly basis, it's that same story with the fiber sales where, because of the Russian sanctions, we can't repeat that business. And that's about $8 million of top line that was there last year that's not there this year. And that was by a very good margin. The business that replaced it was at a much lower margin, and that's one of the main reasons you've seen the comparatives drop.

Speaker Change: And I could...

Speaker Change: give you more context around the quarter. The $5 million of EBITDA drop I mentioned...

Speaker Change: which is year-over-year on a quarterly basis.

Speaker Change: It's that same story with the fiber sales that because of the Russian sanctions, we can't

Speaker Change: that was at a much lower margin, and that's one of the main reasons you've seen the comparatives drop.

Bruce Monrad: Oh, and those sales, is that, is this sort of like... Oil shifts around, so who is supplying Russia at this moment, so to speak?

Ted Papapostolou: Yeah, it's not coming from the EU like it used to in the past. I'm not sure where they're getting that fulfillment from.

Speaker Change: Oh yeah, it's not coming from the EU like it used to in the past. I'm not sure where they're getting that fulfillment.

Bruce Monrad: Okay, and a big-picture question if I could. So if I look at your K, your 10-K, which delineates the margins in food packaging, I think North America is the one with the greatest room for improvement, and my question, sort of strategically, is, do you think that that would benefit, that maybe that geography would benefit from consolidation, or any comments on that?

Speaker Change: Okay, and a big-picture question if I could. So if I'm thinking from your K, your 10-K, you know, which delineates the margins in food packaging, I think North America is the one with the greatest room for improvement.

Speaker Change: And my question sort of strategically is, do you think that that would benefit, that maybe that, that geography would benefit from consolidation or any, any comments on that?

Ted Papapostolou: Yeah, one thing North America is facing right now, and we mentioned on previous calls, is just a high level of waste there. We're battling to get it back to historical levels, and there have been some...

Speaker Change: Yeah, one thing North America is facing right now, and we mentioned on previous calls, is just a high level of waste there. We're battling to get it back to historical levels.

Ted Papapostolou: Improvements, but not where it could be. And, you know, one of the...

Speaker Change: There have been some improvements, but not where it could be.

Ted Papapostolou: One of the opportunities there to reduce waste is to modernize our equipment, and management is working on a capital plan to potentially start the process and implement that across many plants, which would begin in the US. It's still in the planning stage and early at that, but depending on many factors, it could be very capital-intensive and it could require capital infusion, potentially add debt, or any combination thereof, but I would say we're still in the outline form of that, and there'll be more to come in the next, probably in the second half of this year, but that is one way we're trying to tackle the waste issue there.

Operator: Thank you. If I see no further questions in the queue, I will turn the call back to Andrew Teno for final remarks.

Speaker Change: Okay, all right. Thank you

Speaker Change: Thank you. If I see no further questions in the queue, I will turn the call back to Andrew Teno for final remarks.

Andrew Teno: Thank you very much. So, thanks, everyone.

Andrew Teno: So thanks, everyone, for joining us. And I'd like to just leave with a reminder that here at Icahn, we are intensely focused on our activism strategy. We have unique advantages, including the Icahn brand name, and a long history and willingness to wage proxies. It is this track record that frequently allows us to be invited to join the board and work cooperatively with them to make the key changes that will drive shareholder value. Furthermore, given our balance sheet and liquidity, we have the ability to tender for entire businesses, a tool most simply do not.

Andrew Teno: Thank you very much. So thanks everyone for joining and I'd like to just leave with a reminder that here at Icahn we are intensely focused on our activism strategy. We have unique advantages including the Icahn brand name and a long history and willingness to wage proxy contests.

Andrew Teno: It is this track record which frequently allows us to be invited to join the board and work cooperatively with them to figure the key changes that will drive shareholder value.

Andrew Teno: So our returns are lumpy and dissatisfactory at times as we continue to focus on our activist efforts in both our investment segment and our control business. We believe they will bear fruit for all shareholders. We'll speak. And thank you all for participating in today's conference. You may now disconnect.

Andrew Teno: Though our returns are lumpy and dissatisfying at times, as we continue to focus on our activist efforts at both our investment segment and our controlled businesses, we believe they will bear fruit for all shareholders.

Operator: And thank you all for participating in today's conference. You may now disconnect. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Good morning, and welcome to Icahn Enterprises LP second quarter 2024 earnings call with Andrew Teno, President and CEO, Ted Papapostolou, Chief Financial Officer, and Robert Flint, Chief Accounting Officer. I would now like to hand the call over to Robert Flint, who will read the opening statements. Please go ahead.

Andrew Teno: We'll speak soon.

Speaker Change: And thank you all for participating in today's conference. You may now disconnect.

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Speaker Change: Good morning and welcome to Icahn Enterprises LP second quarter 2024 earnings call.

Speaker Change: Forward-looking statements may be identified by words such as expects, anticipates, intends, plans, believes,

Speaker Change: 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 LP and its subsidiaries.

Speaker Change: 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.

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

Speaker Change: We assume no obligation to update or revise any forward-looking statements should circumstances change except as otherwise required by law.

Speaker Change: We also present indicative net asset value.

Speaker Change: Indicative net asset value includes, among other things, changes in the fair value of certain subsidiaries which are not included in our gap earnings.

Andrew Teno: Clearly, the quarter wasn't up to expectations. Between a significant decline in CVI and a few names in our investment segment, NAV went down $969 million from the prior quarter. As we have stated before, our investment returns will be volatile given both the concentration inherent in our portfolio and our activist strategy. However, we continue to believe our positions will outperform over the longer term. CVI was unfortunately impacted by a fire at Wynnywood that impacted the quarter's profitability.

Speaker Change: Clearly, the quarter wasn't up to expectations.

Speaker Change: Between a significant decline in CVI and a few names in our investment segment, NAV went down $969 million from the prior quarter.

Speaker Change: As we have stated before, our investment returns will be volatile given both the concentration inherent in our portfolio and our activist strategy.

Speaker Change: CVI, like its small-cap peers, underperformed our hedge basket which helped offset some, but not all, of the decline.

Speaker Change: We hope that this will help reduce the outstanding RIN obligation.

Speaker Change: While CVI is hard at work, we have no updates at this point.

Speaker Change: The investment portfolio was heard by performance in a few names, including Bausch, Southwest, and Illumina.

Speaker Change: Our best performers in the quarter were our Refining Hedges and IFF.

Speaker Change: We exited our position in conduit while adding exposure to sentry.

Speaker Change: Regarding the fund's notional exposure, our net short exposure was 16%.

Speaker Change: Excluding refining hedges, our exposure was net long 13% at quarter end. This compares to net long exposure of 7% as of Q1, excluding the refining hedges.

Speaker Change: On the automotive side, EBITDA was slightly up as headwinds and top-line revenue were offset by cost-cutting efforts.

Speaker Change: We expect that the cost-cutting and sourcing initiatives will drive EBITDA improvement in the back half of the year.

Andrew Teno: We continue to make progress in our transformation. Our leasing pipeline continues to ramp up, and we currently have 25 leases that are signed, but rent has not yet been paid. On the balance sheet at quarter end, we had $1.5 billion of cash at the holding company and $1.6 billion at the fund. During the quarter, we also refinanced our 2025 notes, and our next maturity is in May 2020. Given our cash position and belief in our investment portfolio, we are comfortable maintaining the $1 distribution for the quarter. I will now hand it over to Ted to discuss the financials in more detail.

Speaker Change: We continue to make progress in our transformation plan. Our leasing pipeline continues to ramp up, and we currently have 25 leases that are signed, but rent has not yet commenced.

Speaker Change: On the balance sheet at quarter end, we had $1.5 billion of cash at the holding company and $1.6 billion at the funds.

Speaker Change: During the quarter, we also refinanced our 2025 notes, and our next maturity is in May 2026.

Speaker Change: Given our cash position and belief in our investment portfolio, we are comfortable maintaining the $1 distribution for the quarter.

Speaker Change: I will now hand it over to Ted to discuss the financials in more detail.

Ted Papapostolou: Thank you, Andrew. I'll begin by reviewing the performance of our segments and comment on the strength of our balance. Turning to our investment segment, the funds had a negative return of 8.1% for the quarter. Long and other positions had a negative performance attribution of 17.2%, while short positions had a positive performance attribution of 9.1%. The holding company's interest in the funds was approximately $2.9 billion as of quarter end.

Ted: Thank you, Andrew. I'll begin by reviewing the performance of our segments and comment on the strength of our balance sheet.

Ted: Turning to our investment segment.

Ted: The funds had a negative return of 8.1% for the quarter. Long and other positions had a negative performance attribution of 17.2%, while short positions had a positive performance attribution of 9.1%.

Ted: The holding company's interest in the funds was approximately $2.9 billion as of quarter end.

Ted: And now to our energy segment.

Ted: Energy segments EBITDA was $46 million for Q2'24 compared to $173 million in Q2'23.

Ted: Q2-24 refining margin per throughput barrel was $10.94 compared to $18.21 in the prior year quarter.

Ted: CVI declared a second quarter cash dividend of 50 cents per share.

Ted: These trends are not dissimilar from our industry peers.

Speaker Change: Adjusted EBITDA improved $2 million for Q2-24 compared to Q2-23. Automotive Services was able to improve EBITDA through cost-cutting and margin initiatives which offset the reduced car count.

Speaker Change: And now turning to our all other operating segments.

Speaker Change: Real estate's Q2-24 adjusted EBITDA decreased by $1 million compared to the prior year quarter, primarily driven by reduced sales of single-family homes.

Speaker Change: At one of our country clubs, our single-family home inventory is limited as we're almost sold out in the development, while the recently acquired country club is ramping up its development and we are expecting to have sales at the end of 2024 or beginning of 2025.

Speaker Change: Food packaging's adjusted EBITDA decreased by $5 million for Q2-24 as compared to the prior year quarter, driven by a weaker mix of business.

Speaker Change: Although volumes were similar to the prior year period, the mix of business was at lower, less attractive margins.

Speaker Change: Materials and energy continue to be stable and there are opportunities to improve labor and efficiency at the plants.

Speaker Change: The management team is working on a capital plan to modernize some of the lines in certain plants, which will greatly enhance efficiency and productivity.

Speaker Change: Home fashions adjusted EBITDA decreased by 1 million as compared to the prior year quarter, mainly driven by lower demand from our international business.

Ted Papapostolou: During the quarter, we invested in a small strategic acquisition in the U.K. to grow the hospitality business and to broaden our global footprint. Pharma segments adjusted EBITDA for Q224 improved by 3 million as compared to the prior year quarter, mainly due to higher prescription growth. VVS's U.S. patent exclusivity for Qsimia broadens to two competitors at the end of 2024 and mid-2025, respectively. These two competitors will likely launch generic versions, which will erode product margins.

Speaker Change: During the quarter we invested in a small strategic acquisition in the UK to grow the hospitality business and to broaden our global footprint.

Speaker Change: Pharma segments adjusted EBITDA for Q224 improved by 3 million as compared to the prior year quarter, mainly due to higher prescription growth.

Speaker Change: VVS's U.S. patent exclusivity of Qsimia broadens to two competitors at the end of 24 and mid 2025 respectively.

Speaker Change: These two competitors will likely launch generic versions which will erode product margins.

Speaker Change: Management has taken actions such as product launches starting in Europe and eventually to other international markets while planning domestic cost cutting initiatives and potential strategic partnerships.

Speaker Change: Now turning to our liquidity.

Speaker Change: We maintain liquidity at the holding company and at each of our operating subsidiaries to take advantage of attractive opportunities.

Speaker Change: As of quarter end, the holding company had cash and investment in the funds of $4.4 billion, and our subsidiaries had cash and revolver availability of $1.1 billion.

Speaker Change: 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.

Speaker Change: Thank you. Operator, can you please open up the call for questions?

Speaker Change: Thank you so much. And as a reminder, if you do have a question, press star 11 on your telephone and wait for your name to be announced. To remove yourself from the queue, press star 11 again. Please stand by for our first questions.

Speaker Change: Any calls from the line of Dan Fannon with Jeffries, please proceed.

Dan Fanon: Thanks, good morning. So wanted to just follow up on the fund and not so much performance for the quarter which you kind of outlined but obviously the last

Dan Fanon: week or so has been quite volatile as you think about the context of how you positioned and or transition the fund with the hedges more macro and you know and some of the changes that you've made I guess any I guess additional thoughts given the different backdrop. We might be in today versus you know just a short while ago

Andrew Teno: Again, morning. So, um, I would say, you know, the markets are volatile. We've been looking at them for quite some time. And I'd say the way we're going to try and position ourselves is, very much keep our book hedged, and then, you know, we have to believe in our longs and believe in our activist strategy. So if you look at our significant holdings, you know, the top five that we have listed on this page.

Speaker Change: Again, morning. So, um, I would say, you know...

Speaker Change: The markets are volatile. We've been looking at them for quite some time. And I'd say the way we're going to try and position ourselves is...

Speaker Change: very much keep our book hedged and then you know we have to believe in our longs and believe in our activist strategy right so if you look at our significant holdings you know the top five that we have listed in the page

Andrew Teno: Southwest Gas: You have a utility, it should be very stable, earnings should improve. As they bridge their ROE gap, they've had a bit of a hiccup on this, the century separation. But it is a very good business and one that we think can unlock value over the long run. If you look at AEP, we very much think there's an ROE improvement story. It's got a new CEO who should improve regulatory operations. It's got a fantastic asset base, and has a bit of an AI tailwind.

Speaker Change: You know, Southwest Gas, you have a utility, it should be very stable, earnings should improve. As they bridge their ROE gap, they've had a bit of a hiccup on this.

Speaker Change: century separation, but it is a very good business and one that we think can unlock value over the long run.

Speaker Change: If you look at AEP, we very much think there's a ROE improvement story. It's got a new CEO who should improve regulatory operations. It's got a fantastic asset base and has a bit of an AI tailwind.

Andrew Teno: If we look at Caesars, this is a company that is just about to hit its, you know, CapEx is declining, EBITDA is growing, and free cash flow is inflecting. IFF is a business that, you know, even this morning.

Speaker Change: If we look at a Caesars, this is a company that is just about to hit its, you know, CapEx is declining, EBITDA is growing, free cash flow is inflecting.

Speaker Change: IFF is a business that, you know, even this morning...

Andrew Teno: The results were, I'd say, pretty darn good and showing the impact of a new CEO. And if you look at Bausch, obviously it's a complicated situation, but there's a lot of inherent value in BLCO.

Speaker Change: The results were, I'd say, pretty darn good in showing the impact of a new CEO .

Speaker Change: And if you look at Bausch, obviously it's a complicated situation, but there's a lot of inherent value in BLCO.

Speaker Change: So, a long-winded way of me saying, we believe in our longs, we believe our longs have catalysts, and we believe our longs will outperform the hedge basket over time.

Speaker Change: And some of these names, you know, you have easier names to edge, right?

Speaker Change: like Giant Electric Utilities, plenty of those for AP, others you have to kind of rely more on broad market indexes.

Daniel Fannon: Okay, understood. That's helpful. Just a question on the auto business and trying to understand where you think you are in the kind of turnaround, cost cutting has been a focus, you gave a few stats around leases coming online, but just, I don't know if you want to use a baseball analogy or kind of where we think we are and just in terms of the kind of evolution of that business.

Speaker Change: Okay, understood. That's helpful.

Speaker Change: Just a question on the auto business and trying to understand where you think you are in the kind of turn around, you know, cost cutting has been a focus, you gave a few stats around leases coming online, but just, I don't know if you want to use a baseball analogy or kind of where we think we are and just in terms of the kind of evolution of that business.

Andrew Teno: So if I look at Pep Boys and think about the service business,

Andrew Teno: EBITDA margins there, whether it's 4% or 4 and 12%. You know, we look at peers, and we think, over time, we're talking multi-years, there's no reason that that shouldn't get closer to 10%. There are a lot of moving pieces to that, and you've got to work on that cost-cutting effort. The market has to turn around a bit. I think you look at peers, the industry volumes aren't doing us any favors. And then we have to start clicking on our real estate efforts, right? So,

Speaker Change: If I look at Pep Boys and I think about the service business, you know EBITDA margins there, you know, whether it's 4% or 4.5%

Speaker Change: You know, we look at peers and we think, over time, we're talking multi-years, there's no reason that that shouldn't get closer to 10%.

Speaker Change: You know

Speaker Change: The way that my real estate team explains to me is...

Speaker Change: You know, we get started, we find the large national retailers who would like to...

Speaker Change: be located next to us. We identify a host of locations, could be 20, 25 that they'd like to occupy. And then we work on one lease. And if we can get that across, then all of a sudden it should be able to flip into meaningfully more numbers.

Operator: Okay. Thanks for taking my question.

Speaker Change: Understood. Okay. Thanks for taking my question.

Andrew Berg: Our next question comes from the line of Andrew Berg with the Post Advisory Group.

Speaker Change: You got it. Thank you.

Speaker Change: Our next question comes from the line of Andrew Berg with Post Advisory Group.

Andrew Berg: Thanks. Just a quick question with respect to cash at the holding company. It was down a couple hundred million. Obviously, the liquidity across the entity is robust. And I know you guys can have pretty significant swings in the hedge fund on any particular day. But that $200 million, was that moved into the hedge fund or just the movements of other equities? and the fund masks the money going in there; or what was the movement for?

Andrew Berg: Thanks. Just a quick question with respect to cash at the holding company. It was down a couple hundred million. Obviously, the liquidity across the entity is robust.

Speaker Change: and the fund mass, the money going in there, or what was the movement for?

Andrew Teno: Andrew, so the big movement to cash the holding company where the payment

Andrew Teno: We're paying out two distributions in the quarter. It's just kind of an odd timing thing where we don't pay out a distribution in the first quarter; we pay out two of them. Perfect. Thank you.

Andrew: Perfect. Thank you.

Operator: One moment for our next question, and it comes from the line of Bruce Monrad with Northeast Investment Management.

Speaker Change: One moment for our next question.

Speaker Change: And it comes from the line of Bruce Monrad with Northeast Investment Management.

Ted Papapostolou: Yeah, the kilometer is flat, but the margins are down. So volume is there. The pricing softened up a bit. And I could give you more context on the quarter.

Speaker Change: Yeah, the kilometer is flat, but the margins are down. So volume is there, the pricing softened up a bit. And I could give you more context around the quarter. The $5 million of EBITDA drop I mentioned, which is year-over-year on a quarterly basis,

Ted Papapostolou: The 5 million EBITDA drop I mentioned, which is year-over-year on a quarterly basis, it's that same story with the fiber sales that, because of the Russian sanctions, we can't repeat that business. And that's about 8 million in top line that was there last year that's not there this year. And that was at a very good margin. The business that replaced it... that was at a much lower margin. And that's one of the main reasons you've seen the comparative drop.

Speaker Change: It's that same story with the fiber sales, that because of the Russian sanctions, we can't repeat that business. And that's about $8 million of top line that was there last year, that's not there this year. And that was at a very good margin. The business that replaced...

Speaker Change: that was at a much lower margin and that's probably that's one of the main reasons you've seen the comparative drop.

Bruce Monrad: Oh, and those sales, is that, is this sort of like... Oil shifts around, so who is supplying Russia at this moment, so to speak?

Speaker Change: Okay, and those sales, is that, is this sort of like...

Speaker Change: Oil, it shifts around, so who is supplying Russia at this moment, so to speak?

Ted Papapostolou: Yeah, it's not coming from the EU like it used to in the past. I'm not sure where they're getting that fulfillment from.

Speaker Change: Yeah, it's not coming from the EU like it used to in the past, I'm not sure where they're getting that fulfillment.

Speaker Change: And my question sort of strategically is, do you think that that would benefit, that maybe that geography would benefit from consolidation or any comments on that?

Ted Papapostolou: Yeah, one thing North America is facing right now, and we mentioned on previous calls, is just a high level of waste there. We're battling to get it back to historical levels.

Speaker Change: Yeah, one thing North America is facing right now, and we mentioned on previous calls, is just a high level of waste there. We're battling to get it back to historical levels.

Ted Papapostolou: Some improvements, but not where it could be. One of the opportunities there to reduce waste is to modernize our equipment, and management is working on a capital plan to potentially start the process and implement that across many plants, which would begin in the U.S. It's still in the planning stage and early at that, but depending on many factors, it could be very capital intensive, and it could require a capital infusion, potentially adding debt, or any combination thereof.

Speaker Change: There have been some improvements, but not where it could be.

Speaker Change: And, you know, one of the opportunities there to reduce waste is to modernize our equipment. And management is working on a capital plan to potentially start the process and implement that across many plans which would begin in the U.S.

Speaker Change: It's still in the planning stage and early at that, but depending on many factors, it could be very capital intensive and it could require capital infusion, potentially add debt or any combination thereof. But I would say we're still in the outline form of that and there'll be more to come.

Ted Papapostolou: But I would say we're still in the outline form of that, and there'll be more to come, probably in the second half of this year. But that is one way we're trying to tackle the waste issue there.

Speaker Change: probably in the second half of this year, but that is one way we're trying to tackle the waste issue there.

Operator: Thank you. If I see no further questions in the queue, I will turn the call back to Andrew Teno for final remarks.

Speaker Change: All right, thank you.

Speaker Change: Thank you. If I see no further questions in the queue, I will turn the call back to Andrew Teno for final remarks.

Andrew Teno: Thank you very much. So thank you everyone for joining us, and I'd like to just leave with a reminder that here at Icahn we are intensely focused on our activism strategy. We have unique advantages, including the Icahn brand name and a long history and willingness to wage proxy. It is this track record that frequently allows us to be invited to join the board and work cooperatively with them to implement the key changes that will drive shareholder value.

Andrew Teno: It is this track record which frequently allows us to be invited to join the board and work cooperatively with them to figure the key changes that will drive shareholder value.

Andrew Teno: Furthermore, given our balance sheet and liquidity, we have the ability to tender for entire businesses, a tool most simply do not have. Though our returns are lumpy and dissatisfying at times, as we continue to focus on our activist efforts at both our investment segment and our controlled business, we believe they will bear fruit for all shareholders. We'll speak soon. Bye.

Andrew Teno: Furthermore, given our balance sheet and liquidity, we have the ability to tender for entire businesses, a tool most simply do not possess.

Operator: And thank you all for participating in today's conference. You may now disconnect.

Andrew Teno: We'll speak soon.

Speaker Change: And thank you all for participating in today's conference. You may now disconnect.

Speaker Change: www.larryweaver.com www.larryweaver.com www.larryweaver.com

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