Icahn Enterprises L.P. (NASDAQ:IEP) Q4 2022 Earnings Call Transcript

Icahn Enterprises L.P. (NASDAQ:IEP) Q4 2022 Earnings Call Transcript February 24, 2023

Operator: Good morning and welcome to the Icahn Enterprises L.P.’s Q4 2022 Earnings Call with Rob Flint, Director of accounting; David Willetts, President and CEO and Ted Papapostolou, Chief Financial Officer. I will now like to hand the call over to Rob Flint, who will read their opening statement.

Rob Flint: Thank you, operator. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statement we make in this presentation, including statements regarding our future performance and plans for our businesses and potential acquisitions. Forward-looking statement may be identified by words such as expects, anticipates, intends, plans, believes, seeks estimates, will, or words of similar meaning and include but are not limited to statements about the expected future business and financial performance of Icahn Enterprises L.P. and its subsidiaries. Actual events results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors that are discussed in our filings with the Securities and Exchange Commission, including economic competitive, legal and other factors including the severity, magnitude and duration of the COVID-19 pandemic.

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

David Willetts: Thank you, Rob. Good morning and welcome to the fourth quarter 2022 Icahn Enterprises earnings conference call. Joining me on today’s call, is Ted Papapostolou, our Chief Financial Officer. Together, we’ll provide an overview of Q4 results and then be available for questions. Before we get into the results, I’d like to reemphasize that we believe activism is the best paradigm for investment. We’re putting our activist principles into effect in both on majority controlled and our minority positions held in our investment segment. Additionally, we strongly believe in hedging our positions to mitigate risk especially in the volatile markets that we’re living in today. For the sake of brevity, all net income and EBITDA amounts will discuss are attributed to Icahn Enterprises, unless otherwise specified.

Now on to the numbers. Full year 2022 net loss was $183 million, which represents a year-over-year improvement of $335 million. Full year adjusted EBITDA for 2022 was $758 million, which represents a year-over-year improvement of $485 million. For Q4 2022, we had a net loss of $255 million and adjusted EBITDA negative $54 million, compared to a net loss of $396 million and an adjusted EBITDA of negative $443 million in the prior year period. Our indicative net asset value as a quarter end increased by $522 million to $5.6 billion as compared to December 31, 2021. The change in indicative net asset value includes among other things, changes in the fair value of certain subsidiaries, which are not included in our GAAP earnings reported above.

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Regarding our segments. Year-to-date, our investment funds had a negative return of 2.4%. For comparison, the S&P 500 was down approximately 18% for the year. CVI ended the quarter with continued strong performance, largely due to a $20.42 increase in crack spreads in quarter 4’22 versus 2021, with flat volumes. Dividends been increased to $0.50 per share for quarter 4, 2022 to bring the total 2022 dividends to about $5.30 per share. CVR partners performed strongly in Q4 ’22, largely due to strong pricing markets for ammonia and UAM, both of which were up versus Q4 2021 by approximately 30%-plus. For Automotive Services, revenue growth remained strong at over 13% for the full year of 2022. In Q4, the team executed the first phase of efficiency actions targeting corporate SG&A cost discipline.

Although additional efficiency actions are planned in the first half of 2023, the company is intensifying its focus on customer service and upgrading its premium services offerings. The new CEO and CFO are now in place with the company and the overall leadership team is rapidly executing the plan for 2023 performance. The IEP board declared a $2 quarterly distribution payable in cash for additional units. With that, let me turn it over to Ted for detailed discussion of all of our segments.

Ted Papapostolou: Thank you, David. I will begin by reviewing our consolidated results and then highlight the performance of our operating segments and comment on the strength of our balance sheet. For Q4 ’22, we had net loss of $255 million and adjusted EBITDA of negative $54 million, compared to net loss of $396 million and adjusted EBITDA of negative $443 million in the prior year period. I will now provide more detail regarding the performance of our segments. The investment funds had a negative return of 4.6% for the quarter, which was driven by the negative performance of our short positions, offset in part by certain long positions. For the quarter, long positions had a positive performance attribution of 4.5% while short and other had a negative performance attribution of 9.2%.

The investment funds had a net short notional exposure of 47% at the end of the year, compared to a net short notional exposure of 54% at the end of Q3. Our investment in the funds was approximately $4.2 billion as of year-end. And now to our Energy segment. In Q4,’22, our Energy segment reported net sales of $2.7 billion compared to $2.1 billion in the prior year quarter. Adjusted EBITDA was $168 million for Q4 ’22 Compared to $40 million in Q4’21. CVI declared a $0.50 per share cash dividend and CVR partners declared a fourth quarter cash distribution of $10.50 per unit. Q4 ’22 refining margin per throughput barrel was $17.14, compared to $7.13 in the prior year quarter. This increase was primarily due to widening crack spreads. The cost of RINs continue to have a negative impact on our refining business with $142 million of related expense for the quarter.

Q4 ’22. Average realized gate prices for UAN improved by 31% to $455 per ton, and ammonia improved by 30% and $967 per ton when compared to the prior year quarter. Now to our Automotive segment. Q4 ’22 net sales and other revenues for the Automotive segment was $585 million, an increase of $22 million from the prior year quarter. Q4 ’22 adjusted EBIT was negative $43 million compared to negative $97 million in Q4’21. Q4 ’22 Automotive Service revenue increased by $43 million as compared to the prior year period, due to price increases offset by lower volumes. Q4 ’22 aftermarket part sales decreased by $25 million as compared to the prior year period, mainly due to lower volumes. During the quarter, the segment was negatively impacted by increased inventory reserves and out-of-period adjustments.

Subsequent to year-end, Auto Plus and aftermarket parts distributor held within the segment filed a voluntary Chapter 11 bankruptcy. This proceeding is limited to Auto Plus and will not have a significant impact to Icahn Enterprises. Now to our Real Estate segment. Q4 ’22 net sales and other revenues increased by $8 million, compared to the prior year quarter. Adjusted EBITDA was $3 million for Q4 ’22, compared to negative $3 million for Q4’21. The segment continued its strong performance and the management team is highly focused on increasing occupancy across the portfolio. Now turning to our other segments. Q4 ’22 net sales and other revenues for all other operating segments were relatively flat compared to the prior year quarter. Adjusted EBITDA was $6 million for Q4 ’22, compared to $12 million for Q4’21.

This case improved during Q4 ’22 as compared to the prior year quarter, mainly due to price increases, which more than offset inflationary pressures in energy and raw materials. Management continues to prioritize manufacturing productivity and efficiencies across the company. During the quarter, our Home Fashion was negatively impacted by products within its retail business, particularly in e-commerce. Management has decided to exit unprofitable retail products to focus on its hospitality business and reduce overhead costs. Now to our liquidity. We maintain ample liquidity at the holding company and at each of our operating subsidiaries to take advantage of attractive opportunities. We ended the quarter with cash, cash equivalents, our investment in the investment funds and revolver availability totaling approximately $6.8 billion.

Our subsidiaries have approximately $617 million of cash and $305 million of undrawn credit facilities to enable them to take advantage of attractive opportunities. In summary, we continue to focus on building asset value and maintaining liquidity to enable us to capitalize on opportunities within and outside our existing operating segments. Thank you. Operator, can you please open up the call for questions?

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Q&A Session

Operator: One moment for our first question comes from Daniel Fannon from Jefferies.

Daniel Fannon : Hey, good morning, guys. A question on the — just the fund and the positioning. Given the short position heading into this year, likely not a good start just given what beta has done. So just curious about just kind of the framework of how you’re thinking about kind of the broader macro backdrop? Obviously, a lot going on, but just is this — is there — can you kind of inform us on kind of your views as you think about the year and the kind of investment outlook?

David Willetts : Sure. Thanks, Dan. I think this is always the most difficult and least satisfying question, because it’s really crystal ball. There are a number of factors that we’re all aware of. question marks on interest rates really less on will they go up then on when they’ll go up, what ripple effects that has the underlying operating economy. We have always, at least for the last several years, looked to hedge both specific positions and broad market positions due to the uncertainty. So, our outlook doesn’t remain radically changed. It’s an uncertain environment. That said, that’s an environment in which there are often opportunities that are very rifle shot in nature. So we are quite focused on folks that may be in a distressed situation based on all of these changes.

But our hedging depending on the quarter, certainly either helps us or hurt us. But our view is to be hedged appropriately, we’ll manage out as much risk as we can while we execute our different theses.

Daniel Fannon : Understood. And I guess similar just question, as we think about activist investing in a higher rate environment. I assume that presents more opportunities in terms of companies that might fall on harder times that could benefit from some change. But also as you think about buying power and how your ability to generate the returns you need, that obviously is also potentially impacted by higher rates. So just wanted to you think — how you guys are thinking about that backdrop and whether that’s — with rates where they are and have been, as you said, potentially going higher, what that maybe means for you across the businesses?

David Willetts : Yeah. Interest rates moving up is — does present more opportunities and it does present realistic operating costs for our debt. I think the one thing that we have to continually snap back to is even though there is a marked difference in interest rates, certainly now probably in 2023 as compared to 2020-21. We’re really still not at an abnormally high interest rate environment. We’re really just recalibrating back to environments that we’ve all lived in for many, many, many years. So yes, it is not welcome to pay more interest obviously, but it’s — we’re not at no bleed levels at this point. So it requires us to be as disciplined as we’ve ever been in terms of choosing investments that have a double-digit return and making sure we execute those quickly.

But it’s a concern, but it’s not one that we’d say is extraordinary based on how we normally operate. We’ve just gotten a tailwind from some unusually favorable interest rate environments in the last few years.

Daniel Fannon : Understood. And then just last one. You mentioned the bankruptcy of the Auto-Parts not being significant. I guess, just is there a way to quantify that? And it’s consolidated within your business. So just a little bit more color on what that means and how that should play through as that process unfolds would be helpful. Thank you.

David Willetts : Yeah. Ted, do you want to take that one?