Icahn Enterprises Q3 2023 Earnings Call Transcript

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November 3, 2023

Key Takeaways

  • Icahn Enterprises reported a Q3 net loss of $6 million, marking a $117 million improvement year-over-year, while adjusted EBITDA rose to $272 million, up $202 million from Q3 2022.
  • The Energy segment delivered an adjusted EBITDA of $347 million versus $124 million last year, driven by higher refining margins, lower RINs costs, and CVI’s combined $2 per share dividend authorization.
  • The investment funds returned negative 4.4% in Q3, primarily driven by energy sector shorts, with net short notional exposure at 41%, signaling ongoing challenges in the portfolio.
  • Automotive segment’s adjusted EBITDA jumped $31 million to $32 million year-over-year, supported by stronger service revenues and the exit of unprofitable Auto Plus operations despite lower overall net sales.
  • The company ended Q3 with approximately $6.8 billion in combined cash, cash equivalents, investment fund holdings, and revolver availability, maintaining significant liquidity for strategic opportunities.
AI Generated. May Contain Errors.
Earnings Conference Call
Icahn Enterprises Q3 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Morning, and welcome to the Icahn Enterprises LP Third Quarter 2023 Earnings Call with Jesse Lynn, General Counsel David Willett, President and CEO and Rob Flint, Director of Accounting. I would now like to hand the call over to Jesse Lynn, who will read the opening statement.

Speaker 1

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 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. 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 1

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 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.

Speaker 1

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

Speaker 2

Thank you, Jesse. Joining me on the call today is Rob Flint, our Director of Accounting, who is filling in for today. I'll provide a brief overview of quarter 3 results and then we'll be available for questions at the end. We're pleased with Q3 performance, which shows improvement over last year and last quarter. 3rd quarter's net loss was 6,000,000 which is an improvement of $117,000,000 over Q3 'twenty two.

Speaker 2

Adjusted EBITDA was $272,000,000 which is an increase of $202,000,000 compared to Q3 Our operating companies have performed well with each of them posting solid gains on a year over year basis. CVI is benefited by continued strong crack spreads, good operating utilization, reduced RINs cost and has authorized a $2 total dividend. Our Automotive segment posted strong year over year performance on both net income and adjusted EBITDA. As Carl has 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 4.4%, Primarily driven by Energy Sector Shorts.

Speaker 2

Indicative net asset value ended the quarter at $5,200,000,000 which is up $147,000,000 versus Q2 2023 and is down $474,000,000 versus Q4 20 22. 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.

Speaker 3

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 Q3 2023, We had a net loss of $6,000,000 which was an improvement of $117,000,000 from the prior year quarter. Q3 adjusted EBITDA was $272,000,000 an increase of $202,000,000 compared to Q3 2022. I will now provide more detail regarding the The investment funds had a negative return of 4.4% for the quarter, which was driven primarily by the negative performance of energy sector shorts and offset in part by broad market hedges.

Speaker 3

For the quarter, long and other positions had a net negative performance attribution of 1% and short positions had a negative Performance attribution of 3.4%. 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 $3,600,000,000 as of quarter end. And now to our Energy segment. In Q3 2023, our Energy segment reported net sales of $2,500,000,000 compared to $2,700,000,000 in the prior year quarter.

Speaker 3

Adjusted EBITDA was $347,000,000 for Q3 2023 compared to $124,000,000 in Q3 2022. Q3 2023 refining margin per throughput barrel was $31.05 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 2023 average realized gate prices for UAN decreased by 48% to $2.23 per tonne And ammonia decreased by 56 percent to $3.65 per tonne when compared to the prior year quarter. CVI declared a $0.50 per share cash dividend and a $1.50 per share special dividend.

Speaker 3

Now turning to our Automotive segment. Automotive Q3 2023 net sales and other revenues were $444,000,000 A decrease of $181,000,000 from the prior year quarter. Adjusted EBITDA was $32,000,000 for the quarter, a $31,000,000 improvement as compared to the prior year quarter. Automotive service revenues were down $4,000,000 compared to Q3 2022, driven by the closure of unprofitable locations and reduced car count, Offset in part by improved pricing. Aftermarket parts revenues were down $178,000,000 as compared to Q3 2022, Primarily driven by the deconsolidation of Auto Plus on January 31, 2023.

Speaker 3

Now turning to our Real Estate segment. Q3 2023 net sales and other revenues increased by $18,000,000 compared to prior year quarter, Driven by the sale of an investment property of $17,000,000 increased occupancy and hotel rates at our resort and increased membership fees at our Country Club. Adjusted EBITDA was $14,000,000 for the quarter compared to $7,000,000 for Q3 2022 driven by increased development home sales. Now we'll turn to our other operating segments. Q3 2023 net sales and other revenues for all other operating segments increased by $3,000,000 compared to prior year quarter.

Speaker 3

Adjusted EBITDA was $24,000,000 for Q3 2023 compared to $5,000,000 for the prior year quarter. Food Packaging adjusted EBITDA improved by $3,000,000 or 27% for Q3 2023 as compared to prior year quarter, Primarily due to improved gross margin management and reductions in distribution costs. Home Fashion adjusted EBITDA increased by $8,000,000 as compared to prior year quarter, Primarily due to lower material costs and pricing initiatives. The Pharma segment's adjusted EBITDA for Q3 2023 improved by $8,000,000 as compared to prior year quarter, mainly due to margin improvement. Now turning to our liquidity.

Speaker 3

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 6,800,000,000 Our subsidiaries have approximately $1,100,000,000 in cash and $329,000,000 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?

Operator

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

Speaker 4

Hi, good morning. I was wanting to talk about the fund. You talked about We see the performance, the net exposure being short at the start of the quarter still being short, the market was down And the fund still underperformed. So I think you initially said you've 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?

Speaker 2

Yes. Good morning, Dan. Thank you for the question. Here's what I'd say about the funds. There are 2 drivers in the fund maybe 3 drivers in the funds this quarter.

Speaker 2

The broad market hedges, we've been taking down every quarter For the last well, since the beginning of the year. So, Q1, Q2 and Q3 broad market hedges have 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 Evaluating it versus what we think is an appropriate hurdle rate. If it doesn't meet the bar, We've been exiting the position. So we've been skinnying down longs and our cash balances have been building up there.

Speaker 2

Say the 3rd item, Which when you take a look at the funds, they're down slightly this quarter, negative 4% or so. That includes Specific positions in terms of both commodities and single names that are intended to offset Any movements in CVI to manage volatility. So when we take a look at it and We've executed the strategy. We continue to execute the strategy. And we're generally in a pretty Good position when we look at where we are versus where we want to be.

Speaker 2

We're going to continue to execute on repositioning Our longs and our shorts as we go into the Q4.

Speaker 4

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?

Speaker 2

We still have broad market hedges. But when I take a look at it, The overall short positions for broad market have been coming down. Our single name shorts frankly outweigh our Your broad market hedges. So that has been a change that has crept in over the last few quarters.

Speaker 4

Understood. And then just shifting to your balance sheet, can you tell us or remind us when your next maturity is for your debt? And as you think about your liquidity position here, opportunities to buy back debt in the market versus Investment in the fund or what you're seeing opportunistically to utilize the liquidity you have today?

Speaker 2

Sure. We have $1,100,000,000 of Secured bonds coming due in September of this coming year. We have $1,800,000,000 of cash on hand at IEP and we're evaluating. Right now, as you can see, the bottom market isn't particularly 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.

Speaker 2

So that's what we're watching as we get through the next months quarters.

Speaker 4

Understood. And then just on the distribution, the dollar 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 to be incorporating the liquidity of the balance sheet. Just trying to understand the support of the dividend and where you It's coming from if we were to maintain this on a sustainable basis.

Speaker 2

Yes. The Board looks at all of those factors and several more every quarter. So performance, yield liquidity on hand, yield economic projections for our positions going forward, We look at each one of those every single quarter.

Speaker 4

Okay. Thank you.

Operator

Thank you.

Speaker 2

Thank you, Dan.

Operator

One moment for our next question please. It comes from the line of Chapin Mehta with Northeast Investors.

Speaker 2

Good morning, Tapan.

Speaker 5

Hi, good morning guys. I just had a question for you on this case. Good quarter year over year continued. So that's great. Thank you.

Speaker 5

And but I'm curious just a little bit on like the sequential. It's down a little bit Versus the 1st 2 quarters of the year. And so I'm just sort of curious, I think you'd mentioned that there were still some improvements coming on the last call and you In your comments, you 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 you're seeing as the year has progressed from that front? Sure,

Speaker 2

Several things to think about. There are revenue headwinds right now. The volumes, demands are down. Obviously, that's not just a risk case problem. You can see that across the market.

Speaker 2

Folks are doing a little of destocking, but it's also based on what proteins consumers are choosing. Chicken has been a bit cheaper And some of the pork based or beef based sausage products that use our casings. Revenue top line has been a bit challenged. Russia and the Ukraine, We finally had embargoes put in place on any cross border sales of casings, which was not present in Q1 and So revenue is softer than we had predicted and hoped. That said, the second issue is It gets the further up the hill you climb, the harder it gets.

Speaker 2

So we're able to take Very straightforward margin opportunities in Q1, Q2, Q3. As you take those, it gets harder. You have to stretch a little bit further to get the next chunk. That said, there are more things that we are doing, certainly with regards to factory productivity, certainly with regards to modernization of our equipment. All of those are in the works, but they're going to be parsed out and the gains will be, I think, a bit slower to be realized than we felt in Q1, Q2.

Speaker 2

That's just the challenge of being successful. I'd say what the team continues to do a very, very good job of in spite of some of that revenue headwind Has been contract margin management. They've been very, very, very focused on making sure that this case earns what is an appropriate return on its contracts, And they've 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?

Speaker 5

That's great. Very helpful. Thank you so much.

Speaker 2

You're welcome.

Operator

Thank you. One moment for our next question please. Comes from the line of Andrew Berg with Post Advisory Group. Please proceed.

Speaker 6

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?

Speaker 2

I can. We haven't

Speaker 6

Was all that decline pretty much the energy short ex the being short that position you were actually up in the quarter On everything else?

Speaker 2

What I don't want to do cavalierly, Andrew, is come up with a precise figure. So what I'll say is directionally, Right. Directionally, the fund would have been up if you had adjusted out the energy shorts related to CVI. Right. But I'd rather not give a precise figure because we haven't done the drill that precisely calculated for this call.

Speaker 6

Good enough. I was sort of expecting something in the up low single digit area, but obviously, it's not factored in The energy is 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 shorts, still Expressing that negative sentiment, any change or don't want to say because it's in the middle of the quarter?

Speaker 2

With the energy shorts? Yes. Right now, our position, frankly, Andrew, is we are long in CVI and we have 1 or 2 other longs in the energy area. So we're not trying to make a particular bet on energy shorts. What we're trying to do is we're trying to Manage the volatility so that we don't have wild swings in our income and earnings with your energy positions.

Speaker 2

That's the point of our energy shorts. It's not a specific investment saying energy is going to go down. It's trying to balance the long and short exposure.

Speaker 6

Okay. With respect to automotive, the $32,000,000 of adjusted EBITDA versus the 1, 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 standalone basis year over year?

Speaker 2

I have to be a little careful. We use some terms a little casually, but I'll answer the spirit of the question. So the services business today also has contributed Its 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, the 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.

Speaker 2

Auto Plus, which was losing a very sizable amount of money last year, went away and services has frankly woken up And it started 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 since the services Revenue was 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.

Speaker 6

Okay. And then lastly, with respect to prior questions, someone asked with respect to the balance sheet. Unlike most companies, typical operating businesses, who have concerns about Debt going current on the balance sheet. Obviously, you guys have a ton of liquidity to cover the 4.75. We're not callable until June next year.

Speaker 6

And so the expectation would be that, that will go current. And as I recall, you guys tend to Wait closer to maturities to deal with the refinancing because of the breakage cost that should be the same expectation here, shouldn't it?

Speaker 2

That I think is our historical pattern. The markets are so unusual right now that I just underscore we look at this month by month To determine exactly when the right window is to refinance, if there is a right window to refinance it. So I would just say Past is accurate. We're closely monitoring every month to determine what we do.

Speaker 6

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

Speaker 2

Thank you.

Operator

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

Speaker 2

Very 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 4 results. Everyone have a good afternoon. Take care.

Operator

And thank you all for participating. You may now disconnect.

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