Icahn Enterprises L.P. Q1 FY2021 Earnings Call

Good morning and welcome to the Icahn Enterprises LP Q1, 2021 Earnings Call with Jesse Lynn, General Counsel; Keith Cozza, President and Chief Executive Officer; and SungHwan Cho, Chief Financial Officer. 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 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 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 statements should circumstances change except as otherwise required by law. This presentation also includes certain non-GAAP financial measures. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the back of this presentation. I'll now turn it over to Keith Cozza, our Chief Executive Officer.

Thanks, Jesse. Good morning and welcome to the First Quarter, 2021 Icahn Enterprises Earnings Conference Call. Joining me on today's call is SungHwan Cho, Chief Financial Officer. I will begin by providing some brief highlights; SungHwan will then provide an in-depth review of our financial results and the performance of our business segments. We will then be available to address your questions. For Q1 2021, we had net income attributable to Icahn Enterprises of $162 million or $0.65 per LP unit compared to a net loss of $1.4 billion or $6.34 per LP unit in the prior year period. The quarterly net income was primarily driven by gains in our investment segment. Adjusted EBITDA attributable to Icahn Enterprises for Q1 2021 was $435 million compared to a loss of $1.3 billion in Q1 of 2020. Our investment funds had a positive return of 9.2% in Q1 of 2021 compared to a negative return of 17.6% for Q1 of 2020. The positive performance was driven by net gains in certain long positions, primarily in the energy industry, offset in part by net losses in our short index and short single name equity positions. Adjusted EBITDA attributable to Icahn Enterprises at our energy segment improved by $30 million to negative $2 million for Q1 of 2021 compared to negative $32 million in the prior year period. Our petroleum business was positively impacted by increased volumes in the U.S. market for prime refined product improved as demand continued to recover and negatively impacted by exorbitant rent pricing and winter storm Yuri. Net sales and service revenues for our automotive segment were $598 million for Q1 of 2021. We are beginning to see our automotive service business revenues return to pre-pandemic levels. As a reminder, Icahn Automotive Group continues to push forward with the multi-year transformational plan to restructure operations and improve profitability, which is illustrated by the significant reduction in losses in Q1 versus the prior year quarter. We have substantially completed the legal separation of our automotive service business from our aftermarket parts business, which will provide the service business with new growth and value-enhancing opportunities. In January of 2021, we issued $750 million of 4.38% senior unsecured notes due in 2029, and in April of 2021, we issued $455 million of 5.25% senior unsecured notes due in 2027. The proceeds were used to repay all of the $1.2 billion principal amount of 6.25% senior unsecured notes due in 2022. We closed the quarter with cash and investments in the funds of over $6.6 billion. Last month, in connection with the continuing consolidation of all of our operations into our Florida office, we announced the hiring of Eris Caucasian, the former Chief Investment Officer of General Electric Company as our new President and CEO. Eris is with us on today's call and will be available to answer any questions. With that, let me turn it over to SungHwan.

Thank you. I will begin by briefly reviewing our consolidated results and then highlight the performance of our operating segments and comment on the strength of our balance sheet. For Q1 2021, net income attributable to Icahn Enterprises was $162 million as compared to a net loss of $1.4 billion in the prior year period. As you can see on slide five, in Q1 2021, the performance of the investment funds was a significant driver of our net income for the quarter. Adjusted EBITDA attributable to Icahn Enterprises for Q1 2021 was $435 million compared to a loss of $1.3 billion in the prior year period. I'll now provide more detail regarding the performance of our individual segments. Our investment segment had net income attributable to Icahn Enterprises of $391 million for Q1 2021. The investment funds had a positive return of 9.2% in Q1 2021, compared to a negative return of 17.6% for Q1 2020. Long positions had a positive performance attribution of 18.5% for the current quarter, while all short positions and other positions had a negative performance attribution of 9.3%. Since inception in November 2004, through the end of Q1 21, the investment funds gross return is 89% or 3.9% annualized. The investment funds had a net short notional exposure of 19% compared to a net short of 52% at the end of Q4 2020. Our investment in the funds was $4.7 billion as of March 31, 2021. Now, moving on to our energy segment for Q1 2021. Our energy segment reported net sales of $1.5 billion and break-even consolidated adjusted EBITDA compared to net sales of $1.1 billion and consolidated adjusted EBITDA loss of $38 million for the prior year period. The Q1 2021 adjusted EBITDA includes a gain of $62 million related to CVRs investment in Delek. Q1 2021 combined total throughput was approximately 186,000 barrels per day, compared to approximately 157,000 barrels per day for Q1 2020. Refinery operations were severely impacted in February by winter storms but have resumed full operations. Refining margin per throughput barrel was $3.05 in the first quarter of 2021 compared to $0.52 during the same period in 2020. While increased crack spreads and volumes contributed to the improvement in refining margins, higher rent expense offset much of that benefit. CVR's previously announced new diesel project is expected to be completed in the third quarter and is expected to help mitigate future exposure to returns. CVR Partners reported Q1 2021 EBITDA of $5 million compared to $11 million in Q1 2020. Corn planting prices are attractive and are driving increases in fertilizer prices and demand. Now turning to our automotive segment, Q1 2021 net sales and service revenues for Icahn Automotive Group were $598 million, down $37 million from the prior year period Q1 2021. Adjusted EBITDA, which excludes the losses associated with closed or closing parts stores, was a loss of $9 million compared to a loss of $42 million in the prior year period. Icahn Auto continues to push forward with a multi-year transformational plan to restructure operations and improve profitability. Store closures related to the transformation plan accounted for most of the sales decline for Q1 2021, when compared to the prior year period. Now turning to our food packaging segment, Q1 2021 net sales increased by $3 million or 3% and consolidated adjusted EBITDA was $15 million compared to $14 million in the prior period. Net sales increased due to an increase in volumes and favorable effects on foreign exchange. Now in our metal segment, Q1 2021 net sales increased by $34 million and adjusted EBITDA increased by $6 million compared to the prior year period. Volumes and prices continue to be strong driven by high demand from steel mills. Turning to our real estate segment, Q1 2021 net operating revenues decreased by $5 million compared to the prior year. Adjusted EBITDA for the quarter decreased by $3 million compared to the prior period. Revenue from our real estate operations for both Q1 2021 and Q1 2020 were substantially derived from sales of residential units and rental operations. Turning to home fashion, Q1 2021 net sales decreased by $9 million compared to the comparable prior year period. Sales to hospitality customers were down significantly due to weak global travel. Adjusted EBITDA was a loss of $2 million in Q1 2021 compared to breakeven in the prior period. Now turning to pharma, we started to consolidate the results of VISTA beginning in December of 2020 within our new pharma segment. Q1 2021 net operating revenues were $30 million, including $13 million from a one-time transaction and adjusted EBITDA was $3 million. Now I will discuss our liquidity position. We maintain ample liquidity at the holding company and at each of our operating subsidiaries to take advantage of attractive opportunities. We ended Q1 2021 with cash, cash equivalents and our investment in the funds and revolver availability totaling approximately $7.2 billion. Our subsidiaries have approximately $808 million of cash and $586 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 ample liquidity to enable us to capitalize on opportunities within and outside of our existing operating segments. Thank you, operator. Can you please open the call for questions?

Our first question comes from Dan Fannon with Jefferies. Your line is now open. Thanks.

Good morning. First, I just wanted to say, I'm not sure if this is the last call for you guys before the transition, but I wanted to thank you. It was great working with you, and wishing you the best of luck in your future endeavors. My question is always kind of for Keith to start, is this kind of the current backdrop and how you guys were thinking about new investments, in terms of the risk of the fund, and I heard the net short positions, there may be some context around kind of the current backdrop and the thinking forward based on where we sit today.

Yeah, sure. Thanks for the question, Dan, and thanks for the kind words. Yeah, this is my last earnings conference call. So just pivoting to the fund, you'll see in the 10-Q when it's released later today and SungHwan referenced some of the exposure changes, but we did end the year at negative 52% net short when you aggregate both equities and credits. As of March 31, that number is negative 19%. So obviously we've reduced some hedges and added some longs. When you break down that detail further, you'll see we found some equity spots. If you look at our net equity short position at year end, it was around negative 30%, and that pivoted to a positive 20% as of March 31. A lot of those names are public, such as Bausch Health Companies, First Energy, and even a non-activist position that we are public on in Dana Automotive Holdings. We are finding pockets of value. In the two activist positions, we were able to obtain board representation where we think we can help unlock value and serve as the catalyst to improve those situations. That being said, the overall backdrop has us still moving hedges around, and you have to be very cautious with market multiples where they're at.

Makes sense, appreciate that color. And then just on the auto segment, just curious about how the pandemic has potentially shifted that transition or changed some of the factors in terms of how you're thinking about that business is going to look at the end of that multi-year transition?

Sure. From the pandemic point of view, I would say we've accelerated the timeline of closing unprofitable parts stores on the parts side of the business. The pandemic had an effect on the service side of the business. The service side is where we feel there is the most opportunity. We have great secular tailwinds there. We've restructured that side of the business and expect dramatic improvement in profitability. We have it separated internally from the parts business and as I referenced in some of my opening commentary, we're seeing a lot of pent-up demand that we're capturing with our service business, where in Q1 we were back to Q1 of 2019 levels, not Q1 of 2020. Great growth for 2020, but that's not something to brag about given the low bar from the pandemic. We're excited about the growth profile. We've discussed the size of the car park, the age of the vehicle fleet in the U.S., and the secular tailwinds that should make the service business very valuable moving forward.

Great. Thank you. And then I think you mentioned Eris is on the call. So I guess we'd like to hear a bit about maybe the thinking about the combined entity and the enterprise going forward, and maybe how he thinks he can put his footprint around this business or what we should think about in terms of potential changes or lack thereof going forward?

Yeah, sure. It would be best for Eris to give Dan and the listeners a bit of color on his background and a flavor for his experience.

Yeah, well, hi everybody. It's nice to be on the call. I spent a better part of three decades at GE, most recently as the Chief Investment Officer of the company. My background is primarily in M&A, which I think bodes well for some of the activity that we've hoped to do in the company. I don't see any significant change in terms of strategy or direction of the company or the institution here in any way. I think it's more continuous progress in terms of the plans that Keith has laid out thus far. But I'm looking forward to being part of this institution. I think it has a great track record, a great history, a great source of permanent capital, and one that's well-positioned for the future.

Great. Thank you; that's all my questions.

Thank you. Our next question comes from Anthony Calderon from Icahn Enterprises. Your line is now open.

Hi, how are you guys? Thank you so much for taking my question. I actually have one question and maybe a suggestion. I'm sure you guys are familiar with military contractors. I would like to suggest that the company take a very small position in possibly a military contractor because military contracts, such as General Dynamics, make tanks for the U.S. Army and nuclear submarines for the U.S. Navy. In my opinion, that's not going anywhere. Additionally, they pay a 2.5% dividend as well. That's just a thought, a suggestion of mine. The other thing is I love how diversified the whole portfolio is; the portfolio includes energy, real estate, and everything. However, I would suggest possibly diversifying energy assets into green energy assets, just to have a bit more diversification, because, as we know, oil is not going anywhere.

All right. Thank you for the suggestions. Operator, can you move on to the next question?

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Keith Cozza for closing remarks.

Okay. Thank you, operator, and thank you everybody for your continued interest in Icahn Enterprises. We'll look forward to speaking with you in August to discuss the second quarter results. Have a good day.

This concludes today's conference call. Thank you for participating. You may now disconnect.