Icahn Enterprises L.P. Q1 FY2024 Earnings Call

Good morning, and welcome to the Icahn Enterprises LP's First Quarter 2024 Earnings Conference Call with Andrew Teno, President and Chief Executive Officer; 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 statement.

Thank you, operator. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements that 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. 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 indicative net asset value. Indicative net asset value includes, among other things, changes in the fair value of certain subsidiaries, which are not included in our GAAP earnings. All net income and 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.

Thank you, Rob. I will provide a brief overview of Q1 results, and then we will be available for questions. First quarter net loss was $38 million, an improvement of $232 million over Q1 of 2023. First quarter adjusted EBITDA was $134 million, an increase of $39 million compared to Q1 2023. Indicative net asset value ended the quarter at approximately $5 billion, up $194 million from the prior quarter. In terms of our controlled businesses, CVI has benefited from lower RINs expense offset by wider-than-usual refined product bases. We believe there are opportunities swirling in the refining space and it will be disciplined to see if we can find something accretive and attractive. The auto service division is working on several key initiatives to drive earnings and cash flow. One of particular note includes product sourcing and inventory reduction. Regarding our automotive owned real estate, we are making solid strides with our transformation plans. We have added key personnel to the team to further optimize the real estate portfolio and the auto service business through leasing, greenfields, store optimizations, and outparcel development. This quarter, the investment funds had a negative return of 0.8%, primarily driven by energy sector and broad market shorts. If you were to subtract out the impact of our energy shortage, which offset our refining exposure, our returns would have been a positive 5.8% for the quarter. One particular contributor to performance was Southwest Gas Holdings, which increased in value through increased utility profitability and the impact of the recently completed Centuri IPO. We believe that Centuri and another one of our long positions, AEP, are beneficiaries of the need for investment in the grid and additional generation to support growing AI-related data center demand. Our headline net short exposure of 27% is a net long exposure of 7% when you adjust for the energy hedges. This compares to net short exposure of 6% as of year-end, excluding the energy hedges. As you can see, we continue our recent trend of getting slightly more net long and focusing on our activist efforts. Additionally, the Board approved a $1 quarterly distribution per depositary unit, which is consistent with last quarter. With that, let me turn it over to Ted for a detailed discussion of all of our segments.

Thank you, Andrew. I will begin by reviewing the performance of our segments and comment on the strength of our balance sheet. Turning to our Investment segment. The funds had a negative return of 0.8% for the quarter. Long and other positions had a positive performance attribution of 12.6%, while short positions had a negative performance attribution of 13.4%. The holding company's interest in the fund was approximately $3.2 billion as of quarter end. And now turning to our Energy segment. Energy segment's EBITDA was $118 million for Q1 '24 compared to $229 million for Q1 '23. Q1 '24 refining margin per throughput barrel was $16.29 compared to $23.24 in the prior year quarter. This decrease is primarily driven by lower crack spreads, offset in part by reduced RFS expenses and favorable RIN revaluation. Q1 '24 average realized gate prices for UAN decreased by 42% to $267 per ton and ammonia decreased by 41% to $528 per ton when compared to the prior year quarter. CVI declared a first quarter cash dividend of $0.50 per share. And now turning to our Automotive segment. Net sales and other revenues decreased by $73 million compared to Q1 '23, primarily driven by the deconsolidation of Auto Plus during the prior year quarter as well as reduced car count for the automotive service business. Adjusted EBITDA improved $2 million for Q1 '24 compared to Q1 '23. Automotive service was able to maintain adjusted EBITDA through cost-cutting and margin initiatives, which offset reduced car count. And turning to our Real Estate segment. Q1 '24 net sales and other revenues decreased by $5 million and adjusted EBITDA decreased by $2 million compared to the prior year quarter, primarily driven by reduced sales of single-family homes. And turning to our other operating segments. Food Packaging's adjusted EBITDA decreased by $4 million for Q1 '24 as compared to the prior year quarter, driven by lower volumes due to softening demand. Home Fashion's adjusted EBITDA increased by $1 million as compared to the prior year quarter, mainly due to margin improvement offset by lower sales. Pharma segment's adjusted EBITDA for Q1 '24 improved by $5 million as compared to the prior year quarter, mainly due to higher sales and lower operating expenses. And turning to our liquidity. 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 investments in the funds of $4.9 billion and our subsidiaries had cash and revolver availability of $1.1 billion. In summary, we continue to focus on building asset value and maintaining liquidity and to enable us to capitalize on opportunities within and outside our existing operating segments. Thank you. Operator, can you please open the call up for questions?

Our first question comes from Dan Fannon with Jefferies.

Andrew, I wanted to follow up on your comments about CVI. You mentioned something regarding strategic options related to accretion. I know that on their call, they discussed exploring strategic options. Could you elaborate on that and explain the rationale behind the timing and why this is happening now?

In terms of CVI, we are long-term investors and dealmakers, which means we consider various opportunities that arise. Over the years, we have explored a range of options. We felt it was appropriate to discuss this today, particularly since we released the 8-K a couple of weeks ago regarding both CVI and UAN. When we assess our asset base, we believe the CVI team excels as low-cost operators and is very effective in managing our refining business. If we identify an interesting opportunity, you can expect us to pursue it.

So that would be more about adding to your portfolio through mergers and acquisitions or strategic capital investments rather than exiting any of the existing businesses?

I'd just say we look at all opportunities, whatever is available.

Understood. Now, if we turn to the Auto segment, looking at the future and the roadmap you've provided, it appears that cost-cutting and rationalization remain a key focus. Is this the strategy for 2024? Will we see a recovery in sales from that point? Or do you anticipate an improvement in sales more immediately over the next couple of quarters?

Yes. If you look at the market in this space, demand isn't outstanding, but we believe this is a short-term issue. Looking at the long-term prospects for our auto service business, we see opportunities across the board. With Dave as the permanent CEO for a few months now, we believe the possibilities are vast. For instance, in product sourcing, we recognize that the company could have performed better historically. By adopting a more strategic approach to our purchasing and pricing, we think there are chances to enhance our gross margins on products. Additionally, we see potential to improve service levels in our stores, expand the greenfield program, and assist with relocating stores. Thus, we believe there are many opportunities to pursue.

Great. That's helpful. And then I guess just at a high level, as you think about the environment from a macro perspective and what you're seeing in terms of the activist investment style in this environment, given higher rates, higher for longer. Are there more areas that you're seeing opportunity in than maybe you were a year ago? Or is it the opposite where this economic backdrop is still quite strong and you're not maybe seeing the valuations and/or kind of the incremental opportunity that you've seen previously? Just trying to get a sense of today versus maybe a year ago in that investment opportunity set?

I have been with Icahn for four years, and I can say that there are always opportunities for activism. Companies frequently encounter difficulties, stock prices often decline, and hidden value can consistently be revealed. In any given quarter, we are evaluating at least ten different companies where we see potential. While we typically do not take action immediately, we continue to search for the right moment. Last quarter, we identified two companies that eventually went public. We may have made additional investments since then, but nothing that hasn't been publicly disclosed.

Understood. Lastly, I appreciate the additional information regarding the hedging in the investment fund and the progress you've achieved. What do you see as a stable situation when considering the hedges and long exposure? I'm not trying to predict your actions, but generally speaking, do you feel you're in the position you aim for, or do you anticipate further adjustments in the portfolio over the next few quarters?

Yes. So I don't think we really want to bet on where the market is going. I think we've been pretty clear, we want to stay away from that. There probably are not any large-scale changes as to what we're going to do in terms of taking down our short exposure. I think Carl would always like to be appropriately hedged. And I think based on how we feel and how we feel about our investments, that appropriate hedge could go down a little bit, but it's hard to take it off at these levels. So it's something we evaluate all the time, but I don't really foresee any material changes.

I'm currently showing no further questions at this time. I'd like to hand the conference back over to Andrew Teno for closing remarks.

Thank you. So I'd like to leave today with a reminder that here at Icahn Enterprises, 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. It is this track record, which frequently allows us to be invited to join boards and work cooperatively with our fellow directors to make the key changes that will drive shareholder value. Furthermore, given our balance sheet, liquidity, and permanent capital structure, we have the ability to tender for entire businesses. The tool most simply do not possess. Though returns can be lumpy and dissatisfying at times, as we continue to focus on our activist efforts at both our Investment segment and controlled businesses, we believe they will bear fruit for all of our unitholders. We'll speak to everyone soon. Bye.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.