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spk01: To raise your hand during Q&A, you can dial star 1 1.
spk03: Good morning and welcome to the Icon Enterprises LPQ2 2022 Earnings Call with Jesse Lynn, General Counsel, David Willits, President and CEO, and Ted Papapasalu, Chief Financial Officer. I would now like to hand the call over to Jesse Lynn, who will read the opening statement.
spk02: Thank you, Operator.
spk00: 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 Icon Enterprises LP and its subsidiaries. Actual events, results, and outcomes may differ materially from 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 David Willits, our Chief Executive Officer.
spk04: Thank you, Jeffy. Good morning and welcome to the second quarter 2022 Icon Enterprises Earnings Conference call. Joining me on today's call is Ted Papapostoulou, our Chief Financial Officer. Together, we'll provide an overview of Q2 results and then be available for questions. For the sake of brevity, all net income and EBITDA amounts that we'll discuss here today are attributable to Icon Enterprises unless we have otherwise specified. Before we get into the results, I wanted to reemphasize that we believe activism is the best paradigm for investing. We are putting our activist principles into effect in both our majority-controlled and our minority positions held in our investment segment, and currently have representatives on 14 public company boards. Additionally, we strongly believe in hedging our positions to mitigate risk, especially in the volatile markets in which we are living today. Now into the numbers. For the six months ended June 30th, 2022, our net income was 195 million, 64 cents per depository unit, and our adjusted EBITDA was 742 million. For reference, last year's first half figures were 26 million in net income, 10 cents per depository unit, and adjusted EBITDA of 627 million. Our second quarter discrete results were a net loss of 128 million, adjusted EBITDA of $126 million. This represents an improvement of $8 million of net income and a decrease of $66 million of adjusted EBITDA compared to Q2 of 2021. Our indicative net asset value as of June 30, 2021 was $6.6 billion, up $1.5 billion from the ending figures of December 2021. The change in 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. Regarding our segments, by the first half of 2022, our investment funds had a positive return of 4.3%, driven primarily by our energy investments. The second quarter had a negative return of 4.8%, driven by movements principally in our healthcare investments, partially offset by broad market hedges. CVI ended the quarter and the half with very strong performance, largely due to improved crack spreads and UAN pricing. In light of the strong 2022 performance today in both the refining and fertilizer segments, CVR announced a dividend of $3 per share, which includes a special dividend of $2.60. UAN announced a dividend of $10.05 in its distributions to its unit holders. Our automotive segment continues to execute the transformation plan and is seeing improvements in the services shop margins and is seeing a reduction in overall losses within the parts business. We closed the quarter overall with cash and investments in the funds of approximately $5.9 billion. The board declared a $2 per unit quarterly distribution payable in cash for additional units. And with that, let me turn it over to Ted for a detailed discussion of all of our segments. Ted?
spk01: Thanks, 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 2022, we had net loss of $128 million compared to net loss of $136 million in the prior year period. Our results for the quarter include headwinds from RIN expense totaling $153 million and a one-time settlement charge of $79 million within our energy segment. For Q222, adjusted EBITDA was 126 million compared to 192 million in the prior year quarter. I will now provide more detail regarding the performance of our individual segments. The investment funds had a negative return of 4.8% for Q222 compared to a positive return of 1.4% in the prior year quarter. The negative returns for the quarter were primarily driven by healthcare investments offset in part by broad market hedges. In Q2-22, long positions had a negative performance attribution of 20.8%, while short positions and other had a positive performance attribution of 16%. The investment funds had a net short notional exposure of 28% at the end of the quarter, compared to a net short notional exposure of 21% at the end of Q1. Our investment in the funds was approximately $4.4 billion as of quarter end. And now to our energy segment. In Q2-22, our energy segment reported net sales of $3.1 billion compared to $1.8 billion in the prior year quarter. Adjusted dividend was $273 million for Q2-22 compared to $49 million in Q2-21. CVI declared a $3 per share cash distribution, which includes a special dividend of $2.60 per share. Q2 22 refining margin per throughput barrel was $26.10 compared to $6.72 in the prior year quarter. This increase was primarily due to widening crack spreads. The cost of rinse continued to have a negative impact on our refining business with $153 million of expense for the quarter. TVR partners reported Q2 22 EBITDA of $147 million compared to $51 million for Q2 21 EBITDA. Q22, average realized gate prices for UAN improved by 134% to $555 per ton, and ammonia improved by 193% to $1,182 per ton when compared to the prior year quarter. DVR partners declared a second quarter cash distribution of $10.05 per unit. And now on to our automotive segment. Q2-22 net sales and service revenues for the automotive segment was $621 million, a decrease of 16 from the prior year quarter. Q2-22 automotive service revenue increased by $34 million in part due to the growth in its fleet business. Aftermarket parts sales decreased by $63 million, mainly due to store closures as part of the transformation plan. Q2-22 adjusted bill was $13 million compared to $25 million in Q2-21. Now onto our real estate segment. Q2 22 net sales and other revenues increased by 3 million compared to the prior year quarter. Adjusted EBITDA was 4 million for Q2 22 compared to a loss of 2 million for Q2 21. The segment continues a strong performance and the management team is focused on increasing occupancy across the portfolio. And now turning to our other segments. Q2-22 net sales and other revenues for all other operating segments increased by $22 million compared to prior year quarter. Adjusted EBITDA was $19 million for Q2-22 compared to $21 million for Q2-21. This case benefited from pricing initiatives which were offset by raw material price inflation, increased distribution costs, and manufacturing inefficiencies. Home fashion continues to experience high demand in its hospitality business. and the pharma segment experienced strong strip growth for Pancreas and Qsymia as compared to the prior year quarter. And 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 $7.2 billion. Our subsidiaries have approximately $1 billion of cash and $295 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 our existing operating segments. Thank you. Operator, can you please open up the call for questions?
spk03: Certainly. Ladies and gentlemen, if you have a question at this time, please press star 1-1 on your telephone. Please stand by while we compile the Q&A roster.
spk02: And our first question comes from the line of David Fannin with Jefferies.
spk05: Hey, good morning. It's Dan Fannin. Wanted to follow up on the 14 company boards. I think you highlighted at the stat that I'm not sure we've gotten before. Curious as to how that compares to other periods and also just generally how receptive companies are to your involvement and if that's changed over time as well.
spk04: Yeah. I think, Jesse, you can probably comment on the number over a longer period of time. And I think we can address the receptivity.
spk02: Jesse?
spk04: My take, Dan, would be that, at least for my duration here, I don't want to speak beyond that. We've always been in the plus or minus, I'd say, 10 to 16 range. Certainly, we go up, we go down. But I'd say Carl and the company have historically had a number of investments where we're pursuing an agenda over a multi-year period. So I don't think the 14 is fundamentally different. We included that comment just to provide some context because sometimes it can seem as though it's a series of passive investments. That's probably the wrong context. That's not how you drive activism. In terms of receptivity, what I'd say is that over the long term, generally speaking, our relationships are fairly collaborative and productive with management. Certainly, an initial approach, you might have more of a less collaborative approach when you're initially getting into your investment and you're considering either a proxy or a tender situation. But I think on the whole, if you'd ask a number of our investments, you'd say it's a fairly collaborative relationship over the long term. At least that's my perspective after the last year and change, Dan.
spk05: Got it. That's helpful. And then we heard the updated positioning around the fund. But given the backdrop and the volatility we're seeing and obviously rates moving and a lot more macro factors, is your strategy changing at all? Is turnover picking up? Are you thinking about more single position, short positions or hedges as opposed to kind of the more broader macro stuff that you guys have historically done or any kind of change in terms of the way that you guys are investing?
spk04: I think there are two different answers to that question. Generally speaking, our overall strategy hasn't changed. We use a combination of broad market hedges and single position hedges, depending on the particular circumstance. And we will adjust those based on company condition, company performance, how it's executing on its plan. The broader macro hedges are both for companies as well as underlying commodities that the companies might be exposed to. So I'd say in general, we haven't changed our overall strategy. We've adjusted it over time, certainly as you look through 2020 into 21 and 22, we've dialed up or dialed down our views on macro markets. That said, we're not ignorant to the fact that there are opportunities in volatile situations where we can take money off the table, and we have looked at doing that in Q1 and Q2 in select areas. As things continue, we're going to continue to monitor the volatility and where things are vis-a-vis what we think are historic lows and highs. So short answer is our macro strategy hasn't changed, but we do look to optimize it from time to time.
spk05: Understood. Thanks for taking my questions.
spk03: You're welcome, Derek. Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephones. And our next question comes from the line of Chapman Meacham with Northeast Investors Trust.
spk06: Oh, hi. Good morning, guys. I just have a few questions about this case, as usual. I see that you're no longer breaking the numbers out on its own slide, but if I look at the NAV down 20 million quarter over quarter, is that – pretty much all from EBITDA, so like a $2 million number, or is part of that cash or working capital? Can you address that at all? Sure.
spk04: Ted, can you get through the specifics of the elements that have moved just as we look at this quarter?
spk01: Yeah, the majority of the movement is due to the EBITDA decline year over year, so the LTM decreased by $2 million.
spk04: And for context, in this case, I think we can characterize this case as a company that, frankly, had not fully appreciated the inflationary headwinds that were coming its way, and we were playing a game of catch-up on price. So when you take a look at the EBITDA, you certainly have the impact of slow-to-action price in the market that's weighed on an LTM basis. You didn't have as much inflation last year, and playing catch-up is just that. coupled with the fact that we had to take a significant line down, when was it, Ted, October, November last year? Maybe even September. It was Q4, yeah. And that only now has just come back up online in, call it three weeks in June, maybe two weeks in June. So you have the game of catch-up on price and inflation coupled with you had a line down. What I'd say is, We have been collectively addressing the price issue, and I'm relatively happy, even though the job isn't done, that the business team has fully offset the inflation that they faced on a year-to-day basis, year-over-year, and then some. And once the line is fully back up and running, and in the results, I think you're going to see a bit more of a pop. So that's a little bit of context to your question.
spk06: That's great. Thank you. I was going to ask a couple things about that. I guess what you'd say, so the costs are not abating, but you are, I know you've had some price increases already, but you're saying you continue to be able to put in more, put through more?
spk04: I mean, we're respectful with our customers, but yes. The cost of energy in Europe is staggering. If it weren't hedged in select areas, candidly, the cost of electricity would have doubled. Now, those hedges expire, and we're having those discussions now. We're having those discussions with our customers, and we're being very respectful, not doing a jam, but they understand the environment we live in. Energy prices up. We use a lot of energy in our process, as are raw material prices and shortages in wood pulp. So they understand it. They don't like it. We don't like it, but we are passing it through, and it comes down to... you're just simply driving for your economics while being respectful to your customer and understanding your competitive position.
spk06: Absolutely understand that. But so the volumes are, I mean, demand's strong, but it's really just about figuring all that. And is there any FX impact? It's really just about a cost issue.
spk04: Well, if you take a look at the adjusted EBITDA, that is principally, my comments talk about the adjusted EBITDA. We do have... translation issues, just based on some of the large movements in the U.S. dollar versus the Euro and some of the European currencies. What I'd say, though, is I'd say many of those are balance sheet translation issues. That said, we are looking at an area of opportunity to address our transactional FX cost, but that's just sort of back office treasury efficiencies that we just haven't had in place before. Primarily translation, there is some opportunity, particularly in translation with, I think it's Mexico and the U.S. dollar, as well as some of the inter-European currencies. But that's a small piece of it.
spk06: Great. That's all I've got. Thank you so much, as always, for the additional insight.
spk03: Of course. Thank you. I'm showing no further questions at this time. So with that, I'll hand the call back over to President and CEO David Willits for any closing remarks.
spk04: Very good. Well, thank you all for joining us. We always enjoy these opportunities to interface with our shareholder base. If you do have any questions that weren't able to be addressed through this process, we will refer you to our website so that you can raise those through the IR portal, and we'll be happy to get back to you shortly. Otherwise, we look forward to talking to you in about three months. Everyone have a great day.
spk03: ladies and gentlemen this concludes today's conference call thank you for participating and you may now disconnect the conference will begin shortly to raise your hand during q a you can dial star one one
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