This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Good morning, and welcome to the ICANN Enterprises LP Q4 2022 earnings call with Rob Flint, Director of Accounting, David Welitz, President and CEO, and Ted Papapostolo, Chief Financial Officer. I would now like to hand the call over to Rob Flint, who will read the opening statement.
spk02: 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 Icon 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 David Willits, our Chief Executive Officer.
spk07: Thank you, Rob. Good morning and welcome to the fourth quarter 2022 ICON Enterprises Earnings Conference Call. Joining me on today's call is Ted Papapostilou, 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 investing. We're putting our activist principles into effect in both our 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 we'll discuss are attributable to ICON Enterprises unless otherwise specified. Now into 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 of 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 31st, 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 gap earnings reported above. 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. DBI ended the quarter with continued strong performance, largely due to a $20.42 increase in crack spreads in Q4 2022 versus 2021 with flat volumes. Dividends have been increased to $0.50 per share for Q4 2022, bringing the total 2022 dividends to about $5.30 per share. DVR Partners performed strongly in Q4 2022, largely due to strong pricing markets for ammonia and UAM, both of which were up versus Q4 2021 by approximately 30 plus percent. For automotive services, revenue growth remained strong at over 13% for the full year of 2020. In Q4, the team executed the first phase of efficiency actions targeting corporate SG&A costs. 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 at 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 a detailed discussion of all our segments.
spk03: 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 continued to have a negative impact on our refining business with $142 million of related expense for the quarter. Q422 average realized gate prices for UAN improved by 31% to $455 per ton, and ammonia improved by 30% to $967 per ton when compared to the prior year quarter. Now to our automotive segment. Q422 net sales and other revenues for the automotive segment was $585 million, an increase of $22 million from the prior year quarter. Q422 adjusted EBITDA was negative $43 million compared to negative $97 million in Q421. Q422 automotive service revenue increased by $43 million as compared to the prior year period due to price increases offset by lower volumes. Q422 aftermarket parts 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, AutoPlus, an aftermarket parts distributor held within the segment, filed a voluntary Chapter 11 bankruptcy. This proceeding is limited to AutoPlus and will not have a significant impact to Icahn Enterprises. Now to our real estate segment. Q422 net sales and other revenues increased by $8 million compared to the prior year quarter. Adjusted EBITDA was $3 million for Q422 compared to negative $3 million for Q421. The segment continues a strong performance and the management team is highly focused on increasing occupancy across the portfolio. Now turning to our other segments. Q422 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, 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.
spk08: Operator, can you please open up the call for questions?
spk01: And ladies and gentlemen, as a reminder, to ask the question, simply press star 11 on your telephone to get in the queue. One moment while we compile the Q&A roster.
spk00: One moment for our first question. Comes from Daniel Fannin.
spk06: Hey, good morning. Morning, guys. 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, you know, just kind of the framework of how you're thinking about, you know, kind of the broader macro backdrop, you know, obviously a lot going on, but just, you know, 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?
spk07: 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 than 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, look 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 hurts 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.
spk06: Understood. And I guess a 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, you know, that obviously is also potentially impacted by higher rates. So just want to 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.
spk07: Yeah. Interest rates moving up 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 market difference in interest rates, certainly now, probably in 2023, as compared to 2020, 2021, 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 we're not at nosebleed 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
spk06: 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 the tailwind from some unusually favorable interest rate environments in the last few years understood and then just last one you mentioned the the bankruptcy of the auto parts not being significant um 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.
spk03: Ted, do you want to take that one? Yeah, we don't break out the AutoPlus business in our financials, but we did deem it. AutoPlus was not a significant subsidiary of Icon Enterprises, and nor was it a strategic shift getting rid of that subsidiary. So it would not be a significant impact, but we can't quantify it at this time. And it was a subsequent event. So maybe, you know, during the Q1 earnings, we'll be able to provide more color. Okay. Thank you.
spk00: Thank you. One moment for our next question, please. And it comes from the line of Andrew Berg, the Post Advisory Group.
spk04: Thanks, guys. Just circling back on the investment funds for a moment, it looked like to me on the single name long positions you guys did reasonably well, and obviously the biggest thing that probably hurt you was the equity short. Was the seven-point change in net notional predominantly an adjustment to that equity short, or did you adjust in other areas?
spk07: I think the only thing that you really see running through here is the shorts, as you pointed out, did not perform well. Certainly, quarter four was volatile, as has been the last several quarters. So the shorts did not perform particularly well, but the longs did perform relatively well. So I think on our overall positioning, it doesn't reflect a fundamental change in our positions, just relative performance between them in terms of the equities.
spk04: Okay, I guess we'll see it in the queue as to what the change was between the index funds and the CMBX shorts.
spk07: Well, in terms of the CMBX shorts, maybe I'll provide a bit broader context. Those defease over time. So over time, if you go back to certainly 2021 and 2022, our exposure to the CMBX shorts has naturally declined as those wind up. So we see an impact, and we certainly have seen an impact over the last several quarters that's been more pronounced than in past years, just as those are just defeasing in larger numbers, and that's a planned and predictable action. So I wouldn't read too much into that other than the natural course for that security.
spk04: Okay. And my numbers suggest that that was probably somewhere breakeven in the quarter, so I don't think it was a significant detractor from performance, but I might be wrong. When we look at real estate, the $6 million swing in EBITDA, what exactly is driving that? It's great to see the improvement. I'm just wondering what was the improvement there?
spk07: I mean, the The good news is that we have been focused on real estate, and there's still opportunities, certainly in one or two areas. But we've seen continued progress in our development companies. They've done very well. Despite interest rate environments, they've done very well. They continue to move forward. We continue to be excited about our strategy and development of the type that we do. And then over the course of really 21 versus 22, we've had continued progress in select net lease properties, really leasing those out where they were idle. We still have plenty of space to lease out, and we're focused on that. But what I'd say is real estate has started to come more into its own. And stay tuned on that area. We want to see that continue to perform well.
spk04: Okay. Great. And then lastly, just looking at the asset values that you guys provide, there were sort of three big areas where we saw that indicative value change, one of which was in automotive-owned real estate. And you mentioned on the call that there were certain write-downs that were taken. Can you quantify those write-downs? And given the auto plus stuff happened subsequent to quarter end, I just want to understand. that decline in value that you show in automotive a little bit better as we think about it from 3Q to 4Q? Sure.
spk07: I mean, I think the biggest move that is represented there, we'll separate it into what I consider the operating companies and the real estate. NAV is a valuation-based approach, which is obviously non-GAAP. And real estate we value once a year. And given the movement in cap rates, which has been relatively significant, Uh, you know, we, we adjusted, uh, our net asset values down in the real estate sector. It doesn't really change any of the underlying economics for that sector or for our ability to get market rents that we're getting in the past. But the reality is when you do an independent valuation and you look at cap rates, you, as much as you may not wish to, you have to recognize that based on our methodology. So that was the, that was the single biggest change in, uh, in the automotive, uh, real estate sector. Um, I'd say in terms of the operations, there were a number of items that I would characterize as stemming from a new leadership team, particularly in the services we've been focused on. A full balance sheet review, cleaning up processes, ensuring that controllership is where it needs to be. And as we really looked back, we saw a number of items that were not to our liking. And so several additional reserves were posted, which I would characterize some of them as methodology change. For example, let's post an excess and obsolete inventory methodology. Let's reevaluate some of the capitalized items for inventory. Those are just reevaluation of methodology. And then, frankly, there are other items that we had to recognize that should have been recognized perhaps a little bit more promptly than they had been between Q4 and Q1, 2, and 3.
spk04: Okay. So it's pretty much new management coming in and a bit of a cleanup. That makes sense?
spk07: It's a bit of a cleanup.
spk04: Got it.
spk07: Thanks, guys. We're really focused on the integrity of the numbers there.
spk04: Okay, helpful.
spk00: Thank you. One moment for our next question. And it comes from the line of Bruce Morad with Northeast Investor Group. Hi, guys. Can you hear me okay?
spk05: Yes, we can. Good morning, Bruce. Okay, great. And thanks, as always, for hosting the call and hopefully, okay, food packaging question. And nice to see the, you know, the improvement at this case and the both the EBITDA and the marking up of the value, so it's great. A question on sort of Osceola and, you know, how's it going with production there? You know, what inning are you in in that, would you say? Maybe that's the first question.
spk07: With regards to the plants, particularly the North American plants, here's what I would say. The line that has been a source of consternation is running consistently at volumes. There are still scrap rate issues that we're muscling through. They were close to, but not at plan for scrap rates. But the reality is that's not a material driver. It's just an opportunity. So I would say, I would still say we're very much in the first inning and maybe baseball's the wrong, maybe we're in the first quarter. What I'd say is we have taken many stabilization actions. We replaced select personnel. We've gotten discipline on gauge R&R items on most of our indicators and indicators of line performance. We're not done there yet, but we're at the point where the plant is performing. The plants are performing not wonderfully, but they're performing consistently. I'd say the next phase, still very much in the first quarter, is now we need to make consistent improvements upward. The good news is that OEE, and OEE always has its issues, but it's a general measure of efficiency. We've seen a sustained, I believe it's a three month, five percentage point increase in OEE in Osceola. It's not entirely where we'd like it to be, but we're seeing small step function improvements. My experience in plants is rarely do you get a big bang unless it's a scheduling opportunity. When you have a plant with multiple issues with labor, with machine reliability, with scheduling, you get it in two to five percentage point step functions. So I'd say we're still in the first quarter, but we're not at square one, to mix my analogies here. We are making steady, reliable progress. I can say that one factor that we always worry about is power interruption and weather. And certainly for first quarter, there have been blips of weather-related issues, but not something that gives us concern for the overall trajectory for first quarter.
spk05: Okay, good. And I'm sorry, OEE stands for?
spk07: It's basically equipment efficiency. Okay. Overall equipment efficiency.
spk05: And then in terms of how management's budgeting for 23, do you do it off, do they do it off of 4Q and say, okay, Osceola's back up and running, and let's go off of that and budget some improvements? Do you do it off of last year? Last year, 1Q was was pretty good, but Osceola was down. So how are they going about budgeting would be a question, if you can answer that.
spk07: So, I mean, budgeting is always, it's not so much a science as an art, but effectively, we've asked management, and they've delivered us a year-over-year improvement plan that is based on multiple factors, some of which are planned improvements, some of which are sourcing, some of which are cost, some of which are focused on rearranging the mix So we get a richer mix across all of the continents. When we take a look at how do we budget, we don't take an average for 2022, for example. We look at exit run rates and compare that versus the plans that have actually been fully executed and the plans that are to be executed. So I think that's a little bit convoluted, but the short version is we don't just take an average We looked fairly scientifically at what is the plant supposed to do or what is the initiative supposed to do, where do we exit the year so that we're not letting management sandbag. But the caution is we wanted a highly achievable budget in 2023 that showed meaningful growth, but that had a 75% to 85% confidence factor and risks and opportunities that balanced. So that's a long-winded answer to the question you asked.
spk05: Very much appreciated. Greg, again, congratulations. I know you had some FX headwinds in the quarter, so you've got other things there. But I appreciate the chance to ask questions. Thank you. You're welcome.
spk01: Thank you. And with that, I will conclude the Q&A session, and I'll turn the call back to David Willett for final remarks.
spk07: Great. Thank you. Thank you very much, everyone, for attending. As always, if you have questions that we weren't able to get to, I refer you to our website, and there are several means in which you can ask your questions or concerns or comments, and we will attempt to get back to you in a reasonable time frame. Again, thank you very much, and we look forward to talking in roughly three months. Take care.
spk01: And with that, we conclude our conference for today. Thank you for participating, and you may now disconnect. Thank you, and good day.
Disclaimer