Icahn Enterprises L.P.

Good morning, and welcome to the ICANN Enterprises LP Second Quarter 2023 Earnings Call with Jesse Lin, General Counsel, David Welitz, President and CEO, and Ted Papapasol, Chief Financial Officer. I would now like to hand the conference over to Jesse Lin, 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 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. 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.

Thank you, Jesse. Good morning, and welcome to the second quarter 2023 Icahn Enterprises Earnings Conference Call. Joining me on today's call is Ted Papapostelou, our Chief Financial Officer. I'll provide a brief overview of second quarter results and then Ted and I will be available for questions. All net income and EBITDA amounts we'll discuss are attributable to Icahn Enterprises unless we otherwise specify. For Q2 2023, we had a net loss of $269 million and an adjusted EBITDA of $34 million compared to a net loss of $128 million and an adjusted EBITDA of $126 million for Q2 2022. The loss was attributable to the performance of the investment segment and additional losses related to the bankruptcy of AutoPlus, which is nearing completion. On a positive note, we see continued EBITDA improvements in our automotive segment and food packaging segments. Our indicative net asset value as of the quarter end decreased to $5 billion as compared to $5.6 billion at the end of December 31, 2022. 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. For Q2 2023, our investment funds had a negative return of $215 million, or 5.4%. We are encouraged by the results to date in July, which served to underscore the volatility inherent in the market. CVR Energy posted solid results for the 2023 second quarter, though commodity pricing led to moderate declines versus prior quarter and prior year quarter. Given the company's cash position, the CVR Energy Board declared a 50-cent regular dividend and a special $1 dividend for the quarter. CVR Partners achieved solid results for the 2023 second quarter, led by strong production offset by lower fertilizer pricing during the quarter. Our automotive segment posted strong year-over-year performance on that income and adjusted EBITDA. Automotive Services continues to show progress on its improvement plan, and its results are fully in line with our expectations. After consideration, the IEP Board declared a $1 quarterly distribution payable in cash for additional units. With that, let me turn it over to Ted for a detailed discussion of all of our segments.

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 Q2-23, we had a net loss of $269 million, which was a decline of $141 million from the prior year quarter. Q2-23 includes a one-time $116 million loss related to the loan receivable from AutoPlus in connection with the bankruptcy, which will be included in our holding company segments. I will now provide more detail regarding the performance of our individual segments. The investment funds had a negative return of 5.4% for the quarter, which was driven primarily by the negative performance of a broad market hedge and the negative performance of two single name long positions. For the quarter, long and other positions had a net negative performance attribution of 2.6%, and short positions had a negative performance attribution of 2.8%. The investment funds had a net short notional exposure of 18% at the end of the quarter compared to a net short notional exposure of 47% at year end. Our investment in the fund was approximately $3.8 billion as of quarter end. And now to our energy segment. In Q2 23, our energy segment reported net sales of $2.2 billion compared to $3.1 billion in the prior year quarter. Adjusted EBITDA was $173 million for Q223 compared to $273 in Q222. CVI declared a $0.50 per share cash dividend and a $1 per share special dividend. Q223 refining margin per throughput barrel was $18.21 compared to $26.10 in the prior year quarter. This decrease was primarily due to declining crack spreads. The cost of RENs continue to have a negative impact on our refining business with $90 million of related expense for the quarter. Q223 average realized gate prices for UAN decreased by 43% to $316 per ton, and ammonia decreased by 40% to $707 per ton when compared to the prior year quarter. And now to our automotive segment. TAB, Mark McIntyre, Q to 23 adjusted even it was 32 million a 19 million improvement as compared to Q to 22. TAB, Mark McIntyre, Q to 23 net sales and other revenues for the auto segment or 425 million a decrease of 196 million. TAB, Mark McIntyre, From the prior year quarter, the decrease in revenues primarily due to the deconsolidation of auto plus which occurred in q1 of 23. Automotive services revenues were down $1 million and auto parts revenues were down $195 million as compared to the prior year quarter. During the quarter, a wholly owned subsidiary of IEP within the auto segment acquired $10 million of assets, mainly comprised of aftermarket parts inventory from the AutoPlus auction. This inventory will be managed and sold by the Icon Automotive team. And now to our real estate segment. Q223 net sales and other revenues increased by $3 million compared to the prior year quarter. Adjusted EBITDA was $5 million for Q223 compared to $4 million for Q222. The main drivers of the increase in EBITDA were due to the performance of the Country Club, which experienced membership growth, and our resort in Aruba had higher occupancy. During the quarter, a triggering event for potential impairment occurred at one of our properties. We assessed the carrying value of this long-lived asset for recoverability and concluded the asset was not impaired. The management team is highly focused on achieving its long-term occupancy goals. And now to our other segments. Q223 net sales and other revenues for all other operating segments were relatively flat compared to a prior year quarter. Adjusted EBITDA was $27 million for Q223 compared to $18 million for Q222. This case is adjusted EBITDA improved by 6 million or 50% for Q2 23 as compared to the prior year quarter. The company continues to improve manufacturing efficiencies and has reduced distribution costs compared to the prior year period. Home fashions adjusted EBITDA was flat at 2 million as compared to the prior year quarter. They continue to be negatively impacted by products within its retail business, particularly in e-commerce. Management has done a good job of offsetting the decline in volume with cost-cutting initiatives. SG&A improved by $1 million as compared to the prior year's quarter. The pharma segments adjusted EBITDA for Q223 improved by $3 million as compared to the prior year quarter, mainly due to Pancreas' margin improvement and QCMEA's script growth. And now to our liquidity. We maintain liquidity at the holding company and 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 towing approximately $6.6 billion. Our subsidiaries have approximately $914 million in cash and $316 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. Operator, can you please open up the call for questions?

Thank you. And ladies and gentlemen, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. One moment while we compile the Q&A roster. Again, that is star 1-1 to get in the queue.

All right.

Our first question comes from the line of Daniel Fannin with Jefferies. Please proceed.

Thanks. Good morning. So just a question on first just on the dividend, $1 versus $2. I guess just curious about how you came the reason behind or the coming up with a dollar, and as you think about, you know, what the cash flows from the underlying businesses are to support that, can you talk about the obligations as you think as both the debt as well as the dividend, and then where you see the sources of cash flow to support the current dividend as you set today?

Morning, Dan. Thanks for that. I mean, I think you've asked several questions there, so let me unpack that. As we've always done historically, we look at a number of different factors. Obviously, business performance, economic macros, obligations under the indentures, cash flows from the underlying companies. We look at the entire situation. Obviously, the world has changed, at least for us, given a number of news articles that were in the first quarter, second quarter. and so we've taken all of that and with the board have looked at and determined that for this quarter it made sense to adjust the dividend to a one dollar distribution per unit right as we look forward as we do every quarter we we take those same factors and we reassess what the dividend or distribution should be now to your specific questions with regards to sources i i mean there are several different sources but I mean, ultimately, what you take a look at is this is a lumpy, long-term business, right? We have large wins from time to time, and we have volatility in the market. We are not a company that necessarily has steady, predictable cash flow chunking in and out every quarter. So given that unpredictability and lumpiness, we take a look at all the factors I mentioned to determine how we actually set a dividend or a distribution. When it comes to sources, obviously we have sizable amounts of cash on hand today. We have a large number of securities in our hedge funds, and we have new operating companies, all of which can be sources of profit or sources of capital to return to shareholders or unit holders as we look forward. Anything else to add, Ted?

No, but you hit it spot on, Dave.

So just to follow up on that, does that imply that we should see more variability in the dividends on a quarterly or annual basis than we've seen historically?

I wouldn't read into it one way or the other, right? I think when you take a look at a quarterly re-evaluation every quarter, we've had the benefit over the past number of years of having a fairly predictable constant distribution. That said, I think we've always cautioned that we reevaluate that quarterly, and it's subject to change. There are no guarantees, but we have certainly served to provide a very healthy return to our unit holders over time with very attractive dividend yields. And even when you take a look at the dividend yield, that would be implied based on, you know, share prices and per unit, it remains a healthy and attractive dividend yield. So I'd I can't predict the future, but I think take everything I've said as we're not changing our practice going forward. We're going to continue to do exactly what we've done, which is assess things critically quarterly.

Understood. And then on the investment fund, can you be more specific on what you have done in terms of the investment strategy that's different? Because it sounded very similar to what we've heard in the past where the hedges are you know, kind of broad and macro. And obviously the longs didn't contribute to positive returns either this quarter, but just so we understand going forward, how the investment strategy is, is potentially still utilizing hedging is ultimately if it's, if it's really that different than what you've been doing on a longer term basis.

Yeah. I think let's, I appreciate the question because it's an important question. When you look at what we do, which is activism, our, our, View on activism hasn't changed. We have, I'd have to count them, but probably eight to 10 companies that we have invested in where we have a degree of board representation. Those companies are in different stages of maturity in terms of what we're doing. And you can look at any number of the ones that are out there. When you take a look at what happened in second quarter, sometimes the companies move in predictable ways. Sometimes they do not. In quarter two, we had a confluence of events that across multiple positions, we had reductions in many of the positions. When I look at the actual plan and the actual capability of management and what they're looking to do over the next, not just months, but quarters and years, we remain actually very encouraged by our positions. We do adjust them from time to time, but I'd say with our long positions, I'm very proud of a number of the positions that we have. You can point to each one of them and see, I think, a clear progression over time. But it is over time. Turnarounds, which is effectively what we're doing with activism, oftentimes are bumpy in and of themselves. But we're very comfortable in our long positions. We do reassess it. Not everyone is a winner, but we're comfortable in where we're headed. So nothing has really changed in terms of our longs. We continue to execute the play that we've executed. When you take a look at the short positions, I think that's where you do see a change, not necessarily in strategy. The philosophy has been we want to make sure we attempt to balance risk between our long and our short positions. I think as Carl put out in the earnings release, and we have said several times, we need to adjust those because it was overly bearish. So it's specifically what has changed. It's not the degree of interest in hedging our positions to have a rational balanced portfolio, but we said the level needs to change. So just to quote some numbers, and I'd refer you to the documents that'll be filed in the queue this afternoon. I think it's at four o'clock. You'll see that the overall size of the short position has materially changed if you go back to December quarter four. Just your directional numbers, I think you will have the specific ones. I believe last year at the end, it was a net negative 47%. You get to the end of quarter one, it's negative 38. At the end of quarter two, it's negative 18%. So you see a market reduction in the shorts through that time. Now, obviously, some of that was because longs performed differently in quarter one, quarter two, but the primary mover of that was the shorts. So I'd say the strategy hasn't changed in what we're doing with longs. I think the strategy of shorting still makes sense. But as we've acknowledged, that needed to change in terms of your overall balance. And we are constantly reviewing the shorts. We're obviously taking a very hard look at what is the right position to have, not just on a macro basis, but within different sectors. And we reevaluate it. Just to clarify. Sorry, Dan. I'm remiss because I've been talking about our invested companies and our shorts, but I think the operating companies also, you'll bear some mention. Obviously, CVI, we continue to believe strongly in CVI, and our operating companies have been the subject of a turnaround. If you look at Pep Boys, if you look at Viscase, On other metrics for some of the other companies, they're all generating cash flow, increasing amounts of cash flow. So our strategy on the owned companies has been continue to accelerate and improve the pace of performance across each one of them. And it's evident in many different metrics, some more than others. Some it's more cash, some it's more income. So sorry, that was a little long-winded, but I felt that question deserved a longer, more robust answer.

Understood. And then just to clarify on the shorts, is it more of the market or broader hedges have come down and the shorts are more reflective of offsetting longs to be more hedged within the context of the investment portfolio directly?

Both are true, right? The broad market hedges have come down materially. We still have a level of them because we think it makes sense because not everything is hedgeable on a name-by-name basis. But we have very specific name-by-name hedges or sector hedges to attempt to offset any risk that we see with the specific loans in that sector or that specific loan itself.

Understood. Okay. Thank you.

Thank you.

One moment for our next question, please. All right.

And it comes from the line of Bruce Monrad with Northeast Investors Trust. Please proceed.

Hi, guys. Can you hear me okay?

We can. Good morning, Bruce.

Good morning. And a question on food packaging, if that's okay. So obviously, you know, outstanding numbers out of this case. So is that, is the production, it seems like Tim has nailed it on the production, or is there also help on the revenue side, pricing, or You know, what's behind it all?

The answer is yes. What I'd say is Tim and the team, I think, have done a very, very good job on multiple levers. Now, not every initiative is where we would want it to be, but I think when you take a look at how that team has skillfully managed to offset headwinds or surprises, you can basically see that performance is up. And the bumper sticker is they have been very good at thoughtfully looking at their gross margin percentages and increasing them. And that's not just price. That's also working with the customers to make sure they're selling the right SKUs or the right items, jettisoning low value to the customer, negative or low value to this case products. So gross margin management has been obviously a very, very strong performance factor. The plants, we have a new team on the plants. This isn't as of today, but it's over the course of this year, and they're getting their arms around production issues. I think we have a very coherent, clear plan to continue to get yields and rates and efficiencies where they need to be. They're not entirely where I think Tim wants them to be, but they're making steady and measured progress on a series of fairly complex process and technical issues. When you take a look at volume, generally speaking, there are puts and takes depending on which region you look at or which substrate you look at. But the team has done very well at balancing, I think, the entire book of business and running it like a professional operation. I'm also pleased with the cash flow. They continue to generate cash flow, work through inventory, and work to pay down the liabilities. So I think, broadly speaking, the team has done a fantastic job.

Well, that's great. And these are obviously your toughest comparisons of the year. So, you know, this is great. On the November call, you talked about a cocktail when things were good. I'll tell you that I'll be having a cocktail tonight. And if you want, hop on a plane and come on up and join me. But thank you. Well done.

Very good. Thanks, Bruce.

Thank you. One moment for our next question, please. All right, and he comes from the line of Andrew Berg with Post Advisory Group. Please proceed.

Thanks. If I can follow up a little bit on Dan's questions to start. With respect to the hedges, and I guess we'll see it in the queue later, is there any reason to believe you guys would have materially changed the short view with respect to the commercial real estate? Or is it safe to assume you guys still maintain that negative position, negative view?

You're referring to the CMBX position?

Correct.

Yeah. We obviously still have a CMBX position. If you know anything about CMBX, it is a very intricate series of securities, and they don't move in a traditional fashion. So what I would say is, yes, we're still in it. Obviously, there's good news and there's bad news. It's very specific to the particular tranche of CMBX we're in. and several anchor malls within each one. Every day is bringing grim news for some malls across the country, whereas others are able to refinance and continue on with a very happy position. So it's a very active position that we monitor and manage, but it's all contingent upon the health of the underlying malls and their ability to refinance. Okay.

With respect to the dividend, given that you get dividends coming up out of CVI, you get dividends coming up out of some of the other subsidiaries, it would strike me that the actual cash amount of dividends that you guys would pay on an annual basis is probably somewhere less than $100 million now. Safe to assume Carl has not changed his view on taking his dividends. uh, in stock versus cash. And if that's correct, then the right way to think about it is, you know, maybe net a hundred million or so of cash dividends going out the door versus your liquidity, which I think you said was 1.5 million to cash the holding company, almost 1.6 at the end of the quarter. Is that the right way?

Uh, 1.5, roughly 1.5 billion. Um, yeah, I guess two answers to that question. Um, I think, I think the first answer is, uh, Until all the shareholders elect, we rarely never know who is taking what in cash and who is taking what in securities. So the history would suggest some of the numbers that you've quoted. When we take a look at going forward, I think for this quarter, Carl has indicated, although he hasn't made a final determination, that he is likely to take some mix of cash and securities, but his final election hasn't been determined. And obviously beyond this quarter, there's no communication as to what his indications are. And historically, from time to time, Carl has taken distributions. So this is also in line, I think, with past practice.

Okay. And then from an operational basis, segments with respect to automotive. On the services side, revenues were basically flat. Are you able to address what the EBITDA was coming out of the services business and how that may have moved in the quarter?

Ted, we don't disclose that specifically. We don't disclose that, yeah. But currently the automotive segment is pretty much, you know, because AutoPlus was deconsolidated during Q1. So Q2 is probably the first time where you can see, you know, IAG, the majority of it is the service business in Q2.

To specifically address your question, here's how I think about the services business. The services business has gone through a few changes, and this will be a little wordy, but the context is important. When I take a look at 2020, 2021, and early 22, there was a reduction in terms of the store count as lost performing stores were shut down and jettisoned and the footprint was reconfigured. So revenue coming down is not necessarily alarming in and of itself. But what we have seen is the revenue, although very slightly down this quarter for services, it's really pricing and margin management has been significantly up. It's been a large driver of the year-to-date performance. Volume has been a slight negative, although we're actually pretty encouraged that it's up 2% to 3% on a same-store basis. as of late June and July. So I think revenue-wise, I'm actually pretty pleased with where Pep Boys is, the service company. As I look towards the next several quarters, they started in late 2022 dipping their feet back in the water of opening Greenfields. So I know the CEO is currently in Indianapolis celebrating the opening of, I think it's two locations there, and they've sort of been on a little bit of a road choke. So as I looked at the future, I think some of the volume issues are going to be ameliorated by the increased greenfields. Now, that said, going forward, we need to have more. It's just the company wasn't necessarily in a position to really commit to that. I've also taken a look at, or rather, Scott, the CEO, has taken a look at store hours, looked at refining the marketing, really dialing the marketing spend in. So we're actually pretty encouraged by what we're seeing in terms of same-store sales volume potential. So that's sort of along with it. But you asked about EBITDA. EBITDA, roughly speaking, was up in quarter one versus prior year. In quarter two, it's flat versus prior year, which is great. That's in line with the plan. The team has been focused on a whole host of execution actions, and we're actually very pleased at what they've done with cash generation. Cash was our first and foremost priority to get the company generating cash. And the difference year over year couldn't be starker. So I'm less worried about major EBITDA, at least in the first half, Andrew, than I was about cash. Now they're rock solid in terms of what they're generating. Very pleased that's going to continue. As I looked at Q3 and Q4, that's where I think I anticipate being able to provide better and clearer news in terms of EBITDA growing. So short version, EBITDA has been basically flat to slightly upward. depending on whether you're looking at Q1, Q2. Cask generation is up very substantially. Revenue, although slightly down, that doesn't account for new green fields, and that shows an offset from a number of stores that were closed. So wordy, but does that help?

Yeah, no, that definitely helps. And it's nice to hear that you guys are making some progress there, especially from the cash generation side. And we'll look forward to hopefully seeing that EBITDA growth in the next couple of quarters. That's all I had. I appreciate all the color today, guys. Thank you. Thanks, Andrew.

Thank you. And with that, I will end the Q&A queue. I will pass it back to David Willits for final comments.

All right. We appreciate everyone's time today.