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.
spk06: Good morning and welcome to ICANN Enterprises LP Second Quarter 2024 Earnings Call with Andrew Tino, President and CEO, Ted Papapostolo, 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 statements. Please go ahead.
spk00: 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, 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 gap earnings. All net income and EBITDA amounts we will discuss are attributable to ICON Enterprises unless otherwise specified. I'll now turn it over to Andrew Tino, our Chief Executive Officer.
spk05: Clearly, the quarter wasn't up to expectations. Between a significant decline in CVI and a few names in our investment segment, NAV went down $969 million from the prior quarter. As we have stated before, our investment returns will be volatile given both the concentration inherent in our portfolio and our activist strategy. We continue to believe our positions will outperform over the longer term. CVI was unfortunately impacted by a fire at Winniewood that impacted the quarter's profitability. In addition, the entire U.S. refining industry saw cracks decline to more normalized levels, and regional basis detracted further for CVI's refineries. CVI, like its small-cap peers, underperformed our hedge basket, which helped to offset some, but not all, of the decline. More recently, CVI has received good news from litigation regarding small refinery exemptions in the DC Circuit. We hope that this will help reduce the outstanding RIN obligation. Last quarter, we discussed potential strategic actions involving CVI. While CVI is hard at work, we have no updates at this point. The investment portfolio was hurt by performance in a few names, including Bausch, Southwest, and Illumina. Our best performers in the quarter were our refining hedges and IFF. We exited our position in conduit while adding exposure to century. Regarding the fund's notional exposure, our net short exposure was 16%. Excluding refining hedges, our exposure was net long 13% a quarter end. This compares to net long exposure of 7% as of Q1, excluding the refining hedges. On the automotive side, EBITDA was slightly up as headwinds and top line revenue were offset by cost cutting efforts. We expect that the cost cutting and sourcing initiatives will drive EBITDA improvement in the back half of the year. We continue to make progress in our transformation plan. Our leasing pipeline continues to ramp up and we currently have 25 leases that are signed but rent has not yet commenced. On the balance sheet at quarter end, we had $1.5 billion of cash at the holding company and $1.6 billion at the funds. During the quarter, we also refinanced our 2025 notes, and our next maturity is in May 2026. Given our cash position and belief in our investment portfolio, we are comfortable maintaining the $1 distribution for the quarter. I will now hand it over to Ted to discuss the financials in more detail.
spk03: Thank you, Andrew. I'll 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 8.1% for the quarter. Long and other positions had a negative performance attribution of 17.2%, while short positions had a positive performance attribution of 9.1%. The holding company's interest in the funds was approximately $2.9 billion as of quarter end. And now to our energy segment. Energy segments EBITDA was $46 million for Q2-24 compared to $173 million in Q2-23. Q2-24 refining margin per throughput barrel was $10.94 compared to $18.21 in the prior year quarter. This decrease was primarily driven by lower refining margins due to a decrease in crack spreads and reduced throughputs related to a fire at the Windy Wood Refinery. Q2 24 average realized gate prices for UAN decreased by 15% to $268 per ton and ammonia decreased by 26% to $520 per ton when compared to the prior year quarter. CVI declared a second quarter cash dividend of 50 cents per share. Now to our automotive segment. Q2 24 net sales and other revenues decreased by 42 million compared to the prior year quarter primarily driven by reduced consumer spending on automotive repairs and maintenance. These trends are not dissimilar from our industry peers. Adjusted EBITDA improved $2 million for Q224 compared to Q223. Automotive Services was able to improve EBITDA through cost cutting and margin initiatives which offset the reduced car count. And now turning to our all other operating segments. Real estate's Q2 24 adjusted EBITDA decreased by 1 million compared to the prior year quarter, primarily driven by reduced sales of single-family homes. At one of our country clubs, our single-family home inventory is limited as we're almost sold out in the development, while the recently acquired country club is ramping up its development and we are expecting to have sales at the end of 2024 or beginning of 2025. Food packagings adjusted EBITDA decreased by $5 million for Q2-24 as compared to the prior year quarter, driven by a weaker mix of business. Although volumes were similar to the prior year period, the mix of business was at lower, less attractive margins. Materials and energy continue to be stable, and there are opportunities to improve labor and efficiency at the plants. The management team is working on a capital plan to modernize some of the lines in certain plants, which will greatly enhance efficiency and productivity. Home fashions adjusted EBITDA decreased by 1 million as compared to the prior year quarter, mainly driven by lower demand from our international business. During the quarter, we invested in a small strategic acquisition in the UK to grow the hospitality business and to broaden our global footprint. Pharma segments adjusted EBITDA for Q2-24, improved by 3 million as compared to the prior year quarter, mainly due to higher prescription growth. VVS's U.S. patent exclusivity of QSIMIA broadens to two competitors at the end of 24 and mid-2025, respectively. These two competitors will likely launch generic versions, which will erode product margins. Management has taken actions such as product launches starting in Europe, and eventually to other international markets while planning domestic cost-cutting initiatives and potential strategic partnerships. Now 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 investment in the funds of $4.4 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 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?
spk06: Thank you so much. And as a reminder, if you do have a question, press star 11 on your telephone and wait for your name to be announced. To remove yourself from the queue, press star 11 again. Please stand by for our first questions. Any comments from the line of Dan Fanon with Jefferies? Please proceed.
spk02: Thanks. Good morning. So I wanted to just follow up on the fund and not so much performance for the quarter, which you kind of outlined, but obviously the last week or so has been quite volatile. As you think about the context of how you positioned and or transitioned the fund with the hedges, more macro and, you know, and some of the changes that you've made, I guess, any, I guess, additional thoughts given the different backdrop we might be in today versus, you know, just a short while ago.
spk05: Hey, Dan. Morning. So I would say, you know, the markets are volatile. We've been looking at them for quite some time. And I'd say the way we're going to try and position ourselves is Very much keep our book hedged and then you know we have to believe in our longs and believe in our activist strategy, right? So if you look at our significant holdings, you know the top five that we have listed in the page. You know Southwest gas. You have a utility. It should be very stable. Earnings should improve. As they bridge, there are a week app. They've had a bit of a hiccup on this century separation. But it is a very good business and one that we think can unlock value over the long run. If you look at AP, we very much think there's a ROE improvement story. It's got a new CEO who should improve regulatory operations. It's got a fantastic asset base and has a bit of an AI tailwind. If we look at Caesars, this is a company that is just about to hit its, you know, capex is declining. EBITDA is growing, free cash flow is inflecting. IFF is a business that even this morning, results were, I'd say, pretty darn good in showing the impact of a new CEO. And if you look at Bausch, obviously it's a complicated situation, but there's a lot of inherent value in BLCO. So a long-winded way of me saying we believe in our longs. We believe our longs have catalysts. And we believe our longs will outperform the hedge basket over time. And some of these names, you know, you have easier names to hedge, right? Like giant electric utilities, plenty of those for AP. Others, you have to kind of rely more on broad market indexes.
spk02: Okay, understood. That's helpful. And just a question on the auto business and trying to understand where you think you are. and the kind of turnaround, you know, cost cutting has been a focus. You gave a few stats around leases coming online, but just, I don't know if you want to use a baseball analogy or kind of where we think we are and just in terms of the kind of evolution of that business.
spk05: So if I look at Pep Boys and I think about the service business, you know, EBITDA margins there, you know, whether it's 4% or 4.5%, You know, we look at peers and we think over time, you know, we're talking multi years. There's no reason that that shouldn't get closer to 10%. There's a lot of moving pieces to that, right? You gotta work on that cost cutting efforts. The market has to turn around a bit. I think you look at peers, the industry volumes aren't aren't doing us any favors and then we have to start clicking on our real estate efforts, right? So. We have the leases that are. you have signed leases that need to commence and then we've got a bunch of empty boxes we need to fill so on the empty boxes we need to feel i'd say we need to fill you know the way that my real estate team explains to me is you know we get started we find the large national retailers who would like to be located next to us who identify a host of locations could be 20 25 that they'd like to occupy and then we work on one lease And if we can get that across, then all of a sudden it should be able to flip into meaningfully more numbers. So I think we're at the point where we've probably done the max amount of work with maybe the least amount to show for it. And I'd hope that over the pending quarters it gets, you know, the results get better and better and reflect that.
spk02: Understood. Okay. Thanks for taking my question.
spk05: You got it.
spk06: Thank you. Our next question comes from the line of Andrew Berg with Post Advisory Group.
spk01: Thanks. Just a quick question with respect to cash at the holding company. It was down a couple hundred million. Obviously, the liquidity across the entity is robust. And I know you guys can have pretty significant swings in the hedge fund on any particular day. But that $200 million, was that moved into the hedge fund and just the movements of other equities? and the fund masks the money going in there, or what was the movement for?
spk05: Andrew, so the big movement to cash the holding company were the payment of two distributions in the quarter. It's just kind of an odd timing thing where we don't pay out a distribution in the first quarter, and we pay out two of them in the second.
spk01: Perfect. Thank you.
spk06: One moment for our next question. And he comes from the line of Bruce Monrad with Northeast Investment Management.
spk04: Hi, everybody. Thanks for holding the call. A question, if it's okay, on food packaging. And I see in the slides the reference to softening demand, but I thought I heard you say that units were mostly flat. Is that right? Can you help me on that?
spk03: Yeah, the kilometers is flat, but the margins are down. So volume is there. The pricing softened up a bit. And I could give you more context around the quarter. The $5 million of EBITDA drop I mentioned, which is year over year on a quarterly basis, it's that same story with the fiber sales that because of the Russian sanctions, we can't repeat that business. And that's about $8 million of top line that was there last year that's not there this year. And that was at a very good margin. The business that replaced that was at a much lower margin. And that's one of the main reasons you've seen the comparative drop.
spk04: And those sales, is this sort of like oil? It shifts around. So who is supplying Russia at this moment, so to speak?
spk03: Yeah, it's not coming from the EU like it used to in the past. I'm not sure where they're getting that
spk04: Okay. And a big picture question, if I could. So, if I'm thinking from your K, your 10K, you know, which delineates the margins in food packaging, I think North America is the one with the greatest room for improvement. And my question sort of strategically is, do you think that that would benefit, maybe that geography would benefit from consolidation or any comments on that?
spk03: Yeah, one thing North America is facing right now, and we mentioned on previous calls, is just a high level of waste there. We're battling to get it back to historical levels. And there have been some improvements, but not where it could be. And one of the opportunities there to reduce waste is to modernize our equipment. And management is working on a capital plan to potentially start the process and implement that across many plants which would begin in the US. It's still in the planning stage and early at that, but depending on many factors, it could be very capital intensive and it could require capital infusion, potentially add debt or any combination thereof. But I would say we're still in the outline form of that and there'll be more to come in the next, probably in the second half of this year. But that is one way we're trying to tackle the waste issue there. OK, all right, thank you.
spk06: Thank you. If I see no further questions in the queue, I will turn the call back to Andrew Tino for final remarks.
spk05: Thank you very much. So thanks, everyone, for joining. And I'd like to just leave with a reminder that here at ICON, we are intensely focused on our activism strategy. We have unique advantages, including the ICON 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 the board and work cooperatively with them to figure the key changes that will drive shareholder value. Furthermore, given our balance sheet and liquidity, we have the ability to tender for entire businesses, a tool most simply do not possess. Though our returns are lumpy and dissatisfying at times, as we continue to focus on our activist efforts at both our investment segment and our controlled businesses, We believe they will bear fruit for all shareholders. We'll speak soon. Bye.
spk06: And thank you all for participating in today's conference. You may now disconnect.
Disclaimer