Icahn Enterprises L.P.

Good morning and welcome to ICON Enterprise LP3rd Quarter 2024 earnings call with Andrew Coutinho, President and CEO, Ted Papapatolu, 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 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 Enterprise's 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 ICON Enterprise's unless otherwise specified. I'll now turn it over to Andrew Tino, our Chief Executive Officer.

Thank you, Rob, and good morning, everyone. NAV decreased $423 million from the second quarter of 2024. Positive returns in the investment fund were more than offset by declines in CVR energy, disappointing performance from auto service, and the impact of the quarter's distribution to unit holders. So first, the good news. The investment funds were up approximately 8% for the quarter. We generated positive returns from our single-name longs led by our health care investments and our refining hedges and generated significant interest income. Our losses were predominantly caused by our broad market hedges, and we avoided any big single-name losses. Moving on to the -so-good. Our CVR investment was down during the quarter as cracks returned to levels that are either mid-cycle to below mid-cycle levels, further compounded by uncontrollable external power outages. In regards to our automotive services division, it has unfortunately continued to struggle. The quarter suffered from lower than expected revenue driven by staffing and inventory management decisions. We have already replaced several top members of management at the end of the quarter. We have been able to see a return to better performance. Though we see green shoots, it will be a while until our auto service division will hit its potential. I continue to believe that over a multi-year time period, there is no reason that margins shouldn't be in the high single digits, if not double digits, versus the low single digits today. We ended the quarter with $1.6 billion of cash and cash equivalents at the holding company and an additional $800 million of cash at the funds. So as Carl likes to say, we have a significant war chest to take advantage of opportunities as they arise. As many people on this call likely know, subsequent to the quarter end, the refining market continued to soften, which led CVR to pause its dividend. Since the inception of our CVR investment in 2012, IEP has received dividends totaling over $3 billion. We believe that sooner or later, unfortunately, we don't know when, the cycle will swing again and CVR will return to generating significant cash flow. It is this belief that has led us to announce a proposed tender offer to buy additional CVR shares. Given the recently launched tender for CVR, additional investment opportunities both in our portfolio and in the market, and a desire to maintain our cash war chest, the board has reduced the quarterly distribution from $1 per depository unit to $0.50. We know that some unit holders may be disappointed by the decision, but as Carl mentioned in our press release, we hope and believe that the actions we take today and in the near term will lead to increased capital returns to our unit holders in the future. Now turning to our investment segment. In terms of our top five disclosed names, we see considerable value creation potential. At Swix, we see a gas utility that is closing its gap to peers and separating a utility services business with significant growth opportunity. We see upside in both the gas utility and the service business. At AEP, we see new management closing its ROE gap, improving regulatory outcomes and benefiting from tremendous growth in electricity demand due to AI-driven data center demand. IFF is a high-quality ingredients company that should see improving organic revenue growth and increasing margins from new management. IFF trades at a significant discount to its peers on Iwiti Ipita. At Caesars, Carl has significant respect for Tom Reed and what he has accomplished so far at Caesars. We believe we are buying a great business with tremendous asset value, a great management team that is actively buying back shares and with a growing digital business at a free cash flow yield greater than 15%. At Bausch, we see considerable value both at BHT and BLCO. The fund ended the quarter approximately 2% net short. Adjusting for our refining hedges, the fund was 24% net long. And now I will pass it on to Ted to cover our control businesses.

Thank you, Andrew. I will begin with our energy and unfavorable inventory valuation impact. Q3-24 average realized gain prices for UAN increased by 3% to $229 per ton and ammonia increased by 9% to $399 per ton when compared to the prior year quarter. Now turning to our auto segment. Q3-24 net sales and other revenues decreased by 70 million compared to the prior year quarter. Automotive services revenues decreased by 51 million due to operational challenges such as insufficient tire inventory and staffing levels at certain locations and reduced consumer spending on automotive repairs and maintenance. We have swiftly taken actions to address the operational challenges, including a change in management, and we have already seen signs of improvement. Aftermarket parts revenues decreased by 20 million due to the winding down of the business, which is expected to be complete by the end of this year. Now turning to our other segments. Real estate Q3-24 adjusted EBITDA decreased by 10 million compared to the prior year quarter. Driven by the sale of an investment property during Q3-23, which accounted for 6 million, the remaining decrease is mainly due to reduced sales on single family homes. The segment owns a desirable 45 acre site in Nashville, Tennessee, which is located close to the planned NFL stadium in the emerging East River District. We are exploring the sale of this land and if successful, we believe to have proceeds which far exceed the current book value. Food packaging adjusted EBITDA decreased by 6 million for Q3-24 as compared to the prior year quarter. Volumes have increased, however, a shift in product mix and lower pricing led to a reduction in net sales. While there are opportunities to improve efficiency at the plants, we do not expect a meaningful impact until we execute a capital plan to modernize equipment and reduce the overall cost structure. Home fashions adjusted EBITDA decreased by 1 million as compared to the prior year quarter, mainly driven by lower demand from our international business and our econ business offset in part by a strong U.S. hospitality market. Pharma segments adjusted EBITDA for Q3-24 improved by 2 million as compared to the prior year quarter, mainly due to higher prescription growth. Recently, one of our developmental therapies cleared a significant milestone and we're working with the management team to assess the next phase, which has the potential for meaningful returns. Now 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 4.3 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?

Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. And our first question will come from Dan Fannin with Jeffries. Your line is now open.

Thanks. Good morning. Just want to talk about the dividend liquidity and obviously the CVR discussion. So just how at the IEP level are you looking to manage the overall liquidity to kind of come up with the dividend level versus maintaining the flexibilities you talked about for new investments as well as obviously running the business? So just what is the leverage as you think about it at the company?

Hey, Dan. Good morning. So first off, I'll just say we have a significant war chest of liquidity. If you look at IEP, we have called $1.5 to $1.6 billion of cash at the holding company. We have $800 million of cash or so at the hedge funds. And so we pertain significant liquidity, you know, whether we want to make, wherever we want to make investments. Now, when we think about the CVI tender decision, look, we think it's just an attractive investment. We've generated significant cash over time, something like $3 billion in dividends. And we think at some point, the crack cycle will swing and it will go back to making significant cash. Unfortunately, can't really promise you when that will happen. But we think the decisions we made today will actually help cash flow in the future. I'd also point out, you know, we have, not only do we have the $1.6 billion of cash at the holding company, the $800 million of the funds, but we're always looking at our assets. And so Ted mentioned a little bit in his comments, and he said, we have, I call it some acres that's in Nashville. So a while back, we owned a segment called PSC Metals. We sold the business, we retained the land. It was a very good decision. And you have an asset on our books today for, call it something like 25 million bucks. And there have been press reports out there that said we're exploring a sale. And some people think it could be, it could go for north of 10 times that, right? So between the cash, between the, the undervalued assets that we have in our portfolio, and look, it's our job to prove that that we think we'll have plenty of liquidity to come.

Understood. And then just on the auto business, you mentioned kind of another round of restructuring. So did that actually happen in the third quarter? Is that subsequent to fourth quarter where you talked about some of the management changes and seeing improvements? Or is that something that's, and also just how quickly do you think we can see some of those changes actually come through?

Yeah, so a lot of the changes happened, Ted, it was right around quarter end. At the end of the quarter. Yeah. So it was right around quarter end. And the, you know, the individual who's now running the organization, you know, we've seen significant changes already. So the trends in the quarter, you know, as you went through quarter, it got worse and worse. And as soon as we made a change, we've seen kind of the trends improved. Now, look, it's not, we're not seeing what we should be, right? What we should be seeing eventually is same, same store sales growth, we should see be seeing margin improvement. We're not seeing that, but we are seeing quite a significant reversal, right? So I think there were times we were seeing revenue minus 20% year over year, and that's declined. Now we're seeing some high single digits. So we're already seeing an improvement. And I'd say, look, some of the, you know, obviously, the business didn't do well in the quarter. But there were good ideas that were, you know, some of the initiatives that were being worked on were good ideas, they were just poorly executed, right? So it is a good idea to run an RFP to, you know, to purchase tires cheaper so we can make more money when we sell them to our customers. It's a bad idea to run out of inventory so that when your customers show up, there's nothing to sell them or you say, hey, it's going to be a week when they can just go across the street and it's going to take them a day. So good ideas, bad execution, and now it's up to us to execute and turn it around.

Understood. And then just a question on the investment fund, given the change in the White House and as you look at the portfolio today and its construct, as well as both the long positions you highlighted, as well as the kind of hedges, any changes to how you're thinking about the mix or the overall net exposure given what has transpired this past week?

I'd say not too many changes in terms of the hedge book. But it is nice to be able to rely and use the M&A tool a bit more, right? So things that were off the table maybe won't be off the table. I think there was an article not too long ago in the, I think it was the Journal, right, where they were highlighting that activists were replacing CEOs as the primary tools to improve the business and moving away from M&A. And I think this change in administration hopefully will give us, you know, more options to push for, more ways to make money. It's also nice to have, I think, a bunch of our businesses, or at least if you look at CBI, and I think the Trump administration will be much more favorable towards refining than the prior.

Got it. And then just the last one, just on the dividend and the outlook, as you think about the change today, with also the proposals around CBI and others and knowing that you can't predict when the dividend at CBR is coming back, like, is that constant, like, what is contemplated as we think about the go-forward in terms of sustainability of the current dividend here versus what's coming off of the business and the liquidity overall?

Yeah, look, I think it comes back to, you know, the same thing we've been discussing, which is we evaluate it every quarter. Clearly it's been an important part of our story in the past, but it's something we evaluate all the time. I think if we are right and that the assets that we own are attractive, they're undervalued, and we can do important things to unlock that, then, you know, we'll probably continue to stick to our knitting.

Great. Thanks for taking my questions.

And our next question comes from Andrew Burr with Post Advisory Group. Your line is open.

Hi, thank you. If we go back to Automotive real quickly, was it just a change in the CEO spot or were there other management changes? And if so, which changes were done?

Yeah, I think there were a few changes that were made. The CEO and the CFO have changed. There were some others as well. I would just say that, you know, the other changes that were made were for people to do, I'd say, rather than having mid-level management or senior-level management, is more to have more people doing the actual work, getting back to basics to improve the core business.

Okay. When you're looking at food, you'd mentioned the need for CapEx there to modernize the facility. How much CapEx do you think needs to be invested there to get it to a level that you guys would be happy with?

It's too early to spit out a number. So, management's working on a capital plan, but it is apparent that we need to bring costs out of the P&L to increase the bottom line. So, they've been working on that for the past two quarters. I'm expecting to have an update on the next call to see how much of an outlay, the time frame, and get more into the degree of the details.

I

think

we can say, look, there are, you know, we look at it as a variety of options, kind of stages, and from the IEP level, it's an immaterial amount.

Okay. And given that last comment, it sounds like any needs they would have would be something then they could just be financed and handled at that subsidiary level and wouldn't require any downstreaming of cash or equity investment from you guys.

Or if it

was, it wouldn't be notable.

I think, you know, this case is a certain size, we're a certain size, and so we just evaluate, you know, each capital structure and figure out the best decision for each business.

Yeah, and I think timing would have a big impact on that, you know, whether we can stretch it out or speed it up. So, I think, you know, getting the plan would be, we'd be able to answer the question, you know, appropriately, but it's not going to be a big outlay for IEP.

Okay, just wanted to confirm that. And then, can you help me reconcile the holdings in the investment funds? You noted that the performance was up and up nicely, actually, the hedge you had on, but the value that's shown on slide 11 is down a little bit, which suggests to me there was distributions that came out of that. I think the number was probably around 500, but I just want to make sure I'm understanding the math and the movements there.

Yes, so there was a distribution during the quarter. And so you'd see a movement from the investment funds into the IEP holding company cash. And then we'd use that cash for, you know, it goes into a, you know, a big bucket and we use it as we did in the quarter. So you'd see some bond repurchases that were there. That'd probably be one of the bigger uses of cash during the quarter.

Okay, and the repurchases that I'm just trying to recall, was that for maturity or were you buying bonds in the open market?

There were some repurchases in the open market. So if you look on that bottom row where you look at the unsecured debt balance, you can see that it took down.

Okay, great. And then lastly, with respect to the dividend, I think that Carl had elected to take some in cash in the recent past, but historically have been taking more of it in stock. Given the reduction and given the desire to use the company's capital to help fund the CVR investment, is he going to switch back to taking it predominantly or entirely in stock versus cash going forward?

Yeah, so that's a decision for Carl. He has the same decision that all the other shareholders have.

Okay, and he hasn't communicated things either way on that or does want to say?

He does not.

Okay, thanks guys.

You

got it. And our next question comes from Bruce Monrad with Northeast Investors Trust. Your line is open.

Hi guys,

thanks for hosting the call. A question on food packaging, if I could. So in May, at the annual meeting of this case, you guys said or your management said that budget for 2024 was for EBITDA profitability to be higher than that in 2023. And so my question is, what changed so suddenly here? What didn't you know then that you learned subsequently? Can you help me on that? And I'll follow up.

Yeah, just to give more context, what happened this quarter is, as I mentioned, volume was up compared to the prior year period, but the mix of product we're selling was at a lower margin. And then there's price, which let me touch on price. As I mentioned in previous calls, the supply chain has stabilized. And what that's done for the industry is it brought back to price competitiveness to what I call pre-pandemic levels when things were more normalized. So that layer in the higher waste that we have as compared to historical periods, and that all affects the bottom line. And there is some upside in tackling the waste and management has initiatives to do so. But like I mentioned in the previous question, the biggest impact we see to improve 2025 and beyond would be a capital plan to take further costs out of the P&L.

Well, so you're correct. I mean, so VSCOFAN sort of patting itself on the back and saying that the de-stocking is done, the demand has normalized. On our field, I'm a little surprised that the that hasn't been straightened out by now. It's sprung out of nowhere 24 to 36 months ago. I remember talking 24 months ago with Dave Willett on this call. And he said there would be two to three quarters. Why is that just proving so intractable? What's going on there? Why is this a surprise? Why do we need to default to a capital plan? Isn't this something that should be able to be fixed in-house? What's changed here?

The waste has many elements to it. But one of them is the old machinery. So a lot of, you know, we're doing a lot of the planned maintenance. But as these things age out, we're seeing that we probably have to adjust the planned maintenance and it's costing more and more to maintain them. And even with so they go down unexpectedly, which is causing waste. So part of this capital plan would be to modernize the equipment. And that would alleviate that aspect of it. But there's many elements to the waste that management has been firefighting.

And with regard to waste, with regard to this, what, again, what was the epiphany that occurred in the summer that we didn't know about management, didn't know about in May when we were guided higher?

It's really just the pricing competitiveness, I would say, and the mix of business. They were budgeting for a better mix and that didn't come to fruition.

Okay. And if the mix issue is that mostly US or is that Europe, would you say? The change in that?

It's throughout every region, mostly in Europe.

Okay. So if the mix, then if I look at, if I went back to your 10K for Granted 23, the region that was suffering for profitability was really the US, if I've got it right. So what is the structural issue there that's not getting resolved? Are your competitors, I'm thinking, you know, is Collie North America having, I mean, they don't have new shiny plants, or they have, I mean, are they suffering? Sorry to

cut you off, but we could set up a call to go through more detail of this case at a future time.

Okay. Can I just ask one more, which is just to say, you know, do you think the industry would benefit from consolidation? And then I'll let you go.

It could hurt. Yeah, not just this case. Yeah, throughout our portfolio, we look at, you know, opportunities and couldn't hurt, but there's nothing that we see right now that makes sense.

Okay. All right. Thank you. Thank you all. Thank you.

Thanks, Bruce.

I show no further questions at this time. I would now like to turn the call back to Andrew Tino for closing remarks.

Thank you, everyone, for joining this morning's call. Just leave you with some final comments, which is we think it's an active and attractive environment for activism in today's markets. We think we have an underappreciated portfolio. It's our job to kind of prove out that value to you. And we have a war chest of cash and liquidity to go ahead and take advantage of it. So we'll speak soon. Thank you. Bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.