Icahn Enterprises LP

NASDAQ:IEP

Earnings Call Transcript 2020-Q4

[Operator]

Good morning and welcome to the Icahn Enterprises' LP Fourth Quarter 2020 Earnings Call with Jesse Lynn, General Counsel; Keith Cozza, President and Chief Executive Officer; and SungHwan Cho, Chief Financial Officer. I would now like to hand the call over to Jesse Lynn, who will read the opening statement.

[Jesse Lynn, General Counsel]

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 Icahn Enterprises LP and it's 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 Keith Cozza, our Chief Executive Officer.

[Keith Cozza, President & Chief Executive Officer]

Thanks, Jesse. Good morning and welcome to the Fourth Quarter 2020 Icahn Enterprises Earnings Conference Call. Joining me on Today's call is SungHwan Cho, our Chief Financial Officer. I will begin by providing some brief highlights. Sung will provide an in-depth review of our financial results and the performance of our business segments. We will then be available to address your questions.

For Q4 2020, we had net income attributable to Icahn Enterprises of $146 million or $0.61 cents per LP unit, compared to a net loss of $157 million or $0.74 cents per LP unit in the prior year period. The quarterly net income was primarily driven by gains in our investment segment. Adjusted EBITDA attributable to Icahn Enterprises for Q4 2020 was $420 million, compared to $111 million in Q4 of 2019.

Our investment funds are in the positive return of 5.6% in Q4 of 2020, compared to a positive return of 0.2% for Q4 of 2019. The positive performance was driven by net gains and certain long equity positions primarily in the energy industry, offset in part by net losses from our short index and short single name equity positions.

Net sales for our energy segment decreased by $451 million for Q4 2020, compared to the prior year period. Our petroleum business was negatively impacted by narrow crack spreads, tight crude oil differentials that resulted from the COVID-19 demand destruction and high rent prices. Our fertilizer business had strong utilization rates at both facilities offset by a weaker price environment as agricultural markets continue to be hampered.

Net sales and service revenues for our automotive segment were $596 million for Q4 of 2020. The COVID-19 pandemic and the impacts of actions taken by governments and others have significantly contributed to the decline in revenues. Icahn Automotive Group continues to push forward with a multi-year transformational plan to restructure the operations and improve profitability.

We have substantially completed the legal separation of our automotive service business from our aftermarket parts business, which will position the service business for new growth and value enhancing opportunities.

In December of 2020, we acquired all the outstanding common stock of VIVUS Inc. upon its emergence from bankruptcy and began reporting the results within our new pharma segment. We are excited to work with the VIVUS management team to grow sales of our two approved commercial drugs and to further advance the development of our pipeline product candidate.

In January of 2021, we issued $750 million of 4.375% senior unsecured notes due in 2029. Earlier this month, we repaid $750 million of our 6.25% senior unsecured notes due in 2022, reducing our annual interest expense and extending our debt maturity profile.

We closed the quarter with cash and investments in the funds of over $5.2 billion and had been very active during the first two months of 2021 in making new investments that have a favorable risk reward profile.

With that, let me turn it over to Sung.

[SungHwan Cho, Chief Financial Officer]

Thanks, Keith. I will begin by briefly reviewing our consolidated results and then highlight the performance of our operating segments and comment on the strength of our balance sheet.

For Q4 2020, net income attributable to Icahn Enterprises was $146 million as compared to net loss of $157 million in the prior year period. As you can see on Slide 5, in Q4 2020, the performance of our investment funds was a significant driver of our net income for the quarter. Adjusted EBITDA attributable to Icahn Enterprises, for Q4 2020 was $420 million, compared to $111 million in the prior year period. I will now provide more detail regarding the performance of our individual segments.

Our investment segment had net income attributable to Icahn Enterprises of $225 million for Q4 of 2020. The investment funds had a positive return of 5.6% in Q4 2020, compared to a positive return of 0.2% for Q4 2019. Long positions had a positive performance attribution of 19.4% for the current quarter, while short positions had a negative performance attribution of 13.8%.

Since inception in November 2004 through the end of Q4 2020, the investment funds gross return is 73% or 3.4%, annualized. The investment funds had a net short notional exposure of 52% compared to net long of 8% at the end of Q3 2020. Our investment in the funds was $4.3 billion as of December 31, 2020.

And now to our energy segment. For Q4 2020. Our energy segment reported net sales of $1.1 billion in consolidated adjusted EBITDA of $1 million compared to net sales of $1.6 billion and consolidated adjusted EBITDA of $142 million for the prior year period. The Q4 2020 adjusted EBITDA includes a gain of $54 million related to CVR's investment in Delek.

Q4 2020 combined total throughput was approximately 219,000 barrels per day, compared to approximately 213 barrels per day for Q4 2019. Refining margin per throughput barrel was $1.32 in the fourth quarter of 2020, compared to $12.47 during the same period in 2019. The refining margin was negatively impacted by the continued narrow crack spreads and increased cost of rents.

CVR has begun construction of its renewable diesel plant, which is expected to significantly mitigate future exposure to rents [ph]. CVR partners reported Q4 2020 EBITDA of $18 million, compared to $11 million for Q4 2019. Results were driven by increased sales volume for UAN and ammonia and lower operating and turnaround expenses.

Now, turning to our automotive segment. Q4 2020 net sales and service revenues for Icahn Automotive Group was $596 million, down $107 million from the prior year period. Q4 2020 adjusted EBITDA which excludes the losses associated with closed stores was a loss of $3 million compared to a loss of $31 million in the prior period. Icahn Auto continues to push forward with a multi-year transformational plan to restructure the operations and improve profitability. Icahn Auto accelerated closures of certain parts stores, implemented significant cost savings and reduce capital spending to minimum levels. All these initiatives helped Icahn Auto offset the impact of significant sales decline and positioned the company for profitability as sales return.

Now turning to our food packaging segment. Q4 2020 net sales increased by $8 million or 8% and consolidated adjusted EBITDA was $14 million, compared to $8 million in the prior year period. Net sales increased due to an increase in volumes and an increase due to price and product mix unfavorable effects of foreign exchange. In October 2020, this case completed an equity private placement with IEP for $100 million. This case also entered into a credit agreement which provided for $150 million term loan and a $30 million revolving credit facility. The proceeds from the new term loan plus the equity private placement were used to repay and for the existing term loan.

And now to our metal segment. Q4 2020 net sales increased by $40 million and adjusted EBITDA increased by $16 million compared to the prior year period. Volume and price has continued to be strong, driven by high demand from steel mills.

And now it's our real estate segment. Q4 2020 net operating revenues increased by $12 million compared to the prior year. adjusted EBITDA for the quarter increased by $2 million compared to the prior year period. Revenue from our real estate operations for both Q4 2020 in Q4 2019, were substantially derived from income from the sales of residential units and rental operations.

Now turning to our home fashion segment. Q4 2020 net sales decreased by $5 million compared to the comparable prior year period. Sales to hospitality customers were down significantly due to weak demand as holiday travel was strongly discouraged. WestPoint adjusted EBITDA was a loss of $2 million in Q4, compared to a loss of $1 million in the prior year period.

Now turning to our pharma segment. In December 2020, we acquired all of the outstanding common stock of VIVUS upon its emergence from bankruptcy. Prior to VIVUS' emergence from bankruptcy, we held an investment in all of VIVUS' convertible corporate debt securities, as well as all of other outstanding debt. As a result of this transaction, we consolidate the results of VIVUS beginning December 2020 and report the results within our new pharma segment. In this month of December, pharma's adjusted EBITDA was $1 million.

Now, I will discuss our liquidity position. We maintain ample liquidity at the holding company and at each of our operating subsidiaries to take advantage of attractive opportunities. We ended Q4 2020 with cash, cash equivalents, our investment in the investment funds and revolver availability totaling approximately $6.6 billion.

Our subsidiaries have approximately $774 million of cash and $586 million of undrawn credit facilities to enable them to take advantage of attractive opportunities. In summary, we continue to focus on building asset value and maintaining ample liquidity to enable us to capitalize on opportunities within and outside of our existing operating segments. Thank you.

Operator, can you please open the call for questions?

[Operator]

[Operator Instructions] Our first question comes from Dan Fannon and with Jefferies. Your line is open.

[Dan Fannon, Jefferies]

Thanks. Good morning. I wanted to follow up on Keith. Your comments about new investments year to-date and some of the opportunities you're seeing in the market today. I assume that's with the fund, but maybe if you could just flush [ph] that out a bit more.

[Keith Cozza, President & Chief Executive Officer]

Yes, sure. Hi, Dan. Yes, a lot of it has been at the fund level and a lot of it has been quite public, frankly. The first couple of months here, we've been very active with some public filings on relatively large stakes and some new names at the fund like Bausch Health care and Dana Corp and the news recently was FirstEnergy. We're finding pockets of opportunity where we think our model of finding deeply-discounted positions that have the ability to implement some activism, where we can help unlock that value is ripe right now. And so, we've been quite active in the early part of the year here.

[Dan Fannon, Jefferies]

Great. That's helpful. And then just the pharma segment, the purchase of VIVUS. A new segment for you guys at the Hold co, is this something where you're thinking about as kind of a larger, broader pharma opportunity or something? I guess, curious about how we should think about this over time?

[Keith Cozza, President & Chief Executive Officer]

Yes, I think, we'd never take any possibilities off the table, so to speak. We have a lot of capital. So if there were ways to expand it, that we thought would create value for our shareholders, we would certainly consider that. I'd say like in the near to intermediate term, we're very focused on what we have right now, now that the company has the appropriate capital structure in place. We have two commercial drugs that we think have more potential or have a lot of potential to grow and perform better than they have historically. And we have a very interesting pipeline candidate that would require some investment. But if in Phase 2 studies and further developing it, but works, so to speak, it has a very large addressable market. So, that's something we're looking heavily at right now, as well. So I think in the interim, very focused on what we have right now and then continuing to work and get to know our management team and then to the extent that they bring additional pack on opportunities to the table, we will evaluate it the same way we would evaluate any of our segments wanting to grow, if it makes sense. It's not a capital issue as you know. We just need to get our arms around the value-creating opportunity.

[Dan Fannon, Jefferies]

It makes sense. And I just want to clarify with this case, you mentioned I think, a private placement [indiscernible]; so, where does your ownership like the equity investment in that today?

[Keith Cozza, President & Chief Executive Officer]

It sits at 89%.

[Dan Fannon, Jefferies]

Okay. And then just a clarification, also on the hedge fund positioning. Typically, you're giving that as of the December 31, the net short, or that as of now, you're just trying to kind of compare the bullishness and some of the activity you're seeing in terms of new investment opportunity versus the overall positioning [ph]?

[Keith Cozza, President & Chief Executive Officer]

Yes, I think, well, the disclosure would be as of December 31. As we've added on long exposure -- I don't want to get too specific -- but you should assume that we continue to try to hedge out individual risks as well as macro risks. So as we take on sort of new single name long exposure, where we are at the same time putting on granular hedges, that could expose some of the industry risk related to some of those names.

[Dan Fannon, Jefferies]

Got it. Makes sense? That's it for me. Thanks for taking my questions.

[Keith Cozza, President & Chief Executive Officer]

Yes, you're welcome.

[Operator]

Thank you. [Operator Instructions] Our next question comes from Chapin Mechem with Northeast Investors Trust. Your line is open.

[Chapin Mechem, Northeast Investors Trust]

Hi. Good morning, guys. Thanks for taking my question. I just have a quick one and it's probably more just of an accounting thing. But on this case, the EBITDA was $14 million [ph]. And you noticed that the attributable is only $9 million [ph] and I'm just wondering if you can explain what that is. Why that owning 89%?

[Keith Cozza, President & Chief Executive Officer]

Well, hopefully I won't be too far over my skis here. But the equity offering occurred in the fourth quarter taking our ownership up to 89%. So I'm assuming that that's a weighted average. Sung, can you confirm that?

[SungHwan Cho, Chief Financial Officer]

Yes, that's correct. So the earlier parts of the year we owned less than the 89%. So that's what that reflects.

[Chapin Mechem, Northeast Investors Trust]

But the year-over-year is kind of funky, because last year, it was $8 million [ph] and you guys were attributable $7 million [ph]. So it's almost like the percentage has gone down, not up.

[Keith Cozza, President & Chief Executive Officer]

We can look into it and maybe some rounding in there as well. But we can get back to you on that one.

[Chapin Mechem, Northeast Investors Trust]

Okay, cool. Thank you.

[Keith Cozza, President & Chief Executive Officer]

Thank you.

[Operator]

Thank you. And at this time, I'm showing no further questions in the queue. I like to hand the call back over to Mr. Keith Cozza for any closing remarks.

[Keith Cozza, President & Chief Executive Officer]

Okay. Thank you, Operator, and thank you, everybody, for your interest in IEP. We'll look forward to talking to you after the first quarter ends regarding our results. Have a good day.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.