Icahn Enterprises LP

NASDAQ:IEP

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, and welcome to the Icahn Enterprises L.P. Q4 2021 Earnings Call, with Jesse Lynn, General Counsel; David Willetts, President and CEO; and Ted Papapostolou; 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 detailed 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 L.P. 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 of 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 comparable GAAP financial measures can be found in the back of this presentation. I'll now turn it over to David Willetts, our Chief Executive Officer.

[David Willetts, President and CEO]

Thank you, Jesse. Good morning, and welcome to the Fourth Quarter 2021 Icahn Enterprises Earnings Conference Call. Joining me on today's call is Ted Papapostolou, our Chief Financial Officer. Together, we'll provide an overview of quarter 4 and the full year results and then be available for questions at the end. Before discussing the earnings, I'd like to provide a brief update on recent activism at Southwest. Our tender offer of $75 per share remains outstanding and was recently extended. We are awaiting a shareholder meeting and a vote on our full slate of independent, highly qualified Board candidates. We will not comment on the specifics of this campaign, but refer you to our public filings and statements that are easily available. Second campaign, McDonald's. This is an activist campaign of a very different nature, but one that's being pursued outside of the Icahn Enterprises in a personal capacity by Mr. Icahn. We believe activism is the best paradigm for investing through our Investment segment as well as managing our controlled subsidiaries. We focus on improving the capital structure and operations of companies within all of our segments. As part of our strategy, we routinely hedge against market risks, and in the past, this has worked well. The last several years have been a bit of an outlier to our modus operandi. We believe we are much better positioned than we have been in the past with our hedges, and we are encouraged based on 2022 results to date. 2021 earnings ended with a net loss for IEP of $518 million for the year and with a $396 million loss for the quarter, which is significantly improved versus 2020. IEP's full year adjusted EBITDA was a positive $273 million. The full year '21 results were negatively impacted by losses of about $1.3 billion on IEP's Investment segment, short position, which are used to hedge our long positions. Other losses include $435 million of RINs expense in CVI and $205 million of Automotive transformation losses and an inventory write-down. Indicative net asset value increased by $1.6 billion in 2021 to $5.1 billion, despite the headwinds I just mentioned. 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 GAAP earnings. In 2021, we revised how we estimate the fair value of our Automotive segment's owned Real Estate and its services business, which better reflects the fair value of these assets, which also contributed to a positive change. Regarding the segments specifically, our Investment Funds had a flat performance for the full year with a negative return of 8.3% in quarter 4 of '21, primarily driven by these short positions. CVI ended 2021 with full year EBITDA and net income improvements, reflecting strong performance in the fertilizer segment and improved crack spreads in the refining operations. The RINs costs, however, did continue to negatively impact refining costing more than $430 million for the full year. The company is aggressively continuing its push into renewables and is targeting a start-up of the biodiesel unit at Wynnewood targeted for Q2 of '22. In Automotive, we're very pleased with the continued performance of the Automotive services division, with a revenue growth of approximately 12% for the full year of '21 versus '20 and very strong EBITDA performance year-over-year. The Parts division is in the midst of executing a full turnaround of its core operating business. In Q4 of this year, parts took a onetime charge of approximately $56 million to write down aged inventories. We are seeing strong and continued market interest in our portfolio of vacant former parts retail locations. We closed the quarter with cash and investments in the funds of approximately $6 billion. The Board declared a $2 quarterly distribution payable in cash or additional units. And with that, let me turn this to Ted for a detailed discussion of all of our segments, and he'll elaborate on some of the comments I've made. Ted?

[Ted Papapostolou, CFO]

Thanks, 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 2021, we had net loss attributable to IEP of $396 million compared to net income of $146 million in the prior year period. For full year 2021, net loss attributable to IEP was $518 million, which includes several significant items that negatively impacted the results. These include RINs expense of $435 million within our Energy segment and $149 million of transformation losses and $56 million of inventory write-downs within our Automotive segment. For Q4 2021, adjusted EBITDA attributable to IEP was a loss of $443 million compared to a gain of $423 million in the prior year period. I will now provide more detail regarding the performance of our individual segments. The Investment Funds had a negative return of 8.3% for Q4 2021 compared to a positive return of 5.6% in the prior year. Contributing factors of Q4 2021 returns were the negative performance of broad market hedges of $493 million and a single name position of $290 million. Long positions had a positive performance attribution of 1.4% in Q4 2021, while short positions and other had a negative performance attribution of 9.7%. The investments had a net short notional exposure of 31% at the end of Q4 2021 compared to a net short notional exposure of 11% at the end of Q3 2021. Our investment in the funds was approximately $4.2 billion as of year-end. And now, on to our Energy segment. In Q4 2021, our Energy segment reported net sales of $2.1 billion compared to $1.1 billion in the prior year period. Consolidated adjusted EBITDA was $116 million for Q4 2021 compared to $1 million in Q4 of 2020. Total throughput was approximately 222,000 barrels per day in Q4 2021 compared to 219,000 in Q4 of 2020. Q4 2021 refining margin per throughput barrel was $7.13 compared to $1.32 in the prior year. The increase was primarily driven by a 101% increase in the group [indiscernible] crack spreads caused by the improved market demand for refined products in Q4 2021 as compared to the economic downturn and demand disruption in Q4 2020. As mentioned earlier, the cost of RINs continued to have a significant negative impact on our refining business. For Q4 2021, the RINs expense was $100 million, bringing the full year expense to $435 million. CVR is focused on decarbonization through a comprehensive restructuring plan to segregate renewable operations, which is expected to occur in 2022. Part of this plan is a renewable diesel project, which will convert the refinery's hydrocracker to a unit capable of producing 100 million gallons of renewable diesel per year. CVR Partners reported Q4 2021 EBITDA of $93 million compared to $18 million for Q4 2020. Q4 2021 average realized gate prices for UAN improved by 150% to $347 per ton, and ammonia improved by 179% to $745 per ton when compared to Q4 2020. CVR Partners declared a fourth quarter cash distribution of $5.24 per unit. Now turning to our Automotive segment. Q4 2021 net sales and service revenues for IAG was $558 million, a decrease of $38 million from the prior year period. Store closures related to the transformation plan contributed to a decrease of $76 million in the parts business, partially offset by a $38 million improvement in the services business. Q4 2021 adjusted EBITDA was a loss of $97 million, which includes a $56 million inventory write-down. Adjusted EBITDA excludes transformation losses associated with closed and closing stores, which were $34 million for Q4 2021. The services business continues to perform well, with revenues up 12% in Q4 2021 as compared to the prior year period. Now turning to our Food Packaging segment. Q4 2021 net sales increased by $3 million or 3%, and adjusted EBITDA attributable to IEP was $7 million for Q4 2021 as compared to $12 million for Q4 2020, driven by changes in price and product mix. This case continues to focus on pricing initiatives to counter the supply chain disruptions and raw material price inflation. And now to our Real Estate segment. Q4 2021 net sales and other revenues decreased by $15 million compared to prior year. Adjusted EBITDA was a loss of $3 million for Q4 2021 compared to earnings of $8 million for Q4 2020. The segment remains highly focused on increasing occupancy across the portfolio. During Q4, a large anchor tenant was secured at a key investment property. Occupancy at our Aruba property has rebounded to 75%, and our New Seabury property continues to perform above expectations in both club operations and development activities. Now on to our Home Fashion segment. Q4 2021 net sales increased by $6 million as compared to the prior year period, primarily due to the reduced impact of COVID-19 on hospitality and department store businesses. This was offset in part by a decline in face mask sales. Adjusted EBITDA was $2 million for Q4 2021 compared to a loss of $2 million in Q4 2020. Overall demand continues to recover. The total backlog at the end of 2021 was $29 million. Now on to our Pharma segment. We started to consolidate the results of Vivus beginning December of 2020 within our Pharma segment. For Q4 2021, net operating revenues were $17 million and adjusted EBITDA was $3 million. Pancreaze and Qsymia both had strong prescription growth year-over-year at 39% and 14%, respectively. The company completed its Pancreaze product life cycle enhancements with the launch of a higher dose product. Vivus is looking to expand Qsymia into Europe and has been approved for launch in 5 of the Nordic EU countries. 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 2021 with cash, cash equivalents, our investment in the Investment Funds and revolver availability, totaling approximately $7 billion. Our subsidiaries have approximately $614 million of cash and $423 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 our existing operating segments. Thank you. Operator, can you please open the call up for questions.

[Operator]

[Operator Instructions] Our first question comes from Chapin Mechem with Northeast Investors.

[Chapin Mechem, Northeast Investors]

I want to ask a couple of questions about this case. I think, previously, you talked about contracts coming up in the beginning of the new year. So I'm just wondering if you can provide any additional just sort of insight into how that's going passing through the cost.

[David Willetts, President and CEO]

Yes. I think the short version is, the contracts are up. We actually met with Viskase yesterday to specifically talk about pricing for Q1 of 2022. And they are actively repricing and renegotiating those contracts and there's a significant increase -- I won't share the specific number until the end of this quarter, but there's a significant increase that looks to offset the inflation that we've realized to date. Frankly, we're in discussions with management about how much further can you go, with the idea that offsetting inflation is step 1, but we also need to make sure we're at parity to market based on just general product, and we need to get a premium for the products that are truly a premium and adding unique value to the customers. So pricing is a very large target in our crosshairs. The contract renewals are going forward, and we are targeting that for a major lever of improvement this year, and we're seeing some positive results.

[Chapin Mechem, Northeast Investors]

Great. Wonderful, good news. Look forward to hearing more about that. And then, just I'm curious if you know anything more. I think Viskase fans talked about how they've increased their capacity a little bit and increased their market share. And I just wondered if there's any -- if you guys are seeing anything from that, if there's any impact on volumes or if that has any negative impacts on your ability to increase your prices, which it sounds like maybe it doesn't. But any thoughts on that?

[David Willetts, President and CEO]

I'll talk rear-word looking. Rear-world looking, we don't see any issues from Viskase impacting us in a material way. We're refocusing on what we're producing and what we're providing to the customers. Candidly, one of the larger challenges, just getting the raw materials in. So there's a bit of a shortage in terms of raw materials that is constraining capacity, even if there's enough line time. So I think that, that probably is ameliorating any issues on the Viskase fan. But we haven't seen anything from Viskase fan itself. So it's -- right now, that is not a major risk factor that we're focused on or we're seeing for our pricing.

[Chapin Mechem, Northeast Investors]

Great. And then just one last quick thing. On the supply chain disruption, is that just normal what everyone in the world is seeing or was there a specific incident or a challenge going forward or it's on the past, or anything you can...

[David Willetts, President and CEO]

It's more of a wood pulp shortage, which is impacting our cellulosic product. We're seeing shortages in Europe. We're seeing shortages in the U.S. It's not a normal -- we're out of shipping containers issue across the ocean. It's more of a local market issue. Certainly, there are many demands on wood pulp. We don't fully understand all the dynamics. But we're focused on offsetting those with either new sources of supply, transferring raw materials from geography to geography. And frankly, we're also pushing a very aggressive scrap campaign so that, even though there is a shortage, we're able to do more with the pounds we do have than we have in the past.

[Operator]

There are no further questions. I'd like to turn the call back over to David Willetts for any closing remarks.

[David Willetts, President and CEO]

Well, as always, it’s very good to talk to you all. We will talk again in 90 days. Thank you for attending the Q4 earnings presentation. If there are any questions, please don’t hesitate to reach out to our Investor Relations, which can be found on the website. Thank you, and have a good day.

[Operator]

This concludes the program. You may now disconnect.