Icahn Enterprises L.P.
Q4 2020 Earnings Call Transcript

Published: 26 Feb 2021

[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:]

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.

[Keith Cozza:]

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.

[SungHwan Cho:]

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.

[Operator:]

Our first question comes from Dan Fannon and with Jefferies. Your line is open.

[Dan Fannon:]

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 that out a bit more.

[Keith Cozza:]

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:]

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:]

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:]

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

[Keith Cozza:]

It sits at 89%.

[Dan Fannon:]

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 ?

[Keith Cozza:]

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:]

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

[Keith Cozza:]

Yes, you're welcome.

[Operator:]

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

[Chapin Mechem:]

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 . And you noticed that the attributable is only $9 million and I'm just wondering if you can explain what that is. Why that owning 89%?

[Keith Cozza:]

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:]

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:]

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

[Keith Cozza:]

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:]

Okay, cool. Thank you.

[Keith Cozza:]

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:]

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.