Vector Group Ltd.

Welcome to Vector Group Limited fourth quarter 2020 earnings conference call. During this call, the terms adjusted operating income, adjusted net income, adjusted EBITDA, tobacco adjusted operating income will be used. These terms are non-GAAP financial measures and should be considered in addition to, but not as a substitute for, other measures of financial performance prepared in accordance with GAAP. Reconciliations to adjusted operating income adjusted net income, adjusted EBITDA, and tobacco adjusted operating income are contained in the company's earnings release, which have been posted to the investor relations section of the company's website located at www.VectorGroupLTD.com. Before the call begins, I'd like to read a Safe Harbor statement. The statements made during this conference call that are not historical facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. These risks are described in more detail in the company's Security and Exchange Commission's filings. Now, I would like to turn the call over to President and Chief Executive Officer of Vector Group, Howard Lorber.

Good morning, and thank you for joining us on our fourth quarter 2020 Earnings Conference call. With me today are Nick Anson, President and Chief Operating Officer of Liggett Vector Brands, and Brian Kirkland, Vector Group's Chief Financial Officer. Ron Bernstein, Senior Advisor to Liggett Vector Brands, will join us during the Q&A. I am also pleased that Dick Lampin, our longtime Executive Vice President, who was recently appointed Chief Operating Officer and a member of our Board of Directors, is joining us on the call. Dick's broad executive experience and deep operational understanding of the company, from serving in a variety of senior leadership roles for Vector Group and its affiliates since 1995, make him a valuable addition to our board and a natural fit to be COO. Additionally, Dick's experience as CEO of Lattenberg Thulman Financial Services and vast knowledge of the ways that technology can benefit a brokerage business will be valuable to Douglas Ellman, as it continues to enhance the technology-based experience of its agents. It will also be helpful in identifying potential synergies leading to further reductions in Douglas Elliman's operating expenses. During this call, I will first review our consolidated financial results and then discuss Douglas Elliman's financial performance for the three months and year ended December 31, 2020. Nick will then summarize the performance of the tobacco business. I will then provide closing comments, and afterwards, we will open the call for questions. As of December 31, 2020, Vector Group maintained significant liquidity with cash and cash equivalents of $353 million, including cash of $94 million at Douglas Elliman and $45 million at Leggett, and investment securities and investment partnership interest with a fair market value of $188 million. Additionally, in the first quarter of 2021, we took advantage of favorable capital markets and issued $875 million of 5.75% senior secured notes due 2029. All proceeds were used to retire older notes. Now turning to Vector Group's operational and financial results. For the three months ended December 31st, 2020, Vector Group's revenues were $554.6 million, compared to $439.6 million in the 2019 period. The $115 million increase in revenues was a result of an increase of $25.7 million in the tobacco segment and $89.3 million in the real estate segment. Net income attributed to Vector Group was $32.3 million, or 21 cents per diluted common share, compared to $10.7 million, or 6 cents per diluted common share, in the fourth quarter of 2019. The company recorded adjusted EBITDA of $93.4 million, compared to $52.5 million in the prior year. As we will discuss later, we continue to be pleased with Liggett's execution of its two-brand strategy, as well as Douglas Elliman's resilience and rebound in the second half of 2020. Adjusted net income was $32.6 million, or $21 cents per diluted share compared to 17.8 million or 11 cents per diluted share in the 2019 period. For the year ended December 31st, 2020, Vector Group's revenues were 2 billion compared to 1.9 billion in the 2019 period. Net income attributed to Vector Group was 92.9 million or 60 cents per diluted common share compared to 101 million or 63 cents per diluted common share for the year ended December 31st, 2019. The company recorded adjusted EBITDA of $333.4 million compared to $259.4 million in the prior year. Adjusted net income was $139.5 million or $0.91 per diluted share compared to $110.11 million or $0.70 per diluted share in the 2019 period. Now turning to Douglas Ellman. Before we review the results, I'd like to recognize the resilience of the Douglas Ellman team of 6,700 agents and 750 employees in addressing the challenges of 2020. We have long believed our team sets us apart from other residential real estate brokerage firms. And when Forbes recently recognized Douglas Ellman in its 2021 list of America's best large employers, we were humbled. This recognition is a testament to the hard work and resiliency of the Douglas Hellman family. We congratulate the Douglas Hellman team for this well-earned and deserved recognition. Now to Douglas Hellman's financial results. For the three months ended December 31st, 2020, Douglas Hellman reported $267.5 million in revenues, net income of $14 million, and an adjusted EBITDA of $16.7 million. compared to $178.1 million in revenues, a net loss of $432,000, and adjusted EBITDA loss of $5.7 million in the fourth quarter of 2019. To the year ended December 31, 2020, Douglas Ullman reported $774 million in revenues, a net loss of $48.2 million, and adjusted EBITDA of $22.1 million, compared to $784.1 million in revenues, net income of $6.2 million, and adjusted EBITDA of $5.3 million in 2019. Douglas Elliman's net loss for the year rendered December 31, 2021 included pre-tax charges for non-cash impairments of $58.3 million, as well as restructuring charges and related asset write-offs of $4.6 million. In the fourth quarter of 2020, Douglas Elliman's revenues increased by 50% from the fourth quarter of 2019, as its closed sales continue to improve in all markets complementary to New York City, including the Hamptons, Palm Beach, Miami, Aspen, and Los Angeles. Our New York City business began to stabilize in the fourth quarter, and we are well positioned in New York City. Furthermore, Douglas Elliman's expense reduction initiatives continued in the fourth quarter, and its fourth quarter 2020 operating and administrative expenses excluding restructuring and asset appearing charges, declined by approximately 7.9 million compared to the fourth quarter of 2019 and 47.7 million compared to the year ended December 31, 2019. We believe these initiatives have and will continue to provide long-term upside to Vector Group stockholders. In addition, when compared to the first quarter of 2020, first quarter 2021 cash receipts have continued to strengthen from 2020 levels in all regions except New York City. Now I will turn the call over to Nick to discuss our tobacco business. Nick.

Thank you, Howard, and good morning, everyone. 2020 proved to be an extraordinary and challenging year for our tobacco operations, and I'm very proud of our response to that challenge. Our employees remained resilient throughout and stayed focused on the task at hand. They also embraced a tremendous team spirit, and I believe our excellent performance throughout this difficult year reflects that effort. During the fourth quarter, Liggett continued its strong year-to-day performance with revenue increases and margin growth contributing to a 33% increase in tobacco-adjusted operating income. As noted on previous calls, we are well into the income growth phase of our Eagle 20s business strategy and remain very pleased with the results. Our market-specific retail programs have proven successful, and we remain optimistic about Eagle 20's increasing profit contributions and long-term potential. Our results also reflect the resilience and strong distribution of Pyramid, which continues to deliver substantial profit and market presence to the company. I will now turn to the combined tobacco financials for Liget Group and Vector Tobacco. The three months and year ended December 31st, 2020 revenues were $286.1 million and $1.2 billion respectively, compared to $260.3 million and $1.11 billion for the corresponding 2019 periods. Tobacco adjusted operating income for the three months and year ended December 31st, 2020 were $80 million and $320.2 million respectively, compared to $60.1 million and $262.6 million for the corresponding periods a year ago. Liggett's increase in fourth quarter earnings was the result of higher gross profit margins associated with increased volumes, higher net pricing, and lower per unit master settlement agreement expense. The lower per unit MSA expense reflects stronger U.S. industry cigarette volumes in 2020, which has increased the value of our market share exemption under the MSA. Similar to some other consumer product categories, cigarette industry volumes outperformed recent historical trends and benefited from increased consumer demand related to changes in underlying cigarette purchasing and consumption patterns associated with the pandemic. Wholesale inventory levels remained elevated throughout the fourth quarter as a result of the prospect of increased restrictions and lockdowns associated with COVID-19 and the timing of industry price increases. However, we anticipate a normalization of wholesale inventory levels over the course of the first quarter. According to Management Science Associates, overall industry wholesale shipments for the fourth quarter increased by 3.4%, while Liggett's wholesale shipments increased by 2.1%, compared to the fourth quarter in 2019. For the fourth quarter, Liggett's retail shipments declined 0.3% from 2019, while industry retail shipments increased 0.6% during the same period. Liggett's retail share in the fourth quarter declined slightly to 4.21% from 4.25% in the same period last year. The modest decline in Liggett's fourth quarter year-over-year retail share was anticipated as Eagle 20's volume growth slowed due to increased net pricing. This is consistent with our income growth strategy for the brand, which began in the second half of 2018. Eagle 20's is now priced in the upper tier of the U.S. deep discount segment. Eagle 20's retail volume for the fourth quarter of 2020 was essentially flat compared to the prior year period. It remains the third largest discount brand in the US and is currently sold in approximately 84,000 stores nationwide. The continued strength of Eagle 20's despite increased pricing also reinforces the effectiveness of our long-term strategy to continue to build volume and margin for our business using well-positioned discount brands that provide value. to adult smokers. With that in mind, and after identifying volume growth opportunities in the U.S. deep discount segment in August, we expanded the distribution of our Montego brand to an additional 10 states, primarily in the southeast. Prior to August, Montego was sold in targeted markets in four states. Montego is competitively priced in the growing deep discount segment, and we plan to take a measured approach with further expansion. Montego represented 8.6% of Liggett's volume for the fourth quarter of 2020 and 6.3% of Liggett's volume for the year ended December 31st, 2020. To date, we remain very pleased with the initial response to Montego, now sold in approximately 25,000 stores, representing a 50% increase from the end of the third quarter. In summary, we are very pleased with our 2020 performance, particularly considering the current macroeconomic environment. Our results continue to validate our market strategy and reflect our competitive advantages within the deep discount segment, including our broad base of distribution, consumer-focused programs, and the execution capabilities of our sales force. As we look ahead, we remain focused on generating incremental operating income from the strong sales and distribution base of both Pyramid and Eagle 20s. Finally, while we are all subject to industry and general market risks, we remain confident we have effective programs to keep our business operating efficiently while supporting market share and profit growth. Thanks for your attention, and back to you, Howard.