Vector Group Ltd.

Welcome to Vector Group Limited's first quarter 2021 earnings conference call. During this call, the terms adjusted operating income, adjusted net income, adjusted EBITDA, and 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 we begin, 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 risk 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 Securities and Exchange Commission filings. Now I'd like to turn the call over to the President and Chief Executive Officer of Vector Group, Howard Lorber.

Good morning, and thank you for joining us on our first quarter 2021 Earnings Conference Call. With me today are Richard Lampin, our Chief Operating Officer, Brian Kirkland, our Chief Financial Officer, and Nick Anson, President and Chief Operating Officer of Liggett Vector Brands. Ron Bernstein, Senior Advisor to Liggett Vector Brands, will join us during the Q&A. During this call, I will review our consolidated financial results for the first quarter and then discuss Douglas Elliman's financial performance for the three months ended March 31st, 2021. 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. Now, turning to Vector Group's Consolidated Balance Sheet. Our balance sheet at March 31, 2021, remains strong as we maintain significant liquidity with cash and cash equivalents of $382 million, including cash of $83 million at Liget. We also held investment securities and investment partnership interests with a fair market value of $206 million at March 31st, 2021. As previously announced, in the first quarter of 2021, we took advantage of favorable capital markets and issued $875 million of 5.75 percent senior secured notes due 2029. All proceeds were used to retire older notes. In addition, Liggett amended its credit facility to increase its borrowing capacity from $60 million to $90 million. There were no amounts outstanding under Liggett's credit facility as of March 31, 2021. Now turning to Vector Group's consolidated results from operations. For the three months ended March 31, 2021, Vector Group's revenues were $543.8 million compared to $454.5 million in the 2020 period. The $89.3 million increase in revenues It was a result of an increase of $107.9 million in the real estate segment and a decline of $18.6 million in the tobacco segment. Net income attributed to Vector Group was $32 million, or $0.20 per diluted common share, compared to a net loss of $3.2 million, or $0.03 per diluted common share, in the first quarter of 2020. The company recorded adjusted EBITDA of $94.3 million compared to $60.2 million in the prior year. Adjusted net income was $45.3 million, or $0.29 per diluted share, compared to $39.9 million, or $0.27 per diluted share in the 2020 period. Now turning to Douglas Elliman's results from operations. For the three months ended March 31, 2021, Douglas Elliman reported $272.8 million in revenues, net income of $13.9 million, and adjusted EBITDA of $16.4 million. compared to 165.6 million in revenues, a net loss of 69 million, and an adjusted EBITDA loss of 7.7 million in the first quarter of 2020. The net loss for the three months ended March 31st, 2020 included pre-tax charges for non-cash impairments of 58.3 million. In the first quarter of 2021, Douglas Elliman's revenues increased by 65% from the first quarter of 2020. Closed sales continue to improve in major markets such as New York City, the Hamptons, Palm Beach, Miami, Los Angeles, Aspen. Commissions from our New York City business were up 34% during the first quarter, and this trend seems to be continuing. In April 2021, average daily cash receipts from New York City as well as South Florida and Aspen were up significantly from the first quarter of 2021. Now I will turn the call over to Nick to discuss our tobacco business.

Thank you, Howard, and good morning, everyone. Liget performed very well during the first quarter of 2021 with a significant increase in earnings despite a difficult year-over-year comparison and a challenging marketplace. Our market-specific retail programs have proven successful, and we remain confident our brand portfolio is well positioned to meet evolving market demands. In the first quarter of 2021, Eagle 20s delivered significantly higher margins while maintaining stable market share, and Pyramid continues to deliver substantial profit and market presence to the company. We are also pleased with the performance of our strategic price-fighting brand, Montego, as we build targeted geographic distribution with a measured approach. I will now turn to the combined tobacco financials for Ligga Group and Vector Tobacco. For the three months ended March 31, 2021, revenues were $268 point five million compared to two hundred eighty seven point one million for the corresponding 2020 period. The six point five percent decline in Ligas revenues primarily related to a reduction in wholesale shipments during the first quarter. Significant year over year changes in wholesale buying patterns led to higher than normal inventories at the start of the year, which affected Ligas volumes as well as volumes across the industry. In addition, the first quarter of 2021 had one of fewer shipping day. Tobacco adjusted operating income for the three months ended March 31st, 2021 increased 14% to 78.9 million compared to 69.2 million for the corresponding period a year ago. The increase in Liggett's first quarter earnings was primarily the result of higher gross profit margins associated with higher pricing and promotional spending efficiencies with additional contributions from effective management of our cost base. According to Management Science Associates, overall industry wholesale shipments for the first quarter decreased approximately 9%, while Liggett's wholesale shipments decreased by 13.9% versus the prior year quarter. As previously mentioned, tobacco industry performance in the first quarter was significantly impacted by year-over-year changes in wholesale buying patterns. At the beginning of this year, wholesalers depleted excess inventories built up toward the end of 2020, due to both industry pricing actions and concerns over further potential COVID restrictions. Conversely, toward the end of the first quarter in 2020, wholesale inventories increased, reflecting the effects of widespread pantry loading at the start of the pandemic. The cumulative effect of these separate events led to lower 2021 first quarter wholesale shipments compared to last year for both Liggett and the industry. As we regularly note, we believe retail shipments are a better indicator of short-term industry trends because inconsistent wholesaler patterns typically do not impact retail sales. For the first quarter, Liggett's retail shipments declined by 5.3 percent from 2020, while industry retail shipments decreased 2.9 percent during the same period. As a result, Liggett's retail share in the first quarter declined slightly to 4.18 percent from 4.28 percent in the same period last year. As noted on previous calls, we anticipated modest declines in Liggett's year-over-year retail share due to increased net pricing consistent with our successful income growth strategy. Despite price increases, Eagle 20's retail volume remains strong. It is currently the third largest discount brand in the U.S. and is sold in approximately 84,000 stores nationwide. Noting the continued market expansion, of the discount segment, in August of last year, we increased distribution of our strategic price-fighting brand, Montego. Montego is competitively priced in the growing deep discount segment, and we are taking a targeted approach with its expansion. To date, we are pleased with the market's response to Montego, which is now sold in over 26,000 stores. Montego delivered 10% of Ligga's volume for the first quarter of 2021 compared to 5% in the first quarter of last year. Regarding the current regulatory environment, last week the FDA made the long-anticipated announcement that they plan to pursue restrictions on menthol in cigarettes. This issue has been considered by the FDA since 2009, and by statute, the agency is required to apply a scientific approach to this and any question involving public health. It is also required to evaluate potential unintended consequences of any decision. There are many open issues and conflicting scientific data regarding menthol in cigarettes, and we believe it will likely take years before this complex issue is resolved. For the 12 months ended March 31st, 2021, menthol cigarettes represented 19% of Liggett's total sales volume. In summary, we are pleased with the operational and financial performance of our tobacco business. The first quarter results continue to validate our market strategy and reflect the competitive advantages we have in the deep discount segment, including our broad base of distribution, consumer-focused programs, and the scope and 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 our brand portfolio. Finally, while we are always subject to industry, regulatory, and general market risks, we remain confident that we have effective programs and infrastructure in place to keep our business operating efficiently while supporting market share and profit growth. Thanks for your attention, and back to you, Howard.