Vector Group Ltd.

Welcome to Vector Group Limited second 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. Reconciliation 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 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 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 second 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 second quarter and then discuss Douglas Ellman's financial performance for the three, six, and last 12 months ended June 30th, 2021. Nick will then summarize the performance of our tobacco business. I will then provide closing comments and open the call for questions. Now, turning to Vector Group's consolidated balance sheet. At June 30th, 2021, our balance sheet remains strong. We maintain significant liquidity with cash and cash equivalents of $490 million including cash of $155 million at Douglas Elliman and $108 million at Liggett. We also held investment securities and investment partnership interests with a fair market value of $212 million at June 30, 2021. Turning to Vector Group's consolidated results from operations for the three months ended June 30, 2021, Vector Group's revenues were $729.5 million compared to $445.8 million in the 2020 period. The 283.8 million increase in revenues was a result of an increase of 266.8 million in the real estate segment and 17 million in the tobacco segment. Net income attributed to Vector Group was 93.3 million or 61 cents per diluted common share compared to 25.8 million or 16 cents per diluted common share in the second quarter of 2020. The company recorded adjusted EBITDA of $144.2 million compared to $76.5 million in the prior year. Adjusted net income was $96.5 million, or $0.63 per diluted share, compared to $28.7 million, or $0.19 per diluted share, in the 2020 period. Moving on to results for the six months ended June 30, 2021, Vector Group's revenues were $1.27 billion, compared to $900.2 million in the 2020 period. The $373 million increase in revenues was primarily attributed to the real estate segment. Net income attributed to Vector Group was $125.3 million or $0.81 per diluted common share compared to $22.5 million or $0.14 per diluted common share in the 2020 period. The company recorded adjusted EBITDA of $238.6 million compared to $136.7 million in the prior year. Adjusted net income was $141.8 million, or $0.92 per diluted share, compared to $68.6 million, or $0.45 per diluted share, in the 2020 period. Moving on to results for the last 12 months ended June 30, 2021. Vector Group reported revenues of $2.38 billion, net income of $195.7 million, and adjusted EBITDA of $435.3 million for the last 12 months ended June 30, 2021. Now turning to Douglas Elliman's financial performance for the three, six, and last 12 months ended June 30, 2021. For the three months ended June 30, 2021, Douglas Elliman reported $392 million in revenues, compared to $132.9 million in revenues in the 2020 period. For the second quarter of 2021, Douglas Elliman reported net income of $43.2 million and adjusted EBITDA of $45.3 million compared to a net loss of $5 million and adjusted EBITDA loss of $1.1 million in the second quarter of 2020. The net loss for the three months ended June 30th, 2020 included pre-tax restructuring charges of $3 million. For the six months ended June 30th, 2021, Douglas Ellman reported $664.8 million in revenues compared to $298.5 million in revenues in the 2020 period. For the 2021 six-month period, Douglas Elliman reported net income of $57.1 million and adjusted EBITDA of $61.6 million compared to a net loss of $74.1 million and an adjusted EBITDA loss of $8.8 million in the 2020 period. The net loss in the 2020 period included pre-tax charges for non-cash impairments of $58.3 million and pre-tax restructuring charges of $3 million. For the last 12 months ended June 30, 2021, Douglas Elliman reported $1.14 billion in revenues, $83 million in net income, and $92.4 million in adjusted EBITDA. In addition, Douglas Elliman reported closed sales of $42.9 billion for the last 12 months ended June 30, 2021. Douglas Elliman's strong year-to-date results were driven by continued momentum in all markets and both closed sales volume and revenues more than doubled from the comparable 2020 period. We are particularly pleased with the continued strength of the South Florida market as well as the rebound of New York City during the first six months of 2021. In addition, Douglas Elliman's gross margin or company dollar increased to $105.5 million in the second quarter of 2021 from $42.7 million in the second quarter of 2020. For the six months ended June 30th, 2021, Douglas Hellermann's gross margin increased to 179.6 million from 95.9 million for the same period in 2020. As Douglas Hellermann's revenues and gross margin significantly increased in 2021, we discontinued certain expense reductions implemented in the second quarter of 2020, including reductions to advertising and discretionary compensation. Now I will turn the call over to Nick to discuss our tobacco business.

Nick? Thank you, Howard, and good morning, everyone. Liggett continued its strong 2021 performance during the second quarter with another significant increase in year-over-year earnings. Despite a challenging competitive marketplace, our go-to-market strategy continues to prove successful, and we remain confident our brand portfolio is well-positioned to meet evolving market demands. In the second quarter of 2021, Eagle 20's volumes remained stable and the brand delivered significantly higher margins while Pyramid continues to deliver substantial profit and market presence to the company. We are also very pleased with the performance of our price fighting brand Montego as we expand its targeted distribution footprint. I will now turn to the combined tobacco financials for Liggett Group and Vector Tobacco. For the three and six months ended June 30th, 2021 revenues were 329.5 million and 598 million respectively compared to 312.5 million and 599.6 million for the corresponding 2020 periods. Tobacco adjusted operating income for the three and six months ended June 30th, 2021 was 103.2 million and 182.1 million compared to 79.4 million and 148.5 million for the corresponding periods a year ago. Liggett's second quarter earnings represent a 30% increase over the year-ago period and were primarily the result of higher gross margins associated with higher pricing and promotional spending efficiencies. We also continue to manage our tobacco operations cost-based effectively. In addition to these factors, increased wholesale inventories associated with the timing of our price increase at the end of June contributed to the quarter-over-quarter earnings increase. We estimate that approximately 30% of the almost $24 million earnings increase was the result of these incremental wholesale purchases. We expect this to reverse in the third quarter as inventories normalize. According to Management Science Associates, overall industry wholesale shipments through June 30th, 2021 were down approximately 5% compared to last year, while Liggett's wholesale shipments decreased by 7.7% for the comparable period. As we regularly note, we believe retail shipments are a better indicator of short-term industry trends because inconsistent wholesaler purchasing patterns typically do not impact retail sales. Liggett's retail shipments through June 30th, 2021 declined 6.4% from the year-ago period, while industry retail shipments decreased 2.7% during the same timeframe. As a result, Liggett's year-to-date retail share has declined slightly to 4.13% from 4.29% in the corresponding 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 long-term income growth strategy. However, we do expect this trend to abate throughout the second half of this year as we expand Montego markets. 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 85,000 stores nationwide. Montego is competitively priced in the growing deep discount segment, and we are taking a carefully targeted approach with expansion. To date, we remain pleased with the market's response to Montego, which is now sold in nearly 30,000 stores. Montego delivered approximately 12% of Liget's volume for the second quarter of 2021, compared to 5% in the second quarter of last year. In summary, we are pleased with the operational and financial performance of our tobacco business. The second quarter results continue to validate our market strategy and reflect the competitive strength we have in the deep discount segment, including our broad base of distribution, consumer-focused programs and the scope and executional 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.