Vector Group Ltd.

LTD's third quarter 2022 earnings conference call. This call is being recorded in simultaneously webcast. An archived version of the webcast will be available on the investor relations section of the company's webcast located at www.vectorgroupltd.com for one year. During this call, the terms adjusted operating income Adjusted net income from continuing operations, adjusted EBITDA from continuing operations, 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 the GAAP reconciliations to adjusted operating income. from continuing operations. Adjusted net income from continuing operations, adjusted EBITDA from continuing operations, and tobacco adjusting operating income are contained in the company's earnings release, which has been posted on the investor relations section of the company's website. Before the call begins, I would 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 or implied by forward-looking statements. These risks are described in more detail in the Company's Security and Exchange Commission filings. Now I would like to turn the call over to the President and Chief Executive Officer of Vector Group, Howard N. Lorber. Please go ahead.

Good morning, and thank you for joining us for Vector Group's third quarter 2022 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 also join us during the Q&A. During this call, I will review Vector Group's consolidated financial results for the third quarter of 2022. Nick will then summarize the performance of our tobacco business. I will then provide closing comments and open the call for questions. Before reviewing Vector Group's consolidated financial results, please note that because of the spinoff of Douglas Elliman in the fourth quarter of 2021, Douglas Elliman's financial results are presented as discontinued operations in Vector Group's consolidated financial statements for the 2021 period and are excluded from our adjusted results. First, beginning with Vector Group's consolidated balance sheet. Our balance sheet remains strong. As of September 30, 2022, we maintain significant liquidity with cash and cash equivalents of approximately $385 million, including cash of $174 million at Liggett. We also held investment securities and investment partnership interest with a fair value of approximately 160 million. During the third quarter, we also repurchased and retired 12.9 million in aggregate principal amount of our 10.5% senior notes due 2026 at a discount. This retirement reduces our cash annual interest expenditures by approximately 1.4 million. On market conditions, we may repurchase additional amounts of our 10.5% senior notes in open market purchases or privately negotiated transactions. Turning to Vector Group's consolidated results from operations for the three months ended September 3rd of 2022, Vector Group's revenues for the quarter were $378 million compared to $298.5 million in the third quarter of 2021. Net income attributed to Vector Group was $38.9 million or $0.25 per diluted common share compared to $48.9 million or $0.31 per diluted common share in the third quarter of 2021. Net income attributed to Vector Group from continuing operations was $38.9 million or $0.25 per diluted common share compared to $29.9 million or $0.19 per diluted common share in the third quarter of 2021. The company recorded adjusted EBITDA from continuing operations as $87.3 million compared to $88.7 million in the third quarter of 2021. Adjusted net income from continuing operations was $37.6 million, or $0.24 per diluted share, compared to $33.9 million, or $0.22 per diluted share, in the third quarter of 2021. Next, Vector Group's consolidated results from operations for the nine months ended September 30, 2022. Vector Group's revenues for the nine months ended September 30, 2022 were $1.08 billion, compared to $907 million in the 2021 period. Net income attributed to Vector Group was $110.6 million, or $0.70 per diluted common share, compared to $174 million, or $107. $0.11 per common share in the 2021 period. Net income attributed to Vector Group LTD from continuing operations was $110.6 million, or $0.70 per diluted common share, compared to $116.4 million, or $0.74 per diluted common share, in the 2021 period. The company recorded adjusted EBITDA from continuing operations of $259.5 million compared to $265.6 million in the 2021 period. Adjusted net income from continuing operations was $104.4 million, or $0.66 per diluted share, compared to $133.4 million, or $0.85 per diluted share in the 2021 period. I will now turn it over to Nick to discuss our tobacco operations. Nick.

Thank you, Howard, and good morning. Liggett delivered another strong performance during the third quarter of 2022, including record quarterly revenues as we continue to capitalize on favorable marketplace opportunities to invest in our Montego brand and expand our foundation for long-term earnings growth. Liggett's third quarter wholesale shipments increased by more than 30%, and our retail volumes increased by approximately 23% compared to the same period a year ago. Liggett's retail market share also increased to 5.7%, driven by the significant growth of our Montego brand. This represents Liggett's largest market share since 1984, when we originally disrupted the tobacco industry by introducing discount cigarettes. Our expertise in the discount category continues to be a core competency. Following a competitor's exit from the U.S. marketplace, in December 2021, we quickly capitalized on the opportunity and captured a significant portion of that competitor's approximately 3% market share. As of September 30th, 2022, we have converted more than 40% of that competitor's vacated business to Montego volume by leveraging our broad distribution base and strong retail sales execution. Our conversion percentage related to the competitor's exit is the highest in the market and twice as much as the next competitor. Our performance is driven by Liggett's mission to offer the best value propositions in the U.S. cigarette industry, which is particularly relevant in the current economic environment as more consumers shift to the discount segment in search of better value. According to Management Science Associates retail data, for the three months ended September 30th, 2022, the discount category represented 28.3% of the total market compared to 26.6% for the same period last year. Within the discount category, we continue to see momentum and growth for brands in the deep discount segment. For the third quarter of 2022, we estimate that the deep discount segment comprised 43% of the total discount category compared to 36% in the same period a year ago. We expect this migration to continue as deep discount segment presents a more attractive value proposition for consumers. As such, we believe that our value-focused brand portfolio, broad national distribution, and extensive experience in developing profitable discount brands provides Liggett with a competitive advantage to meet shifting market demands. Montego, which became our largest brand in 2022, has also grown to become the second largest discount brand and sixth largest cigarette brand in the United States. Distribution expanded to nearly 71,000 stores this quarter compared to approximately 37 stores in the third quarter of 2021. The brand's market share increased to 2.8% in the third quarter of 2022, up from 2.4% in the second quarter of this year and 0.7% in the third quarter of last year. We estimate that Montego's share of the deep discount segment in the third quarter was approximately 24%, a significant expansion from its deep discount share of 7% in the third quarter of 2021. Our strategy with Montego is consistent with our long-term objective of optimizing profit by effectively managing volume pricing and market share in our value-based brand portfolio. While our investment in Montego expands our foundation for long-term earnings growth, we also continue to reap significant benefits from our income growth brands, Eagle 20s and Pyramid. Eagle 20s is now delivering substantial margin, and Pyramid's long-term resilience continues to provide a substantial profit and market presence. As a result, Liggett's retail shipments for the three months ended September 30, 2022, increased 22.8% from the third quarter of 2021, while industry retail shipments declined 8.5%, according to data from management science associates. Further, and as mentioned earlier, Liggett's third quarter retail market share increased to 5.7% up from 4.2% in the prior year period. I will now turn to the combined tobacco financials for Liggett Group and Vector Tobacco. For the three and nine months ended September 30, 2022, revenues increased 26.9% to a record $338 million and 18.5% to approximately $1.1 billion, respectively, compared to $297.9 million and $895.9 million for the corresponding 2021 periods. Tobacco operating income for the three and nine months ended September 30, 2022, was $88.1 million and $254.1 million, respectively, compared to $91.8 million and $276.6 million for the corresponding period a year ago. Tobacco-adjusted EBITDA for the three and nine months ended September 30, 2022, was $89.6 million and $256.6 million, respectively, compared to $93.4 million and $278.8 million $9 million for the corresponding periods a year ago. Strategic investment has accelerated Montego's significant volume and market share growth and led to an expected decline in year-over-year income in the first nine months of 2022. However, consistent with previous brand expansions, we fully expect to realize a significant return on our Montego investment as we move forward. As always, our investment decisions are based on thorough, market analysis and adjusted in real time based on market circumstances and opportunities. Related to this, despite an increase in MSA cost per pack from 40 cents in the third quarter of 2021 to 57 cents in the third quarter of 2022, tobacco gross profit for the three months ended September 30th, 2022 declined only slightly to $111 million compared to 111.5 million for the corresponding period a year ago, reflecting a gradual transition of our strategy on Montego's growth from volume to profit based. Nonetheless, the price gap between Montego and the industry's leading premium brand has remained stable throughout the year and currently provides a difference that represents close to a 50% discount in average pack prices at retail. In summary, The operational and financial performance of our tobacco business remains strong. Our historic retail market share gains this quarter validate our long-term profit growth strategy and the competitive advantage we have in the discount segment. Our strategy is underpinned by our broad distribution base, our consumer-focused programs, and the scope and capabilities of our sales force. Most importantly, it builds on our foundation for long-term earnings potential. While we were subject to industry, regulatory, and general market risks, we are confident that we have the strategy and infrastructure in place to keep our business operating efficiently. Thanks for your attention, and back to you, Howard.