Vector Group Ltd.

Welcome to Vector Group LTD's fourth quarter 2022 earnings conference call. This call is being recorded and simultaneously webcast. An archived version of the webcast will be available at the investor relations section on the company's website located at www.vectorgroupltd.com for one year.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 operations 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. on adjusted operating income from continuing operations, adjusted net income from continuing operations, adjusted EBITDA from continuing operations, and tobacco adjusted operating income are contained in the company's earning 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 are not historical facts, are forward-looking statements that are subject to risk and uncertainties and could cause actual results to differ materially from those set forth in or applied by forward-looking statements. These risks are described in more detail on the company's Securities and Exchange Commission filings. Now I would like to turn the call over to the President and Chief Executive Officer of Vector Group, Howard Lorber. Please go ahead.

Good morning, and thank you for joining us for Vector Group's fourth quarter 2022 earnings conference call. With me today are Brian Kirkland, our Chief Financial Officer, and Nick Anson, President and Chief Operating Officer of Liggett Vector Brands. I will begin by reviewing Vector Group's consolidated financial results for the fourth quarter of 2022. Then I will ask Nick to summarize the performance of our tobacco business. I will close with final 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 December 31st, 2022, we maintained significant liquidity with cash and cash equivalents of approximately $225 million, including cash of $10 million at Liggett. We also held investment securities and long-term investments with a fair value of approximately $161 million. Turning to Vector Group's consolidated results from operations for the three months ended December 31st, 2022, Vector Group's revenues for the quarter were $363.8 million compared to $313.7 million in 2021. Net income attributed to Vector Group was $48.2 million or 30 cents per diluted share compared to $45.3 million or $0.29 per diluted common share in 2021. Net income attributed to Vector Group from continuing operations was $48.2 million or $0.30 per diluted common share, compared to $30.7 million or $0.20 per diluted common share in 2021. The company recorded adjusted EBITDA from continuing operations of $92.7 million compared to $84.3 million in 2021. Adjusting that income from continuing operations was $48.9 million, or $0.31 per diluted share, compared to $41.4 million, or $0.26 per diluted share in 2021. Next, Vector Group's consolidated results from operations for the year ended December 31, 2022. Vector Group's revenues for the year were $1.44 billion, compared to $1.22 billion in 2021. Net income attributed to Vector Group was $158.7 million, or $1.01 per diluted common share, compared to $219.5 million, or $1.40, diluted common share in 2021. Net income attributed to Vector Group from continuing operations was $158.7 million, or $0.01 per diluted common share, compared to $147.2 million, or 94 cents per diluted common share in 2021. The company recorded adjusted EBITDA from continuing operations of 352.2 million compared to 349.9 million in 2021. Adjusted net income from continuing operations was 153.4 million, or 97 cents per diluted share compared to $174.8 million, or $1.12, per diluted share in 2021. I will now turn it over to Nick to discuss our tobacco operations.

Nick? Thank you, Howard, and good morning. Liggett's performance remained strong during the fourth quarter of 2022 as we continued to capitalize on favorable marketplace opportunities and began to recognize the benefits of our investment in the Montego brand. Liggett's fourth quarter wholesale shipments increased by more than 15% and operating income increased by approximately 11% as we continued the transition of our Montego brand from volume growth to income growth. According to data from Management Science Associates, Liggett's retail shipments for the three months ended December 31, 2022, increased by 19.5% from the fourth quarter of 2021 driven by the significant growth of our Montego brand. Meanwhile, industry retail shipments declined by 9.3%. Liggett's fourth quarter retail market share increased to 5.8% up from 4.4% in the prior year period. This represents Liggett's largest market share since 1984 when we originally disrupted the tobacco industry by introducing discount cigarettes to the market. Our expertise in the discount category continues to be a core competency. Following a competitor's exit from the U.S. market in December 2021, we quickly capitalized on the opportunity and captured a significant portion of that competitor's 3% market share. In 2022, we converted more than 40% of that competitor's vacated business to Montego volume by leveraging our broad distribution base and strong retail sales execution. We believe our conversion percentage is the highest in the market and approximately twice as much as the next competitor. In addition, Liggett is the only major U.S. cigarette company to have increased unit volumes in the 10-year period ended December 31, 2022, a remarkable achievement given that industry volumes declined by approximately 34% during this period. Our long-term performance demonstrates the success of Liggett's mission to offer the best value propositions in the U.S. cigarette industry, and this strategy is proving particularly effective as more consumers shift to the discount segment as a result of current economic environment. According to Management Science Associates retail data for the three months ended December 31, 2022, the discount category represented 28.9% of the total market compared to 27.4% in 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 fourth quarter of 2022, we estimate that the deep discount segment comprised 45% of the total discount category compared to 39% in the same period a year ago. We expect this migration to continue as the deep discount segment presents a more attractive price option for consumers. As such, we are confident that our value-focused brand portfolio, broad national distribution, and extensive experience in developing profitable discount brands provides Liget with a competitive advantage to meet shifting market demand. Montego, which became our largest brand in 2022, has also grown to become the second largest discount brand and fifth largest cigarette brand in the U.S. Our distribution of Montego expanded to 77,000 stores in the fourth quarter of 2022 compared to 50,000 stores in the fourth quarter of 2021. The brand's national retail market share increased to 3.2% in the final quarter of 2022, up from 2.8% in the third quarter of 2022, and from 1% in the fourth quarter of 2021. We estimate that Montego's share of the deep discount segment in the fourth quarter was approximately 24%, a significant expansion from its deep discount share of 10% in the prior year period. 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 and Pyramid continue to deliver substantial income while also providing significant market presence. I will now turn to the combined tobacco financials for Liquor Group and Vector Tobacco. For the three months and year ended December 31st, 2022, revenues increased 18.6% to $363.8 million and 18.5% to a record of $1.43 billion, respectively, compared to $306.6 million and $1.2 billion in the respective 2021 periods. Tobacco operating income for the three months and year ended December 31st, 2022 was 93 million and 347 million respectively, compared to 83.8 million and 360.3 million in the respective 2021 periods. Tobacco adjusted EBITDA for the three months and year ended December 31st, 2022 were 94.5 million and 351.1 million respectively, compared to 85.5 million and 364.4 million in the respective 2021 periods. In the fourth quarter, we continue to see the benefits of our strategic investment in Montego, and this was reflected in our increased operating income as well as tobacco gross profit, which increased 10.5% from $105.2 million in the prior year period to $116.2 million in the fourth quarter of 2022. These high profits occurred as the current price gap between Montego and the industry's leading premium brand remained stable at approximately a 50% discount at retail. Consistent with previous brand expansions over the last 20 years, we 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. this flexible investment approach remains our foundation for long-term earnings potential. In summary, the operational and financial performance of our tobacco business remains strong, and our historic retail market share gains validate our long-term profit growth strategy and the competitive advantage we have in the discount segment. Our strategy is underpinned by a broad distribution base, effective consumer-focused programs, and the scope and capabilities of our Salesforce. Most importantly, it builds on our foundation for long-term earnings potential. While we are always subject to industry, regulatory, and general market risk, we are confident we have the strategy and infrastructure in place to keep our business operating efficiently. Thanks for your attention, and back to you, Howard.