Vector Group Ltd.

Please stand by, your program is about to begin. If you should need assistance during your conference today, please press star zero. Welcome to Vector Group Limited's second quarter 2024 earnings conference call. This call is being recorded and simultaneously webcast. An archived version of the webcast will be available on the investor relations section of the company's website located at www.vectorgroupltd.com. 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 has been posted to 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 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 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.

Good morning, and thank you for joining us for Vector Group's second quarter 2024 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 Ligand Vector Brands. I will start the call with an update on our balance sheet and review our consolidated financial results for the second quarter of 2024. 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. As of June 30, 2024, we maintained significant liquidity with cash and cash equivalents of approximately $391 million, including cash of $150 million at Liggett We also held investment securities and long-term investments with a fair market value of approximately $188 million. Turning to Vector's consolidated results for the three months ended June 30, 2024. Vector's revenues for the second quarter of 2024 were $371.9 million, up from $365.7 million in the corresponding 2023 period. Net income increased to $54.2 million, or $0.34 per diluted common share, up from $38.1 million or $0.24 per diluted common share in the 2023 period. Adjusted EBITDA increased to $103.3 million, up from $94.1 million in the 2023 period. Adjusted net income increased to $53.3 million or $0.34 per diluted share, up from $50.8 million or $0.32 per diluted share in the 2023 period. Turning to Vector's consolidated results for the six months ended June 30th, 2024. Revenues for the six months ended June 30th, 2024 were $696.5 million compared to $699.8 million in the corresponding 2023 period. Net income was $89 million or $0.56 per diluted common share up from $72.8 million or $0.46 per diluted common share in the 2023 period. Adjusted EBITDA increased to $186 million, up from $172.2 million in the 2023 period. Adjusted net income was $90.5 million, or $0.57 per diluted share, compared to $84.8 million, or $0.54 per diluted share in the 2023 period. I will now turn the call over to Nick to discuss our tobacco operations. Nick? Thank you, Howard, and good morning.

Liggett delivered strong results in the second quarter and the first half of 2024 as we continue to reap the benefits of our strategic investment in Montego while also delivering substantial income from our other core brands, Eagle Twinsies and Pyramid. Adjusted operating income from the tobacco segment in the second quarter was $103 million, an increase of $9.8 million or 10.5% compared to the prior year period. Liggett's total retail market share remained stable at 5.8% during the second quarter of 2024. At the same time, Montego's national retail market share grew to 4.1%, up from 3.5% in the prior year period. Our portfolio of brands provides for a substantial income base. Eagle 20s and Pyramid offer significant market presence, while Montego enhances our potential for long-term earnings growth. Montego, which is now delivering incremental margin, is demonstrating strong consumer demand. The brand remains the largest discount cigarette brand in the United States and the country's fourth largest brand. Our ability to consistently improve our gross profit margin while maintaining our market share is a result of our diligent market analysis, strategic brand positioning, broad-based distribution, and excellent retail execution. As a result, we are pleased to note that in the second quarter of 2024, Montego's distribution expanded to more than 103,000 stores, up from approximately 89,000 stores in the prior year period. Despite cooling inflation, prices remain elevated and disposable income among many consumers remains under pressure. As a result, the deep discount market segment remains strong and continues to outperform the overall U.S. cigarette market. During the second quarter of 2024, based on Management Science Associates retail data, volumes in the deep discount category increased 5.4% while industry volumes declined 10% compared to the prior year period. The deep discount segment comprised 16.3% of the overall market in the second quarter, up from 13.9% in the same period a year ago, and 15.9% in the first quarter of 2024. This segment continues to present an attractive price option for consumers, and we are confident that our value-focused brand portfolio and nationwide footprint provide Liget with a meaningful competitive advantage as the migration to lower-priced products continues. Liget's second quarter retail shipments declined by 9.6% compared to the same period in 2023, while industry retail shipments declined by 10% according to data from management science associates. While our second quarter retail shipments modestly outperformed the industry, Liggett's wholesale shipments were stronger, declining by 5.1%, while the industry wholesale shipments declined by 10.5%, compared to the same period in 2023. The difference between our retail and wholesale shipment performance reflects the inconsistent nature of short-term wholesaler purchasing patterns. In the second quarter, wholesalers' purchasing patterns were primarily driven by speculations surrounding the timing of manufacturers' price increases and offsetting inventory reductions we faced in the first quarter. As we have noted in the past, we believe that retail shipments are a significantly more reliable indicator of industry volume performance. For the six months ended June 30th, 2024, Liggett's wholesale shipments declined 7.8% compared to 10.1% decline in industry shipments. As a result, Liget's longer-term wholesale market share reflects the same stability as our retail share. I will now turn to the consolidated tobacco financials for Liget Group and Vector Tobacco. For the three months ended June 30th, 2024, revenues increased 1.7% to $371.9 million from 365.7 million in the second quarter of 2023. The increase was the result of a 7.1% increase in pricing, partially offset by a 5.1% decrease in wholesaler shipments during the period. For the six months ended June 30th, 2024, revenues were 696.5 million, a 0.5% decrease from 699.8 million for the corresponding period in 2023. The roughly flat results reflect a 7.8% increase in pricing offset by a similar 7.8% decrease in wholesale shipment volumes. Ligas operating income for the three months ended June 30th, 2024 was 102.9 million compared to 75.1 million in the corresponding 2023 period. This $27.8 million increase in operating income was primarily the result of a lack of an $18 million accrual related to our second quarter settlement last year with the state of Mississippi along with higher gross margins. Liggett's adjusted operating income for three months ended June 30th, 2024 increased 10.5% to $103 million compared to $93.2 million in the corresponding 2023 period. During the same period, our second quarter gross margin equated to 34.2% of revenues, representing an increase of approximately 230 basis points compared to the corresponding 2023 period. Tobacco adjusted EBITDA in the second quarter increased 10.2% to 104.4 million compared to 94.7 million for the corresponding 2023 period. For the six months ended June 30, 2024, tobacco-adjusted EBITDA increased 8.1% to $188.8 million compared to $174.6 million for the corresponding 2023 period. In summary, the operational and financial performance of our tobacco business remains strong, and our stable retail market share and profit growth validate our long-term strategy and ongoing competitive advantages in the discount segments. We are the leader in the only growth segment in the U.S. market and remain committed to providing American consumers with the best value propositions in the industry. With our leadership in the discount segment and proven track record, we are ideally positioned to sustain our momentum and strengthen our foundation for long-term earnings growth. Thanks for your attention, and back to you, Howard.