Q2 2020 Vector Group Ltd Earnings Call

Please continue to hold today's conference will begin momentarily.

Again, thank you for your patience in holding today's conference will begin momentarily.

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Welcome to vector group.

Limited second quarter 2020 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 or 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 gap.

Reconciliations to adjusted operating income adjusted net income.

Adjusted EBITA and tobacco adjusted operating income are contained in the company.

He's which has been posted to the Investor Relations section of the company's website located at Www Dot vector group limited Dot com before the call begins I'd like to read a safe Harbor statement.

The statements made during this conference call that or not.

That's our 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 such forward looking statements.

These risks are described in more detail if it comes only securities and Exchange Commission filings.

Now I'd like to turn the call over to President and Chief Executive Officer, a vector group Mr. Howard Lorber, you may begin sir.

Good morning, and thank you for joining us on vector group's second quarter 2020 earnings conference call.

With me today, or Nick Jansen, the President and Chief operating officer of Liggett vector brands and Bryant Kirkland vector group's Chief Financial Officer.

Ron Bernstein senior advisor to Liggett vector brands will join us during the Q1 day.

Before discussing our second quarter results I would like to acknowledge the social change underway in the United States.

Like many other companies we are operating in the context of important long overdue changes.

Recent events have demonstrated that systemic racism and social justice continue to exist today.

We all have significant work ahead of us as meaningful actions bring meaningful change.

We will hold ourselves accountable and accountability is a priority for our company.

Outdoor second quarter results.

During this call I will first review our consolidated financial results and then discuss Douglas Hellmanns financial performance for the three and six months ended June Thirtyth 2020.

Nick will then summarize the performance of the tobacco business.

I will then provide closing comments afterwards, we will open the call for questions.

As of June Thirtyth, 2020 vector group maintained significant liquidity with cash and cash equivalent so 540 million, including cash of 61 million that Douglas Elliman entered into an 18 million that'll get an investment securities investment partnerships with a fair market value of 137 million.

The cash balances at ligand include 132 million of deferred federal excise tax payments, which will be paid in the third quarter.

During the second quarter, all liquidity increased by 53 million from the issuance of 5 million shares of common stock.

We will be strategic without liquidity and believe the current economic environment will present opportunities for investment yield being above market returns.

Now turning to vector group's operations for the three and six months ended June Thirtyth 2020.

Vector group's revenues for the three months ended June Thirtyth 2020 were 445.8 million compared to 534.8 million ended 2019 period.

I would tobacco tobacco segment reported an increase of 18 million new revenues due to price increases and increased unit volume.

However, our real estate segment reported a significant decline in revenues due to the due to the impact of the cobot 19 pandemic as well as an unusual year over year comparison, because of the acceleration of real estate closings in New York City, and the 2019 second quarter.

This acceleration occurred in anticipation of the Incretion in New York State mansion tax on residential real estate on July one 2019.

Net income attributable to vector group.

For the second quarter of 2020 was 25.8 million or 16 cents per diluted share compared to net income of 39.3 million or 25 cents per diluted common share in the second quarter of 29 team.

The company recorded adjusted EBITDA of 76.5 million compared to 83.5 million in the prior year.

Adjusted net income was 28.7 million or 19 cents per share diluted compared to 43.2 million or 28 cents per diluted share and a 2019 period.

For the six months ended June Thirtyth 2020 vector group's revenues were 900.2 million compared to 959.4 million ended 2019 period.

I would tobacco segment reported an increase of 48.3 million in revenues. This contrasted with the decline in revenues in our real estate segment.

Net income attributed to vector group for the six months ended June Thirtyth, 2020 was 22.5 million or 14 cents per diluted share.

Compared to net income of 50 point 54.3 million or 33 cents per diluted common share for the six months ended June Thirtyth 2019.

The company recorded adjusted EBITDA of 136.7 million compared to 133.2 million in the prior year.

Adjusted net income was 68.6 million or 45 cents per diluted share compared to 56.1 million or 36 cents per diluted share and a 2019 period.

Douglas Elliman results for the three months ended June Thirtyth 2020.

Douglas Elliman reported 132.9 million a revenues and net loss of 5 million, an adjusted EBITDA loss of 1.1 billion.

Compared to 400 and took excuse me compared to 243 million in revenues.

Net income a 15.1 million and adjusted EBITDA of 16 point Sixmillion and the second quarter of 2019.

For the six months ended June Thirtyth 2020, Douglas Elliman reported 298.5 million revenues.

And net loss of 74.1 million on an adjusted EBITDA loss of 8.8 million compared to 404.8 million in revenues net income of 4.7 million, an adjusted EBITDA of 7.7 million in the first six months of 29 team.

Douglas elements net loss for the six months ended June Thirtyth 2020 included pretax noncash impairment charges of 58.3 million I'm pretax restructuring charges of 3 million.

The cold at 19 pandemic continues to have a profound effect on the economy in response to the pandemic state and local governments instituted restrictions on individuals and on the type of business that can operate which directly impacted Douglas elements and others ability to do business in New York and it's all the markets.

As a result in a second quarter of 2020, Douglas Hellmanns revenues and in New York Metropolitan area declined by 52% from the second quarter of 2019.

To address the impact of Coven 19, Douglas Elliman implemented a reduction of personnel by 25% in April 2020, I'd be gone.

Salivating offices and reducing other administrative expenses.

These expense reduction initiatives resulted in a decline in Douglas Elliman second quarter, 2020, operating and administrative expenses by approximately $20 million from the second quarter and 29 team.

Third quarter cash receipts to date have shown improvement from the second quarter in all markets.

We believe the changes implemented at Douglas Elliman will provide long term upside to the stockholders vector group.

Now I will turn the call over to next to discuss dark tobacco business Nick.

Thank you Howard and good morning, everyone.

As Howard mentioned Liggett performed exceptionally well in the second quarter to flat. Despite the continued impact on the economy from the code at 19 pandemic.

Year over year volume and market share increased during the second quarter contributing to a 14 and a half a cent increase in tobacco adjusted operating income.

As I mentioned during previous earnings cool, we make various adjustments during the first quarter to address the health and safety of all our employees and those with and we do business.

These changes will remain in place throughout the second quota I'm pleased to report on tobacco business operations remain largely unaffected by the pandemic.

As a pandemic unfolded in March there was some anticipatory wholesale retail and consumer buying related to Ali concerns of the ongoing availability of cigarettes.

Those concerns proved to be I'm found it we continue to ship product as usual throughout the second quarter.

In tight supply chain has upgraded normally to this point and importantly, our underlying year over year retail sales trends are strong.

As noted on previous calls we are well into the income growth phase of our Eagle Twenty's business strategy and I'm very pleased with the results we have achieved so far.

We began increasing prices on Eagle Twentys in late 2018 in a growing volume Sham profit since then.

Our market programs and promotions and prudent successful and we remain optimistic about Eagle Twentys continued growth going forward.

I'll now turn to the combined tobacco financial was the Liggett group and vector tobacco.

Well the three and six months ended June Thirtyth 2020, Liggett revenues were 312.5 million and 599.6 million, respectively, compared to 294.5 million and 551.3 million fill the corresponding 2019 periods.

[noise] tobacco operating income for the three and six months ended June Thirtyth 2020 were 79.3 million in 148.5 million, respectively, compared to 68.7 million and 128.8 million respectively.

Tobacco adjusted operating income for the three and six months ended June Thirtyth 2020 was 79.4 million I'm 148.5 million, respectively, compared to 69.3 million I know hundred 29.5 million for the corresponding periods a year ago.

Like its high year over year on things resulted primarily from increased unit volumes and find that pricing.

According to management Science associates overall industry wholesale shipments for the second quarter were down 4.5%, well liggett's wholesale shipments increased 1% versus the prior year quarter.

As we regularly note we believe retail shipments are better indicator of industry trends than wholesale shipments as various actions by manufacturers and wholesalers can impact trade volumes.

These effects I typically less pronounced with retail shipments.

For the second quarter.

I guess retail shipments increased 0.2% over the prior year quarter, well industry retail shipments decreased 2.2% during the same period.

I guess retail share for the second quarter increased 11 basis point is to 4.3%.

[noise] Eagle Twentys retail volume for the second quarter grew by nearly 7% compared to the prior year period and the remaining the third largest discount brand in the U.S.

Eagle Twentys is now sold in approximately 78000 stores nationwide and its growth continues to provide an effective volume of profit complement to permit and other liggett brands.

Despite managed and anticipated volume declines we remain pleased with the performance of pyramid.

The brand continues to deliver substantial profit and market presents to the company has strong distribution is currently sold and approximately 100000 stores nationwide.

Well, our second quarter 2020 results had limited impact in small with deep discount focused companies. This market segment remains the industry's most active.

Various small companies great pricing pressure they seek to undercut the market in targeted geographies.

Ligands marketplaces bona just relative to these companies, including the board base of <unk> distribution.

Consumer focused promotional programs and the executional capabilities and loss Salesforce.

We're very pleased with our second quarter 2020 performance, particularly in light of the current macro economic environment.

Our results can indeed continue to validate a market strategy and that's where you look ahead, we remain focused on generating operating income from the strong sales and distribution base of pyramid, well deliver brain volume Sham profit growth from Eagle Twentys.

As mentioned Dahlia, we've implemented workplace protocols, the meet or exceed state and federal guidelines, including employee health, the valuations and social distancing.

We had in place protocols for rapid mitigation of any issues that may arise in connection with Coke in 19, how confident we are well equipped to manage contingencies.

Finally, well, we always subject to industry in general market risks, we remain confident that we have affected programs to keep up business operating efficiently, while supporting market share and profit growth.

Thanks for your attention and back to you out.

Thank you Nick.

Vector group has strong cash reserves has consistently increased its tobacco unit volume and profits and it's taken a necessary steps to position, it's real estate business for future success.

We're pleased with our long standing history are paying a quarterly cash dividend. It remains an important component of our capital allocation strategy.

While we continue to evaluate our dividend policy each quarter. It is our expectation that a policy will continue well into the future.

Now operator, please open the call for questions.

Thank you.

Ladies and gentlemen.

At this time, we will open up the floor for questions. If you will like the ASCII question. Please press the star key followed by them one key on you touched on phone now.

Questions will be taken in the ordinary in which they are received.

If at any time, you will like to remove yourself from the question in queue Press Star to again to asking question. Please press star one now.

Our first question comes from E N casino with Oppenheimer.

Hi, Great I'm very much a very good results here that really.

You know question will be on the Douglas Elliman site almost breakeven, they're very good maybe walk us through.

Cost initiatives you take in whereas in your biggest sources of cost savings and how do we think about the profitability of the business going forward I'm sick or do you think you'll move back into lack in that business.

And that's saying Lucky I guess on that thanks.

Sure well, obviously once we had the shutdown in New York City, We took would we consider something drastic movements, which was to basically Uh huh for a low for a low employees terminate some employees a and then.

Also had a salary reductions.

On remaining employees based on that level of compensation.

We have now started to return or some of those cuts.

And we will continue as soon as long as business continues to weigh improve.

The what you're seeing I think really in the numbers up at the small losses is based on the fact that you know business.

HM had picked up a little bit but more it was really the fact of the <unk> of the cuts and overhead.

Really pretty much as soon as simple as that.

Well, we have to hope is that the markets continued to improve I mentioned in July you know started off up a pretty good started off at the third quarter a remains to be seen what happened.

For the rest of the quarter because were generally you know August slow month. So we will see but I think that basically whats you know what the cost the cost changes that were made in the business and the consolidation of offices was also Dod and.

I think that we're in a good position a assuming the market helps us a little bit a you know you need you need to have volume you need to have a buyers and sellers.

And lots of times, you know when things like this happened you have a lot of sellers, but they're not too many buyers and that's where we were hopefully that's going to change its people come back into the market with a low interest at a low interest environment for mortgage is really helps.

So I think a you know I think the future looks good.

Not every market will.

Performed the same.

You know right now, Florida, California are doing very well smaller markets like aspin, a which are vacation market, usually but there's a lot of business going on there.

So Ah we hope to continue those and hopefully see your return to better days in a in New York City market.

Okay. Thanks, and you know that may be building on that kind of question again on I mean, your city side and you think about like your real estate investment portfolio.

You know what do you think of valuations here, maybe also what do you thinking about [noise].

Yes, you're still long term perspective, yeah prospects of New York City in particular.

You know given you have a lot more work from home social unrest, there's a lot kind of going on in New York City right. Now how are you thinking about that in and also by 90, selling what sort of you thinking there. Thanks.

Well well as it relates to the Douglas Elliman real estate that we that where you are tenants and for our Salesforce and administrative force. Obviously every company here in New York City has too much real estate today.

The brokers have just started coming back to the office, but no. We yeah, it's nowhere near where they you know the amount of more coming in yet its a very small amount that are coming in so we're looking very carefully and you know our plan is to reduce office space, where we can as leases come up we're pretty much inclined not to renew any leases.

And you know try to consolidate but you know we have some longer term leases that we'll have to worry you know deal with <unk> as as we go forward.

As it relates to the investment portfolio.

We constantly look at it then we constantly have Oh I'm, taking write downs on some of our investments. So when it's appropriate to BK would you like to make a comment on it.

Sure.

During the quarter as far as the investment portfolio, we did have not distributions of $2 million and the majority of those distributions came from a property in Florida 80, So park at 5.2 [noise].

Yes.

Well, we've made great progress we've written down we've written down other assets are ready in prior quarters correct. That's right yeah that even following it yeah.

Yeah, we follow you okay great.

Thank you.

Thank you.

Well take our next question from Karru.

Martinson Jefferies.

Good morning, terribly sorry, the you were going down a little quicker I missed the cash balances liquidities at the start of the call if I could get that again that'd be great.

Sure let me just find it.

[noise] [noise] Howard I, but okay got it because what you're doing yes, I've got cat cover odd cashing cash equivalents was 540 million that included cash of 61 million to Douglas Elliman at 218 million legacy.

In addition to that we had about spots securities and investment partnership interest with a fair value up approximately 137 million.

And grew and the cash balances it includes.

Like it includes 132 million of deferred federal excise tax payments, which will be paid in the third <unk>.

Okay.

Thank you very much in terms of their real estate are we're certainly seeing the city down but are we seeing a commensurate picked up and the the suburbs and in the broader Metro area. That's folks look for houses abroad.

And what can that do potentially to help alleviate some of the pain that we're feeling in the urban centers <unk> well as as I said and answering their prior question. It is definitely a you know helping us South Florida market is very strong surprisingly enough even with the cold <unk> the 19 problems.

The having in South, Florida on Florida in general, but mostly South Florida.

It is still the market is still the you know quite strong there, especially for single family homes and that seems to be continuing California. The numbers are looking better lot of activity also in a state which has as you know were high called at 19 problems.

So there's other things going on you know that that's encouraging people to buy in these markets and you know it's it's you know it's I I think New York City, you sort of different on new York's different from it there are people that are going to the suburbs from in New York City to you know long island to West Chester Weve seen a pickup.

Up and you know Westchester on long island so.

The Hamptons had a very busy season, so far I'm.

Percentage wise way up, but having said that yes small it's a small market. So it doesn't mean that much in the overall numbers that you definitely see that going on.

Okay, and then it through the quarter as consumers were able to get out of the house.

On driving you see a volume picked up kind of sequentially in tobacco sales and have that carried over as a consumer has become more mobile.

[noise] Hey, good morning.

Yeah, I mean honestly they obviously the industry has a has performed very well yeah. The day compared to last year on a on a retail basis. The a the industry is a is down only about 1.3% a euro yeah.

Obviously, we're seeing the effects of ER and changing consumption Patton more people walking from home in a an UN stimulated economy with or whether it was smokers, having more disposable income. It was it was a it was a very very strong quarter I think that the outlook for the for the back half of this year, though is.

Is a little bit more uncertain, we built a.

Packs with respect to the federal unemployment supplemental checks and Inger will that's likely a richie. So we're we're anticipating that the industry volume in the in the back half the year likely to come under more pressure, but.

With a with those economic pressures a will likely to see kind of a resumption of a of downtrading to the discount segment. So even though there's a we anticipate being more pressure on the industry as a whole a we believe that we're well positioned in the marketplace to to take advantage of that.

Okay, and then just from a a broader question on tobacco you you've had a very successful introduction and growth of Eagle Twenty's impairment now into a profit mode. You know what is the lifecycle in terms of introducing new new brands and and how do you look at the portfolio in terms of the net.

You know three or four years do we see another brand introduction or or how should we think about this going forward.

Sure well as you know we don't we certainly don't give guidance as to Oh planning profit process, but we're obviously always looking we're always looking at opportunities in the in the marketplace and Ah you know these <unk>. These are suddenly unprecedented times, we're living in the list that there's a lot of uncertainty but above.

Same time, no sometimes those conditions present opportunities and <unk> and we'll certainly take advantage of that a if it makes sense I'm going back historically or we launched a we launched pyramid and in 2009 Eagle Twentys in a in 2030.

I mean, I, but we look at the marketplace doesn't <unk>, there's no auto false rules as to the when we were potentially introduce will reintroduce. So another one of our existing brands. So we're watching the marketplace are carefully and Ah you know, we'll we'll take advantage of opportunities or if they come available.

Thank you very much guys appreciate it.

Thank you.

We'll take our next question from Hell Holden of Barclays.

Oh, Thanks for taking the call I had a couple of quick ones right have you guys or email or <unk>.

Decided what she will do with the federal tax exercise tax payments back to look at or near Mark that liquidity for something.

I look at will pay them into third quarter.

Got it.

The Atlanta.

Yes issued.

Just to clarify the IRS issued guidance in March, which deferred second quarter excise taxes until the third quarter like gets obligated to pay dose and the third quarter.

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What is the number they're paying the third we're sorry.

132 million unlimited had cash at the ended the second quarter 218.

I got to understood.

And then Howard and New Valley, you know you've talked for a couple of years here about waiting for it down cycle to potentially invest more or look for opportunities is is this the down cycle or was it. She wants her well. This is surely the down circle in certain markets [laughter] for sure and a you know the question is you know.

How far down is it going to go and it's a little early in my opinion you know when you look at most of you asset classes that we would look at you know is like hotels for instance, which you know are way down. The problem is most of them are closed and so.

<unk>, you're buying when a close not knowing how long.

This a pandemic.

There's going to continue.

So with <unk>. We are you know always looking at opportunities we're always interested.

But were also a funding a couple of <unk> a couple of for instance, we have two hotels both of which are closed which we expect to open ones in New York City ones in a West Hollywood, California, and these hotels, where we're actually very strong in operations and that we're doing very well both of them.

So we're feeding them a little bit of money right now I'm, just I'm getting ready to a you know reopened west Hollywood I think September were hoping and a the city or probably around the same time so.

Right now where it where you know were Ah supporting some of the assets, we have that need to be supported.

And yeah, you're we have lots of you know phone calls and lots of conversations about the new opportunities, but nothing that Oh, we feel we're gonna be doing right away.

Great. Thank you.

My last question on Liggett.

We've been talking an increase in miles driven but gas prices a little bit higher and then.

The stimulus check for the 611 point it may or May not continue.

And I heard your comments on the back half volume potentially being down that maybe to trade down from a big brands the value.

Yes.

I guess, how are you guys thinking about where where volumes could go into second half or and or like how much risk.

You get you haven't not kind of environment.

Well I think it's a you know we don't have a we're going to have a halt and false number I mean, obviously these are these are unprecedented and uncertain times I I think obviously, we've been operating in a in the stimulated a comedy calling me for the Oh for the second quarter and undoubtedly those Ah if those federal.

Unemployment checks go away the average smoke or is a is gonna be on the under pressure, but again you know we.

We believe based on that we'll we'll likely see some some additional downtrading.

No for the the for the.

Second quarter, I actually sequentially second quarter over the over the first quarter or the industry segments were Ah were relatively stable in that there wasn't a significant movement to a discount but we we believe when that we believe in the back half of the error those there's economic pressures.

Continue a we'd like me to see that that Downtrading continue and a again, we feel based on Oh brands position in the marketplace.

Al I'll focus on value, where we're well positioned to take advantage of that.

Great. Thank you so much I appreciate it.

Okay.

Ladies and gentlemen.

Those are all the questions that we have four today.

Thank you for joining us on vectors group earnings Conference call.

Well conclude our call on behalf of.

All of US Investor Group, Liggett, and Douglas Elliman, we hope that everyone remains healthy and well.

Thank you for your participation and you may now disconnect.

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