Q4 2020 Vector Group Ltd Earnings Call
Yes.
[music].
Welcome to vector group limited fourth quarter, 'twenty 'twenty earnings Conference call.
During this call the terms adjusted operating income adjusted net income adjusted EBITDA.
Yes.
Tobacco adjusted operating income will be used these terms on 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 have been posted to the Investor Relations section of the company's website located at Www Dot vector group L. T D dotcom.
Before the call begins 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.
Ascribed in more detail in the company's security and Exchange Commission filings.
Now I would like to turn the call over to President and Chief Executive Officer of vector Group Howard Lorber.
Yeah.
Good morning, and thank you for joining us on our fourth quarter 2020 earnings conference call.
Me today are Nick Anson, President and Chief operating officer vector brands, and Brian Kirkland vector group's Chief Financial Officer.
Ron Bernstein senior advisor to Liggett vector brands will join us during Q&A.
I'm also pleased that Dick lapping a longtime executive Vice President who was recently appointed Chief operating officer on a member of our board of directors, who are joining us on the call.
Thanks brought executive experience and deep operational understanding of the company from serving in a variety of senior leadership roles for vector group and its affiliates since 1995 make him a valuable addition to our board and a natural fit to D. C L.
Additionally, Dick's experience as CEO of Ladenburg Thalmann financial services and vast knowledge of the ways that technology can benefit brokerage business will be valuable for Douglas Elliman as it continues to enhance the technology based on experience reputations.
It will also be helpful on identifying potential synergies leading to further reductions and Douglas elements operating expenses.
During this call I will first review our consolidated financial results and then discuss Douglas elements financial performance for the three months and year ended December 31 2020.
Nick will then summarize the performance of the tobacco business.
I will then provide closing comments and afterwards, we will open the call for questions.
As of December 31, 2020 vector group maintained significant liquidity with cash and cash equivalents of 353 million, including cash of $94 million at Douglas Elliman, and 45 million net liggett and investment Securities and investment partnership interest with a fair market value of 188.
Million.
Additionally, in the first quarter of 'twenty 'twenty, one we took advantage of favorable capital markets and issued 875 million or $5 75 per cent senior secured notes due 2029.
All proceeds were used to retire older notes.
Now turning to vector group's operational and financial results.
For the three months ended December 31, 2000, Twenty's vector group.
Vector group's revenues were 550 for a point $6 million compared to $439 6 million in the 2019 period.
The $115 million increase in revenues was a result of an increase of $25 7 million in the tobacco segment and $89 3 million in every other segment.
Net income attributed to vector group was $32 3 million or 21 cents per diluted common share compared to $10 7 million or six cents per diluted common share in the fourth quarter of 2019.
The company recorded adjusted EBITDA of $93 4 million compared to $52 5 million in the prior year.
As we will discuss later, we continue to be pleased with link its execution of its still grand strategy as well as Douglas other means resilience and rebound in the second half of 'twenty 'twenty.
Adjusted net income was $32 6 million or 21 cents per diluted share compared to $17 8 million or 11 cents per diluted share in the 2019 period.
For the year ended December 31, 'twenty 'twenty vector group's revenues were 2 billion compared to 1.9 billion in the 2019 period.
Net income attributed to vector group was $92 9 million or 60 cents per diluted common share compared to $101 million or 63 cents per diluted common share for the year ended December 31 2019.
The company recorded adjusted EBITDA of $333 4 million compared to $259 4 million in the prior year.
Adjusted net income was $139 5 million or <unk> 91 cents per diluted share compared to 110 point 11 million or 70 cents per diluted share in the 2019 period.
Now turning to Douglas Elliman.
Before we review the results I'd like to recognize the resilience of the Douglas Elliman team of 6700 day agents and 750 employees and addressing the challenges of 2020.
We have long believed our team sets us apart from other residential real estate brokerage firms.
And we went for it was recently recognized Douglas Elliman, and it's 2021 list of America's Best large employers we were humbled.
This recognition is a testament to the hard work and resiliency of the Douglas Elliman family.
We congratulate the Douglas Elliman team finished well earned and deserved recognition.
Now it's at Douglas Elliman as financial results.
For the three months ended December 31st Twenty-twenty Douglas Elliman reported $267 5 million in revenues net income of $14 million on an adjusted EBITDA of $16 7 million.
Compared to $178 1 million in revenues, a net loss of 432000, and adjusted EBITDA loss of $5 7 million in the fourth quarter of 2019.
For the year ended December 31, 2020, Douglas on many reported $774 million in revenues and net loss of $48 2 million on adjusted EBITDA of $22 1 million compared to $784 1 million in revenues net income of $6 2 million on adjusted EBITDA.
A $5 3 million in 2019.
Douglas Elliman has net loss for the year ended December 31, 21 included pre tax charges.
For non cash impairments of $58 3 million as well as restructuring charges and related asset write offs for $6 million.
In the fourth quarter of 2020, Douglas Elliman as revenues increased by 50% from the fourth quarter of 2019 as it's closed sales continued to improve in all markets complementary day, New York City, including the Hamptons Palm Beach, Miami Aspen in Los Angeles on.
New York City business began to stabilize in the fourth quarter and we are well positioned in New York City.
Furthermore, Douglas elements expense reduction initiatives continued in the fourth quarter and its fourth quarter 2020, operating and administrative expenses, excluding restructuring and asset impairment charges declined by approximately $7 9 million compared for the fourth quarter on a 29 19 and $47 7 million.
Compared to the year ended December 31 2019.
We believe these initiatives have and will continue to provide long term upside for vector group stockholders.
In addition, when compared to the first quarter of 'twenty 'twenty first quarter 2021 cash receipts have continued to strengthen from 'twenty 'twenty levels in all regions, except New York City.
Now I'll turn the current call over to Nick to discuss our tobacco business Nick.
Yeah.
Thank you Howard and good morning, everyone.
'twenty 'twenty proved to be an extraordinary and challenging year for all tobacco operations I'm very proud on our response to that challenge on.
Our employees remain resilient throughout and stay focused on the task at hand.
They also embrace the tremendous team spirit and I believe all excellent performance throughout this difficult year reflects that effort.
During the fourth quarter like it continued.
Strong year to day performance with revenue increases and margin growth contributing to a 33 per cent increase in tobacco adjusted operating income.
As noted on previous calls.
We are well into the income growth phase on for Eagle Twenty's business strategy and remain very pleased with the results on.
On market specific retail programs have proven successful and we remain optimistic about eagle twenty's, increasing profit contributions and longtime on potential.
Our results also reflect the resilience and strong distribution of pyramid, which continues to deliver substantial profit and market presence to the company.
I will now turn to the combined tobacco financials for Liggett group and back to tobacco.
Yeah.
For the three months and year ended December 31, 2020 revenues were $286 1 million on $1 2 billion, respectively compared to $263 million on $1. One 1 billion for the corresponding 2019 periods.
Tobacco adjusted operating income for the three months and year ended December 31, 2020 was $18 million and $320 2 million, respectively, compared to $60 1 million and $262 6 million for the corresponding periods a year ago.
Legacy increase in fourth quarter earnings was the result of higher gross profit margins associated with increased volumes higher net pricing and lower per unit Master settlement agreement expense.
The lower per unit MSA expense reflects stronger U S industry cigarette volumes in 2020, which has increased the value of on market share exemption under the MSA.
Flint similar to some other consumer product categories cigarette industry volumes outperformed recent historical trends and benefited from increased consumer demand related to changes in underlying cigarette purchasing and consumption patterns associated with the pandemic.
Wholesale inventory levels remained elevated throughout the fourth quarter as a result of the prospect of increased restrictions and lockdowns associated with COVID-19, and the timing of industry price increases. However, we anticipate a normalization of wholesale inventory levels over the course on the first quarter.
According to management Science associates overall industry wholesale shipments for the fourth quarter increased by three 4%, while liggett's wholesale shipments increased by $2 one per cent compared to the fourth quarter in 2019.
For the fourth quarter Liggett's retail shipments declined 3% from 2019, while industry retail shipments increased 6% during the same period.
Liggett's retail share in the fourth quarter declined slightly to $4 two 1% from for two five per cent in the same period last year.
The modest decline in legacy fourth quarter year over year retail share was anticipated as Eagle Twenty's volume growth slowed due to increased net pricing.
This is consistent with our income growth strategy for the brand, which began in the second half of 2018.
Eagle Twenty's is now price in the upper tier of the U S deep discount segment.
Eagle Twenty's retail volume for the fourth quarter of 2020 was essentially flat compared to the prior year period.
It remains the third largest discount brand in the U S. And is currently sold in approximately 84000 stores nationwide.
The continued strength of Eagle Twenty's. Despite increased pricing also reinforces the effectiveness of our long term strategy to continue to build volume and margin for our business using well positioned discount brands that provides value to adult smokers.
With that in mind and after identifying volume growth opportunities in the U S. Deep discount segment in August we expanded the distribution of our Montego brand to an additional 10 states primarily in the southeast.
Prior to August on Tico are sold in targeted markets and for states.
Montego is competitively priced and the growing deep discount segment, and we plan to take a measured approach with further expansion.
On Pico represented eight 6% of liquids volume for the fourth quarter of 2020, and six 3% of legacy volume for the year ended December 31 2020.
To date, we remain very pleased with the initial response to Montego now sold in approximately 24 25000 stores, representing a 50% increase from the end of the third quarter.
In summary, we are very pleased with our 2020 performance, particularly considering the current macroeconomic environment.
Our results continue to validate our market strategy and reflect on our competitive advantages within the deep discount segment, including a broad base of distribution consumer focused programs and the execution capabilities of our sales force.
As we look ahead, we remain focused on generating incremental operating income from the strong sales and distribution base base of both pyramid and Eagle Twenty's.
Finally, while we always subject to industry and general market risks, we remain confident we have effective programs to keep our business operating efficiently while supporting market share on profit growth.
Thanks for your attention on back to you Howard.
Thank you Nick.
Vector group had strong cash reserves has consistently increased its tobacco market share.
Profits and has taken the necessary steps to position us for real estate business for future success.
We are pleased with our long standing history of paying a quarterly cash dividend. It remains an important component of our capital allocation strategy.
While we all continue to evaluate our dividend policy each quarter. It is our expectation that our policy will continue well into the future now.
And now operator, please open the call for questions.
Thank you Sir if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Ken Please press star one to ask a question.
We'll pause for just a moment to allow everyone the opportunity to signal for questions.
Thank you our first question will come from <unk> Martinson with Jefferies.
Good morning.
To start with current would do the housekeeping of the cash balances again didn't get quite everything there.
On <unk>, you want to handle that.
Hello, Good morning, how are you doing all right.
Good so cash and cash equivalents on on consolidated basis was 353 million and that included cash of $94 million at Douglas Elliman, and 45 million at Liggett.
And then there were an additional investment securities and investment partnership interest with a fair market value of 188 million.
<unk>.
Thank you very much.
I'm just curious.
In terms of the property E. Colorado is there any update in terms of how that lawsuit is.
For seating and then also what have you seen as a result of that our proposition going into effect in that market.
Sure on our equity.
Yeah, absolutely Howard.
Look simple it.
Bottom line, we're continuing with our litigation efforts.
On the state of Colorado.
We believe that legislation property is both.
Uncompetitive on unconstitutional and hopefully the courts will ultimately agree with that unfortunately.
We want successful in getting a preliminary injunction.
But we're continuing to move forward with our legal efforts and and hopefully get that.
Overturned.
Obviously very early days in the in the marketplace and we've certainly seen in the first couple of weeks.
Softness.
And the industry in general.
But.
Overall, where we're holding our own in a in a difficult situation.
So.
You know again, continuing with all our litigation efforts, but we're feeling good about where we are in the marketplace at the moment.
Yeah, Let me just add this is Ron I E.
We have over a long period of time.
Focused our business on making on.
On an analysis on adjustment in the marketplace and while this creates a challenge.
The challenge that we have prepared for.
And anticipate that we will as Nick said hold on our own during this.
Totally hopefully get a successful resolution with the lawsuit.
Yeah.
Thank you. Our next question comes from Gaurav Jain with Barclays.
Yes, hi, good morning, I have a few.
Few questions. So one is just on the and three volume outlook. So clearly last year was very strong and I believe at the end of the EBITDA was inventory loading as well so when we look out.
Actual volumes for next year, how should we think about that.
Yes. So obviously, we don't we don't talk about specifics with respect to our outlet but.
Youre right I mean, obviously last year was an extraordinary year for the cigarette industry here in the U S.
Retail volumes were essentially flat year over year wholesale shipments actually increased by about one on a half per cent compared to.
Last year on deadly those those strong numbers are a result of the circumstances around the COVID-19 pandemic.
We have more people working from home with less smoking restrictions and we're obviously operating in.
Highly stimulated economy with the for the majority of the year with smokers, having having more disposable income.
So despite that and despite the kind of the broader macroeconomic environment youre right the cigarette industry outperformed expectations last year.
We believe the outlook for this year is obviously a lot more uncertain.
A large number of different variables in play that could have a significant impact on the overall cigarette market. This year, obviously, how the pandemic materializes.
Over the course of this year, we will have a big impact on on how the overall economy performs.
Sure.
<unk> got at the moment people continuing to work from home, but that May change later in the year as the economy starts to open up and on offices start to open up.
You've got stimulus bills being proposed but probably not at the levels that we saw last year.
And then you've got significant questions as it relates to potential.
E or F E <unk>.
Increases so just a lot of uncertainty out there in the marketplace at the moment, but I think it's likely that the industry will certainly come under more pressure.
This year than we saw last year.
That being the case, we still think we're well positioned in the marketplace in the deep discount to <unk>.
Advantage of what opportunities present themselves.
Thank you for that.
Derek carbon free.
Yeah.
With that background for margins expanded quite significantly last year and tobacco business.
Is that part of a high watermark for non RVO margins could expand from even this number.
On day one.
Look again.
I'm going to go into specifics or forecast, but certainly we are we took advantage of of industry pricing last year as we always do we win.
When the industry takes pricing, we look very carefully specific to our brands.
And see what we can take and spend back where appropriate and last year. Obviously, we saw the industry take significant pricing.
Three price increases over over $3 a carton.
No.
No doubt I think we're going to continue to see that elevated manufacturer pricing this year, but will again as we always do we'll we'll look at the marketplace.
See how it affects our brands.
And then make the decision to realize that pricing is necessary.
Just just to add what I would tell you is that is that the way that we view 2020 is as established new foundation for for Liggett's profit and growth.
The intention is to build off of that.
And the diversity that we have with an E.
And the discount segment and the deep discount segment, specifically gives us a tremendous advantage within the marketplace against smaller companies as well as against the larger companies that are completely focused on premium sales. So so the sense is that that linkage is really well positioned to to build.
The offer of what we did in 2020 and continue beyond that.
Thank you. Our next question comes from Hale Holden with Barclays.
Hi, good morning, Thanks for taking the call.
Two questions.
The first one is.
On Oh, Nick on that.
On the performance I was wondering if there are any differences between geographies that were more open versus sort of left open.
So as folks migrate back to work if your team.
Yes, there was a way for this is currently any fall off or if you are holding gains.
And on the second question is Howard you mentioned that New York had stabilized and I was wondering if you could just talk us through some of the upside leverage.
So it could be possible on 'twenty one.
New York City sales.
It starts to take off for day.
Yeah.
That first before I turn it over to Nick.
Yes, it's definitely stabilized, we're still running a little lower and comps compared to the prior year.
But.
Single digit type.
Of decreases, but we've seen a lot I mean on last week was very busy in New York a lot of contracts a lot of volume.
All over the marketplace. So it's definitely definitely picked up.
Where I believe for New York City, it's going to come back it always does.
So I E.
Bullish on our position, we really have a good position.
We have managed during this time to recruit some new people for the company to new substantial brokers. So we're we're feeling we're feeling very good about New York at this particular time.
Yeah.
Yes in answer to your question on on various geographies.
I think it's too early to tell at this point in time.
The landscape out there is continued to be very varied as it relates to people going back to work on not so we're not seeing any particular differences at the moment and that was kind of geographies, but we will continue to monitor that over the course of the coming months.
As the as the economic landscape changes and as we anticipate maybe some some return to.
To work. So we will continue to monitor that over the over the course of the next couple of months.
Did you did you see anything from the most recent stimulus checks for one out.
Not no.
Not specifically and I think over the course of.
On the.
The fourth quarter.
The first three quarters.
Of last year.
When we were operating in a in a stimulated economy.
For the tobacco business, obviously was operating very well and in fact, the various segments in the.
The various segments in the AR.
The marketplace.
Stable over the course of the fourth quarter as those those those checks.
Started to dwindle, we saw we saw some continued down trading to the to.
For the for the discount segment.
Again, I think it's uncertain.
Moving forward, depending on the level of stimulus.
What what's going to happen, but again, we feel like we're well positioned.
To take advantage of any down trading.
Over the course of the next few quarters.
Great. Thank you so much I appreciate it.
Uh huh.
Thank you. Our next question comes from Mitch Pindus with Wells Fargo.
Hi, gentlemen.
Question for you.
Looking at the impairments can you talk about them are they on a one time or are they potentially recurring.
And.
Well that's basically it.
Yes Mitch.
The impairment was basically a write down of the goodwill at at Douglas Elliman.
Just when the pandemic started and I think every company I just saw.
One of our competitors had a huge write down another write down on if I take it was about $600 million on.
Our write down, whereas I think about <unk> and <unk>.
Okay.
Yeah $58 million.
Can you elaborate a little bit on.
Alright, Okay go ahead.
Got it at $58 $3 million Mitch.
Alright, and can you elaborate a little bit on where that comes from it says goodwill is that mostly related to.
Well actually I would like to know what it's related to.
Sure Mitch.
It is on intangible asset of goodwill that related to the purchase.
Ill go sell them on when we purchased out prudential's stake.
Stake in 2013.
The accounting for announcements will require us to analyze that.
Over time and during the second quarter based on projections, which assisted them. We took a $58 $3 million write down there was no charge related to that this quarter. There was a small write off at Douglas element of about 1 million to related to some fixed assets this quarter.
Okay. Thank you.
Ladies and gentlemen, those are all the questions that we have for today. Thank you for joining us on vector groups fourth quarter earnings Conference call.
This will conclude our call on bill.
Half of all of Us with vector group Liggett and Douglas Elliman.
Hope.
That everyone remains.
Healthy and well.
Thank you all for your participation you may now disconnect.
Thank you everyone.