Q1 2023 Vector Group Ltd Earnings Call

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Yeah.

Welcome to the vector group Ltvs first quarter 2023 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 An archived version of the webcast will be available on the Investor Relations section of the company's website located at Www Dot vector group L. P D Dot com.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 was posted to the Investor Relations section of the company's website before the call begins I would like to read a safe Harbor statement statements made during this conference call that are not here.

Auricle 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 President and Chief Executive Officer.

Vector group Howard Lorber. Please go ahead.

Thank you good morning, and thank you for joining us for vector group's first quarter 2023 earnings conference call.

With me today are Richard <unk>, our Chief operating officer.

Ryan <unk>, our Chief Financial Officer, and Nick Anson, President and Chief operating Officer Liggett vector brands.

I'll begin by reviewing vectors consolidated financial results for the first quarter of 2023.

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.

We will begin by discussing vectors consolidated balance sheet.

<unk> remains strong.

As of March 31, 2023, we maintained significant liquidity with cash and cash equivalents of approximately 282 million, including cash of $52 million.

We also hold the investment securities and long term investments with a fair value of approximately $152 million.

Turning to vector group's consolidated results for the three months ended March 31, 2023 vectors revenues for the quarter with $334 1 million compared to $312 million in the corresponding 2022 period.

Net income was $34 7 million or <unk> 22 cents per diluted common share compared to $32 5 million or <unk> 21 per diluted common share in 2022 period.

The company recorded adjusted EBITDA of $78 1 million compared to $77 1 million in the 2022 periods.

Adjusted net income was $34 million or 22 cents per diluted share compared to $26 6 million or <unk> 17 per diluted share in the 2022 period.

I'll now turn the call over to Nick to discuss our tobacco operations Nick.

Thank you Howard and good morning.

<unk> had a strong start to the year delivering impressive results and outperforming the industry.

According to data from management Science Associates, Liggett's first quarter wholesale shipments increased by two 3% while industry wholesale shipments declined by 6%.

Liggett's retail shipments for the first quarter increased by one 6% one 6% compared to the same period in 2022, while industry retail shipments declined eight 9%.

I'm also pleased to report that Liggett's first quarter retail market share grew to five 8% up from five 2% in the prior year period.

In addition, liggett's adjusted operating income increased by approximately 4% as we gradually transitioned our montego brand from volume to income growth.

The combination of inflation and reduced cope with benefits lower income consumers in an increasingly difficult position. As a result, we are seeing both growth of the deep discount market and a reduction in overall consumption within the can bus total combustible cigarette market.

We believe economic pressures on consumers will persist as inflation remains high and these cobra benefits and.

Our impressive performance reflects the continued success of Liggett's mission to offer the best value propositions in the U S cigarette industry a strategy that is proving particularly effective as more consumers shift to the discount segment.

According to management Science Associates retail data for the three months ended March 31st 2023, the discount category represented 29, 4% of the total market.

From 28, 9% in the fourth quarter of last year and 27, 2% in the same period a year ago.

Within the discount category will continue to see momentum and growth for our brands in the deep discount segment.

For the first quarter of 2023, we estimate that the deep discount segment comprised 13, 7% of the overall market up from 12, 9% in the fourth quarter of last year and approximately 10% in the same period a year ago.

We expect this migration to continue as the deep discount segment prevents presents an attractive price option for consumers and are confident that our value focused brand portfolio and broad national distribution provides <unk> with a competitive advantage.

<unk>, 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 more than 82000 stores in the first quarter of 2023 up from 63000 stores in the prior year period.

The brands National retail market share increased to three 4% in the first quarter of 2023 up from three 2% in the prior quarter and from one 9% in the prior year period.

Our strategy with <unk> is consistent with our long term objective of optimizing profit by effectively managing volume pricing and market share in a value based brand portfolio.

Our investment in months. He has expanded our foundation for long term earnings growth, we continue to reap significant benefits from both Eagle Twenty's and pyramid, we're still live a substantial income and market presence.

I will now turn to the consolidated tobacco financials for Liggett group and vector tobacco.

For the three months ended March 31, 2023 revenues increased eight 1% to $334 1 million up from $309 million for the corresponding 2022 period.

Yeah.

Tobacco operating income for the three months ended March 31, 2023 was $78 6 million up from $77 6 million in the 2022 period.

Tobacco adjusted EBITDA for the three months ended March 31, 2023 was $18 million up three 8% or $2 9 million from $77 1 million in the 2022 period.

In the first quarter, we continued to see the benefits of our strategic investment in Montego. This is clearly reflected in our increased operating income and gross tobacco gross profit, which increased four 5% to $101 9 million up from $97 5 million in the 2022 period.

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 retail.

On the regulatory front, we expect both the final standard on mental and a preliminary standard reducing nicotine combustible cigarettes later this year.

While we have always supported reasonable regulation based on sound scientific evidence we remain firm in our position. The prohibition is not the right answer as it inevitably drives unintended consequences, such as the growth of illicit unregulated markets and.

In summary, the operational and financial performance of our tobacco business remains strong and our retail market share gains and profit growth validate our long term strategy and the competitive advantages we have in the discount segment.

Most importantly, our strategy builds on our foundation for long term earnings potential.

While we always subject to industry regulatory and general market risks, we are confident that our strategy and infrastructure position us well to keep our business operating efficiently.

For your attention and back to you Howard.

Thank you Nick we are pleased with our operating results as well as our long standing practice of paying a quarterly cash dividend. It is our expectation that this dividend policy will continue.

Now operator, please open the call for questions.

At this time, if you would like to ask a question. Please press star one on your Touchtone phone you may recall yourself, Bob at any time by pressing star to again Thats Star One we will take our first question from Hale Holden with Barclays. Please go ahead.

Hi. Thank you. This is marianne on for Hal would you be able to talk a bit about your ability to hold on to the customers that you've gained as a result of this trade down into the deep discount category.

Macroeconomic conditions improve.

Would you expect to give up some of these customers or some of the distribution gains that you've seen so far.

So we will certainly not looking to anticipate to give up any of the distribution gains and as it relates to the to the customers.

Based on what we believe to be the quality of our product.

And the way that we merchandise, we feel very comfortable that once those customers trade down and experience the quality of our products and the value of all products compared to say a premium cigarette.

We feel confident that they'll stick with our product.

It's very compelling for a lower income consumer.

That.

From a price perspective about a 50% discount from Marlborough and that presents real savings to a consumer.

And in this particular economic environment.

That that's compelling and we anticipate that we'll be able to hold on to those consumers.

Great. Thank you so much.

Yeah.

And we will take our next question from Korea Martinsen with Jefferies. Please go ahead.

Good morning, when you look at that 50% discount are you seeing any reaction from the premium brands in terms of trying to price more competitively.

More turbulent market.

So I mean, we are we.

We are certainly seeing some reaction from from the premium companies in Algeria, and rentals, but with respect to the discounting that we're seeing it's in a 10% to 15% range versus the the 50% range.

But we're in a month ago and so while we're certainly seeing it.

Believing that it's affecting our ability to capture more consumers.

Okay.

And then just with California's menthol ban.

Reading about some <unk>.

California compliant call it cooling agents being added and replacement I just wanted to know where you guys stand on alternative products to <unk>.

Deal with that menthol ban realizing that menthol not.

A big part of your business overall versus the industry.

Yeah, no you're right.

As a reminder, the mental piece of our business in California represents less than half of 1% of our total sales. So it really is.

It is immaterial.

<unk>.

So we've had a limited effect as it relates to the mental band, but I mean, we are certainly seeing.

Anecdotally growth and illicit market, an unregulated market suddenly in southern California.

Where we're seeing increasing cross border sales and we are certainly seeing.

Products event.

Products are available to consumers to south mental eight I mean, that's not something that we're going to get into thats not.

Not lawful and in California, but it's certainly the kind of unintended consequences of a of a mental band that's not being properly enforced.

Okay, and then just lastly.

Could you talk through your debt balance.

Your views I know, what youre going to do with the upcoming maturity.

Sure Good morning, Kurt.

Good morning.

Thank you as far as the debt balance.

During the quarter, we repurchased the 10, 5%.

Senior notes due 2026, we repurchased $6 7 million during the quarter.

Taking on another $1 7 million off the balance sheet in the second quarter. So to date, we've taken we've repurchased $21 2 million of those nodes.

That's taking the balance down from 555 million to $534 million a day.

As far as in November .

In November the there is no redemption premium on those notes and we will have to evaluate the credit markets with our advisors.

To determine what we would do.

Thank you very much guys I appreciate it.

Ladies and gentlemen, those are all the questions that we have for today. Thank you for joining us on vector group's quarterly earnings conference call. This will conclude our call on behalf of all of US at vector group and Liggett, We hope that everyone remains healthy and well. Thank you all for your participation you may now disconnect.

Okay.

Mhm.

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Uh-huh.