VGR - Earnings call transcript Q2 2020

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Operator

Welcome to Vector Group Limited’s 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 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 [Technical Difficulty] which has been posted to the Investor Relations section of the Company’s website located at www.vectorgroupltd.com.

Before the call begins, I’d like to read a Safe Harbor statement. results this statements that risks or that that cause during Difficulty] not and implied made from could forward-looking materially are are actual by statements forward-looking conference forth are call [Technical uncertainties those statements. The set differ in to subject to Company’s risks These the described Commission Exchange more in and are filings. in detail Securities

Howard Now, Officer of Executive President and I’d Chief like to Group, turn Lorber. Mr. the call over to Vector

You may begin, sir.

Howard Lorber

quarter us morning, President conference Advisor XXXX Chief us and Senior of to Bernstein, second the thank and Vector Good Group’s are and the Kirkland, Officer. Brands; Bryant join Officer earnings during Q&A. joining With Anson, on Liggett today for Operating me Liggett Vector call. Vector Ron will Financial Vector Group’s you Nick Chief Brands,

second the would other have and Like of States. change. continue acknowledge discussing like significant the underway actions social We and in of as quarter bring many long work to change that meaningful changes. Before events I exist injustice meaningful operating us, all to context in today. are results, have social the demonstrated Recent systemic United racism overdue ahead important companies, we our

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

second results. our to Now, quarter

Nick open I review business. afterwards, and the then During for tobacco Douglas XXXX. provide Elliman’s results summarize ended will the months the our this financial then questions. the of And three will will call call, and closing I first we XX, June performance financial performance consolidated then discuss will and for comments, six

third of a investment the federal million. value be Douglas deferred include and securities $XXX equivalents and fair excise million Liggett, $XX $XXX with The XXXX, $XXX cash As of million cash and significant cash Elliman maintained paid at $XXX at payments, cash in including XX, tax liquidity balances of June million quarter. million, of Vector will at Liggett which with of Group partnerships investment and market

$XX by of million of increased million liquidity shares stock. our quarter, second common X issuance from the During the

current be yielding economic strategic will the investments present and will believe returns. environment We opportunities with for our liquidity above-market

Vector XX, and June to to million Group’s $XXX.X June Group’s XX, three ended XXXX turning period. Now, in for months the the compared revenues were six for XXXX. months $XXX.X million XXXX ended operations the Vector three

segment price $XX increase tobacco and Our reported of in million due an volume. unit revenues to increased increases

an New diluted per per of segment or $XX.X EBITDA the a quarter compared due revenues share decline income net acceleration of However, COVID-XX million $X.XX $XX.X to of reported comparison the $X.XX the because in in diluted closings the estate New diluted Adjusted to $X.XX to of $XX.X real the of the our of occurred as City in XXXX. in This the in XXXX attributed July unusual Tax X, income on real of second significant acceleration pandemic, increase as impact year-over-year well estate York Mansion in on anticipation for Group real Net Vector XXXX quarter. in York residential the to per State was or year. XXXX million to net income company second the The $XX.X period. compared $XX.X share million million of million adjusted was share $X.XX second million recorded prior diluted $XX.X XXXX. in per quarter compared share or common estate or

million revenues months XXXX, compared were six $XXX.X Group’s Vector $XXX.X June period. in the XX, XXXX the For million ended to

loss the year. ended Vector the Group $XXX.X contrasted company decline increase diluted or This per share June $XX.X for revenues, $XXX.X for recorded million or Douglas in $XXX.X ended an diluted segment period. Adjusted EBITDA in reported June $XX.X of million reported and $X.XX or $XX.X net of segment. XX, $XX.X ended the to of was million Net $XX.X excuse in XXXX a income the months share $X million was attributed net common compared Elliman’s compared real three income net loss XX, estate XX, compared share months $XX.X share to six of $X.XX adjusted compared million XXXX. million million quarter compared with $X.XX diluted to XXX prior tobacco million revenues The an six XXXX to months per Douglas XXXX: income results per June in revenues. million million million EBITDA and of Elliman $X.XX EBITDA for per – the second our to XXXX. in Our income net a of million or adjusted diluted in $XX.X of the of me, revenues, $XXX in to million $X.X in adjusted

restructuring million the of the six of to a operate, ability the income $XXX.X of EBITDA $X million response directly months markets. and and in York instituted net to For Elliman’s individuals in loss EBITDA business for revenues, on economy and restrictions and loss of others’ adjusted an $X.X COVID-XX New effect June and and can net revenues, to $X.X in pandemic reported million million. pandemic, and the $XX.X profound impacted of The charges business Elliman pre-tax six the of governments XXXX, a $XXX.X compared net charges type and included XX, continues million on XXXX of on Douglas do in June million ended pre-tax other months adjusted first Elliman’s months impairment $X.X million million XX, which its loss that in non-cash Douglas state XXXX. $XX.X Douglas of local to the have ended six

and XXXX. in operating Elliman’s XX% expenses in of began a revenues XXXX April million XX% XXXX York the To in quarter initiatives address of decline of As in approximately Douglas XXXX. expenses. administrative $XX reduction second quarter XXXX, New reduction second declined resulted Douglas from the COVID-XX, These administrative offices consolidating Elliman’s a of and second reducing the and by other impact personnel from implemented Elliman expense quarter the a in by the in metropolitan area quarter result, second by Douglas

have provide the to to cash the from all stockholders date Douglas Group. changes of quarter receipts shown Vector We upside improvement markets. the in believe long-term second Elliman quarter implemented at Third will

to Now, I Nick? call turn tobacco Nick will to business. discuss the our over

Nick Anson

you, good and everyone. Thank Howard, morning,

As exceptionally despite the adjusted second in COVID-XX the well from impact a market tobacco quarter share contributing Year-over-year XX.X% the the Liggett on and during volume second pandemic. Howard economy to increase performed continued in quarter, mentioned, operating income. increased the

address report pleased tobacco earnings our whom in the second of will made As place unaffected mentioned remain largely those and during the remain we adjustments our These safety various operations we I to the our pandemic. health changes quarter employees previous with business throughout first and business. during the do by to quarter. I’m call,

of there our the the the some year-over-year Those retail are As availability pandemic The buying early quarter. usual retail and has trends to And sales wholesale, product to unfolded underlying entire were this proved in as operated concerns be to cigarettes. ship and throughout of supply normally related ongoing anticipatory chain we second strong. unfounded, to March, consumer importantly, continued concerns point.

share in with noted phase XX’s since are into then. late profit we previous we business increasing pleased volume, prices Eagle have XX’s so Eagle have on on calls, achieved began I’m growth As very far. and XXXX and We grown well and the results of strategy, the income our

continued and the and for now forward. combined turn promotions successful, market growth Group I going proven Vector Liggett to remain Eagle and Our programs financials tobacco XX��s have will about we Tobacco. optimistic

income unit $XX.X For XXXX compared three six and revenues six ended and XX, periods. the and six three compared respectively. and respectively, $XXX.X volumes increased while June to was the for for operating the Liggett’s were months shipments resulted ago. Tobacco $XXX.X months and pricing. million XX, According million million Liggett June were and from $XX.X to $XXX.X and income corresponding ended and second wholesale quarter. adjusted the million Liggett’s million million operating $XX.X million Tobacco million $XXX.X million XX, $XXX.X the quarter for respectively, respectively, earnings XXXX, $XX.X prior corresponding compared June down XXXX and a to and three increased ended months $XXX.X XXXX higher the million for Science to wholesale million periods year-over-year versus overall X% the was $XXX.X Management X.X%, for Associates, shipments $XXX.X net industry primarily million year year higher

we note, a shipments, better effects wholesalers than are less typically by are with retail manufacturers as we volumes. indicator shipments wholesale various and of believe pronounced industry shipments. trends actions As retail can These regularly impact trade

effective points to largest compared the U.S. the the X% second basis Liggett’s to the Eagle quarter grew volume discount second quarter, remains retail prior over and for while retail XX quarter prior X.X% X.X%. Eagle period, Liggett’s For third decreased quarter, the by XX’s for it the nearly year in the brand XX’s year second shipments the increased shipments industry increased share retail period. same X.X% during retail now XX,XXX with of complement pleased brand nationwide. volume nationwide, continues provide remain stores is continues to has Pyramid. volume declines, sold profit anticipated profit to company, and and brands. approximately presence the the its is approximately and market for Liggett to and in other Pyramid XXX,XXX distribution substantial and sold performance and we strong deliver in currently Despite stores growth managed The an

discount-focused force. create pricing quarter this the limited smaller market While from and our targeted active. undercut in XXXX the these companies base promotional capabilities companies, consumer-focused smaller including advantages remains our relative seek deep segment distribution, pressure sales they second the has industry’s to impact market of marketplace geographies. the companies, programs results broad most of our had executional Various Liggett to as our

performance, quarter macroeconomic with very of our second are light XXXX in environment. We particularly pleased current the

income strong Pyramid, sales ahead, and volume, our Our we from validate strategy. results look as share continue to on profit base the operating And and from Eagle XX’s. we focused while remain delivering distribution generating growth market of

guidelines, earlier, workplace exceed distancing. and employee mentioned to meet evaluations state federal we social or protocols and have health As implemented including

in arise that are with confident well issues are contingencies. protocols mitigation rapid to we that place have for COVID-XX may of in manage any and equipped We connection

supporting have industry we are always for your we while business that general and growth. you, profit confident to subject we Thanks attention, share remain risks, effective while operating market and and Howard. to programs efficiently, keep to our market back Finally,

Howard Lorber

has volume you, success. has profits, and tobacco position and necessary to Thank estate Nick. for future business unit cash steps reserves, strong consistently its its has increased the Group taken Vector real

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

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

questions. Now, operator, please for call the open

Operator

Thank with Instructions] comes question Ian you. Our from [Operator Zaffino first Oppenheimer.

Ian Zaffino

any Very biggest Douglas there, you’ve very us some the the you much. of good Thank you Can taken? we think, the Question cost give initiatives more detail This third back results forward? be do going has would the how been your congratulations. And you breakeven black Where about walk savings? just great. cost into business? think in Thanks. quarter, sources here, Elliman that that? business move maybe through profitability can Almost of on you good. of side. And on us Hi, very the you’ll

Howard Lorber

once obviously, employees based terminate their New some shutdown basically which then considered Well, salary took of we on furlough we and employees, we in remaining City, York what was Sure. had reductions had employees, drastic compensation. also to the movements, on level some

to the have What that really you’re that it basically, seeing, some assuming market was And us July we’re it that we’re were offices was off of we we But think the cuts, I the the be that. started and so the much in long on have started to that the rest those that made the of remains It – the a what pretty of mentioned, is is we in third in see. bit, loss soon because It’s of continues was a numbers We will as a to continue fact I also more, slow continue to started a the and think I done. hope in – good, I seen think, helps off up cuts changes the now fact improve. as happens generally, is as pretty picked August return of the business overhead. markets business in the What will business small but simple had for based position, cost quarter good as bit. as the really consolidation quarter. improve. little to little really month,

volume. have to need You

the not for have And lots to environment going when times, many market people we come like and sellers. need lot really low too as Hopefully, sellers were. of things happen, a to and a this buyers, into but have that’s where You change you mortgages helps. that’s of with back buyers interest

are very And well. of and there. I there’s vacation Not future so, Aspen, markets good. doing a perform the Right will every going Smaller think the like looks usually, market which lot are markets now, California same. business on Florida but

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

Ian Zaffino

kind York a home, you have your of a building of in of Thanks. selling? City in particular? maybe investment think And what thinking you you you about about And thanks. have of Okay, you think also, are kind New just side, social more And City, York about lot on are like Given work you you sort New of going you prospects you thinking on the are thinking What when that? question, City are are that do buying, unrest, maybe valuations York, estate How here? York there’s New again, New now. right from lot on also, portfolio, real the long-term what there?

Howard Lorber

have today. the coming brokers the obviously, for coming are the yet. company started sales to office, – just too It’s in much here force in. force, amount Douglas New real near York relates administrative but estate real we tenanting that back in of it small our amount City and nowhere The it’s as them coming estate has that are a Well, nowhere every very Elliman to where

carefully, office reduce plan So where we space to we’re is looking can. and very our

not As have that as have much forward. But up, leases inclined longer-term we’ll and we go to with come some to deal we’re leases we try leases pretty renew to any consolidate.

make the our on you at we a constantly have it’s As it to that? and it B.K., taken investment when comment relates to we would portfolio, on look some like appropriate. write-downs of investments constantly

Bryant Kirkland

Sure.

During as did XX Florida, those as property came million, of and the have the of distributions million. $X majority investment a $X.X distributions quarter, the we portfolio, net of far from in Park,

Ian Zaffino

very much. Thank Great. you

Howard Lorber

other But we’ve already in prior assets quarters, down written correct?

Bryant Kirkland

right. That’s

Howard Lorber

Yes, we’re it, that reason following yes.

Bryant Kirkland

Yes, we yes. follow U.S.,

Ian Zaffino

great. Okay,

Operator

question Martinson our you. Thank of Karru take from Jefferies. We’ll next

Karru Martinson

again, liquidity were the would going the of sorry, little start morning. at call. could that Terribly that I you and If be quick. I great. cash the missed Good a balance get

Howard Lorber

just me let Sure, find it.

Bryant Kirkland

Howard, fit. I can

Howard Lorber

ahead B.K. it? go do Why don’t you Okay,

Bryant Kirkland

million cash Yes, and Karru, That Liggett. at Douglas okay. included and equivalents million. $XX of $XXX was cash Elliman million at cash $XXX

In addition the includes third partnership in And quarter. $XXX value approximately Liggett, it which to investment and federal interests – a deferred balances, had we investment million million. $XXX excise fair cash of that, Karru, the with will includes tax securities payments, of paid at be

Karru Martinson

City that then, for And certainly pickup we’re thank abroad? estate, commensurate of we what the you we’re and Okay, down. seeing the terms pain potentially some as – of are metro to But feeling the the in that urban much. suburbs houses in a real very in help can are area seeing centers? alleviate do the the broader look folks And

Howard Lorber

it I the as question, prior definitely answering in Well, is said us. helping

is better, COVID-XX also a in a It are having strong, South California, quite Florida still which especially high surprisingly to market but problems there, enough that even homes, the problems. the of strong lot South in has continuing. Florida looking and in very Florida state with they’re single-family numbers be South that seems general, mostly for Florida. is the COVID-XX and still market – is activity,

to there’s that’s Long suburbs, and on Long these markets. Westchester. York people is it. to York in sort – things in City the City of And it’s to to people different seen So Island – going York think I other are from New pickup encouraging a going is buy are that Westchester There from New Island. different New We’ve

had season a said But far; busy way small Hamptons that, The having it’s market. a So so up. percentage-wise, very

you the So definitely overall see on. much numbers. going in it doesn’t mean that But that

Karru Martinson

kind sequentially more the and house through were of tobacco And to see out sales carried that then, Okay. volume you become consumers over driving, and has of has a resume as in did pickup consumer able as the the quarter, get mobile?

Nick Anson

more year morning. obviously, economy home consumption good we’re has The from very people with having disposable well stimulated quarter. patterns, about strong was changing last year-over-year. Hey, on industry industry Yes. year-to-date very basis. down smokers of is a I the working seeing performed mean, only more effects compared and retail It a to a income. X.X% Obviously,

of the or impacts federal likely year, reduce. supplemental though, to for half more best We’ve respect think a is little unemployment this the the bit ending got I outlook with uncertain. back that checks

we likely with come industry So back economic in that pressures, we’re half the pressure. under anticipating are the those kind of of the year segment. volume the more to see resumption But to a likely down-trading to of discount

the So well-positioned the being believe even whole, we industry though as we’re anticipate that more there’s – pressure on of to marketplace take in we that. advantage a

Karru Martinson

question just Okay. broader tobacco. And then a from on

mode. cycle Pyramid, the this to introduction Or Do into about brands? you very a the should growth new portfolio profit look What of And we and of going of now Eagle years? terms life introducing terms had do next brand two is successful we another You’ve in a and introduction? see three the how in forward? XX’s at how think

Howard Lorber

times know, Well, at But and always guidance the But it are that, we’re we uncertainty. Sure. these suddenly as the and of as in sense. same to time, planning of advantage our always unprecedented looking conditions those in, obviously we’re – present makes opportunities don’t certainly sometimes we’re you looking certainly marketplace. And we’ll there’s living give lot process. if take a that at opportunities,

marketplace. we But There’s Pyramid XX’s one XXXX, another our reintroduced or historically, introduce we look in would Eagle in potentially hard when we launched of as no fast rules brands. back at Going XXXX. existing or the to

opportunities and if the watching available. advantage we’re they of marketplace we’ll come So carefully, take

Karru Martinson

much, very Thank guys. you Appreciate it.

Operator

Thank Hale question of you. We’ll Holden Barclays. next our from take

Hale Holden

the with something? payments on call. ones. you to excise a or I earmarked guys federal or liquidity email of do have will Bryant, what Liggett taking quick the for back you for couple Thanks decided had tax

Bryant Kirkland

the them in pay quarter. will third Liggett

Hale Holden

And then... it. Got

Bryant Kirkland

deferred taxes quarter. in excise IRS to quarter the third to The the those IRS pay which issued just until obligated March, the – second quarter. Liggett is guidance issued clarify, third in

Hale Holden

quarter? is number will they What the in the third play Sorry.

Bryant Kirkland

had and cash of of $XXX the quarter the end second at million, million. Liggett $XXX

Hale Holden

New Got look cycle? a it, then for you’ve down And invest Is Valley, uncertain? waiting potentially more the cycle talked or is years too Howard, for for about couple understood. this Or it here down of a to opportunities.

Howard Lorber

And we surely it is asset little in the down my of for closed. go. down how down, like is When to at circle are hotels, going it’s a And of are the is the sure. in early look markets, classes opinion. them certain which this at instance, way that is far problem for Well, most the you would most look question

you do how buy so is going this to And they’re them long not knowing when close, continue. pandemic

So, we are always looking opportunities. at

were We’re funding a open. two have always to West these And Hollywood, well, in California. we in actually instance, also One for are hotels, interested. But of them. York which which of in and One both City. of they is closed, couple expect doing both operations hotels strong very very is we’re – we were New

to September, the the of we’re right City hoping, Hollywood a them probably and we’re time. bit little same I West So on just think money now, around feeding reopen in getting ready

of So some be of right about nothing assets we’re but away. right calls be new that conversations going to supported. feel have phone we have that need the lots supporting we lots we’re now, and of to we And opportunities, doing

Hale Holden

half stimulus much higher. but trade half your unemployment comments and/or environment? I for would We’ve you. volumes have in down little on heard volume you how do increase last guys And thank the Liggett. thinking second then continue. project maybe from about think on or been or kind go in to the you miles Great, And the $XXX driven, tracking risk bit where is in you that check back of may not but guess this are an down, a price gas And may then question how I value. brands like potentially – the being my

Nick Anson

we uncertain – don’t hard-and-fast have it’s obviously, think number. mean I are unprecedented and a I these times.

And the to And we’ve second that, away, see first likely go unemployment we I believe if industry I’ll obviously, we second there we in in in see pressures some going But But wasn’t checks half quarter. stimulated we continue, that for the down-trading, the and for – the on pressure. be will the we if economy undoubtedly, again, those relatively the segments those quarter, our additional a when actually, were we that smoker significant again, position stable sequentially, feel quarter operating federal based the on the likely believe been of economic on to believe to a focus think based is average over value. marketplace, year, quarter, brands’ down-trading under discount. second movement back continue.

advantage take to of well-positioned that. We’re

Hale Holden

Great. appreciate so I much. you it. Thank

Operator

behalf all healthy that and gentlemen, may your will those at earnings conference that today. Douglas Ladies you Thank On Thank have Group now the well. participation. questions we And Vector are on That joining Group, disconnect. call. call. for you everyone us all and our of conclude we for you and remains Liggett Elliman, Vector for of us hope

Vector (VGR) 6 Aug 202020 Q2 Earnings call transcript