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Operator: Good day, and welcome to the Altria Group 2023 First Quarter Earnings Conference Call. Today’s call is scheduled to last about one hour, including remarks with Altria’s management and a question-and-answer session. Representatives of the investment community and media on the call will be able to ask questions following the conclusion of the prepared remarks. I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations with Altria Client Services. Please go ahead, sir.

Mac Livingston: Thanks, Katie. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria’s CEO; and Sal Mancuso, our CFO, will discuss Altria’s first quarter business results. Earlier today, we issued a press release providing our results. The release, presentation, quarterly metrics and our latest corporate responsibility reports are all available at altria.com. During our call today, unless otherwise stated, we’re comparing results to the same period in 2022. Our remarks contain forward-looking and cautionary statements and projections of future results. Please review the forward-looking and cautionary statements section at the end of today’s earnings release for various factors that could cause actual results to differ materially from projections.

Future dividend payments and share repurchases remain subject to the discretion of our Board. We report our financial results in accordance with U.S. generally accepted accounting principles. Today’s call will contain various operating results on both, a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations are included in today’s earnings release and on our website at altria.com. Finally, all references in today’s remarks to tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older. With that, I’ll turn the call over to Billy.

Billy Gifford: Thanks, Mac. Good morning, and thank you for joining us. We are off to a strong start and believe our businesses are on track to deliver against full year plans. Our tobacco businesses performed well in a challenging macroeconomic environment, and we announced exciting progress toward our vision. Highlights from our first quarter included strong adjusted diluted earnings per share growth of 5.4%, resilient end-market performance from our leading brands, including Marlboro and Copenhagen and continued volume and share growth from on!, and announcements made at our Investor Day, including updates on our pending acquisition of NJOY, the unveiling of our exciting smoke-free products in development, and the introduction of our 2028 Enterprise Goals.

Let’s now review first quarter results in more detail, beginning with the macroeconomic environment and its impact on industry cigarette volumes. In the first quarter, consumer discretionary income levels remained under pressure due to the active effect of higher inflation over the past year. As a reminder, the cigarette industry experienced a higher rate of volume decline beginning in the second quarter of 2022 as smokers shifted their purchasing behavior as a result of widespread inflation and the rapid increase in gas prices that were exacerbated by the Russian invasion of Ukraine. While gas prices began to recede in the second half of last year, higher inflation persisted across other goods and services and cigarette volumes remained under pressure.

Moving into the first quarter of 2023, the cumulative effects of inflation over the past several quarters continued to impact tobacco consumers’ discretionary income and tobacco industry volumes. We will continue to monitor these factors and their impact on tobacco consumers as we progress throughout the year. Sal will provide additional color on industry volume in his remarks. Let’s now turn to the oral tobacco category. We are excited by the continued growth of oral nicotine pouch products, which grew their share of the total oral tobacco category for the 20th consecutive quarter. Oral nicotine pouches grew 7.1 share points year-over-year and now represent 26.2% of the oral tobacco category. Encouragingly, continued oral nicotine pouch growth was the primary contributor to the estimated 1% increase in total oral tobacco volumes over the past six months.

Helix grew on! reported shipment volume to 25.2 million cans during the first quarter, an increase of 38%. On! continued its momentum at retail growing its share of the total oral tobacco category by 2.4 share points to 6.5% and on! continued to grow its share of the nicotine pouch category, reaching 24.6% in the first quarter, up 3.3 percentage points. Notably, on outgrew Zen sequentially on an absolute basis in 50,000 stores. Helix delivered these impressive results as on!’s retail price grew 7% sequentially and 32% versus the year-ago period. We believe on!’s ability to continue to grow share while effectively reducing its promotional investment demonstrates the strength of its product portfolio and brand equity. Helix is continuing its focus while strategically investing behind the brand as the category grows and remains committed to achieving profitability in 2025.

Let’s now move to e-vapor, which has been the most successful category in the U.S. in transitioning smokers to alternative products. We believe the category is continuing to undergo a significant reset, and we estimate that first quarter e-vapor volumes decreased 11% versus a year ago and 1% sequentially. We have observed a decline in traditional multi-outlet and convenience channel volumes, which we believe is primarily a result of the FDA marketing denial orders issued for JUUL and myblu. This volume decline has been partially offset by increased volume in nontraditional channels, such as e-commerce and vape stores. We are excited about our pending acquisition of NJOY and its portfolio of e-vapor products. NJOY is the only company to receive a marketing granted order for pod-based product.

We continue to believe the strength of our commercial resources can benefit smokers and vapors across the U.S. and expand smoke-free competition in stores where NJOY ACE has not been distributed. The completion of the NJOY transaction is subject to customary closing conditions, including clearance from the Federal Trade Commission. Moving to the regulatory environment. We remain optimistic about the future of harm-reduction in the U.S., and we continue to encourage the FDA to make more progress for the benefit of the 47 million tobacco consumers. In February, the FDA provided a response to the Reagan-Udall Foundation’s assessment of FDA’s tobacco operations. We are encouraged that the agency recognizes some important areas for improvement, including developing and communicating a five-year strategic plan, improving transparency and defining more efficient pathways, increasing enforcement of marketing denial orders and exploring ways the agency can and should address nicotine risk perceptions through communication.

We look forward to learning more details on these efforts. In addition, FDA enforcement is critical to making continued progress toward reducing youth usage of e-vapor products. The FDA has the necessary enforcement tools. And we encourage them to take the appropriate action against noncompliant manufacturers. We continue to believe that harm reduction, not prohibition is the best path forward and we have made this clear in the public comments we submitted in response to the FDA’s proposed menthol ban. Our comments highlight the many unintended consequences of prohibition, including the adoption of adulterated and unregulated products and the development of illicit markets. Unfortunately, we believe a number of those consequences are playing out in California, where a ban on flavored nicotine products went into effect in late 2022.

Our operating companies immediately ceased the shipment of products to California wholesalers that we determined were not compliant with the law. That brand’s continued to perform well in the state with Marlboro and Copenhagen growing retail share sequentially. However, we remain concerned with the lack of enforcement in the state as some flavored products remained in the market. We also believe some manufacturers have introduced new products, or rebranded existing ones to sidestep the purpose of the law. In March, menthol cigarettes still represented nearly 40% (sic) of the volumes sold in the multi-outlet channel in California, an increase of 1.3 percentage points from January. Additionally, we have seen evidence that some California smokers are self mentholating their cigarettes using alternative products such as flavor cards and menthol drops.

We have also observed flavored e-vapor products in the market that appear to have been renamed to mislead state regulators. And trade dynamics in surrounding states suggest that some smokers are crossing state borders to purchase menthol products. For example, the share of menthol in Nevada increased 1.3 percentage points sequentially in the first quarter to 37.4%. We believe this is significant as the total share of menthol in Nevada has not been greater than 36.5% over the past four years. Compliance remains a top priority, and our government affairs teams are engaging with California government officials to encourage them to enhance enforcement and to hold all manufacturers to the same standard. Our goal is for policymakers to embrace harm reduction as the proper framework for tobacco and nicotine product regulation.

In fact, public opinion strongly favors harm reduction over prohibition, and science shows a significant public health benefit of moving smokers away from combustible products toward a smoke-free future. As we described at our Investor Day, we are continuing our efforts to create the conditions for harm reduction to succeed through advocacy, engagement and our actions. I believe we are well positioned for success in 2023 and beyond. And while the external environment remains dynamic, I am confident that we have the tools in place to succeed. We have amazing brands, sound strategies and most importantly, talented indebted employees. With these things in mind, we reaffirm our guidance to deliver 2023 full year adjusted diluted EPS in a range of $4.98 to $5.13.

This range represents an adjusted diluted EPS growth rate of 3% to 6% from a $4.84 base in 2022 and excludes the potential financial impacts of the pending NJOY transaction. I’ll now turn it over to Sal to provide more detail on the business environment and our results.

Sal Mancuso: Thanks, Billy. In the smokeable products segment, we continued to execute our strategy of maximizing profitability in combustibles over the long term while appropriately balancing investments in Marlboro funding the growth of our smoke-free portfolio. Smokeable segment adjusted operating companies income was essentially unchanged, and the segment expanded its adjusted OCI margins to 60.4%, driven by strong net price realization of 10.9%. As a reminder, manufacturer price realization does not reflect the retail price change. At retail, Marlboro’s net pack price increased 6.8% in the first quarter compared to last year. Total smokeable segment reported shipment volumes declined by 11.1% in the first quarter, as an 11.4% decline in cigarette volumes was partially offset by modest growth in cigars.

When adjusted for trade inventory movement, calendar differences and other factors, we estimate that segment domestic cigarette volumes for the first quarter declined by 11% and that industry volumes declined by 9% over the same period. As Billy mentioned, we believe that industry volume trends have been negatively impacted by the cumulative effects of higher inflation, and we expect volume declines to moderate over time as the macroeconomic environment stabilizes. At retail, the discount segment grew 1.8 share points in the first quarter and 0.5 sequentially. We believe some smokers today are trading down as a result of adverse financial conditions. We continue to see increased competitive activity in the discount segment, including multiple branded discount offerings priced at deep discount levels.

Marlboro’s share declined 0.2 sequentially and 0.6 versus the year ago period, partially driven by the discount dynamics that I described. We have also seen a decline in Marlboro’s menthol share of the total category as a result of the California flavor ban and increased competitive activity from premium menthol brands in the balance of the country. However, we believe that Marlboro remains the aspirational brand in the category as it retained the majority of its share in this challenging environment, growing its share of the premium segment to 58.5%, an increase of 0.1 sequentially and 0.7 year-over-year, while other brands ceded share in the segment. And we believe at PM USA has the appropriate tools to navigate this challenging environment.

For example, we recently announced a series of investments behind the Marlboro Black family of products, which are intended to provide additional support for price-sensitive Marlboro smokers. Included in these investments is the introduction of Marlboro Black Gold pack non-menthol offerings with a smooth flavor and rich taste. These products are intended to bolster the offerings within the Marlboro Black family of products and will be available nationwide, beginning in May. Our RGM and advanced analytics capabilities inform the geographies and promotional rates for these strategic investments, allowing us to be precise with our spend while supporting our overall strategy for the segment. And as a result of the flavor ban in California, PM USA shipments to California retailers declined 12.8% in the state while reported industry shipments to retailers declined 18.8%.

We’ve included more details related to first quarter California market dynamics in our metrics document that is available on altria.com. Moving to the oral tobacco products segment. Adjusted OCI grew 2.2% in the first quarter and the segment delivered strong adjusted OCI margins of 69.3%. Total segment reported shipment volume decreased 1.8% as growth in on! was more than offset by lower MST volumes. When adjusted for calendar differences and trade inventory movements, we estimate that first quarter oral tobacco segment volumes declined by an estimated 3%. Oral tobacco products segment retail share declined 1.8 percentage points as declines in our MST brands were partially offset by the continued growth of on!. We continue to be encouraged by the performance of our oral tobacco products as on! continued to grow share in the category and Copenhagen remained the category leader.

Turning to our investment in ABI. We recorded $180 million of adjusted equity earnings for the quarter, up 28%. We continue to view the ABI stake as a financial investment, and our goal remains to maximize the long-term value of the investment for our shareholders. Our balance sheet remains strong. And as of the end of the first quarter, our debt-to-EBITDA ratio was 2.1. In February, we retired $1.3 billion of notes that came due with available cash. And as part of the IQOS agreement we announced last fall, we expect to receive the remaining $1.7 billion plus interest from Philip Morris International by July of this year. We remain committed to creating long-term shareholder value through the pursuit of our vision and our focus on significant capital returns.

We demonstrated this commitment in the first quarter, by paying approximately $1.7 billion in dividends and announcing a new progressive dividend goal that targets mid-single-digit dividend growth annually through 2028. Due to the timing of our announcement of the NJOY transaction, we did not repurchase any shares in the first quarter. As of March 31st, we had $1 billion remaining under the current share repurchase program, which we expect to complete by the end of this year. With that, we’ll wrap up, and Billy and I will be happy to take your questions. While the calls are being compiled, I’ll remind you that today’s earnings release and our non-GAAP reconciliations are available on altria.com. We’ve also posted our usual quarterly metrics, which include pricing, inventory and other items.

Let’s now open the question-and-answer period. Operator, do we have any questions?

Operator: Our first question comes from Bonnie Herzog with Goldman Sachs.

Bonnie Herzog: I guess my first question is on your cig volumes, which were pretty pressured this quarter down 11%, and that’s actually comping some pretty significant decline. So could you maybe just — I don’t know, I’m thinking take a step back for us and then give us a better sense of what you’re seeing in the category? How much of the pressure is attributable to down-trading and then the pressures that are mounting on the consumer? Also, it looks like many of your estimates for the industry, which now appears strong. So just maybe a little more color on what’s driving that change would be helpful.

Billy Gifford: Sure. Thanks for the question, Bonnie. I think, I’ll try to take it in part. So, I think when you think about the consumer, we tried to highlight in our remarks where you’re seeing the cumulative impact of high inflation across all of their spending categories. So it’s not just high inflation in the quarter, it’s the cumulative impact of that through time. I think certainly, you’re seeing interest rates climb, which is impacting consumers, mortgages, credit cards, car loans. And underneath all that, to respond to the consumer, we are seeing accelerated debt as well as decline of savings rates. So they’re using what they have available to them. But it’s the cumulative impact of that. It’s not new to the cigarette space.

I think you can go back in history a bit, and we see other instances where the consumer came under extreme pressure. You can look at the ‘08, ‘09 period or the ‘01, ‘02 period, and you see where the consumer — in those instances were under pressure because of the recessions that were taking place. Here, the other factors I described, we feel like we have the tools in place. I think you see the resiliency of Marlboro in the marketplace, gaining share in the premium space. Certainly, we’ve seen competitors, I’ll call it using your term, Bonnie, share at the bottom, where they’re pricing some of their discount brands at deep discount levels. And really, if you think about our strategy in the cigarette space, that’s to maximize profitability over the long term while making appropriate investments in Marlboro and the growth areas.

I think when you think about the question about price elasticity, yes, we made the minor investment at Investor Day. But if you look at even the decomposition that we provided in our metrics, you can see that’s been pretty consistent over the past four periods that we showed on a 12-month moving. We really don’t see anything there from a standpoint of the consumer — any changes in the price elasticity other than the minor adjustment that we made going into Investor Day.

Bonnie Herzog: All right. And then just maybe one more question just as it relates to price gaps and your share, your relative price gaps have widened again this quarter, I guess, to 43%. So, while we get a sense from you how concerned are you about that as well as Marlboro share was pressured, obviously, given some of the obvious pressures you’ve highlighted on the consumer but maybe also in light of the frequency and strength of some of the pricing actions you guys actually just took your price increase this year. So just trying to get a sense of how much room do you see for further pricing at these levels? And how flexible maybe are you in terms of your promotional strategy as ways to offset some of the pressure the consumer is facing. I guess, I’m just wondering if there’s a point where it becomes difficult to keep some of the Marlboro consumers in the brand family. Thanks.

Billy Gifford: Yes, I appreciate the question, Bonnie. And I’m sure you’ve seen with your connections to retail as part of that price announcement, we also made a separate announcement making some adjustments to promotional spend in the marketplace. Those adjustments are really down at the local level. And what we are seeing were pockets of area where we felt like Marlboro menthol was under pressure and Sal highlighted in his remarks, stepped up promotional spend by a competitor in the menthol space. So, we’re making some adjustments there using various packings within the Marlboro franchise depending on what resonates with the consumer in those localities. Some of the other adjustments are related to, exactly your question, where we see the consumer under extreme economic pressure, and we’re making some adjustments within the Marlboro franchise on promotional spend to counteract and give them a place where they can continue to engage with Marlboro.

It’s not new. We’ve done this before, Bonnie. I’m sure you’re well aware, whether you think about Marlboro Special Blend in history, which is now Special Select in the marketplace. What it allows us to do is to keep the consumer who aspires to be a Marlboro consumer, engage with Marlboro, and then as their economic conditions change, we can actually shrink that promotional discount to the Marlboro mainline. And what we see through time is it’s actually much more efficient and effective because we see in going back in history when we did it with Special Blends, some of the consumers as we shrunk that discount popped back to mainline and some of them stuck with Special Blend because it was a flavor that they enjoyed. So, we feel like we have the tools available to us, and we’ll continue to monitor all those adjustments that we announced effective May were included in the reaffirmation of the guidance.

Operator: Our next question will come from Vivien Azer with TD Cowen.

Vivien Azer: Thank you so much for the incremental detail around California. That was particularly helpful. And I noted the intra-quarter commentary, the January through March, which I really appreciated, Billy. I was wondering whether you’d be willing to expand on any of that intra-quarter commentary. How did Marlboro share trends progress through the first quarter in California, if you wouldn’t mind commenting on that? Thanks.

Billy Gifford: Yes. I mean certainly, you saw that overall for the quarter, Marlboro was up in share. It’s telling that the consumer continues to choose Marlboro as the brand of choice. I think when you see that, it’s in line with some of the previous studies where consumers when menthol is banned, and they no longer have access tend to go to the non-menthol states. And I think that’s what you’re seeing with Marlboro and the strength of in California for the quarter.

Vivien Azer: Understood. That’s helpful. Thank you. And I think encouraging to hear that you guys are going to be introducing Marlboro, I believe you said it was Black Gold pack. So, do you have a targeted ASP or a price gap relative to mainline Marlboro in mind, recognizing, of course, it will vary by geography?

Billy Gifford: Yes, it will certainly vary by geography. I think if you think of it being in line with other black packings that are in the black family that are in the marketplace, depending on the locale and the pricing in that locale.

Vivien Azer: Perfect. And my last quick one. The call out about kind of some of the category dynamics relative to ‘09 and ‘01, make sense. I mean, it seems like in terms of premium share of segment, it’s basically where we were in ‘09. But I think one of the nuances of course is that in both of those prior periods, not only were their macroeconomic heads for the consumer, they were also compounded by the introduction of disruptive federal excise tax increases. So, how do you think about that, recognizing maybe this macroeconomic backdrop is incredibly nuanced because of COVID comps, but there’s not disruptive excise tax increases happening right now?

Billy Gifford: Yes. I appreciate your question, Vivien. I think what you’re seeing though is the exacerbation of cumulative high inflation, that’s put the consumer under pressure. They had been subsidized by the government to a large extent since the pandemic, and I appreciate you raising that. And you saw when they had that subsidy that Marlboro actually benefited from it. The consumer — it’s still the aspirational brand in the cigarette category. That’s why we’re making what we feel like the appropriate adjustments headed into May for those pockets of areas where we see the consumer under pressure, and we’ll continue to monitor and make adjustments as appropriate.

Operator: Our next question will come from Andrei Condrea with UBS. Your line is now open. We are hearing no response from the line. We will go to our next question. Our next question will come from Pamela Kaufman with Morgan Stanley.

Pamela Kaufman: So given the elevated rate of cigarette volume declines, do you believe that it’s becoming increasingly difficult to drive PM USA revenue growth through pricing in excess of volumes? It seems that higher pricing creates a virtuous cycle, whereby it drives trade down and market share pressure. And with the exception of 2020, which was clearly an unprecedented time, PM USA top line hasn’t grown since 2017. So, can you talk about how you’re thinking about driving top line growth in PM USA and if you think it’s possible?

Billy Gifford: Yes. Vivien, I think I would really point you to price elasticity. And when you think about price elasticity, that’s the nature of a negative 0.35, is that for percent that you increase price, you expect that 0.35 impact on volume. So it’s much, much lower than other industry categories in the CPG space. You can see in the decomposition we try to break down what’s taking place in the cigarette category. You see secular declines pretty steady. The big factor is macroeconomic that swings around. I think if you go back in history, you’ll see macroeconomic, the conditions that the consumer is under will swing it up or down. You can recall in 2015, I think you were asking us, did we expect volume to stay flat for a period of time?

These are natural fluctuations that take place as the consumer experiences their economic conditions differently, sometimes under pressure and sometimes they have a one call. So it’s natural. We’ll continue to monitor and make the adjustments that we feel appropriate. I mentioned in earlier answers some of the adjustments we’re making going into May, down at the local level where we see different conditions for consumers versus just a homogeneous, if you will, condition of the consumer across the entire U.S. That’s some of the benefit of the tools and the analytics team that we have is we can make those adjustments down at the granular level.

Pamela Kaufman: Okay. And then just on your — what you’re seeing in the competitive landscape, you pointed out how branded players are placing their branded discount at these discount levels. Given the growth in the deep discount segment, would you reconsider your strategy on L&M? And how are you thinking about participation within that segment?

Billy Gifford: Yes. I appreciate it, Pamela. Certainly, we’re going to participate, but we’re premium focused. I would remind you that the strategy hasn’t changed in the cigarette space for us. It’s maximize profitability over the long term while making appropriate investments in Marlboro and into the growth areas. You may have heard in my previous answer, it’s not something that is new to the cigarette space. I pointed to a couple of time periods where we saw similar things. You see as the economic conditions for the consumer change through time, it tends to revert back on a historical perspective. So again, we want to be there for our consumers. It’s really about keeping the consumer engaged with Marlboro, whether they want to stay with Marlboro long term or whether we put them on the journey to the smoke-free products in our portfolio. And so, it’s really about continuing to engage with the consumer through time.

Operator: Our next question will come from Andrei Condrea with UBS.

Andrei Condrea: I have two. The first one is just on the California menthol ban because obviously, this isn’t the first flavor than we’ve seen in the U.S. on a state level. But if you were to just — net-net, the impact you’ve seen in California versus other neighboring states, could you hazard a guess as to the impact on the total U.S. level just in terms of the haircut?

Billy Gifford: Yes. I’d say what we tried to show you was what we see thus far. I think it’s too early to declare, oh, this is the total impact to the U.S. I think what we were trying to highlight is when legislation passes with the purpose of the law, they really need to give heavy consideration into how they’re going to enforce that. And based on the comments we provided to the FDA with their proposed menthol ban and some of the consequences, the unintended consequences of that we’re seeing play out in California. As far as your question about what’s the net impact, I think it’s too early to tell to see how that plays out.

Andrei Condrea: No, that’s fair. Thank you. And my second one is it’s a bit more long term. Thinking about your international expansion with your heated tobacco capsules, but most of your nicotine pouches, whether it’s on! PLUS or on!. Are you seeing any feedback for the time being on your current on! pilots, because I know you’ve got one going on in London. I’m just wondering if you will take rather the foot off the pedal until you get on! PLUS online?

Billy Gifford: Yes. I appreciate your question. I think when you think about it, it’s early on in the international space, it’s really about learning in the space with the consumer receiving their feedback. We’re certainly excited to be able to bring on! PLUS to the international market. We think it will resonate well with the consumer, but more to come on that.

Operator: Our next question will come from Matt Smith with Stifel.

Matt Smith: Just two questions for me. The first is Marlboro’s share performance has been fairly resilient despite the robust price realization. Could you discuss the mix of volume within the Marlboro family? Are you seeing an acceleration in consumers down-trading within Marlboro that would have otherwise moved to discount brands?

Billy Gifford: Nothing that I would point out as trend break. You always have consumers moving around. And that’s really — goes back to what I was referring to as far as advanced analytics. Depending on the situation of the consumer in a locality, they’re going to face different pressures than other parts of the U.S. And so you’ll see fluctuations at the local level around the U.S. and sometimes they’re in sync with each other and sometimes they’re counter to each other as far as what way the consumer is moving and what they’re feeling. I think overall, though, the takeaway right now is with the adjustments that we’re making to our promotional spend in some locales, we’re seeing a more widespread of the consumer being under economic pressure. And I highlighted some of the reasons we believe that it’s occurring, and we want to keep the consumer engaged with Marlboro.

Matt Smith: And you mentioned the introduction of Marlboro Black Gold Pack. Are you positioning this offering to regain some of the adult smokers that traded down into discount and bring them back to the Marlboro family or more to keep Marlboro smokers within the family?

Billy Gifford: We know that the consumer aspires to be Marlboro. You heard my comments earlier about in the pandemic when they had extra discretionary income, Marlboro share actually went up. So it shows that Marlboro is an aspirational brand in that category. And so, it’s to do both. If consumers had felt the need to trade out because they were under economic pressure, it gives them a space within the Marlboro franchise where they can reengage or if a consumer comes under pressure, it gives them a space to continue to engage with Marlboro. So, it’s really about the engagement with the consumers that want to choose Marlboro as their brand.

Operator: Thank you. At this time we will open the lines for media. Our next question will come from Jennifer Maloney with Wall Street Journal. Your line is now open.

Jennifer Maloney: Hi. I wonder if you could explain to me what you think is going on in California with respect to the increase in menthol share to 40%. So I’m trying to like imagine what’s actually playing out in stores. Is it like consumers are finding retailers who still have menthol cigarettes on the shelves and then they’re stocking up a lot because they think that it might not be available soon, or what do you think is going on there?

Billy Gifford: Yes. I appreciate the question. I said 40% that was by error. It was 4% in California. So I apologize for that. But to answer your question directly, I think what we’re seeing take place is a number of the unintended consequences that we highlighted to the FDA and our comments on menthol ban that they proposed. I think what you’re seeing take place is to — the purpose of the law had a purpose. And what we’re seeing is the lack of enforcement and some of the ways that product is in the marketplace is counter to what the purpose of the law was. And so, enforcement and the thought process behind how it’s going to be enforced is extremely important to really achieve the purpose of the law. So, some of the things we highlighted for you, Jennifer, were we’re seeing some of the consumers self mentholating whether that be with menthol cards and menthol drops.

We are seeing menthol still in stores in California. And then, we saw in some of the other spaces a number of flavored products just renamed. And so, the enforcement is necessary, if they want to achieve the purpose of the law.

Jennifer Maloney: Overall in California are cigarette volumes down more than you would normally expect with any absence of a menthol ban?

Billy Gifford: Yes. You saw what we tried to do is in our metrics page, what we tried to do is from an industry standpoint, if you think about Q1 of 2023 to Q1 of 2022, in California, they were down 18.8% and for the rest — if you think about a total U.S. standpoint, down 8.9%. So you can see that — I’m sorry.

Jennifer Maloney: No, go ahead.

Billy Gifford: So you can see that even on a sequential basis, again, California down 11.1%, total U.S. down 6.1%. So, it certainly had an impact on shipments in California. We also highlighted some of the cross-border dynamics.

Jennifer Maloney: Right. So, you highlighted Nevada, and I wonder is there — can you quantify the uptick in volumes in all of the bordering states that might — that might mitigate somewhat the decline in shipment volumes in California?

Billy Gifford: Yes. Again, I think it’s too early to say. We try to get to a net impact of California and netting out the positives. What we try to show is, certainly, we see what we think is an indication of cross-border in Nevada, using that as an example of menthol share. Its representation in Nevada is higher than it has been over the past four years.

Operator: Thank you. This appears to be no further questions at this time. I will now turn the call back over to Mac Livingston for closing remarks.

Mac Livingston: Thanks again for everybody for joining us. Please contact the Investor Relations team if you have any further questions. Thanks, and have a great day.

Operator: This concludes today’s call. Thank you for your participation. You may disconnect at this time.