Altria Group [MO] Conference call transcript for 2023 q2
2023-08-01 14:11:02
Fiscal: 2023 q2
Operator: Good day, and welcome to the Altria Group 2023 Second Quarter and First Half Earnings Conference Call. Today’s call is scheduled to last about one hour, including remarks by Altria’s management and a question-and-answer session. [Operator Instructions]. 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 for Altria Client Services. Please go ahead, sir.
Mac Livingston: Thanks, Charley. Good morning and thank you for joining us. This morning, Billy Gifford, Altria’s CEO; and Sal Mancuso, our CFO, will discuss Altria’s second quarter and first half 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 the 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, Matt. Good morning and thank you for joining us. We had a solid first half of the year, and we continue on our exciting journey towards Moving Beyond Smoking. We completed our acquisition of NJOY and delivered strong business results, growing adjusted diluted earnings per share by 5% in the first half, and we returned $3.8 billion to shareholders while investing in pursuit of our Vision. We look forward to executing our commercialization plan for NJOY in the second half of the year, and we reaffirm our guidance to deliver 2023 full-year adjusted diluted EPS in a range of $4.89 to $5.03. This range represents an adjusted diluted EPS growth rate of 1% to 4% from a $4.84 base in 2022. My remarks this morning will focus on three topics: Our enhanced smoke-free product portfolio, including our recent acquisition of NJOY; the consumer dynamics impacting our core tobacco businesses; and an update on the California flavor ban and its impact on the market. I’ll then turn it over to Sal, who will provide further details on our business and financial results. Let’s began with e-vapor, which has been the most successful category in the U.S. in transitioning smokers to alternative products. In June, we took a transformative step towards our goals of Moving Beyond Smoking by completing our acquisition of NJOY. We are fully focused on responsibly accelerating U.S. smoker and vapor adoption of NJOY ACE, currently the only pod-based e-vapor products with marketing authorization from the FDA. The integration and business plan is already well underway and we welcome the NJOY team to the Altria family of companies. They bring wealth and knowledge and capabilities that complement our own, such as vapor product development, device manufacturing partnerships, and international supply chain and expertise. We believe their skills will accelerate our progress towards our vision and we are excited to build upon their recent experience operating in the category. Prior to close, limited [visibility] (ph) and frequent out of stocks make it difficult for the NJOY team to communicate offers and build awareness [Indiscernible] to stores. In fact, 95% of stores with distribution of ACE, lack complete inventory of the device and all [five] (ph) pod SKUs. Our world class sales organization of over 1,600 employees have already started using their strong trade relationships to address these opportunities. They’ve engaged with the nation’s top 25 convenient store chains by [bringing] (ph) e-vapor volume to improve visibility and inventory of NJOY in stores with existing distribution. It is because of their tremendous efforts that starting this week NJOY will begin to have an enhanced retail presence through premium fixture space and improved retail inventory, only two months after we completed the transaction. And later this month, we plan to broaden distribution base to a total of approximately 43,000 stores, a 25% increase since we competed the transaction. We expect to further expand distribution to a total of 70,000 stores by the end of this year, which represents approximately 70% of e-vapor volume and 55% of cigarette volume sold in the U.S. multi-outlet and convenience channel. This remarkable progress is a testament to the highly talented employees across the Altria family of companies and I applaud the hard work and the collaboration. In Oral Tobacco, we are encouraged by the continued growth of novel oral products, which drove the estimated 2.5% increase in total U.S. oral tobacco volumes over the past six months. Oral Nicotine Pouch just grew 8.4 share points year-over-year and now represents 29.1% of the total U.S. Oral Tobacco Category. In the second quarter, on! reported shipment volume increased nearly 50% versus the year-ago period and on! retail share of oral tobacco increased 5% sequentially, reaching 7 share points in the second quarter. This represents a growth rate of almost 45% year-over-year and it’s the 15th consecutive quarter of on! share growth. Helix delivered these impressive results while growing on! retail price [17%] (ph) versus the year-ago period. We believe on!’s ability to continue growth share while effectively reducing its promotional investments demonstrates the strength of its product portfolio and growing brand equity. Helix is focused on strategically investing behind this brand as their [effort] (ph) grows and continues to expect profitability in 2025. In September, our teams plan to begin an international test of on! PLUS. Our new tobacco-derived nicotine wet pouch product that features an optimized long lasting flavor system and a proprietary soft feel material. But the product will be available via e-commerce in Sweden, where our teams plan to take a disciplined approach to gain learnings that can inform a future U.S. launch. We are excited about on! PLUS and believe consumers will be too. While a small sample size, our early research indicates about three out of four dippers and nicotine pouch consumers and [inaudible] prefer on! PLUS over [Indiscernible] basis. We are on track to file our PMTA for on! PLUS in the first half of next year. Let’s now move to our core Tobacco businesses. In the second quarter, cigarette industry volume declines moderated. However, the consumer dynamics we observed the past year largely continued. And with gas prices, combined with the cumulative effect of higher inflation, continued to pressure consumer discretionary [spending levels] (ph). However, we believe we have the appropriate tools to navigate this challenging environment. For example, PM USA used its RGM capabilities to deploy a series of strategic investments behind the marked Marlboro® Black family of products earlier this year. Using advanced analytics, the team provided additional support for price-sensitive Marlboro smokers, while being efficient with their commercial investments. As a result, Marlboro second quarter retail share of the cigarette category grew sequentially to 42.1%. Let’s now turn to California, where the ban on the sale of flavored tobacco products and tobacco product flavor enhancers went into effect late last year. While our brand continued to perform well at the end of the day, we remain concerned with the [Indiscernible] enforcement and the negative unintended consequence of prohibitionary policies. We observed continued evidence of the issues we commented in our first quarter remarks, such as lower rated products, retailer and manufacturer non-compliance and the illicit market activity. For example, roughly 65,000 OCB branded Flavor Cards were sold in California in the first half of the year, more than triple the amount solid in the other 49 states combined. In comparison, OCB branded Flavor Card volume was negligible in California in the year-ago period when the menthol cigarettes were still legally available. To further understand consumer use of illicit nicotine products, we commissioned a third party study in California, where researchers collected and analyzed nearly 20,000 discarded tobacco products. Their findings suggest that almost half of the cigarettes consumed were not tax stamped for sale in California. And approximately 20% of the cigarette packs were menthol and products we believe other manufacturers recently introduced to sidestep the purpose of the law. In comparison, menthol represented approximately a quarter of the total California cigarette category prior to the ban enactment. And finally, while disposable e-vapor products were over represented in the study, 98% of the collected e-vapor products were flavored, despite being subject to the California Flavor Ban and authorized – unauthorized by the FDA. These figures are alarming and indicate substantial illicit market activity. We believe the best way to prevent illicit markets is to keep tobacco products legal and regulated. We have made this clear in the public comments we submitted in response to the FDA's proposed menthol ban. Our goal is for policy makers to embrace harm reduction, as the proper framework for tobacco and nicotine product regulation, and there's a growing chorus of diverse stakeholders who agree; including consumers, our trade partners, public health advocates, criminal justice reform advocates, law enforcement and tobacco growers. In fact, public opinion overwhelmingly supports harm reduction over prohibition. And science shows a significant public health benefit of moving smokers away from combustible products towards a smoke-free future. We will continue to advocate for a well-regulated U.S. tobacco industry that embraces harm reduction. We have an unprecedented opportunity to lead the way in shifting millions of smokers away from cigarettes, if we follow the science and foster innovation with the support of reasonable regulation. I'll now turn it over to Sal to provide more detail on our results and the business environment.
Sal Mancuso: Thanks, Billy. The smokeable product segment continued to deliver on its strategy of maximizing profitability and combustibles over the long term, while appropriately balancing investments in Marlboro, with funding the growth of smoke free products. The segment grew its adjusted operating company’s income by 3.1% in the second quarter and by 1.7% in the first half. Adjusted OCI margins expanded to more than 60% for the second quarter and first half. This performance was supported by robust net price realization of 10.1% in the second quarter and 10.5% for the first half. At retail, Marlboro net pack price increased 6.1% in the second quarter compared to last year. Smokeable product segment reported domestic cigarette volumes decline by 8.7% in the second quarter and 10% in the first half. When adjusted for calendar differences and trade inventory movements, second quarter and first half domestic cigarette volumes declined by an estimated 10% and 10.5% respectively. At the industry level, we estimate that adjusted domestic cigarette volumes declined by 7.5% in the second quarter and by 8% in the first half. At retail, the total discount segment share grew 1.8 percentage points year-over-year to 28.2%, but was flat sequentially. We believe some smokers are trading down as a result of the adverse financial conditions that Billy described. We also continue to see increased competitive activity in the discount segment, including multiple branded discount offerings priced at the discount levels. As Billy mentioned, Marlboro displayed resiliency during a period of economic pressure for consumers. In the second quarter, Marlboro’s retail share of the cigarette category grew a tenth sequentially to 42.1% while declining six-tenths 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. Additionally, Marlboro grew its share within the premium segment to 58.6%, an increase of one-tenth sequentially and five-tenths year-over-year, while other brands seated share in the segment over the past year. We believe Marlboro’s performance over the long-term is a testament to its positioning within the premium segment as the aspirational brand with strong consumer loyalty. In cigars, reported cigars shipment volume increased 5% in the first half. To continue this momentum, the Middleton team is expanding Royal, which will further enhance Black & Mild past the tip [ph] offerings. The team expects Black & Mild and Royal to be available nationally later this month. Moving to the oral tobacco product segment; second quarter adjusted OCI grew 3% and the segment expanded adjusted OCI margins to 68%. This performance was supported by robust net price realization, due in part to more efficient on! promotional investments. In the first half, the segment grew adjusted OCI by 2.6%, with strong adjusted OCI margins of 68.7%. Total segment reported shipment volume decreased by 1.7% and 1.8% for the second quarter and the first half respectively. The segments volume decline was driven by declines in MSP volumes, partially offset by the growth of on! When adjusted for trade inventory movements and calendar differences, segment volume declined by an estimated 2.5% for both the second quarter and first half. Oral tobacco product segment retail share declined 2.8 percentage points in the second quarter 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 a competitive category and Copenhagen remained the category leader. Moving to our investment in ABI, we recorded $132 million of adjusted equity earnings in the second quarter. This was an increase of approximately 6.5% from the year ago period and represents Altria’s share of ABI's first quarter 2023 results. Our balance sheet remains strong and as of the end of the second quarter, our debt to EBITDA ratio was 2.2x. In July, we received the remaining $1.7 billion plus interest from Philip Morris International as a part of the ICO’s agreement we announced last fall. After receiving the payment, we repaid the term loan we entered to finance the NJOY transaction. We remain committed to creating long-term shareholder value through the pursuit of our vision and our focus on significant capital returns and maintaining a strong balance sheet. We demonstrated this commitment in the first half by completing our acquisition of NJOY, retiring approximately $1.6 billion in long-term notes at maturity with available cash, paying approximately $3.4 billion in dividends, and repurchasing $10.4 million shares totaling $472 million. At the end of June, we had $528 million remaining under the currently authorized $1 billion share repurchases 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 altri.com. We've also posted our usual quarterly metrics, which include pricing, inventory and other items. Let's open the question-and-answer period. Operator, do we have any questions?
Billy Gifford : Just quickly before we turn it over to the Q&A, I just want to apologize to those of you on the webcast for some audio issues we had early on in the call. So we will work to expedite the posting of our replay, so you'll have full access to the remarks. So with that, we'll turn to Q&A.
Operator: Thank you. [Operator Instructions] Investors, analysts, and media representatives are now invited to participate in the question-and-answer session. We will take questions from the investment community first. We'll take our first question from Pam Kaufman with Morgan Stanley.
Pam Kaufman: Hi! Good morning.
Billy Gifford: Good morning.
Pam Kaufman: How do you think about the long-term industry volume outlook for the cigarette category? Cigarette industry volumes were down 8% in the first half of this year. Do you expect industry volumes will return to the mid-single-digit decline rate? And what would need to happen for them to normalize towards that level?
Billy Gifford: Yes, thanks for the question Pamela. I think when you think about it, and we’ve discussed this a little bit in the first quarter, but I think it's worth a reminder. Remember, in the COVID pandemic, we actually saw what we believe added nicotine occasions to adult smokers day. As we came out of the COVID pandemic and you saw mobility increase, you would expect some of those nicotine occasions to come back out of their day. And I think that was exacerbated by the cumulative effect of inflation. So we had nicotine occasions coming back out of their day and exacerbated by cumulative inflation. So when you think about it, I think it's best to go back in history a bit and look at similar occurrences where the adult tobacco consumer was under extreme economic pressure. And you can look at ’08, ’09 and you see similar occurrences there. What we see with the adult cigarette consumers, it takes a bit of time for them to adjust to their new situation. And you see typically, and we saw it in ’08, ’09 and ’01, ’02, the consumer returned to their basic normal nicotine occasions in the day. So I think what we're seeing right now, even though inflation is coming down on a cumulative basis, it's still growing. So the consumer is still under economic pressure. You recall that in the first quarter we put some extra investments behind a couple of pockets of areas where we saw a competitor get aggressive with menthol offerings, and where we saw the consumer under pressure and looking to discount. And you see we're extremely pleased with the results of those investments as Marlboro picked up a tenth quarter-over-quarter.
Pam Kaufman: Thanks, that's helpful. And in your prepared remarks, you touched on some of the initiatives that you have to drive NJOY growth. Now that you've owned the business for two months, can you just elaborate on where you see opportunities to operate the brand more efficiently? And how are you thinking about the contribution from NJOY over the coming quarters and the level of investment that you'll need to make behind the brand?
Billy Gifford: Yes, thanks for the question. You're right. There was a month in the results for the quarter, and now we've surpassed another month. Our focus will be on the pod-based product, the ACE NJOY, and you heard my remarks, filling distribution gaps as well as visibility. Just to characterize that, only 3,000 stores currently in distribution carry all top three ACE pod SKUs and about 10,000 stores carry the pods but no devices. So the focus will be both, on filling those distribution gaps and improving visibility, while at the same time enhancing Ace's brand equity to increase both brand awareness and appeal amongst adult smokers and vapors.
Pam Kaufman: Great. Thank you.
A - Billy Gifford: Thank you.
Operator: And we'll take our next question from Bonnie Herzog with Goldman Sachs.
Bonnie Herzog: All right, thank you. Good morning, everyone.
Billy Gifford: Good morning, Bonnie.
Bonnie Herzog: I had a question on your guidance. You reaffirmed your EPS growth guidance of 1% to 4% this year, which remains pretty darn wide, especially given only five months left this year. So I guess I'm trying to understand this, and what headwinds do you see that would cause you to come in at the lower end of your guidance, which implies negative low single-digit EPS growth in the second half?
A - Billy Gifford: Well, certainly we’ve highlighted for you Bonnie that we'll be investing behind the NJOY brand as we expand distribution and have equity spending. I think the other thing is, look, the economy is very dynamic right now, and we've highlighted for you that the adult cigarette consumer is under extreme pressures, and we want the flexibility to adapt to them and be there for our consumers if necessary. So I think we'll see how the economy progresses and we'll see how the adult cigarette consumer returns to, if you will, more of a comfortable position from an economic standpoint.
Bonnie Herzog: Okay, I guess that makes sense. I mean, you have flexibility with some of your investments. So I'm curious, just Billy, can you give us a sense of how much you expect your investment to step up this year versus last year?
Billy Gifford: Yes, I won't go into details just for competitive reasons. Certainly we'll be, as I mentioned, really enhancing the brand equity to increase awareness amongst both adult vapors and adult cigarette consumers, and then we'll be looking for distribution. So both, filling distribution gaps, as well as improving the visibility of ACE in stores where it's currently distributed and then expanding to new stores.
Bonnie Herzog: Okay. And then just maybe one final question for me, just on the relative price gaps which continue to widen. I guess I think it's now the widest it's been for maybe 15 years. I know I've asked you this before, but given it keeps widening, I guess I'd like to hear how your strategy might be changing, given the costs you just mentioned on the consumer and then what the deep discount manufacturers are doing. Just curious to hear how flexible you might be with your pricing promo strategy and then certainly, your strategy behind leveraging Marlboro Black to potentially minimize down trading. Thanks, Billy.
A - Billy Gifford: Yes, thanks. And I'll be careful to not talk about future pricing, but I think you can see like going from first to second quarter. We highlighted for you some areas of where we thought additional investment was necessary and you saw the significant result of those Marlboro increasing a tent sequentially. So we want that flexibility, but I would remind you that the RGM tools, so that price gap that you're seeing is on a national basis, and the RGM tools that we have in the advanced analytics allows us to monitor that price gap down to a very, very low level and we can be efficient with spend and even move spend around if necessary, around the U.S. So that's how we're thinking about it. From a standpoint of Marlboro itself, you see it continues to grow in the premium segment. It's performing very well. And as I highlighted for Pamela, we've seen instances of this in the history of when the consumer is under pressure that you see discount grow, you see premium from a total industry perspective, and then you see that moderate through time.
Bonnie Herzog: Thank you.
A - Billy Gifford: Thank you.
Operator: And we'll take our next question from Vivien Azer with TD Cowen.
Vivien Azer: Good morning.
A - Billy Gifford: Good morning.
Vivien Azer: So I'd like to start on your oral tobacco margins, please. Quite nice to see some year-over-year improvement given kind of the multiyear degradation we've seen in support of on! So Sal, I was wondering, can you just comment on how we should think about margins for oral tobacco in the back half? Thanks.
A - Sal Mancuso: Yes, I'm going to be careful not to talk about future quarters. I will agree with you, we're really happy with the margin performance in the OTP segment. You know for year-to-date, OTP margins, as I said in my remarks were over 68%. What you're seeing, I think is the success of on! where we've grown share each quarter. And as we talked about in our earlier remarks, you see increased pricing of 17% on a year-over-year basis. So I think that shows the strength of on! in the marketplace, but we're really excited about the progress on! is making and the overall OTP performance.
Vivien Azer: Certainly. Thank you for that. And then for my follow-up question, Billy, nice to see the Marlboro market share advance sequentially, despite some of the heightened competitive activity that you called out from competitive premium menthol offerings. Do you – just given kind of the competitive backdrop, do you think that you need to have the Marlboro Black Gold in the marketplace longer than you had originally contemplated?
A - Billy Gifford: Look, we think that's an addition to our portfolio. It certainly gives the Marlboro team – it rounds out the Black portfolio. The Marlboro Black, the family has been around a while. We saw this as a gap in that portfolio and we filled that. So from a standpoint of overall Marlboro Black, you can think about that as about 10% of Marlboro, and it certainly gives the consumer a safe place or a place to land if they are under economic pressure. And as you've seen previously, when we use tools like this, we're able to shrink the gap to mainline through times. So it's about keeping mainline very strong, which we're very pleased that it is, and then having a place for the Marlboro consumer, because Marlboro is still the aspirational brand in the cigarette category. Having a place for them to land when they are under economic pressure, and as the situation changes, we can shrink that gap to mainline.
Vivien Azer: Certainly. Thank you so much for that.
Billy Gifford: Thank you.
Operator: And we'll take our next question from Matt Smith with Stifel.
Matt Smith: Hey, good morning.
A - Billy Gifford: Good morning Matt.
Matt Smith: Billy, I just – I wanted to follow-up on your commentary about the level of investment in the cigarette business. And are we in an environment now with the enhanced digital tools in more efficient ways to engage with your consumers, that you expect more volume to be sold using promotional activity, even as economic conditions improve.
A - Billy Gifford: Yes, I wouldn't think of it as more volume under promotional. I think it's being more efficient and effective with that promotional spend. It's trying to get it to the individual consumers as close as we can get to that, that needs it, while not subsidizing adult cigarette consumers that don't need it. And I think you've seen that with both, the growth of Marlboro in the premium space, the investments we made first to second as Marlboro [ph] has the 10th sequentially bump and the price realization we're experiencing in the cigarette space.
Matt Smith: Okay, thank you for that. And if I could ask another question on the growth on the on! oral brand. The growth there remains robust even as you've reduced promotional activity. Can you remind us where the brand stands today in terms of distribution and how we should think about the drivers of growth for on! in the second half of the year?
A - Billy Gifford: Yes, I think from a distribution we've got it in the stores and while you may see small fluctuations as we decide if we want to add additional stores and distribution, but we've got it to where we want it. You’ll recall we were capacity constrained from a manufacturing basis where beyond that it continues to grow. I would say that growth as we move forward, as it continues, even though we've been talking about it and you guys have been talking about it for a while, it's still fairly new to the consumer. So it is continuing to drive awareness and specifically trial. Once the consumer tries it, they enjoy the product. So that's where the growth will come as the success in achieving new consumers to the category as they transition. I think when you think about that transition through time, it's important to remember that you're looking at the consumer, specifically dippers that are moving currently in large amounts, but it's also talking to the cigarette consumer and it allows oral tobacco product to be available to consumers that previously rejected moist smokeless tobacco.
Matt Smith: Thank you for that Billy. I’ll pass it on.
A - Billy Gifford: Thank you.
Operator: We'll take our next question from Andrei Condrea with UBS.
Andrei Condrea: Hi, good morning everyone. Thanks for taking my questions. Two from me please, if you don't mind. Firstly, when looking at the U.S. Cigarette industry, we saw that discount was stable on a sequential basis, bucking the trend from the past three to four years. How much of that do you think could be attributed to your Marlboro Black Gold for instance, and just increased promo activity from your NPS? Thank you.
A - Billy Gifford: Yes, I don't know if I would specifically attribute it to increased promo. As we've highlighted for you, the adult cigarette consumer in the U.S. is really under economic pressure and so you look to certainly give them places to land, specifically in Marlboro a place to land, where they can continue to engage with Marlboro. We see that as both, less expensive versus than leaving and returning, and we've been successful with that in the past, and I think you see the result first to second quarter.
Andrei Condrea: Makes sense, thank you. And secondly, this is a bit more medium-term, but as you're pushing harder into vaping now with NJOY, illicit products are a problem on the market as flagged by one of your peers. What can you and said peer do more to, well, basically improve enforcements in the area and get those numbers down?
A - Billy Gifford: Yes, I think its continued engagement, both with congress as well as the FDA, so really making this their top priority. You saw under aged use of e-vapor come down, but it's essential that the FDA really focused on enforcement, its illicit products in the marketplace with flavors that are not authorized. And so you saw in the most recent national youth tobacco survey that the most popular product with youth following was in the list of products in the marketplace. Now they have started stepping up their enforcement, but it needs to be more vigorous in the marketplace. Even if they would just publish a list of those products that are authorized and those that are under review, it would certainly level stuff at the trade, because the enforcement that they are doing while encouraging isn't enough to change what the marketplace is – what we're experiencing in the marketplace.
Andrei Condrea: Very clear, thank you. I’ll pass it on.
Operator: Thank you. [Operator Instructions] We'll take our next question from Gaurav Jain with Barclays.
Gaurav Jain: Hi. Good morning, Billy. Good morning Sal.
Billy Gifford: Good morning.
Gaurav Jain: Hi. A couple of questions from me. So one is on the e-cigarette industry growth, clearly disposables are cannibalizing closed end e-cigarettes. So why are you launching the NJOY ACE and not the NJOY daily product? In that context, can you also just tell us where you are with the PMPA application of the next gen product, which is – which you have mentioned you have filed.
A - Billy Gifford: Yes, so let's break that down. So the first part, I think if you think about the e-vapor category, certainly there's a large pod base of consumers and so we certainly see that as an opportunity. And you heard in the remarks, you know the NJOY ACE is the only pod that has received FDA authorization. When you think about the disposable side, the growth, at least what we're seeing in the marketplace is with the factor of flavors that are illicitly in the marketplace. So as the FDA certainly steps up enforcement and we see enforcement take place and those illicit products come out of the marketplace, we see the potential again, because NJOY was able to receive authorization for their disposable, the opportunity for growth in that space. But we feel like the appropriate focus is on that large pod base, consumer base, until the illicit plethora of flavors and the flavors that are illicitly in the marketplace are cleaned up. From a standpoint of the age restriction I think you were referring to, you know we just recently closed it and we're excited about that technology. We're assessing the timing of following that. You know we would have a target in mind by the end of this year. But I think what's so exciting about it is it's the regulatory team that we certainly welcome onboard from the NJOY that was – that successfully navigated it. It’s the only pod based product that has navigated the regulatory. So we're excited. They had started the application and again, we would target following that by the end of the year.
Gaurav Jain: Sure. Thank you. And can you also update us on this Juul patent litigation that they have filed against NJOY, which I found very surprising, considering I thought you would have – when you walked away from June, you would have gained access to all their IP. So could you just help us understand what's happening there?
A - Billy Gifford: Sure. We believe that the litigation against us is meritless and we're vigorously looking to respond to that. If we step back from it, we think it's interesting that Juul only brought the suit after we completed the acquisition. The litigation, if you think about it from a standpoint of the merits of it, it really feels like a bit of an active desperation if you will. The spiteful competition is really from the only pod based product that the FDA has determined appropriate for the protection of public health. So we see it as meritless.
Gaurav Jain: Okay, sure, and if I could just sneak in one last one, because you mentioned that on! PLUS you will launch in Sweden even if it is targeted. Would you also be looking at launching NJOY internationally at some point of time?
A - Billy Gifford: Yes, the focus currently as we mentioned, you know still in the distribution gaps on the existing stores in the U.S., expanding distributions to approximately 70,000 stores by the end of this year, and we'll come back to you on international, and any international plans when it's appropriate.
Gaurav Jain: Well, thank you so much.
A - Billy Gifford: Thank you.
Operator: And there appears to be no further questions at this time. I would like to turn the call back over to Mac Livingston for any closing remarks.
Mac Livingston : Thank you for your time this morning. If you have any follow up questions, please feel free to reach out to the Investor Relations team. Thanks and have a great day!
Operator: This concludes today's call. Thank you for your participation. You may disconnect at any time.
