Good day, and welcome to the Altria Group 2022 Second Quarter and First Half Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Altria's management and a question-and-answer session. 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.

Thanks, Ashley. 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 2021. 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 Altria's Board. Altria reports its 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.

Thanks, Mac. Good morning, and thank you for joining us. Altria's tobacco businesses performed well in a challenging macroeconomic environment for the first half of the year. The smokeable products segment delivered solid operating company's income growth behind the resilience of Marlboro, and our moist smokeless tobacco brands continued to drive profitability. We also continue to make progress toward our vision through the investments we laid out in January, which included supporting the expansion of on!. We are encouraged by on!'s retail momentum and significant share growth since achieving unconstrained capacity last summer. We believe this is a pivotal point in the U.S. tobacco industry. The FDA has the opportunity to create a mature, regulated marketplace of smoke-free products that can successfully realize tobacco harm-reduction and improve the lives of millions of smokers. We share the FDA's goal, to transition smokers away from cigarettes, but we continue to believe that harm-reduction, not prohibition, is the best path forward. My remarks this morning will focus on three topics: our core tobacco businesses, including the macroeconomic backdrop and potential combustible tobacco product regulation; the smoke-free opportunity in the U.S. and our smoke-free product portfolio; and our continued confidence in our vision. I'll then turn it over to Sal, who will provide further detail on our business and financial results. Let's begin with a review of the macroeconomic backdrop and its impact on U.S. tobacco consumers. In the second quarter, rising gas prices and inflation continue to pressure tobacco consumers' disposable income, resulting in volume declines across the tobacco space. However, we believe that tobacco consumers adapted their purchasing patterns across a variety of goods and services to compensate for the increases in prices. Some of the tactics used by consumers to manage their spending included only partially filling the gas tank and shifting their tobacco purchases from multipack towards single-pack purchases, particularly among discount smokers. We also saw signs of continued brand loyalty in the tobacco space. In May, we conducted research to understand how tobacco consumers were managing their spending in several categories, including tobacco, alcohol, groceries, and household items. Our research indicates that tobacco consumers are more likely to stick to their preferred brand regardless of price in the tobacco category compared to other categories. Additionally, tobacco consumers saw price relief in other categories before doing so within the tobacco category. We believe that this prioritization is reflected in the sequential stability of Marlboro retail share despite greater economic pressures on consumers. We believe inflation and the rising gas prices were partially offset for some consumers by a strong job market and wage growth. Overall, average wages increased 5.2% in the second quarter compared to an average of 8.6% increase in CPI. And for some occupations, including the service industry, wage growth outpaced inflation. We continue to monitor tobacco consumer behaviors and changes in marketplace conditions, such as the declining gas price that we have observed in recent weeks, and we will continue to provide our insights as the year progresses. These macroeconomic factors contributed to accelerated cigarette volume declines in the second quarter and first half, which Sal will discuss in his remarks. In combustible regulatory news, the FDA proposed rules that would ban menthol in cigarettes and characterizing flavors in cigars. The FDA has already received over 200,000 comments on the proposals, and we expect to submit our comments by the August 2 deadline. The FDA will need to address all of these comments before advancing to the next step in the rule-making process. As our comments will make clear, we believe that there are compelling reasons for the FDA to reconsider its proposed rules relating to menthol and cigars. Additionally, the Biden administration announced plans for future FDA rule-making to develop a product standard that would set a maximum nicotine level for cigarettes. If and when the FDA proceeds with rule-making, we expect to be fully engaged in the multiyear process. We believe harm-reduction is the best approach toward reducing smoking and improving public health. And according to a nationwide survey, others agree. Based on our research, a majority of the survey public policy professionals, smokers, and general population adults support the concept of tobacco harm-reduction and prefer this policy approach over tobacco prohibition. But to achieve harm-reduction, we believe manufacturers must develop and the FDA must authorize an array of potentially reduced harm products that can appeal to and transition smokers. This brings me to my next topic, the smoke-free opportunity in the U.S. and our smoke-free product portfolio. Today, over 20 million U.S. smokers seek less harmful alternatives to cigarettes. Our strategy is to deliver a compelling portfolio of smoke-free products that offers a range of satisfying product choices for smokers and to responsibly lead them to these alternatives. Our approach spans three of the most promising smoke-free categories with the potential to reduce harm: oral tobacco, e-vapor, and heated tobacco. In oral tobacco, we're encouraged by the growth of the novel oral products, which comprise more than 1/5 of total industry oral tobacco volume in the second quarter. The category grew 6.8 share points year-over-year, with on! representing more than 40% of this growth. In the second quarter, on! reported shipment volume increased nearly 60% versus the year-ago period. And on! retail share of oral tobacco increased 8/10 sequentially, reaching 4.9 share points in the second quarter. This represents a growth rate of almost 150% year-over-year. These strong results were driven by increased adoption of on!, increased brand awareness, and higher levels of investment. Helix achieved unconstrained on! manufacturing for the current U.S. market in the second quarter of 2021. Over the four quarters since then, Helix enhanced the retail visibility and awareness of on!, leading to an over 70% increase in consumer awareness, tripled on! repurchases and continued to increase trial using transition marketing and data-driven strategies. And grew on! retail share to be a top 5 U.S. oral tobacco brand, solidifying its position as the second largest oral nicotine pouch brand in each region of the U.S. More recently, Helix launched the new Carry On Equity campaign, which encourages smokers to make progress in their transition journey. The campaign highlights that by converting to on!, smokers can have nicotine satisfaction without having to step away from their daily routines, which addresses the social friction they experience with smoking. Looking ahead, Helix expects to use its understanding of the smoker journey and the smoke-free products to drive repeat purchases and adoption among smokers. We are excited about the performance of on! and the opportunity for future growth. I'll now move to the e-vapor category, which we continue to believe will be significantly influenced by regulatory actions. In the second quarter, total estimated e-vapor volumes declined 2% versus a year ago and 7% sequentially as a result of decreased volume in the vape store channel, a reversal of the trend we observed in the first quarter. Currently, slightly over half of the category's volume is comprised of pod-based products such as JUUL and Vuse Alto. Within e-vapor, disposables represent the fastest growth segment since January 2020, which corresponds to when the FDA issued guidance banning flavors only in pod-based e-vapor products. Many of these disposable brands, including Puff Bar, contain synthetic nicotine. Recent legislation, which we strongly supported, clarified the FDA's authority to regulate tobacco products containing nicotine from any source. Manufacturers of synthetic nicotine products were required to obtain FDA authorization by July 13 to continue legally marketing their products. So far, no synthetic nicotine product has been granted authorization. And the FDA has committed to pursuing compliance and enforcement action against companies found to be marketing, selling, or distributing illegal synthetic nicotine products. Thus far, the FDA has authorized only 23 total e-vapor applications, accounting for only 8 products and approximately 1% of estimated e-vapor category volume. Further, the FDA has only authorized tobacco-flavored e-vapor products, most of which were for cigalike-style products, which we believe generally do not meet smoker expectations or deliver a satisfying product experience. Given the limited number of authorizations today, we believe that the e-vapor category is still in its early phases. But with the support of reasonable regulations, we believe it could play an important role in harm-reduction. Moving forward, we hope to see timely science and evidence-based determinations from pending PMTA applications and further enforcement against non-compliant manufacturers. In the second quarter, JUUL products received marketing denial orders or MDOs. Earlier this month, the FDA administratively stayed the JUUL MDOs citing unique scientific issues that warrant additional FDA review. The administrative stay temporarily suspends the MDOs during the additional review, but does not rescind them. Regarding our investment in JUUL, we recorded for the second quarter a noncash pretax unrealized loss of $1.2 billion as a result of a decrease in the estimated fair value of our investment. The decrease in fair value was driven by several factors including uncertainty created by the FDA's action related to JUUL and uncertainty relating to JUUL's ability to maintain adequate liquidity. As of June 30, our estimated valuation is $450 million, which reflects a range of regulatory, liquidity, and market outcomes. Under the terms of our relationship agreement with JUUL, we have the option to be released from our non-compete obligation under several conditions including the fair value of our investments, if the fair value of our investment is not more than 10% of the initial carrying value of $12.8 billion. However, if we elect to be released from our non-compete obligations, we would lose many of our investment rights, including our consent rights, our preemptive rights, and most of our Board designation rights. At this time, we continue to believe that these investment rights are beneficial to us. Therefore, we have not opted to be released from our non-compete obligations at this time, but retain the option to do so in the future in accordance with our agreement with JUUL. We continue to believe that e-vapor products, including JUUL, can play an important role in tobacco harm-reduction. In heated tobacco, our teams remain in discussions with PMI related to IQOS. We continue to believe in the potential of the heated tobacco category in the U.S. Our plans remain on track to finalize designs by year-end for two product platforms within heated and oral tobacco and then begin regulatory preparations. Our journey towards responsibly transitioning adult smokers to a smoke-free future continues. And while we may face near-term challenges, we believe that the tobacco harm-reduction opportunity remains in front of us. As the leader in the U.S. tobacco industry, we have continued confidence in our ability to achieve our vision for several reasons, including our robust manufacturing, sales, and distribution system and understanding of U.S. tobacco consumers. Our science-based approach to tobacco harm reduction, which we believe is aligned with tobacco consumers, society, and the FDA. Our portfolio of products and investments across the most promising smoke-free categories and our significant cash flows and flexible balance sheet, which support our investments and shareholder returns. With these in mind and the resiliency of our organization, we believe we can lead the U.S. in moving beyond smoking. I'll now turn it over to Sal to provide more detail on the business environment and our results.

Thanks, Billy. Altria grew adjusted diluted earnings per share by 2.4% in the second quarter and by 3.5% in the first half across the challenging macroeconomic environment that Billy described. The smokeable product segment continued to deliver on its strategy of maximizing profitability in combustibles while appropriately balancing investments in Marlboro with funding the growth of smoke-free products. The segment grew its adjusted operating company's income by 0.6% in the second quarter, and 2.9% first half. Adjusted OCI margins expanded by 0.7 percentage points to 59.1% for the second quarter and by 1.33 percentage points to 59.3% for the first half. This performance was supported by robust net price realization of 11.5% in the second quarter and 10.4% for the first half. I'll remind you that manufacturer price realization does not reflect retail price change for smokers. For example, Marlboro net retail pack price increased 5.6% in the second quarter compared to last year. Smokeable products segment reported domestic cigarette volumes declined by 11.1% in the second quarter and 8.9% in the first half, primarily due to changes in consumer purchasing behavior as a result of increased gas prices and inflation. When adjusted for trade inventory movements and factors, second quarter and first half domestic cigarette volumes declined by an estimated 10% and 9%, respectively. At the industry level, we estimate that adjusted domestic cigarette volumes declined by 8.5% in the second quarter and 7.5% in the first half. As Billy mentioned, Marlboro displayed resiliency during a period of continued uncertainty for consumers. In the second quarter, Marlboro's retail share of the cigarette category grew 1/10 sequentially to 42.7% while declining 4/10 versus the year-ago period. Additionally, Marlboro grew its share within the premium segment to 58.1%, an increase of 3/10 sequentially and 5/10 versus a year ago. Moving to the total discount segment. Total share was flat sequentially, even as gas prices rose significantly from the first to second quarter. Discount increased 1.3 percentage points year-over-year to 26.4% as we lapped the period when the discount segment contracted from smokers having higher disposable income. Additionally, we observed increased churn between the branded and deep discount segments as a result of a deep discount manufacturer's exit from the marketplace earlier this year. In cigars, reported cigar shipment volume decreased by 5% in the second quarter due to macroeconomic pressures on consumer disposable income, trade inventory movements, and other factors. However, Middleton continues to provide a strong contribution to smokeable segment financial results. In the oral tobacco product segment, adjusted OCI and adjusted OCI margins contracted in the second quarter and first half due to several factors, including declines in MST volumes, increased investments behind on! and unfavorable mix. We remain pleased with the strong overall margins for the segment as we made progress with on! At the industry level, tobacco oral tobacco volume declined 0.5% over the past six months. We continue to observe steady growth from the oral nicotine pouch category, but this has been offset by declining MST volumes due to the challenging macroeconomic environment and its effect on consumer behavior, consumer movement to oral nicotine pouches, and other factors. Total segment reported shipment volume decreased by 4.4% for the second quarter and by 3.2% for the first half. The segment's volume decline was driven by declines in MST volumes, partially offset by the growth of on!. When adjusted for trade inventory movements, segment volume declined by an estimated 2.5% for the second quarter and 1% for the first half. The total oral tobacco product segment's retail share for the second quarter contracted 2/10 sequentially and 1 share point versus the prior year to 46.7%. Copenhagen is celebrating its 200th anniversary this year. We're extremely proud of Copenhagen's long history and the fantastic employees who have supported the brand over the years. To them, we say thank you. After 200 years, Copenhagen remains the number one dip brand because of your hard work, dedication, and passion. To honor this impressive milestone, the team introduced Cop Rewards, the first and only national rewards program for an MST brand. Under the program, dippers can earn points by entering codes from their Copenhagen cans and can redeem them for coupons or rewards. We're excited about Cop Rewards and its potential contributions to Copenhagen's sustained leadership in MST. Turning to our investment in ABI, we recorded $124 million of adjusted equity earnings in the second quarter. This was an increase of approximately 9.7% from the year-ago period and represents Altria's share of ABI's first quarter 2022 results. We 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 half by acquiring intellectual property and other assets for a multi substrate heated capsule technology from Poda, paying approximately $3.3 billion in dividends and repurchasing 21.4 million shares, totaling $1.1 billion. We have approximately $750 million remaining under the currently authorized $3.5 billion share repurchase program, which we expect to complete by the end of this year. Our balance sheet remains strong. And as of the end of the second quarter, our debt-to-EBITDA ratio was 2.3x. In August, we expect to retire $1.1 billion of notes coming due with available cash. And lastly, our financial plans for the year remain on track and we reaffirm our guidance to deliver 2022 full year adjusted diluted EPS in the range of $4.79 to $4.93. This range represents an adjusted diluted EPS growth rate of 4% to 7% from a $4.61 base in 2021. 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 all on altria.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?

Our first question comes from Chris Growe with Stifel.

Billy, I have a question for you regarding the significant moment we find ourselves in with this category. I would like to get your perspective on how you are currently investing to internally develop reduced risk products. Given the uncertainty around your positions in JUUL and IQOS, those are no longer part of your portfolio, which poses a risk. I want to understand what actions you are taking internally. You mentioned having a product ready by the end of this year. To what extent could mergers and acquisitions play a larger role in enhancing your position in reduced risk products moving forward?

Yes. Thank you for the question, Chris. When we think about our investments, we are certainly focusing on our innovation process. We have internal development underway, and I have mentioned before that we are changing this process to be more consumer-focused. We are closely monitoring the marketplace, and I believe we have shifted from merely following the market to engaging directly with consumers. There is a significant amount of consumer interaction, almost to the extent of co-developing products with them in categories where we can innovate. As you noted, we cannot develop in the e-vapor category due to our agreement with JUUL. However, we continue to observe the marketplace and gauge consumer satisfaction with various products. We are also looking globally at alternative products to inform our internal development and identify potential emerging products in other markets.

And so would M&A be an important contributor, do you think, going forward for Altria's position in this category?

It certainly won't be off the table, Chris. But I think for the investments we're making in our internal development, we feel good about the pipeline of products that we have.

Okay. And just one other question in relation to pricing in the cigarette category. It's been larger than expected, and it's occurred sooner than I expected, at least this year. And I guess in this environment where there's obviously a more burdensome macroeconomic factor that's weighing on your volume, are you seeing a greater shift to some of the lower-priced or more highly promoted Marlboro varieties? And do you see a need to have to increase promotional investments in light of the heavy pricing coming through in this environment?

Yes, Chris, it's a good question and something we monitor. When you look at the sequential performance of Marlboro and the discount category, you can see that there was stability. Marlboro actually grew by 0.1%, and the discount category remained flat from the first quarter to the second quarter. With the advanced analytics tools we've implemented, we feel confident about our position. Sal raised an important point regarding the impact on consumers. A 5% to 6% price increase is significantly lower than the inflation they face in other categories. The feedback we've received indicates that consumers still prioritize the tobacco category highly. Long-term, Marlboro's share is right where it was before the pandemic. During the pandemic, it benefited from additional funds from government assistance and unemployment, reinforcing its status as the aspirational brand. While we've given back some share, we're satisfied with Marlboro's current position. The collaboration between our advanced analytics teams and the Marlboro team has contributed to the remarkable stability of the brand.

And we will take our next question from Pamela Kaufman with Morgan Stanley.

So industry cigarette volumes have weakened considerably during the second quarter. You highlighted the headwinds facing smokers and how they're adjusting their purchasing behavior. I guess how are you thinking about the outlook for cigarette volumes over the remainder of the year? And then related to that, how much more pricing do you think that consumers can tolerate just given so far, we really haven't seen a meaningful acceleration in trade down to the discount segment, it's been consistent over the last couple of quarters. Do you see an accelerated risk of trade down within the category?

Sure. Let me break that down for you, Pamela. If I miss anything, feel free to add. When considering the decline in cigarette volumes we observed in the first half of the year, it's important to look at the historical context and the macroeconomic changes affecting our consumers. They tend to make short-term adjustments and adapt over time. In the first half, we noticed a slight decrease in gas prices as we moved into the third quarter, which correlated with our consumers' behavior since they typically fill up their vehicles and then make purchases. Our research indicates that consumers are adjusting their habits to prioritize their tobacco choices, particularly in convenience stores or gas stations. In terms of pricing, we’ve discussed before that when we compare the hours worked in the U.S. to other countries with established tobacco markets, the U.S. remains on the lower end. Therefore, we believe there is still room for price adjustments, although we keep a close watch on it. Our pricing considerations include brand strength, corporate objectives, consumer economic health, and competitive actions. It's also worth noting the tools we've implemented, like price gap analysis and national metrics, enhanced by advanced analytics, which allow us to tailor retail promotions to meet the specific needs of consumers in local areas, making it possible for responses to differ between places like Cleveland and Dallas.

That's helpful. Definitely, I just wanted to ask about how you're thinking about the implications to your relationship with Philip Morris in the heat-not-burn category, given their planned acquisition of Swedish Match? And how are you preparing for changes in the competitive in the U.S.?

Well, Pamela, you know this as well as I do that it's always been a competitive marketplace. We always had major players. Certainly, this brings a new major player to the marketplace, but we feel like we have the tools in place. So we're going to evaluate everything, make sure that we understand or at least game plan how, Pam, I would approach the marketplace using the products of Swedish Match and adapt accordingly. I don't want to go much further than that for competitive reasons. I think from a standpoint of heat-not-burn, I shared in my remarks that we're continuing discussions with them about IQOS.

And we'll take our next question from Azer, Vivien with Cowen.

I wanted to highlight your comments about the improved trial resulting from the expanded Helix manufacturing capacity. Could you elaborate on repeat usage and how you're measuring that in relation to the promotions and the category?

Yes. Vivien, it's a great question. I think when you think about on! Our research teams are really looking at repeat purchases versus trial offers. And we want to have increases in both. If you think about repeat purchases, we're very pleased with where we're at. Certainly, to your point, as we're investing, you have those repeat purchases that take place and you want to see the concreteness of that. And we feel very pleased and enjoy the repeat purchases that we have. But we felt like there was still opportunity to drive awareness, and you've seen the increase in awareness we've been able to drive. And it's specific to the adult consumer that the product is very satisfying to the adult cigarette consumer, and we feel like there's still opportunity for trial there.

Understood. And then my other question is just on the industry outlook. I know you guys have shied away from offering industry volume guidance for a while now, and I fully appreciate why. But if we look at the supplemental disclosures, estimated industry volume declines have nearly doubled over the course of the last 12 months, against a very challenging macrobackdrop. And that does account for it in the table that you've disclosed. I'm just curious so, has your thinking around the underlying macrodrivers changed at all?

It hasn't, Vivien. When you look back at those quarters we provided, you can see how macroeconomic factors have shifted. We've experienced similar swings in the past, such as how macroeconomic conditions can sometimes be beneficial. For example, gas prices in 2015 were a substantial advantage. The key point to highlight is the increasing correlation we observe between gas prices and purchasing behavior. Historically, our attempts to correlate gas prices with consumer behavior resulted in minimal changes. Now, we're seeing quicker fluctuations in gas prices, which influence consumer behavior as they adjust to these short-term changes.

And we'll take our next question from Bonnie Herzog with Goldman Sachs.

I just have a question on your guidance. You maintained your full year mid-single digit EPS growth guidance, but that does imply the second half EPS growth will need to accelerate versus the first half to hit the midpoint of your full year guide? So I just want to hear from you what gives you the confidence this is going to happen, especially during an economic slowdown. I mean are your expectations that this will be driven from greater net price realization, assuming volumes remain pretty pressured or decelerate further? Are there any expected cost savings that you're hoping to realize in the second half that you could share with us? And then just finally, how do we think about stepped-up investments that you might be making towards your smoke-free vision? Is that something that's factored into your guidance?

Yes. So Bonnie, first, thank you for the question, I'll take you through how we think about guidance. So throughout the year, we have communicated that we expected the second half to really drive the growth of our EPS on a year-over-year basis. And just to remind you of a couple of factors that we are seeing in the back half of the year. One is, we begin to lap quarters where we had unconstrained manufacturing in the nicotine pouch category. Also, in the fourth quarter, we're, for the first time, going to be lapping a quarter without line income, right? That will happen in the fourth quarter. And then in the back half of the year, as inflation accelerated and we adjusted our MSA inflation assumptions, you start to lap that in the back half of the year as well. So there's some comparative factors that are part of the first half versus second half EPS growth. As far as investments, spending isn't linear necessarily throughout the year, especially when you were making investments in infrastructure and things like that. So I definitely wouldn't look at 1 quarter spending when it comes to that and read into it. It is something that ebbs and flows throughout the year.

I wanted to ask about the uncertainty surrounding your smoke-free future, considering the current landscape with JUUL and Philip Morris entering the U.S. via Swedish Match, as well as your ongoing dispute with Philip Morris regarding IQOS. This remains a significant concern for investors. While you've touched on this before, any additional insights you could provide about your goals for achieving a smoke-free future and transforming your business over the next decade would be beneficial. I understand that your agreement with JUUL has the fair value below the agreement, but I believe you have the capacity to compete in the e-vapor market. Is that something you're looking into? Additionally, could you provide more details on the timing for your heat-not-burn product? You mentioned it's expected to be in final design by the year's end, followed by regulatory preparations. How long do you estimate it will be before you can launch a product to the market? Are we looking at a timeframe of 2 or 3 years? I'm trying to understand the parameters for achieving your goals.

Thank you for the question, Bonnie. It's important to take a step back, and I want to elaborate on my earlier remarks. The entire harm-reduction opportunity is available to us in the U.S., and here's why I believe that. I mentioned previously that the authorizations granted in the e-vapor category so far only account for 1% of the total volume. This means there is still 99% of potential authorizations that could go in different directions. As we await the FDA's decisions regarding those authorizations, this category will experience some transition. Regarding novel oral products, while we and our competitors are making progress, we are still waiting for FDA authorizations in that area. Additionally, heat-not-burn products are gaining traction internationally but are absent in the U.S. Thus, these are the three key growth categories. I want to emphasize that the harm-reduction opportunity is right in front of us. You are correct that we are developing products in two of these categories, and we are optimistic about our pipeline. I understand you are eager to see these products, and I share that enthusiasm, but we will reveal them at the right time. We are confident in our co-development with consumers in this space. For e-vapor, I want to add that we have always monitored the marketplace to gauge consumer satisfaction for various products, both domestically and abroad. About this quarter, you are correct that we have the option to exit the noncompete agreement if we choose. We feel confident in the current situation with the FDA's stay, and the decisions we discussed are still pending. We believe these factors are advantageous for us right now, and we will continue to evaluate our options and make decisions accordingly.

And we'll take our next question from Priya Ohri-Gupta with Barclays.

This is Puja on behalf of Priya. And my question is, so based on your comments indicating that you plan to repay your upcoming maturity with available cash. How are you thinking about any subsequent need to access the market for refinancing? And I also have a follow-up after that.

Sure. And thank you for the question. I'm really not going to signal future capital allocation decisions. I'm happy to share how we think about capital allocation, which, of course, considers a number of factors in those decisions including marketplace dynamics. We manage our balance sheet very carefully. We want to have a strong balance sheet. We want to continue to have an investment-grade credit rating. So when we think about capital allocation, we take a balanced approach, and we've made the decision in August to use available cash to retire that debt, but future debt maturity towers, we'll analyze the marketplace at the time and make the appropriate decision.

Okay. That makes sense. And as a quick follow-up, where should we sort of expect you to manage your cash balance over the near term as this will likely bring it more in line with your pre-pandemic type ranges?

Yes. Look, we are very fortunate in that we have operating companies that generate a significant amount of growth in cash. In a typical year, after paying our dividend and making the necessary investments, we traditionally have had, let's call it $1 billion in excess cash. And at the time, we make various decisions. There are times where we've gone to the Board and asked for a share buyback program. There are times where we've done some liability management to manage our maturity towers going forward, and strengthen the balance sheet. And there are times where we've made some investments such as the investment we made for the Poda technology recently. So that's how we think about cash going forward. But again, our operating companies do a tremendous job of generating cash flow for the shareholder and other stakeholders.

And our next question will come from Gaurav Jain with Barclays.

A couple of questions from my side. So look, we have had some discussion around the harm-reduction opportunity in front of us, and how it is very early. But if we really look where harm-reduction is really developing, it is all international because it's very hard to introduce new products in the U.S. market because of the PMTA process. But do you think that really to explore the harm-reduction opportunity, you need to go international, much like Philip Morris is entering U.S.?

Yes. To your point, and I appreciate you recognizing that the PMTA process and the entire harm-reduction opportunities in front of us in the U.S. It's something that we consider on a regular basis of how to get early consumer feedback outside of research in a live marketplace. And thus far, we've opted to go the route we are, which is with consumer research, but it's something that we consider on a regular basis.

Sure. I would like to follow up on the questions about JUUL and the potential end of exclusivity, as well as the synthetic nicotine market. Some companies have applied for PMTAs and may receive them. How do you view synthetic nicotine as an ingredient? Is it a market you are interested in exploring? If some companies obtain PMTAs, is that an area you would consider entering?

Yes. Certainly, we were pleased that with the support that took place, that synthetic nicotine is now under FDA authority. We believe in the process as far as the FDA being able to assess the science and evidence. Again, we watch all products that are in the marketplace, both in the U.S. and internationally, to understand how the consumer is interacting with them, what benefits they receive from them as far as satisfaction, enjoyment, and the brand itself. And so it's something that stays on our radar.

We'll open it for the media. We'll go next to Jennifer Maloney with Wall Street Journal.

I wanted to follow up on your statement, Billy, that M&A is not off the table for reduced risk products. And I wanted to ask specifically about the e-vapor category. Would you be open to the possibility of acquiring an e-cigarette brand, for example, that already has FDA authorization?

Yes. While I cannot comment on mergers and acquisitions specifically, we have been continuously observing the e-vapor market. It's important for us to understand how consumers engage with different brands, their preferences, and the satisfaction derived from their products. With our recent write-down below 10%, we now have the chance to explore various opportunities and consider different choices if we decide to. However, at this stage, we have opted not to make any changes. Given the current status of the FDA's review process of the applications and our rights under the agreement, we believe it is in our best interest to remain under the non-compete agreement for now.

For your smoke-free future goals, do you expect or plan to focus on one particular category, like is modern oral going to be the focus of your efforts there? Or do you hope to play in all of the reduced-risk categories?

Yes. We highlight that we see three categories right now as the growth potential in the U.S. That's the heat-not-burn category, the e-vapor category, and the novel oral. Certainly, they will be shaped by regulatory decisions, federal legislative decisions on excise taxes and future innovation in those categories from the various manufacturers. So that will shape how large they are, but we see those as the three potential growth areas, and we look to participate in those. I would remind you that's why we work with the portfolio approach because we see consumers going from cigarettes to those various categories, and we want to be there for the consumer, depending on what category they choose.

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 comments.

Thanks, Ashley, and thanks, everybody, for joining us. Please contact the Investor Relations team if you have any further questions. Thanks a lot.

Thank you, and this does conclude today's call. Thank you for your participation. You may disconnect at any time.