Good day, and welcome to the Altria Group 2026 First Quarter 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. If you'd like to ask a question during this time, and if you're joined by the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. If you're joined by phone, please dial star 9 to raise your hand, and when prompted, star six will allow you to mute and unmute. 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 Mack Livingston, Vice President of Investor Relations. Please go ahead, sir.

Thanks, Sheha Alani. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO, and Sam Mancuso, our CFO, will discuss Altria's 2026 first quarter business results. Earlier today, we issued a press release providing our results. The release, presentation, and quarterly metrics are all available at altria.com. During our call today, unless otherwise stated, we're comparing results to the same period in 2025. five. Our remarks contain forward-looking statements, including 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 of directors. 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 to the most comparable GAAP financial measures are included in today's earnings release and on our website at altria.com finally all references in today's remarks to nicotine consumers or consumers within a specific nicotine category or segment refer to existing adult nicotine consumers 21 years of age or older with that i'll turn we call over billy thanks mac good morning and thank you for joining us we delivered a strong start to the year growing adjusted diluted eps

by 7.3% in the first quarter. Our highly cash generative businesses supported significant returns to shareholders through dividends and share repurchases while we continued to invest in support of our vision. Our smokable product segment generated strong income growth. Marlboro strengthened its position in the premium segment, and PMUSA continued to execute its total portfolio strategy with discipline. In the oil tobacco product segment, ON performed well in a highly competitive marketplace and Helix expanded ON Plus nationwide. My remarks this morning will focus on first quarter performance from ON and an update on the state of the e-vapor category. I'll then turn it over to Sal, who will provide further detail on our business results and financial outlook. Let's begin with ON and the nicotine pouch category. Over the past six months, oil nicotine pouches drove the estimated 9.5% increase in total oil tobacco industry volume. In the first quarter, the nicotine pouch category grew 9.1 share points and now represents more than 58% of total oil tobacco. Against this backdrop, Helix delivered solid results in a highly competitive environment. Reported shipment volume for the total oil portfolio grew nearly 18% to over 46 million cans in the first quarter, reflecting continued demand for OnClassic and the pipeline shipments with the OnPlus national expansion. At retail, On and OnPlus together represented 7.8 percent of the total oil tobacco category, down 0.8 share points year-over-year and up 0.2 share points sequentially. We began shipping ON-PLUS nationwide in March, and at the end of the first quarter, it was available in approximately 100,000 stores, representing 85% of nicotine pouch category ON-PLUS is the first and only product authorized under the FDA's pilot program aimed at streamlining PMTA reviews for certain ORM nicotine pouches. The brand is currently available in three flavors across two nicotine strengths and features our proprietary Nicosilk technology. To support the OnPlus expansion, Helix recently launched a new retail trade program to strengthen execution across the full OnPortfolio. portfolio. The program is focused on increasing visibility and securing incremental fixture space to support OnPlus today and future innovations over time. Today, the Helix trade program has secured premium retail positioning in contracted stores representing approximately 90% of Helix volume additionally one plus is prominently featured across key retail touch points with coordinated signage from curb to counter one class is supported by marketing that highlights the product experience including visuals that showcase the pouch itself communicate comfort and reinforce its positioning as the softest couch on the planet these materials are designed to give nicotine consumers a clear understanding of how the pouch looks feels and fits this messaging is complemented by initiatives such as in person events brand partnerships paid social media and streaming audio that aim to increase awareness, drive trial, and further strengthen on-brand equity. Importantly, these efforts are grounded in responsibility with safeguards to limit reach to underage audiences and with a strong focus on regulatory compliance. Through these actions, we believe we can position ONPLUS as a differentiated offering for adult nicotine consumers and responsibly grow the brand over the long term. On the regulatory front, the FDA is reviewing applications for 1 plus mint, winogreen, and tobacco in 12 milligram strengths under its public program, and we have submitted applications for six additional flavor varieties across three nicotine strengths. We believe the science and evidence supporting all of these applications is compelling and provides a basis for FDA authorization within the 180-day statutory timeline. Let's now turn to the e-vapor category. While illicit flavored disposable products remain prevalent, after several years of rapid growth, we began to see signs of moderation in the back half of 2025. We believe increased enforcement activity and supply-related marketplace disruption have slowed demand for these products, and those dynamics continued into the first quarter. At the end of March, we estimate there were approximately 20.5 million adult vapors in line with the year-ago period. Over the same time frame, the estimated number of disposable e-vapor consumers declined modestly. Taken together, we believe these developments suggest early indications that the category's prior growth trajectory, driven largely by illicit flavored disposable products, may be evolved. From an enforcement perspective, we continue to see signs of a commitment from enforcement agencies and incremental progress. During the quarter, federal agencies worked alongside local law enforcement to combat illicit products, including a large-scale enforcement action in Northern Virginia supported by the Drug Enforcement Administration. In addition, in states where product directories are in place and properly enforced, we are seeing evidence that these frameworks are helping to reduce the presence of illicit products and track channels. In our view, consumer demand for evapor products demonstrates the potential for the category's role in tobacco harm reduction in the U.S. However, progress continues to be constrained by the limited number of FDA-authorized products. We see a clear pathway to restoring order and advancing harm reduction anchored in a more efficient and predictable authorization process that supports reasonable, responsible innovation and establishes a compliant legal marketplace of eVapor products. When combined with sustained enforcement, we believe this would allow compliant manufacturers to provide adult nicotine consumers with authorized, high-quality products that are appropriate for the protection of public health. Overall, we delivered a strong start to the year.

Our results this quarter were strong financial performance in the first quarter, reflecting the continued resilience of our smokable business. Segment-adjusted OCI grew by 6.3%, with adjusted OCI margins expanding to 65.1%, an increase of 0.7 percentage points. This performance was supported by solid net price realization of 6.3%. Additionally, we saw the decline in our smokable volumes continue to moderate. In the first quarter, reported domestic cigarette volumes declined by 2.4%. When adjusted for trade inventory movements, we estimate domestic cigarette shipment volumes declined by 4%. At the industry level, when adjusted for trade inventory movements, we estimate domestic cigarette industry volumes declined by 5%, marking the fourth consecutive quarter of sequential year-over-year moderation. This trend was driven primarily by reduced cross-category movement between cigarettes and illicit flavored disposable e-vapor products. For consumers, the macroeconomic environment remains challenging. Elevated everyday expenses and higher gas prices later in the quarter continued to weigh on discretionary income among more price-sensitive adult smokers. Higher-than-normal tax refunds provided some short-term relief. These pressures were the primary driver of year-over-year discount segment retail share growth of 2.4 share points. This trade-down dynamic impacted Marlboro's overall retail share, which declined 1.4 share points versus the year-ago period and 0.1 share points sequentially. However, in the highly profitable premium segment, where smoker purchasing behavior reflects higher levels of brand loyalty, Marlboro continued to demonstrate its competitive strength. In the first quarter, Marlboro expanded its share of the premium segment to 59.5% of 0.1 sharepoint versus the prior year and 0.2 sharepoint sequentially, expanding its longstanding leadership position. Basic continued to capture share in the discount segment, reflecting PMUSA's data-driven total portfolio approach to meeting a broad set of consumer needs. Basic's retail share grew 0.5 share points sequentially and 2.4 share points year-over-year. Total PMUSA retail share grew 0.1 share points sequentially and 0.4 share points versus a year ago, demonstrating the strong execution of PMUSA's total portfolio approach. In cigars, reported shipment volume was down slightly by 0.2%. Middleton continued to outperform the large mass cigar industry behind the strength of black and mild. Let's turn now to the oral tobacco product segment, which delivered over $400 million in total adjusted OCI in the first quarter. Adjusted OCI margins remained strong at 67.4%, down 1.8 percentage points from a year ago, and were impacted by Helix marketing investments for in-person events and digital advertising, as well as product mix between traditional MST and nicotine pouches. Total segment reported shipment volume decreased 3.1 percent, as growth in ON was more than offset by lower MSP volumes. When adjusted for trade inventory movements, we estimate that first quarter oral tobacco product segment volumes declined by approximately 8.5 percent. year-over-year trade inventory comparisons were impacted primarily by on plus pipeline volume in the first quarter and elevated competitor volume in 2025. World tobacco product segment retail share decline by 5.5 percentage points overall we remain encouraged by the performance of our oral tobacco businesses as Copenhagen continued to lead in MST and Healitz expanded its portfolio in the growing nicotine pouch category. Turning to our investment in ABI, we recorded 160 million dollars in adjusted equity earnings in the quarter up 9.6 percent versus the prior year. We continue to view our ABI stake as a financial investment and our goal remains to maximize the long-term value of the investments of the investment for our shareholders we remain committed to returning significant value to shareholders and maintaining a strong balance sheet in the first quarter we paid approximately 1.8 billion dollars in dividends and repurchase 4.5 million shares for $280 million. At the end of the quarter, we had $720 million remaining under our current share repurchase program, which expires at the end of the year. In addition, our balance sheet remains strong. We retired just over $1 billion dollars of debt that matured in february and our total debt to eat better ratio as of march 31st was 1.9 times in line with our target finally on guidance we reaffirm our expectation to deliver 2026 full year adjusted diluted eps in a range of five dollars and fifty six cents to five dollars and 72 cents, representing a growth rate of 2.5 percent to 5.5 percent from a base of $5.42 in 2025. As a result of the strong first quarter performance, we now expect 2026 adjusted diluted EPS growth to be more balanced between the first half and the second half of the year. Our reaffirmed guidance range now contemplates the impact of moderated e-vapor industry growth on combustible and e-vapor product volumes and increased macroeconomic uncertainty facing adult nicotine consumers. Before we wrap up, I'd like to thank Billy for his leadership over his decades of service to Altria. I have enjoyed the privilege of working closely with Billy for many years, and he has positioned us well to succeed in the future. We are committed to building upon the strong foundation he's fostered and accelerating progress toward our vision. With that, 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. Operator, let's open the question and answer period.

Thank you. At this time, if you'd like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host, allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. If you have joined by phone, please dial star 9 to raise your hand, and when prompted, star 6 will allow you to mute and unmute. Investors, analysts, and media representatives are now invited to participate in the question and answer session. We'll take questions from the investment community first. Our first question comes from Faham Beg with UBS. Please go ahead.

Good morning, guys. Are you able to hear me?

Yes, we are.

Brilliant. Thanks for taking my question. I have two, please. The first one, I guess, is on your performance. At the full-year stage, you spoke about a second-half weighted performance this year, but the Q1 came in seemingly stronger than expected. What were the areas that surprised you positively relative to the guidance in February? And I guess given the stronger than expected quarter, why have you chosen not to raise or narrow the guidance for the full year? So that's the first question. And the second question is on cigarette volumes. Clearly, over the last six months, there has been an improvement in volumes. But it seems to be entirely driven by the deep discount segment. So I guess what are the key drivers that are helping this particular segment? and why may not be sort of supporting the premium segment, too.

Yeah, so good morning, and thank you for the questions. So, look, we do a terrific job of forecasting the year. I would say, though, as the first quarter played out, what you saw was stronger volume performance, And that's primarily driven in the smokable category by a moderation of the cross-category movement that I talked about in my opening remarks. So as the year plays out, we see growth being more balanced between the first half and the second half of the year. So that was the primary driver that we're seeing. We thought it was prudent to reaffirm guidance. You know, we're a quarter into the year. Obviously, the macroeconomic environment remains challenging and uncertain. Gas prices have increased at the end of the quarter significantly. There's been some maybe short-term offsets to that, as we've seen tax refunds higher than we have seen in past years, and that may be somewhat short-term if you think about it. So we'll see how the rest of the year plays out. Obviously, if there's any updates as the year progresses to our guidance, we would communicate that. But we feel really good about our ability to reaffirm guidance for the year. As far as cigarette volumes go, again, I mentioned the cross-category moderation that we've seen played out. But the consumer does remain under pressure, and that's been a driver of the growth in the discount category. We are really happy with PMUSA's total portfolio strategy, which allows BASIC to capture share of that discount category. So we feel really good about Team USA's performance for the quarter and very pleased with Marlboro's performance where it grew its share of premium sequentially and year over year.

Thank you. Our next question comes from Matt Smith with Stiefel. Please go ahead.

Hi, good morning. Thank you for taking my question. And, Billy, first off, just want to wish you well in your retirement in the upcoming weeks here. Thank you very much. I just wanted to dig into smokable OCI a bit. The performance is quite strong in the quarter. And on a per-pack basis, operating costs were below the level from the second half of last year. I think less volume to leverage was likely a benefit. But can you provide some more color on the other factors in smokable OCI? It seems like double the duty drawback grew in size. And did you see that drop through profit more efficiently in the quarter?

Yeah, so as you stated, we had really strong first quarter performance from our smokable segment. So just great job by PMUSA and John Middleton in that segment. As far as spending goes, as we stated earlier, we do have some investments in our import-export business, which are more weighted to the first half. So I wouldn't overread a particular quarter, but the per pack controllable costs obviously did receive a benefit from the higher volume as well as the export volume that we've broken out for you in our financial statements. But I would say the overall OCI was driven primarily through pricing and the stronger cigarette volume performance that you saw play out through the year. And, again, that's primarily driven by the moderation of the cross-category movement between elicity, vapor, and the cigarette category.

Thank you for that. And as a follow-up to the full-year guidance question, there's a lot of reinvestment this year, whether it's behind OnPlus or the carryover from basic repositioning and some other upcoming activities in Smokable. If you continue to see resiliency in the consumer, how do you balance the earnings growth potential against leaning more heavily into reinvestment this year, given some of the flexibility you have?

Yeah, I think you have to think about it in totality, Matt. When you think about investment, we don't feel like we're under-investing in any of our growing categories. And so we'll continue to invest appropriately with those. I think from the strength of the consumer, it's the wild card with the economic outlook the way it is with higher gas prices and stuff. And as Sal mentioned, you know, there were certainly offsets. We'll see as those offsets play out throughout the year and how gas prices continue to trend. And we'll make any changes when it's appropriate. Thank you, Al Pacino.

Our next question comes from Bonnie Herzog of Goldman Sachs. Please go ahead.

All right. Good morning. And congratulations again, Billy and Sal. And, Billy, I also wish you all the best in your retirement, and it's really been great working with you. Some of you guys can hear me. I have a question on the double-duty drawback. I guess I was hoping for some more color on the expected phasing of the benefits you now expect this year. I believe you did start to import in the quarter, and I do see the stepped-up, you know, benefit in Q1 versus Q4. So just curious, should we expect a steady increase in the benefit, you know, each quarter as the year progresses? this? And then, you know, did this activity, you know, play a role in any way in your updated guidance phasing, you know, to be more evenly split between 1H and 2H? I guess I'm just trying to think if there was any type of, you know, pull forward in the quarter that we should be aware of.

Good morning, Bonnie, and thank you for the question. You will see increases in the export volume and the benefit of the duty drawback as the year progresses. So you are right in your assumption. I would tell you that the more balanced growth, diluted EPS growth, first half to second half, is more driven by the fact that you've seen this moderation in cross-category movement and the benefit of the volume in the smokeable segment. And then, of course, So we're paying close attention to the economic conditions that our consumers are facing. You know, they are under significant economic pressure, again, from the cumulative impact of inflation, rising costs of everyday items, including gas. So we'll pay close attention to that. But I would say that's the main driver of the balance between first half and second half.

Yeah, thanks for the kind word, Bonnie. The only thing I would add is I think it's important to think about the two drivers that are driving that interaction between smokable and e-vapor. If you think about the two drivers, one is certainly enforcement. So as the product is not available for the consumer, they go back to their total consideration set and make decisions. But it's also, and you heard in my remarks, saturation of the marketplace for e-vapor products and a slowdown in that transition over. And so it's hard to predict exactly when that saturation point is going to hit. And we think we're starting to see signs that we hit that. That's why we've been after and really pushing the FDA to think of not only enforcement but authorization. And we think they can achieve much faster authorization by publishing products there.

Okay. That's helpful. And then just one other question, if I may, on Marvel. You know, you're rolling out cowboy cuts soon. So maybe hoping for a little color on the rollout and, you know, maybe expected space allocations. And then could you provide a little, you know, color in how you're going to manage Cowboy Cut relative to, say, Marble Black in terms of pricing? And ultimately, I guess, how we should think about, you know, the contribution to profitability, you know, how you're going to manage Cowboy Cut maybe versus Marble Black, et cetera. Thank you.

Yeah, sure, Bonnie. Yeah, Cowboy Cut, we will expand distribution later in the year, specifically later in the second quarter. You should think of Cowboy Cut a couple of ways. One is it's a tool within our RGM toolbox. It provides price-sensitive marble consumers with an option, and we believe that's important. So you should expect it to be competitively priced. But, of course, with RGM, you may see different price points depending on what store you're going. And also, Cowboy Cut allows us to build on Marble's heritage during a time when the country is celebrating its 250th anniversary. So it's also a benefit to Marble's overall equity strength that you see in the marketplace. So we're really excited about Cowboy Cut. It's a terrific product. and you will see a broader distribution as a quarter plays out.

All right. I'll pass it on.

The question comes from Andre Andan with Jeffrey. Please go ahead.

Hi. Good morning, Billy, Sal, Mac. Thank you very much for taking my questions. Three for me, please. Number one, could you please tell us a bit more about the factors that grow, the improvement for mold grow within the premium combustible segment? And then two questions on oral nicotine pouches, please. I know it's early days for Onplus, there's been a shipment benefit for Keyplon Volumes, but is there any color you could give us around the consumer, the early consumer all-state for the new product for Onplus? And perhaps finally just a clarification, the six new flavors that you've submitted applications for with the FDA, are they also part of the FastTrack Nicotine Pouch pilot program? Thank you.

Yeah, I'll try to unpack those three questions. If I miss any, please follow up. I think when you think about the Marble brand within the premium segment, I think there are really two factors there. Marble is still the aspirational brand in the cigarette category. And so with the tools that we have in data analytics with revenue growth management, it allows us to, on a store-by-store basis, make it very competitive but remain very profitable. And I think that's what's really driving the Marble growth in premium. I think when you think about old nicotine pouches, early on, it is very, very early. You remember that we went national towards the end of March. And so we're excited about that. But we know that flavors are going to play an important role in the future of the nicotine pouch category. And that ties into your third question about flavors. And they are not part of the POLIT program at this point. But this is why we believe that it's very easy for the FDA to go through the authorization process. The science is the same in those pouches as what they've already authorized. It's removing a grass, which stands for in the FDA lingo, generally recognized as safe. So you're removing one grass flavor and putting in a new grass flavor. And so they've already reviewed the science on everything else related to the product. Their only focus would really be the flavors, and that's why we believe that it can be achieved within the 180-day statutory requirement.

Thank you very much. with Morton Stanley. Please go ahead.

Great. Thanks for taking the question. Can you give us a little bit of color of how you were thinking about the potential macro impact from the low-end consumer since the conflict began? We're now, call it eight weeks or so into it, a lot of noise with weak consumer confidence overall, but higher tax refunds. What are you seeing? And I guess in past times of sharp spikes in gas prices, what has sort of been the typical lag based on your research for an impact on your takeaway? And then second question, you know, you certainly seem, you know, understandably more favorable about the e-vapor, elicit e-vapor enforcement. How is that impacting your thinking about your broader e-vapor strategy? You know, for the past year or so, you seem to be working behind the scenes on resolving the IP issues, but sort of not in a rush to get into, get back onto a market that, you know, clearly had its challenges. Is that evolving with the improved enforcement that you're, improved performance of market that you're talking about? Thank you.

Yeah, I'll kick us off with the macroeconomic, and then I'll take you vapor.

Good morning, Eric. I think you framed the macroeconomic situation quite well in your question, right? So later in the quarter, you did see a significant increase in gas prices. And obviously, that has an impact on discretionary spending that the consumer does have. And they've been under pressure for quite a while, just as everyday items continue to be at elevated prices. But there are some shorter-term tailwinds, I guess you would call it, related to some of the higher levels of tax refunds that we are seeing based on the data coming out of the IRS. So, obviously, we have to pay close attention to that. You are seeing a growth in the discount category within the cigarette business or a cigarette segment, and that is driven by the macroeconomic difficulties that the consumer is facing. And you've seen us using the RGM, the Revenue Growth Management Data Analytics and Toolset that we do have, And that's why you see basic and heavily discounted stores where we can capture consumer purchases that may have gone to other discount brands, and we can capture those purchases in basic. And then we talked earlier about Calvary Cut being a competitively priced product that will engage with Marlboro consumers that are under economic pressure. So we believe we have the tools to manage through the situation, but obviously we're going to pay close attention to the consumer's economic condition as the year progresses.

And I think related to e-vapor, while we're just as excited as you are, some of the green shoots you're seeing in enforcement, I think it's important to still look at the context, the e-vapor category in total. So it's very large, but it's still, call it approximately 70% of the volume, is illicit flavored disposables. And so it's still upside down in the marketplace. Now, we're excited. We're making significant progress on the ITC issue that you described related to the patent infringements. We feel good about that. We're excited to be able to bring that product back to the marketplace at the appropriate time. But we'll still do it in a disciplined fashion while the marketplace is still upside down. And that's, again, going back to our earlier point. It's why we are really pushing the FDA to think about both enforcement but authorizations so that we can keep those consumers in the e-vapor category. with products that are authorized.

Great. Thanks so much. Congratulations, Billy, and best of luck, Sal.

Thank you very much.

A reminder, if you'd like to ask a question, please use the raise hand icon that can be found at the black bar of your bottom of your screen. Our next question comes from Damian McNeela of George Bank. Please go ahead.

Morning, everybody. Just one question for me. I think in your prepared remarks, you mentioned that On Plus was getting allocated additional sales space in the 100,000 or so stores that it's got listings in. Can you just sort of give an indication of where that sales space is coming from? Are you winning it back off other nicotine patch brands, or is it coming from traditional tobacco products, please?

Yeah, that's a good question. and we feel very excited about what our sales force was able to achieve. You can think of that category primarily as its own category within the retail space. And so that is achieving that outlook within the nicotine pouch space.

Yeah, okay. Thank you very much, and all the best for the future. Thank you.

This comes from Callan Elliott of Brimstein. Please go ahead.

I hope you can hear me. And just adding my congratulations on the well-deserved retirement, Billy. Best of luck with the Charity Blink Levers. Thank you very much.

We can hear you loud and clear.

So my first question is on your nicotine pouch strategy. One of your tobacco peers has been rolling out a nicotine pouch product under a legacy oral tobacco brand. So my question is, do you have any thoughts about maybe trying to do the same thing with Copenhagen or Skoll? Or what do you think? that your initiatives with ON are sufficient to get the consumer response that you're hoping for. Then my second question is about BASIC and its interaction with Marlboro. I think the data you showed shows discount share gain of 240 basis points year on year in Q1. and basic is also getting 240 basis points so it seems like all of the discount sector share gain is coming from basic and as we all know we sort of annualized the repositioning quite soon so should we be expecting that discount share gains slow as a whole as basic starts to slow and maybe Marlboro can start doing a bit better, or would you expect other discount brands to start doing better once basic annualizes the launch?

Yeah, I'll take the first question and then pass it on to Sal for the basic question. In the nicotine oil category, USSTC was the only smokeless company to have signed the master settlement agreement, so that prevents us from using those tobacco brands in a product that does not contain tobacco. So we feel very good about On and On Plus and the way it's positioned from an equity standpoint. I feel like we can compete very well in the nicotine power space.

And, Callum, we're very pleased with Basics' performance. Remember, Basics' promotions were in limited retail distribution, and it's really being driven. and that distribution is being driven by the data analytics that we have. So that basic is being promoted in stores that over-index discount. And that allows PMUSA to capture consumer purchases that would have otherwise gone to other discount brands and not having an over-indexed impact on Marlboro. So that's why we believe you're seeing Marlboro continue to grow share in the premium category and perform quite well there. BASIC is able to capture the discount share that it's been able to capture. So we feel really good with the strategy. It's really driven by data analytics, and it allows us to use the revenue growth management tools across PMUSA's portfolio.

Maybe I can just ask a follow-up if that's okay Sal. The stronger than expected performance in Q1, does that give you the scope possibly to sort of further extend distribution for BASIC beyond the sort of the plateau that we seem to have originally found, given that you seem to have this sort of increased flexibility now within the 2026 guidance, or is that not something that we should be expecting?

Well, I don't think the strong performance is what drives that. It really is the data. And if there's opportunistic retail locations to promote basic and limit the impact on Marlboro, then PMUSA will make that decision. But it's not driven by the financial performance necessarily is being driven by the data analytics.

Thank you very much.

The next question comes from Dave Ress with Richmond Times Dispatch. Please go ahead.

Hi. I was hoping that you could talk a little bit more about the enforcement for the disposable vapes. You probably know that here in Virginia, the legislature has passed the new permitting and enforcement legislation for vague shops. And I'm wondering if this is something that brings enforcement to a new front. Is it something that might be significant in terms of other states being interested in this kind of thing? Have you been monitoring that?

We have been. I think when you think about it, all the efforts that we try to get both at the state level and the federal level are exactly what you're after, is making sure that the consumer in the vape category has authorized products, that the FDA, an independent party, has looked at what's in them and what comes from them. And so that's what we're driving. I think when you look across the U.S., you see a number of tools available at the state level. You've mentioned the permitting in Virginia. Other states have directories. It all is driven by how well they enforce it. Where we see enforcement take place, we see that the consumer goes back to their total consideration set. So we've seen some go to nicotine pounce. We've seen some come back to cigarettes. And then we've seen in some states where I'll call it a gray area where they're vape products that have applications in front of the FDA and are awaiting a decision so they're able to stay in the marketplace. So, again, that's why we've been really pushing the FDA to think about both enforcement but also making authorization more readily available.

Could the Virginia legislation be a model for other states?

Yeah, we've seen that across states. Some states have used model legislation that drives more, if you will, enforcement and to have only authorized or attempt to have only authorized products in the marketplace, but it's really driven by how well it's enforced. Thank you. Thank you.

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.

Thanks, everybody, for joining today's call. Please reach out to Investor Relations if you have further questions. Have a great day.

Today's call. Thank you for your participation. You may disconnect at any time.