Frontier Communications Parent Inc

NASDAQ:FYBR

Earnings Call Transcript 2018-Q1

[Operator]

Good day, everyone, and welcome to this Frontier Communications' First Quarter 2018 Earnings Conference Call. Today's call is being recorded.

At this time, I'd like to turn the call over to Mr. Luke Szymczak. Please go ahead, sir.

[Luke Szymczak, executive]

Thank you, Shannon, and good afternoon, everyone. Welcome to the Frontier Communications' first quarter earnings call. My name is Luke Szymczak, Vice President of Investor Relations. With me today are Dan McCarthy, President and CEO; and Perley McBride, Executive Vice President and CFO.

The press release, earnings presentation and supplemental financials are available in the Investor Relations section of our website, frontier.com.

During this call, we will be making certain forward-looking statements. Forward-looking statements, by their nature, address matters that are uncertain and involve risks, which could cause actual results to be materially different than those expressed in such forward-looking statements. Please review the cautionary language regarding forward-looking statements found in our earnings press release and other SEC filings.

On this call, we will discuss certain non-GAAP financial measures. Please refer to our earnings press release for how management defines these non-GAAP measures, reconciliations to the closest GAAP measures, and certain shortcomings associated with these measures.

I will now turn the call over to Dan.

[Daniel McCarthy, executive]

Thanks, Luke. Good afternoon, everyone, and thank you for joining us. We achieved a number of very noteworthy milestones in the first quarter. This quarter's results demonstrate the substantial progress we have made in executing our key initiatives. These are: to improve customer retention, enhance the customer experience, maintain momentum in attracting new customers, and align our cost structure.

Please turn to Slide 3. First quarter revenue of $2.2 billion included a sequential increase in Consumer revenue. We had another sequential improvement in customer churn to 1.94% and consumer ARPC was very strong. Our focus on base management is delivering results. We had been successful in improving retention of customers at contract expiration, and will continue to be very diligent and disciplined in managing the customers' experience.

Commercial revenue declined sequentially on a like-for-like basis. The decline was in SME, about half related to the normal decline in voice and a slight decline in data, with the remainder related to the seasonal characteristics of larger business solution deals. Our goal is to achieve data growth that is strong enough to offset voice declines. So clearly, we have more work to do here. Carrier wholesale was roughly stable sequentially. However, we continue to anticipate some pressure from wireless backhaul.

I am pleased that we delivered a solid adjusted EBITDA performance despite the normal unfavorable expense seasonality we experienced in the first quarter. We remain on track to achieve our $350 million annualized cost synergy target at the end of the second quarter. And finally, we did strengthen our balance sheet in the first quarter, which Perley will address in more detail.

Please turn to Slide 4. We've achieved significant milestones in the first quarter. The first, I already mentioned, the sequential growth in Consumer revenue. The second, is that we achieved a positive CTF FiOS broadband net addition of 5,000 in the first quarter. I am very pleased with this result, and I anticipate that we can increase it further. This result was driven by another sequential improvement in gross additions and a very slight seasonal increase in CTF FiOS broadband churn. We do anticipate some additional seasonal churn in certain markets in Q2. And we believe we have further room to improve churn over coming quarters, which should result in stronger net additions.

We did experience slightly higher CTF FiOS video losses sequentially, but this is very much in line with industry trends. And we remain at a materially stronger level of video performance compared to last year.

I'd also like to highlight that in the CTF copper markets, we achieved a solid improvement in copper broadband gross and net adds. For 3 consecutive quarters, we have achieved stronger quarterly net additions than this business delivered over the 2 years prior to our ownership. Clearly, the investments we have been making in capabilities and operations are beginning to yield meaningful improvements to results.

Please turn to Slide 5. In legacy, our efforts have begun to yield benefits as well. Although broadband gross adds weakened slightly sequentially, we did improve the broadband net add performance. This illustrates the extensive operational and customer satisfaction improvements we have achieved. Our initiatives in legacy are focused on marketing our services with the strength of our capabilities to create opportunities for greater market share. For example, areas where speed and capacity have been upgraded over the last several years. We continue to refine our acquisition and retention efforts based upon competition, network capabilities and customer feedback. And we expect to deliver a series of improvements in the legacy markets over the remaining quarters of 2018.

Please turn to Slide 6. The prior 2 slides looked at both CTF and legacy broadband and video trends. This slide focuses on total consumer results. Total consumer broadband subscribers declined by 31,000 in Q1, which is a 19,000-unit improvement from the Q4 net adds. As you know, we have a new leader running consumer as of last July, and I'm very pleased with the strides being made. Initiatives are underway for further improvements, mostly weighted towards the second half of 2018.

Please turn to Slide 7. We've delivered consistent improvements across significant metrics, such as customer churn and CTF gross additions over the last year. Underlying these results has been a broad focus on improving operations, which benefits both the Consumer and the Commercial business. As illustrated in the first graph, we have achieved a significant reduction in repair ticket volumes since the CTF acquisition. The substantial decline reflects our success in improving resolution of issues on the first customer call. This has multiple benefits, most importantly, improving customer satisfaction, which reduces the potential for churn as well as freeing resources so we can respond more rapidly to requests for installation of new customers and new services.

The second graph is the trend of the ratio of new service installations to repair tickets. This ratio has improved very significantly and adds further room to trend higher. We also track the commitments we make for repair appointments and new service installation appointments. When we present this data to you a year ago, these measures had improved to about 90%. This means we were meeting roughly 90% of our appointment commitments. We are now well above those levels of a year ago and are exceeding our targets for appointment commitments for both repairs and new installations. Our Head of Operations, Chris Levendos, and his team have plans in place to continue to improve these service levels further.

Please turn to Slide 8. Since the closing of the CTF acquisition, I've been updating you on a broad range of initiatives we have underway to improve our business performance and operations. I'd like to give you an update on the status of these many initiatives.

In terms of Consumer, I'm very pleased with our progress, particularly in the fiber markets. And we have additional initiatives underway to help drive broadband additions in the copper markets. In terms of commercial, we have efforts underway and anticipate improvements over the coming quarters.

Moving to field operations. As I outlined on the prior slide, we have made tremendous progress in this area, which has resulted in important improvements to the customer experience. We also have a comprehensive range of initiatives underway in our call centers and customer technical support operations. We've discussed our development initiatives based around the PEGA platform extensively in the past. We have been introducing new capabilities into production, and as each module becomes available, as a group, they are becoming increasingly important contributors to our improvements in customer satisfaction, churn, activation cycle times, and operational performance.

For example, several PEGA initiatives that entered production over the last few months have driven a 30-second reduction in call handle time in our call centers as well as improved accuracy and outcomes. That 30-second reduction improves customer satisfaction, helps reduce churn, reduces cost and frees resources to address other customer matters. Our call center development initiatives are standardizing the capabilities of our customer service representatives, resulting in greater consistency of the customer experience.

Overall, I'm extremely pleased with the improvements we have achieved across our operations, and I anticipate further improvements going forward.

In terms of engineering and network, we have made improvements in our ability to respond to customer needs and be ahead of demand in terms of capacity. And finally, we are very proud of our strong expense management, as demonstrated by our ability to maintain adjusted EBITDA margins of 40%.

In summary, we are pleased with our operational progress. In the first quarter, we continued the multi-quarter trend of improving results. Looking forward, I am confident our business is stabilizing, and we can continue to further improve the trends in the business.

I'll now turn the call over to our CFO, Perley McBride, to discuss our financial performance.

[Ralph McBride, executive]

Thank you, Dan, and good afternoon, everyone. I will review our first quarter financial performance, provide an update on our guidance for 2018, and then, we will open the call for questions.

As I mentioned on the Q4 call, the new revenue recognition standard had an impact on revenue categorization. However, the impact is not material to total revenue, EBITDA, and operating free cash flow. Within the investor presentation, we have shown Q1 results reported on the basis of the ASC 605 and 606 standards for comparison purposes.

Please turn to Slide 10. Total Q1 revenue was $2.2 billion, a decline of approximately 1% compared to the fourth quarter of 2017. Net income was a positive $20 million, which was our first positive net income result since fourth quarter 2014. We continue to execute on expense management despite seasonal headwinds and continues the trend of sequential reduction in adjusted operating expense. I am pleased that we have attained approximately $275 million in annualized cost synergies and remain on track to achieve our $350 million annualized run rate cost synergy target by the end of Q2 2018.

First quarter adjusted EBITDA was $908 million, and adjusted EBITDA margin was 41.3%. We continue to target adjusted EBITDA margins above 40%.

Net cash from operating activities in the first quarter was $251 million due to our Q1 cash interest payments. As I have mentioned before, our cash interest payments are weighted to Q1 and Q3 and lower in Q2 and Q4. So this result fits our normal quarterly pattern. As a separate note, our first quarter cash interest payments were $593 million or 40% of our full year interest expense. Finally, on a trailing 4-quarter basis, ending March 31, 2018, operating free cash flow was a positive $632 million.

Please turn to Slide 11. We are pleased that improving execution has resulted in data and Internet services revenue returning to growth again, which was driven by broadband services revenue. Video revenue trends also improved, and we were roughly stable sequentially. Voice revenue continues to decline, in line with past trends. As Dan discussed earlier, Consumer revenue was up sequentially in Q1, which is a very important development, and it drove the overall improvement in total revenue.

Revenue for our Commercial business was down sequentially. Carrier wholesale was roughly stable, and the small, medium, and enterprise portion of the business declined sequentially. About half of the sequential decline resulted from the decline in voice revenue and a slight sequential decline in data, with the remainder being a result of the seasonality of large customer solutions revenue. We continue to work toward improving the trend in Commercial.

Please turn to Slide 12. The company adopted the new ASC 606 revenue recognition standard using the modified retrospective method effective January 1, 2018. This slide presents a comparison for the first quarter under ASC 606 as well as what the first quarter results would have been under ASC 605, the prior accounting standard.

For comparison, we have also included our fourth quarter results as reported under ASC 605. As I have said, the change in accounting is not material to our financials, and this is illustrated by the total revenue, net income and EBITDA results on this slide. There is movement within revenue categories, most notably from the former regulatory category to customer revenue. This change drove an approximate $3 increase in ARPC.

Please turn to Slide 13. Excluding the adoption of ASC 606, consumer ARPC was up $1.65 sequentially, reflecting the benefit of improved product mix and better base management. We were also pleased that we have been able to continue the improvement in churn, even with the increases in ARPC, illustrating the success of our initiatives to improve the customer experience and retention.

Please turn to Slide 14. Capital spending in the first quarter was $297 million, more than 70% of our capital program focused on revenue-generating and productivity-enhancing projects. Under our commitment for the Connect America Fund, or CAF II program, we are expected to deploy broadband to 60% of eligible locations by the end of 2018. As of quarter-end, Frontier already has 3 states, exceeding the 60% threshold. Frontier now offers broadband capability to 357,000 locations in its CAF II-eligible areas, with our goal to pass 774,000 locations by the end of 2020.

Please turn to Slide 15. As highlighted in our fourth quarter earnings call, we amended our credit agreements in January 2018 and moved to a first-lien net leverage ratio maintenance test. These amendments provide greater operating flexibility, ensuring us runway as we execute our operational improvements. In March, we issued $1.6 billion aggregate principal amount of second lien secured notes due 2026. The proceeds were used, along with cash on hand, to repurchase $1.65 billion aggregate principal amount of notes due in 2020 and 2021. Upcoming unsecured maturities are manageable, particularly when considered against our operating free cash flow guidance of $800 million for this year.

We have $491 million of bonds coming due in Q4 2018, $404 million in 2019, $227 million in 2020, and $309 million in 2021. We have ample liquidity as well as the runway to realize the potential of our strategic plan. Naturally, we will continue to evaluate balance sheet alternatives over time. Nonetheless, with the completion of the capital markets activity in Q1, our primary focus remains on executing on our initiatives to improve the business, a number which Dan just outlined. By executing on our priorities, we will drive results that will expand our range of options over time. Our goal remains to realize the full potential of our business and assets, and maximize value for equity holders.

Please turn to Slide 16. Last quarter, we introduced a more traditional and simplified measurement of free cash flow, which is operating free cash flow. We defined operating free cash flow as net cash provided from operating activities and for our GAAP financial statements, less capital expenditures also as per our GAAP financial statements. This measurement represents the cash generation of the business before taking into account dividends and redemptions of debt. On a trailing 12-month basis, operating free cash flow was $632 million.

Please turn to Slide 20 -- Slide 17. Our 2018 guidance remains unchanged. Adjusted EBITDA of approximately $3.6 billion. Capital expenditures of between $1.0 billion to $1.15 billion. Cash taxes, less than $25 million. Cash pension and OPEB, approximately $150 million. Interest expense of approximately $1.5 billion for the full year, and second quarter cash interest payments of approximately $150 million. Operating free cash flow of approximately $800 million.

As Dan discussed, company-wide initiatives are translating into improving trends in our financial results, and we remain confident in our ability to improve the business each quarter.

Thank you for taking the time to join us on the call today. And with that, we will open the lines to take your questions. Operator?

[Operator]

[Operator Instructions] We'll first go to Batya Levi with UBS.

[Batya Levi, analyst]

A couple of questions. First, on the consumer side, we saw some nice uptick on CTF broadband adds. And I think you mentioned that, that will continue. And you had said that it's a timing issue to see similar improvement on the legacy side. Can you provide a bit of color on that? And we also saw some growth -- acceleration in growth in Consumer ARPC, even though video subs are coming down. Can you provide some color on what's driving that improvement? And finally, on Commercial. You mentioned it's in progress. Maybe, talk about the what's driving the weakness right now? And what are some initiatives to turn that around?

[Daniel McCarthy, executive]

Sure, Batya. This is Dan. So first, on the consumer broadband. So CTF broadband, you're right. We were very happy with the performance in the quarter in the CTF fiber areas. We're also pretty happy with the copper performance in CTF. As we mentioned in the past, we had been rebuilding all of the offers for the legacy markets, using our new platforms, Sigma and PEGA. So as we've been doing that, we've been very focused on improving retention activities and base management and really still marketing in areas that were more greenfield opportunities that didn't have some of the old products and services in them. So we're going to finish up testing on all of those platforms this quarter, and then, we'll be in full swing on marketing on the copper side in legacy, in a substantially larger way. So I think that you'll see some improvements in legacy this quarter as we execute, but I think you'll see bigger improvements as we get into Q3 and Q4. On the Consumer growth on ARPC, that was really driven, as Perley pointed out, by sales mix change and base management. I think we've done a much better job of really selling what we want as far as targeted prices as well as managing customers as they move from acquisition pricing to normal pricing. The contribution was about 50% driven by both sides of the equation. And then, on the commercial side, we have been working on really refining the different distribution channels. I think we've got it good, both alternate and direct channel, for the higher-end medium and the higher-end small customer base. The area that really hasn't -- didn't perform particularly well in the first quarter was the small segment. We have tried one complete evolution on -- at distribution strategy, and we're continuing to fine-tune it. The wholesale side, we felt, was fairly stable. We're still evaluating what potential wireless backhaul pressures might come as we get through the rest of the year. But at this point, we're comfortable that, that will be modest pressures, if it arrives, depending upon, obviously, the T-Mobile and the Sprint agreement and some of the changes and perhaps some of their plans as we go forward. But we are working every day on turning the Commercial around. We did have, as Perley pointed out, and I pointed out, some normal voice declines, some very modest data decline. And really, half of the decline was around some seasonal large solutions for customers. We expect to see that part of the portfolio pick up as we get into next quarter and through the rest of the year. So we expect to make up some ground on that as we report out next quarter.

[Operator]

Next question comes from Matt Niknam with Deutsche Bank.

[Matthew Niknam, analyst]

It's Matt Niknam. Two, if I could. One, just on asset sales. I mean, we read about this in the press. I guess we've read about it recently in terms of Frontier, potentially exploring strategic alternatives for some of the fiber-centric investments. So how do we think about this as a means of delevering, particularly considering all the heavy lifting you've gone through in the last 2 years to really integrate the CTF properties with your legacy operations? And then, secondly, just on churn. Maybe, Dan, if you could just comment on whether there's been any real change in the competitive landscape or whether the improvement is mainly just better execution.

[Daniel McCarthy, executive]

Sure, Matt. So first off, as we said, and we've always said, we're open to considering strategic transactions that recognize the substantial value of our assets and allow us to reduce leverage. So that's a constant. We're very -- we are very pleased with the CTF. And as far as the stories and the rumors, we don't comment on any specific rumors or speculation in the market. As far as the churn -- and I think the competitive intensity has been fairly stable. It hasn't really ramped up. I think this is really a better execution on our part in all parts of the value chain and delivering the customer experience. So that can be in the call centers, it can be tech support. It's better meeting our commitments for customers if we have repair intervals or service installations.

[Ralph McBride, executive]

And when you look at all that put together, it's just a much better customer experience, and that's driving the churn reduction. And we see a lot more opportunity to improve that going forward. And we're attacking those opportunities with different teams to drive that forward.

[Operator]

Next question comes from David Barden with Bank of America.

[David Barden, analyst]

I guess the first one was just going back to the Consumer ARPC, Perley, kind of mix shift and base management. What kind of effect did the institution of the Internet, I guess, infrastructure fee -- I guess, you added a couple of dollar fee to the bill this quarter. How did that contribute -- how it might contribute additionally in the second quarter? And has there been any kind of push back on the fee in terms of churn? I guess the second question would be on the pension accounting. Just if you could share how much expense kind of got moved out of the pension expense number that goes into the EBITDA equation, and then, moved down into other income? I think it's been kind of a few million based on the restatement you put in the release. And I got one more follow-up.

[Ralph McBride, executive]

David, it's Perley. I'm looking for the pension number right now.

[Daniel McCarthy, executive]

While he does that, Dave, on the fee, that was very selective in its application. It wasn't completely across the base. We have not seen any significant pushback. So we feel good about the targeted increase in that case. But really, it was -- when you look at the total quarter, the bigger impact is probably around how we manage the base going from a wide variety of acquisition pricing schemes to a more standardized experience as they move to that kind of normalized price. So that was probably the bigger impact. And then, we did do a lot better on selling the types of packages that we really wanted to. And that's why, so it's kind of a 50-50 split on the mix change as well as the base management. There was some absolute benefit associated with the broadband fee that you described, and I would say that's the smaller part of the impact.

[Ralph McBride, executive]

And Dave, on the pension add-back, it was $22 million in Q1, and it was $20 million in Q4, and it was $22 million in Q1 a year ago.

[David Barden, analyst]

Yes. I saw that. I was just wondering, given that the new accounting makes you pull some of those expenses out of that number and put them into other income, I was wondering what that would have looked like if you had used the old accounting?

[Ralph McBride, executive]

Well, we restated the prior year, so those were all like-for-like. All of those quarters are like-for-like.

[David Barden, analyst]

Yes. But my model, I didn't change it. So under the old accounting, what would it have looked like instead of $22 million?

[Ralph McBride, executive]

I think it's probably $1 million to $2 million. I mean that -- it's just a -- the supplement cost now won't be in anyway, but we always reported those on their own line item, and then, it was just $1 million to $2 million of kind of the servicing cost, if you will.

[David Barden, analyst]

Got it. And then, the last question was just on the work stoppage. You took a $7 million charge for that. Could you talk about any effect it had on -- into the metrics? Or anything it might have -- it might have on a kind of an aftermath basis, as we look into 2Q?

[Daniel McCarthy, executive]

Dave, no one likes to go through a work stoppage. We certainly didn't enjoy going through the process. I think it probably did impact broadband units by a couple of thousand. Nothing really major. I think the management team and the strategy that we had did a pretty good job of maintaining the customer experience. We did shut off acquisition for a little bit as we went through the 4-week evolution of working through that work stoppage, but I don't think it's going to really have a big impact on the units going forward. I think the bigger impact on West Virginia will be as we get full implementation of the PEGA and Sigma platforms, and start to do a better job of driving acquisition on the copper side.

[Operator]

Next question comes from Mike McCormack with Guggenheim Securities.

[Justin Ages, analyst]

This is Justin on for Mike. I was just hoping you could talk about competition, briefly, maybe from cable companies, and then, if you see 5G down the road, just given all the news recently on the 5G.

[Daniel McCarthy, executive]

Yes. So on the competition front, it has been, I would say, relatively stable. Certain competitors are looking to change speeds in certain markets. But as we talked to our customers and we've done a fair amount of research, we think we're well positioned in those cases, certainly in our fiber-to-the-home markets. We also think we're well positioned for a large part of the segment, even in copper markets, where people are moving speeds up. So we didn't really see a significant change from the competitive landscape at this point. And I think as far as 5G, I think, that's going to be, down the road, the first places we may see it are places where it's more urban density. And I think there, we have, for the most part, fiber-to-the-home covering the opportunity. So I'm not as worried about 5G there. I think it will take 5G quite a bit order to make it out to some of the rural parts of our system.

[Ralph McBride, executive]

I was just going to clarify on the question regarding the West Virginia and the labor, that we made -- there's a comment to shutoff marketing. That was only in West Virginia. That wasn't anywhere else in the country, just in case there was any confusion on the call.

[Operator]

We'll go ahead and take our next caller, Frank Louthan with Raymond James.

[Frank Louthan, analyst]

Couple of things. Talk to us a little bit about the fixed wireless that you have mentioned on the slide here. What percentage of your CAF II location would be fixed wireless? Can you describe sort of the technology, the setup there? And then, kind of looking at the quarter-to-date, what kind of confidence can you give us about the trends that we've seen in Q1 and those kind of continuing in the same direction and being able to continue with that momentum?

[Daniel McCarthy, executive]

Frank, on the trends for the quarter, 1 month in, so it's pretty early in the quarter, but we see consistency on the trends. As you can imagine, I know you're very familiar with the Tampa market as well as parts of the Southern California market. This is the time of year when we do see some seasonality as snowbirds move north. That translates into 2 different impacts. One is customers moving on to a vacation rate, which just takes the ARPC down for the customer, while they're out of the market. The second is, people actually see the benefit of shutting down service and restarting it. So we're seeing some of that impact flow in. I think everybody who's -- or anybody who's in the Midwest or the Northeast has realized it's been an extended winter. So the impact hasn't really fully flown in, in April. We expect to see some of that come in, in May. But there's nothing that I'm seeing that would say the trends are changing, other than the seasonality right now.

[Ralph McBride, executive]

And regarding fixed wireless, Frank. We deployed 2 markets in 2017. We have plans to deploy another 15 to 20 markets in 2018, and have already launched service in -- our plan is to cover about 30,000 households by the end of the year. And we've had good deployment so far with it and good uptake on the product and on it as well.

[Operator]

We'll move next to Simon Flannery with Morgan Stanley.

[Spencer Gantsoudes, analyst]

It's Spencer, for Simon. I just want to go back to Slide 16 and 17, on free cash flow. I understand that 1Q and 3Q are higher from a cash interest perspective, but are there any other working capital items that help you get to the $800 million guidance number over the course of the year? Because if we look on a trailing 12-month basis, we've seen free cash flow decline about $30 million each quarter. So is there any other kind of moving items we should be aware of?

[Ralph McBride, executive]

No, I think we have -- Spencer, it's Perley. We have, overall, improved our working capital from quarter-to-quarter, and we'll continue to work on that as well. I think there are -- there's some cyclicality in how our cash flow works, and that's why we have, this trending schedule on here. And I think we're still in a good position, and that's what we've reaffirmed our guidance for the year, on the cash that we'll generate for the business.

[Spencer Gantsoudes, analyst]

Okay. So if we kind of look at the seasonality of the cash interest, we could maybe expect 2Q '18 improvement versus 4Q '18, and then, 3Q '18 improvement versus 1Q '18 and so on and so forth?

[Ralph McBride, executive]

Yes. And I think, overall, we'll have a cleaner working capital year in 2018 versus what we had in 2017.

[Spencer Gantsoudes, analyst]

Okay. So we look on our improvement on a basis of a 2 quarter stack basis then?

[Ralph McBride, executive]

Correct.

[Spencer Gantsoudes, analyst]

With a full [indiscernible]? Okay.

[Operator]

And that does conclude our question-and-answer session.

[Daniel McCarthy, executive]

Thank you, operator. I just want to leave you with the following thoughts and observations. Several quarters ago, we said we believed we were at the cusp of inflection in the business. And I believe this quarter's results provide further illustration of that. We achieved positive FiOS broadband net adds in CTF for the first time, and we expect to improve this trend over time. We improved the net add trends in the CTF copper markets, and we achieved the first improvement in legacy broadband net adds in 5 quarters. And we believe we have achieved stability in the consumer area.

And finally, we achieved another quarter of sequentially higher consumer ARPC and improved churn, and we remain fully committed to attaining our synergy targets, improving expense levels, increasing EBITDA and free cash flow and reducing leverage. I think the first quarter results illustrate that we are headed in the right direction.

So thank you for joining us today, and I look forward to updating you on Q2 results.

[Operator]

Thank you, ladies and gentlemen. That does conclude today's conference. We thank you for your participation. You may now disconnect.