freenet AG

XETRA:FNTN

Earnings Call Analysis

freenet Hits EBITDA Milestone; Pushes IPTV Growth

In the fiscal year 2023, freenet celebrated hitting its EBITDA target of over EUR 500 million, marking a key achievement that reflects the team's ability to adapt to market changes with speed and flexibility. The company is driving growth through its IPTV service, waipu.tv, which now stands as the fastest-growing linear IPTV platform in Germany with ambitions to surpass 1.9 million subscribers by year-end. Furthermore, freenet's focus has shifted more towards online channels and SIM-only options, reacting to Germany's increasing average smartphone usage time of 36 months. With a stable Average Revenue Per User (ARPU), the brand's visibility has significantly increased through cost-effective marketing and sponsorship, without compromising budget. Looking ahead, strategic priorities include deeper ESG integration, implementing Assisted Personalized Shopping across retail outlets for consistent consumer offers, and further scaling of the IPTV business with objectives like reaching freenet zero emissions by 2030.

Robust Customer Growth and Market Positioning

The company has witnessed a commendable growth trajectory, notably doubling the customer base for its Waipu service from 46,000 in Q1 2023 to expectations of surpassing the 134,000 added in the last quarter. This growth is a testament to the company's superior performance compared to peers such as MagentaTV, and the concerted effort to enhance the brand's awareness, especially amidst cable users. Approximately half of cable customers are contemplating a switch in access technology, a trend poised to accelerate with pending legal changes. The company's strategic marketing and consumer research indicate that among those considering alternatives, two-thirds view Waipu positively, signaling a clear path for continuing expansion.

Financial Performance and 2025 Ambitions

The fiscal year of 2023 marked an increase in revenues by EUR 60 million, buoyed by mobile and TV segments, the latter primarily driven by increasing Waipu customers. The gross profit rose even more impressively by EUR 65 million, with significant contributions from the TV segment. EBITDA growth, however, was more moderated at EUR 20 million owing to strategic investments in TV and shifts in customer acquisition costs. Importantly, the company maintains confidence in achieving an EBITDA target exceeding EUR 520 million by 2025, aligning with its long-term strategy.

Guidance for the Upcoming Year

For the upcoming period, management has set a guidance of EUR 495 million to EUR 515 million in EBITDA, despite projecting substantial customer growth of approximately 600,000 for Waipu. This forecast allows for flexibility in investing in growth opportunities. Free cash flow expectations range from EUR 260 million to EUR 280 million, a stable to slightly growing outlook from the previous year. While revenue growth remains marginal and 'not that relevant,' according to leadership, consistent revenue along with these guidance figures portray a company comfortably investing in its future while maintaining robust profitability.

Dividend Payout and Financial Health

In correspondence with its financial policy, the company proposes a dividend of EUR 1.77 per share, consistent with its commitment to disbursing 80% of its free cash flow to shareholders. The balance sheet exhibits strong health with a much higher equity ratio than policy thresholds and commendably low leverage. These financial metrics not only reflect a company with solid liquidity and risk management but also one that values returning profits to its investors.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the Conference Call Preliminary Results Fiscal Year 2023. [Operator Instructions]Let me now turn the floor over to your host, Mr. Vilanek.

[Christoph Vilanek, executive]

Hello, everybody. Good morning from Hamburg. We're here with Ingo, myself and our Investor Relations team to discuss full year -- preliminary full year results 2023 with you. You have all seen the corporate news and all the data, so let me straight go into the presentation.What are the 3 highlights, as we call them for the last year? I mean, first of all, I think we are all proud to hit the EUR 500 million EBITDA line. Some people commented how we -- where did you find the EUR 200,000. Well, we aim for EUR 500 million plus, and we ended up with EUR 500 million plus, that's the key message we are really grateful for the full team. I think the company has shown more flexibility and more adoption to the individual needs of the market and with speedy, reacted on changes. I think that goes for all units, I think it was a tough year in the sense of more changes than the past, but flexibility and courage to change things has proven to be extraordinary well in freenet.Operationally, the growth of IPTV is certainly the name of the game. We are very proud to run the fastest-growing linear IPTV platform of the German market. And in the German market, we will show you and share with you a couple of more details in a second.And thirdly, ESG is -- on one hand, is -- to be honest, sometimes the pain in terms of reporting and details. But at the same time, we feel that it's finally ended up in the company in the strategy, but much more in the culture. Without over exaggerating it, the company started, all the individuals started to think in that category. We think this is a positive signal to our customers, to our partners and hopefully also to the capital market.On the next page, a review based on the existing 2023 guidance, subscriber number grew to 9.5 million, so plus 5% on the detailed level, we're going to go through by sector in a second. Revenue, 2.8%. Let me still say that you all know that revenue is, for us, not a key KPI. It's way more important to look at EBITDA and free cash flow. EBITDA grew by 4.5%, that is perfectly in line with our 2025 ambition where we say there is a CAGR of 4%, so we are a bit above that and the 2025 ambition of EBITDA bigger than 520 obviously, is still valid and is already within reach already with the guidance on 2024 that Ingo will introduce. Free cash flow ended up plus 5.3% to EUR 263 million.On the postpaid, I think we were a rather conservative stating that we foresee a slight growth similar to 2022. If you look now at the numbers with plus 153,000 subscribers. It's a good number. We grew 15% more than we did in the past years. In the past year, a key driver certainly is a bit more focused on online channels, a bit higher proportion of SIM-only, still the demand for innovative products on the hardware side is not met by the launches of the hardware industry. I think, what we have seen as '24 now starting pretty well. But as I said, the average usage time for smartphones globally, but especially in Germany, is growing -- according to our internal statistics, it's up on 36 months. This is reflected in the share of SIM-only.We foresee for the coming year, a similar development also in terms of ARPU, we would call still a stable ARPU with the typically small deviations that more come more from tariff mix than from overall usage changes. Certainly helping the company and the business is that we've pushed freenet as a brand. We have a new claim "freenet, fertig, los!", which ran really well. We have changed from the testimonial campaigns with famous Dieter Bohlen summer and are now focusing on the pure statement of the brand, all the research says that this is perfectly well done. We have had a couple of brand awareness campaigns also doing sponsoring in sports. We will continue to do so. The measurement and the KPIs stated brand awareness has gone up significantly, and this is still done with a marketing budget, which is far below any of our competitors.Coming back on the TV statement, I think that is really strong. We had 400,000 net adds in waipu.tv, that's mainly organic. I think Deutsche Glasfaser has contributed a little bit but it's a little bit it's more like 1,000 a month. So it's really showing that we have organic growth across all kind of channels. We have told you that as of October, we started to present the product also in MediaMarkt and Saturn. This is also still on a low level, but we see weekly better numbers also in retail channels. I think that proves that the awareness of the so-called [ NIM, cost and privilege ] drop in July is contributing to this development. So -- and with the size of now 1.37 million subscribers, we are obviously more attractive for potential partners such as Paramount+ that have done 2 campaigns with us; WOW, which is the German entertainment arm of Sky, they are doing bundles with us, and we are having great success with programmatic advertising.So for waipu.tv,I think for -- we are not guiding a straight number, but I mean my personal ambition, I think we were going to go beyond 1.9 million subscribers by the end of the year. The first quarter 2024 seems to be even stronger than Q4, 2023. So we had 134,000 net adds in Q4. And I think before the end of March, we will have another plus 130,000 or 140,000, I'm expecting getting close to 1.5 million, in the first quarter and my personal ambition would be to scratch the 2 million hurdle by the end of the year. I think 1.9 million is realistic, but we need to push the team. And there's a good chance to go in the direction of 2 million subscribers.On the opposite side, freenet TV is slowing down. This is all within our expectation. The good thing is we are now launching the hybrid stick. It's a combination of all the key access ways, so cable, terrestrial and IP. This will not only support Waipu, but also freenet TV for the time being. And we have seen with the management changes in Media podcast. There was a big changes, transformation in the organization towards more customer need orientation than in the past, just running technology and trying to sell it. I think, these changes show first successes. We won a couple of tenders. It's known to you that we are EG providing field services for the United Internet network and for some others, and we expect EBITDA contribution for MEDIA BROADCAST to remain beyond the EUR 100 million in 2024. So, that is certainly the big success.One is -- and this also leads me to the outlook of 2024. There are 3 key things that we work on. One is implementing ESG even further in the culture as a mindset, installing Assisted Personalized Shopping in our retail, and scaling the IPTV business. On the ESG, I won't go into all the details. We have now implemented for 2024 customer satisfaction into our goal setting for the Board members and the executives and we are working hard on the freenet zero by 2030. I think, these are important things. Just one small remark here. We started our first PV installation. That's not the big investment yet, but we are -- this will be the pilot project. There is a couple of bigger projects where we look for external partners to do the financing on some of our big field areas that we own as part of MEDIA Broadcast.Second big topic APS, Assisted Personalized Shopping. What is that? In the past or up until now, the offers between -- the offers towards the end consumers, be it new customers, but also renewals differ by channel. There is a good reason in the past to do so, but we have decided to stop this. We want to strengthen our -- in our approach by offering one and the same terms and conditions and prices across all channels, be it the App, be it Online or be it the Shops. This will enable, for example, a statement on the digital channels that any customer with open questions and so on and so forth can go to the shops because the price is absolutely the same, but you will have a personalized experience in the customer journey with individual help. Any user can be sent to the retail stores. So that is one big thing in the retail stores.We will have the top models all to be seen there to be displayed, all color versions. In the past, this was a very minor assortment in the shops because of working capital restrictions. And our sales reps basically sold what they had available and they were not selling what the customer wanted. So this is the big change. We have started this whole project a year ago, with early testing. We did a lot of research and consumer feedback was great. And our store managers love the concept, because administrative work is going down, and they spend more time with the end consumer. And we will fully launch it across all 500 outlets in by 1st of August.Next page, that is a deeper look on IPTV. What you can see here is 8 quarters of Waipu net adds starting with 46,000 in Q1 2023. You see that almost doubling over 12 months. And you can also see that Q4 was a record again with 100+, 134, and we expect even higher for the first quarter and the remaining of the year. The Peer 1 is -- and you can take it from the color, that's MagentaTV, that's what their official reporting sales. So we're doing about double their size or their growth. Their overall size is still bigger because there's the [ OT entertain ] product, behind MagentaTV. But you can easily understand that we're doing much better than they do. We have more focus, but we are very happy that Deutsche Telekom puts a lot of effort for the IPTV as a category. And we continue to take advantage from that. And the cable is the negative development published by Vodafone. There is a couple of other cable operators, smaller cable operators such as Tele Columbus, and some locals in Germany. So if you add our growth and put against the losses there, you can see that the bigger proportion of our net adds comes from cable.We think that, that development will dramatically accelerate to the legal changes that will happen in summer. This is why we have invested into the information of those people. We have, according to our research, about 50% of the customers think about changing or are willing to switch access technology over time. We are not expecting this all happen -- to happen in 2024, but I think all the numbers today give an indication that the number is growing already, and it will become even higher than in 2025. The second big work that the team has done, and this is still also with the testimonial of Mr. Dieter Bohlen is that we try to make the brand awareness big, especially in cable households. And on our survey, it says people that know about alternatives, 2/3 of those know about waipu.tv and consider waipu.tv as a positive alternative. So all the indicators show a clear direction to growth in that field.So with having said that, I'm happy to hand over to Ingo to go into more details of the past number and also introduce the guidance for 2024.

[Ingo Arnold, executive]

Yes. Thank you, Christoph. Good morning, everybody, from my side. Yes, I'm also proud of the figures. What we can present today. I start with the group figures where we do see the increase of revenues of EUR 60 million in '23. There's an increase from mobile of EUR 30 million based on better service revenues and there's an increase of EUR 30 million from TV, based on the increase of customers at waipu.tv mainly. So I think on the revenue side, we are quite fine.On the gross profit side, we are even better. So it was possible for us to grow the gross profit by EUR 65 million in '23, EUR 25 million growth from TV, again, because of the service revenues from the increasing number of customers at waipu.tv. On the other side, there is an increase of the gross profit in mobile. Again, yes, there's an effect from service revenues. But I think, there's also the target -- the reach of some of the targets, especially in Q4, what we had with the network operators, and this helped here to increase the gross profit.On an EBITDA side, the growth is not as big. There is an increase of EUR 20 million -- on one side, yes, we invested into TV. I think this is what we commented during the whole year. On the other side, on mobile, there is an EBITDA increase of EUR 15 million. And so, we lose some of the increase from the gross profit here on the one side because we focused more on online channels. So there was a shift of SACs from the gross profit to the marketing cost. And on the other side, we had some increase in customer care costs.Again, I would also say here what Christoph already said that we are totally fine with the ambition for 2025, and we are still on track to reach the 2025 EBITDA of more than EUR 520 million. Maybe one comment here because later on, we do not discuss the results which happened out of mobile and TV. There was again an effect what we already know from -- knew from last year. For the long-term incentive program here, there were another provision what had to be built of something like EUR 5 million in Q4, and this is mainly based on the good share price performance during the year.Moving to mobile. Mobile, I think some of the effects are already commented. I think, on a gross profit side in Q4, there was an additional bonus effect, what we saw compared to last year, there were higher service revenues than last year. And there was this effect of shifting SACs from the gross profit to the marketing cost of something like EUR 10 million. So this helped to increase the gross profit in Q4.Moving to the EBITDA. Here, we see something like a stable development compared to Q4, 2022. This is based on the good gross profit. But on the other side, there were some -- were the marketing costs, which were increased and there were the customer care costs, which were increased. And then maybe you can remember in the fourth quarter 2022, there was a release of provisions, and so we did not have it this year. So I think all in, mobile business, quite fine, moving to the KPIs of the mobile business. Digital Lifestyle revenues again could be increased. ARPU stable, slightly increase of subscribers. So it's the logic that, therefore, the service revenues had to be increased during the year.Moving to Page 17. TV and Media. Here, I think Christoph already commented that it is really impressive. What I find is even more impressive than the single mentioning of the growth is that even with the growth, it was possible to increase the EBITDA here. So I think -- yes, I think on the gross profit side, you see that freenet TV plus 1.9% on an EBITDA side, plus 1.5% from freenet TV. So here, we saw the price effect during the year because we increased prices of freenet TV at the end of 2022. And therefore, even with the lower number of customers, it was possible to increase the EBITDA at freenet TV in the B2B business of Media and Broadcast, and Christoph was already talking about some new tenders, what we could win, and -- that I think it's a stable business, but with some small successes and therefore, it was even possible to increase here the EBITDA of the B2B business in addition. IPTV, I already commented a high increase of gross profit because of the additional customers and a slight increase in EBITDA. And yes, it is obvious that we invested into the growth, but still a positive effect in the EBITDA compared to 2022.Moving to Page 18. Here we see the bridge for the free cash flow. And I saw some comments, yes, the working capital development in the fourth quarter, yes, I think it was slightly disappointing. What we saw here were some phasing effect from the business. So I would not -- I think it is not really -- it's not a big miss of what some saw in the consensus. It's only a small miss of EUR 5 million. And definitely, as it is a phasing, this EUR 5 million will help in the first quarter of '24. In all other dimensions, I think without any surprises this bridge, and therefore, we ended with a free cash flow of nearly EUR 263 million. Dividend proposal, what we will give to the AGM in May is EUR 1.77 per share. I think this is [ easy method ], which could be calculated out of the free cash flow and out of our promise that we do pay out 80% of the free cash flow.Balance sheet on Page 19, nothing new. I think we saw it during the whole year. We have a very high equity ratio, a much higher than our -- in our financial policy where we defined a lower limit of 25%. And the leverage, including leasing, it's still 1.2%, very low only bank debt, it's 0.6. So all in, I think I can only continue to say it. It's a very healthy balance sheet, what we do see here.Moving to the guidance. Yes, I think with the revenue, and we see a stable development -- it is not that relevant as Christoph already said for us. But yes, we try to keep it stable. We focus much more on EBITDA and free cash flow. In EBITDA, we see this transitional year, where we think EUR 495 million to EUR 515 million looks reasonable to us now. I think this guidance gives us the possibility to invest into Waipu, wherever it is necessary. And I think what is important to know, we talk about something like 600,000 customers growth in waipu.tv. And even with this growth, we promised a stable and maybe slightly increasing guidance for the EBITDA and the same for the free cash flow, EUR 260 million to EUR 280 million is the guidance here.On the subscriber side, it is something of a continuation of what we saw before, moderate growth in postpaid customers, significant growth in waipu.tv subscribers and another year of a noticeable decrease of freenet TV customers. So we still do not see the floor, but I think we are of good hope that we will see it during the year with the measures what we took, and what Christoph already discussed.Coming to Page 21. Yes, '24 is definitely a transition year. Here, all the investments, what we plan are listed and all these investments will help us to have in the midterm to have much higher results and to increase the EBITDA further in the following years. So what you do see here is the ambition for 2025. But what we also plan is to publish an ambition in the second half of the year for the following years, so something like a midterm ambition, but I think it was too early to do it now, because we do not know the effect from the change in the cable law. So I think we have to wait what happens during the year. And then in the second half, we will definitely give you more details on our thinking about the years beyond 2025.Last page from my side is the free cash flow bridge for 2024. On the net working capital side, we see another dip of something like EUR 40 million, EUR 25 million is based on the liabilities, which are on our balance sheet because of our partnership with Media-Saturn. Then in addition, what we see here is the inventories were very low during '23. So it's -- I think, there is some buffer here what we do have by EUR 15 million. Let's wait and see if we really need it to increase the inventories, but we will see during the year. So we are very early now. And so I think EUR 40 million looks reasonable to me.On the tax side, still some tax audits are open. We see the -- you can see the provisions on the balance sheet, but still there were not -- it was not necessary for us to pay it. So maybe it happens during '24 also here. Let's wait and see. Waipu investments we were already talking about it. And this is something what you see here on the CapEx figure. I think we have to invest money into the platform because we would like to deliver good service to the additional number of customers. And therefore, I think it is unavoidable to invest into the platform.On the lease side, no changes to '23 and also on an interest payment side, even with the increased interest rates based on the lower net debt, we expect a figure of something like EUR 20 million. And therefore, we see in a result of free cash flow of EUR 260 million to EUR 280 million. So these are the explanations from my side, from the financial side.I'm happy now or ask the operator now to start the Q&A.

[Operator]

[Operator Instructions] The first question is coming from Polo Tang from UBS.

[Polo Tang, analyst]

I've got 3 quick questions. The first question is, you've previously indicated you're in talks with Telefonica Deutschland over a potential partnership. Can you give an update on both the scope and the progress of those talks?Second question is, can you comment on German mobile competitive dynamics? So have you seen any change in behavior from the likes of Telefonica Deutschland and Vodafone, specifically, what do you think of Telefonica Deutschland's new family plans? And are you seeing any signs that Vodafone is using indirect channels more?My third question is on TV. So you mentioned that momentum in waipu.tv is very strong and that Q1 net adds will be better than Q4. But are there any signs that you're gaining even more net adds from MDUs and housing association specifically just ahead of changes to the NIM, cost and privilege. Also, how should we think about the quarterly phasing of your waipu.tv net adds for this year? Because if you're doing 130,000 to 140,000 in Q1 and you're aiming for 600,000 for the full year, does this not imply a relatively steady level of net adds per quarter? And would you not expect actually a step change post the regulatory changes in July? So any comments on that would be helpful.

[Christoph Vilanek, executive]

Yes. Polo, thanks for the questions. First of all, on Telefonica, I think also Telefonica Deutschland commented, they are in talks with a lot of people. We are obviously in talks with them. What is our scope? We need to find a solution on -- in terms on 5G. We haven't done SIM-only with them as of today. We see for both if they would -- if we find an agreement on those both dimensions, we see an upside in terms of volume on our side. The fact is that neither them nor us are under time pressure. And this is why we're still discussing how we can approach this in the best way.Second one on competitive dynamics. You mentioned the family plans, what we have heard from Telefonica was that I think there is an unproven rumor that the Deutsche Telekom family plans or the similar product that they offer is quite successful. By the way, we have tested it on the DT network in our place as well. And I hear from Telefonica Deutschland that this is a 3-month test and then they're going to verify.Whether this is bringing additional customers and revenues or whether it's just inflating existing customer base? I think, they have a very careful and deep measuring running on that campaign and the outcome is still open. I cannot confirm that Vodafone is changing any of their policies. I think, Vodafone is for sure the one that has the biggest number of real challenges on mobile, it's that they need to increase volume or capacity on a -- very fast in order to fulfill the agreement with United. I think on their own channels, I see that Philippe Rogge is changing a lot of stuff there, trying to fix unbalanced provisions, et cetera, et cetera. The good thing is that in that period, we remain the key and most important partner. We have been like a solid stone in his portfolio, and he is changing a lot of stuff on the -- in other channels, but it's not my duty to comment on the details.But I can -- in summary, I do not see an irrational fast reaction either of Telefonica or Vodafone with the well-known change of United. And also, if I look at United offers, it all looks that they are all acting rationally and nobody is trying to kind of like kick and rush on offers in order to win market share. So I think that is how we see the current development.On the third -- and your third question was on waipu.tv, 2 dimensions: one is, yes, we have talked to housing associations. We have a team working kind of B2B with those. But we have found a lot of civil servant kind of mentality there. It's very hard to work with these people, and what we then see that our new customer inflow is working without them in a good way. So we kind of like step back and said they're not yet ready and not yet in a position to really negotiate any kind of deals with us. We spoke to Vonovia, we spoke to [ TAG, Telgte ], all the big ones, but we also spoke to the smaller ones. I think they are in a big uncertainty, and they are not -- it's tough to learn that they have no CRM at all. They're working still with methodology of the late '80s. And when we ask them for addresses or campaigns that we can do with them. This always ends up in with like big question marks in their faces.And the last question you made, you asked was on the overall kind of like the sequence or the phasing. Well, if you look at Q1 '23, you saw that we were coming from [ AD ], we had a strong second quarter. Third quarter was the weakest. Basically, it's late summertime, no special events and last quarter is always the best. So I think if you deploy the same algorithm here, you would -- we would expect a strong Q2 because of a couple of events in June. Also events that happen in Germany, football mainly. And then we believe that the second half of the year, we will see the first impact of the NIM, cost and privilege fall. People will understand that they are now -- they can now move more or less overnight, and we for sure think that the second half of the year will be stronger than the first half. So -- and this would then add up to the number I mentioned.

[Operator]

And the next question is coming from Adam Fox-Rumley from HSBC.

[Adam Rumley, analyst]

I had a question and a clarification, please. I wondered if you could talk potentially a little bit about the dividend looking forward. You've mentioned that 2024 is a transition year. You've also highlighted how strong your balance sheet is at the moment. So in light of modest free cash flow growth expected in 2024. Is there any advantage? Or is there any view within the company that potentially you should use some of that balance sheet to effectively bridge to a greater level of profitability and free cash flow in outer years with the reflection on the dividend that, that would have?And then the second question I had was on Slide 21. I just wanted to clarify, are you saying that you're expecting single-digit growth in EBITDA in 2025? Or just saying you only need single-digit growth in '25 to get to the '25 target?

[Ingo Arnold, executive]

Thank you, Adam, for your questions. I think on the dividend side, I think, we stick to what we promised during all these years, which mean that we pay out 80% of our free cash flow. And this is also what we promised today. And then I think, we can check it during the year. And definitely, this is the floor. But I do not expect any changes from today's point of view in our financial policy here.On the single digit, yes. Yes, it is an interpretation question. At the end of the day, I think, we are -- we will try to do a single-digit growth. And if you take the mid of the guidance, then it would be EUR 505 million, and then it would be a single-digit growth. But I think from my point of view, it's too early to confirm anything here. I think, the guidance is EUR 495 million to EUR 515 million. And yes, definitely, we try to have a single-digit growth, but it's not a guidance now. The guidance is EUR 495 million to EUR 515 million.

[Adam Rumley, analyst]

Maybe I could just follow-up in a slightly different way. The impact of the cable regulation transition, Christoph just mentioned that he was expecting kind of more of a second half impact than a first half impact. But presumably, that means that you would then be willing to continue this level of higher investment into 2025, while customers are still evaluating on that kind of time scale. Is that fair?

[Christoph Vilanek, executive]

I think that's a very fair point. I mean, I think it's a luxury uncertainty that we're running with. If we are investing more because it's profitable and if we see that a bigger proportion of this 10-plus-million cable households are ready to switch, then I think we should take the opportunity because it is the fight about households for the next 5 to 10 years. We know that people that have once gone to a certain excess methodology. There is no reason to switch because at the end of the day, they will never experience the other product. So if somebody goes from MagentaTV, we see it on the survey. The difference between Magenta and Waipu, if you compare objectively, you will find a good reason for choosing one or the other.But in fact, if the customers are found in a contract, they will not move. So to me, it resonates that if there is a chance, and if we see that the numbers are higher, then we will definitely spend more money. I think this is why we also set the guidance, well, you can say either conservative or saving the potential of higher investment. It's already included in [ gazatte ],I mean on 600,000 net adds just deploy a ratio of 50% with hardware. We're talking about 100,000 sticks more the sticks are $40. So suddenly EUR 4 million, EUR 5 million, including shipments service are on top. This is what we already embedded. But if the ratio of owned sticks is going even higher, then suddenly, we're moving EUR 5 million to EUR 10 million. So I think this is the ultimate operational side, and Ingo has then translated it into a guidance where we feel super comfortable.I think the problem is that if we see these things coming, we will inform the market, we inform all of you as early as possible and as transparent as possible, what the opportunity is. So far, nobody has really done -- they would not even answer the question, what is the outcome of such a growth of EUR 2 million to even further number of customers on to EBITDA in the following years. But if we do a higher investment, we will do so. We will make that more transparent and better for our modeling.

[Operator]

And the next question is coming from Joshua Mills from BNPPE.

[Joshua Mills, analyst]

To 2 questions, please. The first one is on Waipu. And I think in the past, you've given some indication about the longer-term profitability of the business in terms of EBITDA margin. Can you just give us a bit of an update on what you're expecting here? Because obviously, when you have these very high kind of transition costs in the context of the overall EBITDA of the business, there are question remarks about how profitable it will be longer term. And maybe in that context, if you could give us an absolute number for the EBITDA generation of Waipu this year? That would be great.And then the second question is on the Deutsche GlassFish relationship. I believe beforehand that you're expecting several hundred thousand net adds to transition over, and you've realized some earlier in the year, but nothing in Q4, and I don't think there's anything in there for 2024. So what's happened to that relationship? And if you're not expecting to see any more TV customers migrate from Deutsche Glasfaser, why not?

[Christoph Vilanek, executive]

Let me start on the Deutsche Glasfaser thing. Public numbers that are available, and I cannot disclose more details from Deutsche Glasfaser, is that they have about 100,000 TV customers. The idea was that we would kind of like hard switch them overnight into our technology. And then it turned out that for a number of reasons, Deutsche Glasfaser is not in a position to do so. And these reasons are -- some of them are legal ones. They don't have this agreement on advertising them, then they -- to contact them, they have very immature CRM systems and so on and so forth. So we continue to work with these guys.Andreas Pfisterer, who is the CEO, he's very engaged in the product. He personally likes waipu.tv, knows it quite well. His wife is working with Telefonica. And they are also selling it. So in the whole family of his, they're super convinced. But he admitted that there are internal support systems, billing systems, legal framework, et cetera, is not ready to do it in a volume and in a size as we have expected. But still, there is an exclusive contract. And I said -- and I mentioned this, it's still going on in a day-to-day work, but it's more difficult than we thought. And maybe I can give you a quick anecdote. We looked at -- we can see who we are peering with on any of our customers, and we know what their access providers are.And for example, we also spoke to United Internet and on their customers and whether they would be interested maybe to work with us on waipu. And then we looked at the numbers that they publish on their TV customers, and we looked at the peering and figured out that as of today, we have a higher number of waipu customers on the kind of network of United Internet that they have themselves on TV. So for us, it's always the question, how strong is a cooperation if, through the market, we can acquire these customers even cheaper. So I think that is one of the findings that we had in 2023, which is very important for the team. So I hope this -- I explained this understandably.On the long-term profitability, I think we haven't published a relative number so far, and I think still it's difficult to say because the question is when do you stop heavy-duty customer acquisition? We have seen that advertising revenues are going up on individual customers, which is very helpful with a high contribution. But Ingo, you want to say something about that?

[Ingo Arnold, executive]

Yes. I think what we saw in '23 is that it was possible to finance the growth with the additional service revenues. So therefore, there was the slight increase in EBITDA. This is something what we do expect also for '24. Yes, there have to be a higher invest in to grow. But on the other side, we have more customers. And therefore, we will see an increase of the service revenues. So therefore, for '24, we expect something like a stable development of the EBITDA. And I think all what will happen during the following years, we will update -- we will give an update after we have seen the development during the year. What I also already announced for the second half with the new ambition beyond 2025.

[Christoph Vilanek, executive]

And maybe if I can give a bit of a flavor on the general dynamics of that business. We have about 70 people working there, full-time equivalents, and we don't see -- we haven't seen significant growth even though we had plus EUR 400,000. So it's a -- fixed cost is really stable.The second -- the single biggest spending on -- in a running scenario is content cost. So it's our distribution fees that we have to pay to the private channels. I expect those still to stay on a high level because we are considered to be OTT, but we also see that it's in the best interest of ProSiebenSat.1 and RTL to get customers onto our platform and to replace satellite and cable because their earnings out of our customers are higher. But still midterm, with a growing size of customers, I expect them to get discounts on content cost.The third one is traffic. Some of you might know that there is the Internet access point in Frankfurt. They are handling 10 terabits per second. These days, we do on a weekend, we are already beyond 3 terabits per second. So you can see the sheer size of that volume. We are running data centers and cloud services by ourselves. We are not using Amazon or any third-party. I've learned that this is about half of the price of RBS. So that is a big proportion.So handling content cost and handling data management cost will be major driving force midterm. And it's hard to predict what economies of scale we have. But on a day-to-day gross margin level, the customers are really valid. We have also seen that we have tested a couple of price increases on the individual offers and customer groups and no sensitivity. They just accept EUR 2 more, they accept it. So I think there's so many levers in that business. I think it's going to be highly profitable, but it's -- I'm reluctant to give a ratio at this stage because too many uncertainties, but it's very attractive.

[Joshua Mills, analyst]

Understood. That's helpful. I mean maybe sort of a simple question. Can you give us an idea of what portion of the EUR 110 million EBITDA in TV is attributable to waipu?

[Ingo Arnold, executive]

I think what you saw in the presentation is that we have something like EUR 100 million or slightly above EUR 100 million with Media Broadcast. And therefore, it is easy to calculate that EXARING is something like slightly below EUR 10 million, something around it.

[Operator]

And the next question is coming from Zahir Ramcharan from Redburn.

[Zahir Ramcharan, analyst]

Just 2 for me. Firstly, on the channel mix shift in mobile that you described. It is very helpful to know that the sort of SAC was replaced by marketing costs. I was just wondering, was that a one-for-one swap? And is that something we should expect to continue? Or was it due to sort of a one-off campaign or something? And if you could quantify the SAC saving or additional marketing [indiscernible] that would also be very helpful.Secondly, on lifestyle revenues, they're growing 13%. I think they're about EUR 230 million for the year. That's great. Could you tell us at all what the sort of hardware subscription split of those revenues is and sort of what contribution they're making to mobile gross profit at all?

[Christoph Vilanek, executive]

I'm starting with the first one. So maybe to explain it according to IFRS, we can allocate provisions that we pay for a specific customer, we can distribute them over the length of the contract period, whereas in mobile, whereas in online, we cannot allocate single expenses to a single customer. This is why we shifted from SAC to marketing costs. So it's a matter of bookkeeping rules. We think this is going to -- the amount in Q4, there was about EUR 10 million. I expect this to remain on the same level in 2024, at least for Q4, which was a strong quarter. Ingo?

[Ingo Arnold, executive]

Yes. I think in Q1, definitely, this is something what we do not see in Q1, but especially in the Christmas business, this could happen again. And so -- but it was an amount of EUR 10 million. Then your question about the hardware revenues in mobile. I think this is something what you can see on Page 15, the split between hardware and service revenues. And so I think we mentioned some times in the past that the hardware business is very low profitable. So I think some of the deals especially if you think of the Black Week in November, some of these deals, they even do not have any margin. But all in, I would say, Christoph, it's below 5%, the margin in the hardware business. So it's really low, and we do not see changes here. And therefore, already in the past, we already focused on -- we have no focus on the hardware revenues, and we reduced it in earlier times already. So this is no focus because the margin is very low.

[Christoph Vilanek, executive]

Driving, again, maybe from the, like, operational side, with an increase in Apple and Apple giving you only a 1-digit percentage margin, you can easily understand that this is going down, and that's also on accessories. I think I can remember maybe 8, 10 years ago, accessories were gross margin, 60%. Now we are on gross margin of 20%. It's because we're selling more and more original accessories, and that limits the gross margin and the profit.

[Zahir Ramcharan, analyst]

Okay. Understood. And just to clarify the -- so we're saying that the entire EUR 160 million -- well, sorry, let me just clarify my question. Is the entire hardware revenue that you report part of digital lifestyle revenues? Or are they separate?

[Christoph Vilanek, executive]

The -- I mean, one thing on hardware, just to remind you, we run 40 GRAVIS stores, and I think around EUR 60 million or EUR 80 million in Q4 were coming from those guys. So that is very separate. It's shown in mobile, but it's a separate unit. And on digital lifestyle revenues, we do not include this kind of hardware, right?

[Ingo Arnold, executive]

Yes. And part of digital lifestyle revenues is part of service revenues because it is part of the invoice, what the customer gets. And it's -- therefore, this -- there, definitely, the profitability is much higher.

[Operator]

And the next question is coming from Stephane Beyazian from ODDO BHF.

[Stéphane Beyazian, analyst]

I've got 3, please. One regarding the weaker momentum on FUNK and FLEX plans. Can you comment a little bit is there -- is that a sign that you're selling less on your own brands perhaps than selling partners bundles? Another question on broadband. Could you update us there? I mean is it again, the fact that you don't push that is because you already strategically focused on waipu? Or is there also any delays, any issues with first customers that are trialing the service? And the third one, regarding cable, can you give some color on the different distribution channels that are used to target these clients? And is there any notable difference in each operator's tactic in order to take these customers away from Vodafone?

[Christoph Vilanek, executive]

Thank you for the questions. FUNK and FLEX, I think it was not a big focus. And I would also say that it seems that these kind of contracts have a certain target group, and this is a limited target group. So it feels a little bit like we have observed the ones that are really interested and that the group is smaller than we thought. We also are switching off part of those users if they have exceptional high traffic. So obvious misuse of the SIM cards. So I think we have switched off a couple of thousand that is also an effect that we can see. This is why we did not grow in Q4. So shutdowns or termination of contracts alongside the legal framework that ended up with the numbers you saw, minus 5,000 in Q4.Broadband kind of the same. We see that there is some adoption. We're still not too happy with the owned customer numbers. We see that still we are selling commission-based Vodafone and United Internet more than we do our own product. So it feels that their pre-branding is more important than we thought. So I wouldn't -- I would say it's an ongoing product, but it's definitely not the numbers that we have originally expected, and this is where we don't put so much effort. We're happy enough not to have any guarantees or something like that. So ongoing business without special effort.On cable, well, overall, I have to say that waipu.TV is a product which is, as of today, the vast majority of new subscribers come through direct access Internet and websites. Retail is gaining momentum. Our own retail as well, as I mentioned, Media-Saturn. But if I look at monthly numbers on gross add side, that's not even 25% yet. So it's still a difficult product to sell. People are in the shops because they are not into a shop to find out about new TV access. So with the hardware, with the own remote control, with the own dongle, it becomes better and better. But still, this is the case.The second source -- I would say, even the biggest single source is customers that have hooked up onto the product free of charge, they use just a couple of channels. And then on certain occasions or incidents or special events on TV, we try to convert them into paying customers. What is the best content to convert? Football. Football and sports. So what does the customer journey? You have once downloaded the app, you're watching every now and then, but you are on our CRM list, we sent you a push notification tonight, there is this and this sports event -- on private channels, please press the button here and subscribe to the service. This is the biggest source and the fastest source. People that are acquainted with the product and then convert it into pay. This is very important.And what we see now is with the size and also brand awareness increasing on a daily basis, word of mouth becomes very important. I think for midterm for the [indiscernible], it's really that people start to talk about it. Have you -- neighbor to neighbor. I was with cable. I have switched it? Why did you do it? Oh, it's so cheap. Oh, it was so easy, very positive. And by the way, I can take it with me to my other house or to my -- or I'm independent in my flat from access points. I have it on Wi-Fi. This is what is, I think, the major driver, midterm.

[Operator]

And the next question is coming from Ulrich Rathe from Societe Generale.

[Ulrich Rathe, analyst]

I have a sort of a more important question and then a couple of clarifications, if that's okay. So the bigger picture question is, there is this story circulating in the market, which is sometimes attributed to statements you have made in road shows that, in 5G, you have an overall lower gross profit contribution per customer. In other words, that the mobile operator has managed to squeeze the margin a little bit in the transition to 5G. Could you comment on that? That would be helpful.And then in terms of clarifications, a couple, if I may. The first one is, so there have been target bonus payments in mobile received in the fourth quarter. Could you just quantify how much was underlying business and much was this sort of bonus payments? Second question is, how many partner intake contributed to the waipu net adds? I'm thinking about the -- also the sort of partnership. And obviously, you already commented on Deutsche Glasfaser, but I'd be interested in the mix and what that mix could be in 2024?And the third one, other clarifications would be, you talked about the management incentives requiring a provision in the fourth quarter. It's, of course, aligned with the shareholder interest. I was just wondering what the structure of those incentives. Is this linked to absolute share price or share price increase? So in other words, is the share price stays at these levels? Would you see this kind of compensation again next year? Or will this require an appreciation of the share price?And then the last of clarification, please. You commented in the past, Ingo, I think about the refinancing terms that you're seeing in the market. I mean there's obviously some maturities falling due in 2024. Could you comment on the current refi terms that you're seeing?

[Christoph Vilanek, executive]

Yes. Thanks, Ulrich. I'll start with the 5G margin. It's a rumor that's wrong. It's the same margin, full stop. No difference, except for the fact that we do not do 5G with Telefonica. But on Vodafone and on Telekom, there's no difference by technology. On the partnerships that we run on waipu, yes, Deutsche Glasfaser continues to be a partner. There is a lot of very small cable operators and also fiber operators, they are unified in Germany in an association called BREKO. And we have a frame contract with BREKO. So there is a couple of those.If I give a high-level number with all uncertainties connected, I think these kind of straight partnerships with fiber and access providers, they will contribute anywhere between 30,000 and 50,000 gross adds this year. Please be aware, gross adds -- I'm talking gross adds, not net adds. And on retail, I said it's our own retail. It's a couple of our third-party partners, and it's also Media-Saturn. I think these months, I think, in January, total retail and third-party retail was about 10,000 gross adds. So if you add those 2 up, you would end up with anywhere between 150,000 and 200,000, which come from third party. And consequently, the rest on gross adds level is 60%, 70% comes straight from straight activities that the marketing team does there in the organization of EXARING in Munich.I think on the LTIP, there's still an old LTIP, which goes for Stephan Esch and myself. Mine is -- was running out by end of 2023. And Stephan is running out by 2024. It's unified with the new system for the others. It's based on phantom stock and average price of phantom stock throughout a certain period. In the old scheme, it was full year average. And in the new scheme, it's 60 days ending of the year. And this is driving the fact that, in Q4, Ingo needed to do some provisions on this and some adjustments because of share price. Well, by the end of the year, it was known what the average share price was for 60 days and for 100 days, but we're talking about phantom shares. And I think goal setting, et cetera, is published in our [ Vergutungsbericht ]. So I would refer to that one. [indiscernible]

[Ingo Arnold, executive]

And there was the question about bonus. To clarify here, we have not received a bonus payment in Q4 because otherwise, our working capital should have looked better. It was just that we earned the bonus what will be paid out next -- in 2024. And yes, I think we do not give any details on the size of bonus payments because this is a -- it's a -- from competition, it's a difficult information. Therefore, I cannot give you any advice here. I'm sorry about this. But yes, I think I cannot give it to you because we have only 2 partners who pay these bonuses. And therefore, I cannot give any additional information about it.

[Ulrich Rathe, analyst]

Great. And the refi terms?

[Christoph Vilanek, executive]

Refinancing.

[Ingo Arnold, executive]

Refinancing, I think we still have -- we have a margin of something like 125 basis points. So it is on the level -- the margin is on the level to what we saw in earlier times, even if the market is higher. So therefore, we did a private placement in -- at the end of last year of EUR 100 million. And we are just working on another placement, which should happen in the next weeks and then 2024 will be refinanced and again on the same margin. So I think the next maturity then will be at the end of '25. So I think we do not have a need to refinance anything now in addition. But at the end of 2025, there will be maturities and then we -- I think. But the balance sheet is so fine and the leverage is so low. So I think we get very good conditions, but we could not work against market rate. But I think we are totally fine with the refinancing, what we already did and what we are just doing.

[Operator]

And the next question is coming from Titus Krahn from Bank of America.

[Titus Krahn, analyst]

Just a couple on my side, some also a little bit more clarification. First one, just on the investments in waipu.tv, you earmarked EUR 10 million in H2 last year. And I just wanted to double check. Did you kind of exceed those? Or did you manage to deploy all this earmarked for investments into waipu.tv growth and how much marketing spending is actually budgeted within 2024?Second question would be just on the potential deal with Telefonica. You already talked about it. So it's a bit of a follow-up question, and I admit that something which is impacting you much more from 2025 onwards. But if you were to sign it now over the next couple of months, is there any impact on your 2024 guidance? Is there anything that could change potentially from implementation costs?And the third question just quickly on the, I think, application with the regulator for a potential sale of GRAVIS at the end of last year. Could you just provide some thoughts on this, how core GRAVIS is to your business, how material you would think are any synergies?

[Christoph Vilanek, executive]

Okay. First one, yes, I think we sticked more or less perfectly to the EUR 10 million extra invest into waipu. The current marketing budget for 2024 is planned to be EUR 20 million that's already incorporated in the budget.On the Telefonica question, well, it's hard to say because I don't know whether there is an outcome, what the outcome is. I think it's well known to you that -- and we have had a couple of your questions before some of your colleagues, the scheme with Vodafone and Deutsche Telekom is still a combination of revenue share and bonus payments, whereas the current setup with Telefonica is a rev share only. And if you would switch part of your volume to the second one that would have an impact certainly on free cash flow, maybe, I guess, but it's -- but it all depends. If you agree, what is the exact transition period? What is the volume that is going into the deal. So if it would have, then I think we would be -- try to be as transparent as possible, but today, it will only be a speculation.And third one on GRAVIS. Well, GRAVIS, as I said, it's about EUR 250 million in hardware revenues. So that's the share. Q4 is the highest one with about [ EUR 80 million ], which we just had on the hardware revenue question. Net-net contribution is around 0, with the current setup of Apple conditions. We are investigating on the partnership with another company that is doing more or less exactly the same as GRAVIS and then try to find synergies in a 50-50 partnership in order to make the business more sustainable than it is today. But I think it's fair to say that the numbers look equally challenging for any of -- any retail partner of Apple, be in Switzerland, be in Germany, be in Austria and other countries. So still an open item.The fact that we went to [ kartellamt ] to verify was that some of the lawyers of potential partners have asked us to do so. At that stage, it was then rejected by the [ kartellamt ] because with the statement that is not necessary, so they wouldn't see it as big enough of a deal. So this is why it then vanished from the public notion. And it looked like we have taken it back, but that's a formal thing that they -- how they indicated. So it's still an ongoing process. [indiscernible]

[Operator]

And the next question is coming from Ghazi Usman from Berenberg.

[Usman Ghazi, analyst]

I have 2 questions, please. The first one was just on kind of this news flow that the Bundesliga was looking to potentially invest in a media platform to showcase some content. And I believe that you've been in discussions with them on facilitating this platform. Could you perhaps provide us an update on where those discussions are? And what the likelihood of this kind of benefiting you? That would be helpful.The next question was just on this new retail concept that you're investing in the mobile business. So I believe that your share of customer interactions in your own channels is already quite high, right, at 70%. But would you expect that this investment you're making would increase that even further? And is this shop concept being rolled out across the entire footprint? Or is it in select stores? That would -- a color on that would be helpful.And just while I'm at it, I mean, one final question just on -- again, on your leverage situation. Obviously, the balance sheet is very safe, but at some point, it becomes suboptimal to have leverage at this level when you can obviously borrow at the kind of low rates that you are. So given your ceiling, is that kind of less than 3x? When do you expect to revisit the balance sheet situation?

[Christoph Vilanek, executive]

Usman, thanks for the question. I mean on Bundesliga, well, yes, you're right. And I think I've mentioned that in an occasion, we have talked to the Bundesliga guys in order to understand what the -- they have announced that they want an own platform. There was also a number published that what the investment was. And I went there and said, like, if you want to have an own platform and fully managed national or international, I think the setup that we have done with waipu could be leveraged and we could within a rather short period of time, provide you with the service that you might need, including CRM, billing facilities, hosting, distribution, peering, et cetera, et cetera. And we can do this for much less than the EUR 125 million that were there in the press.First information, they said the EUR 125 million were not for the platform only, but for many other things as well. Second is that they have -- we have had a couple of technical meetings for them to understand what our platform's ability is. And they were very positive about it. But there's 2 things which were pending at that stage. One is now off the table is an investment of a private equity into the DFL. So I think a big inflow of money is not expected to happen, which then might be an accelerator for them to find a partner, a technical partner like us, but they are talking to others as well. And the other thing is that I think the biggest uncertainty for DFL is what is the auction bringing in April.And so if I would now make an egoistic statement out of our perspective, I hope that the offers for the next 5 years is so low that they get a bit shocked, then they need to change the policy and the idea. And then time will be so short that they need a partner who is ready to go, and they know that we could help out within 6 months. So I think it will all depend on the outcome of the auction. And as far as we know, this is second half of April. On the freenet, on the [ RPS, RPS ] will be rolled out on any shops that are branded with freenet. This is own shops. This is franchise partners. And this is third-party dealers that are using our internal systems a total of 540 something.And the third one was on...

[Ingo Arnold, executive]

Leverage situation.

[Christoph Vilanek, executive]

Yes.

[Ingo Arnold, executive]

I think we feel some pressure because the situation is so good. But I think during the year, and we were talking about the investments, what we do at the moment. So I think the only thing what we can say now is we stick to the dividend policy. And even with higher spending, at least we will pay a stable dividend. But further on, I think we do not announce anything about share buyback or whatever, what you may expect. I think for now, we have to wait and see what happens during the year, how many investments will be necessary. But I think what we promise and what, from our point of view, looks important is that the dividend is safe. And with the increasing cash flows, what we expect in the following years, it will be also an increasing dividend then.

[Operator]

At the moment, there seems to be no further questions. [Operator Instructions] Okay. There is one next question, which is coming from Simon Stippig from Warburg Research.

[Simon Stippig, analyst]

Three quick ones from my side. In regard to the free cash flow guidance for this year, you have an increase in the CapEx and you explained that you will have to invest into the platform. Just here, my question would be that could you give a little bit more explanation on where -- so that means where in the platform of waipu you want to invest this additional EUR 15 million. And then the overall figure, is that structural? Or would you say you would then in 2025, come back to the EUR 50 million or EUR 53 million you had?And second question would be on longer-term guidance, 2025. If I would assume the basis of yesterday's or today's figures of 2023 in regard to EBITDA and take the 2025 guidance of above EUR 520 million, would that then almost become a double-digit figure. And the third question would be in regard to the sales channels. You mentioned that from waipu.tv, there's some contribution from Media-Saturn. Could you also quantify how much that was since October?

[Christoph Vilanek, executive]

Yes, thanks. The free cash flow impact or you asked like what is the waipu investment. Basically, we are working on. One is the tech stack for programmatic advertising. This need to be renewed, and there's an ongoing effort with a number of channels and the increasing video archives. We need to reassemble the entire back office technology there. So that is the 2 big software development projects, and they will be activated because it's long-term used, and this is why we put them not in -- how do you say that we put them in not immediate expenses but are activated, and this is the CapEx there, right? Software development CapEx. Hard to say what the upcoming years are, but I would assume today that this is a big effort in 2024, and that will go down to the level that we had before.On the 2025, it's just too early to have a statement. We run away from disclosing any of our internal ideas at this moment. I think it's quite obvious that with the 2024 ambition that the EUR 520 million is definitely within reach. And then we will need to see, once again, if the momentum on waipu continues, it might be not -- it might be a 4% again. But if we see that we start to like milk the customer base more than we did in the past, it might be a higher proportion. But please accept that we will not go deeper.On Media Saturn, I'm not in a position to disclose what they have done in the fourth quarter. This was the starting point. But I said in one of my previous statements that I expect Media-Saturn on a gross add level, definitely to be beyond 50,000 this year. This is at least what we see as the growth in the run rate after January and February, more detail need to -- I would need to [ ask the economy ], whether they would be ready for us to disclose more detail. But that's order of magnitude, what we are seeing right now. I know that they have an internal ambition, which is higher. But since they haven't published it yet, I'm not in a position to give more details. Thank you all, guys. Thanks for the attention. The last 90 minutes was great to have your questions. Please continue to challenge anything we say. Our team is ready for you. Thanks for taking the time. Thanks for your support. And we wish you all the best. Thank you.

[Operator]

Thank you for your participation. You may now disconnect.