T-Mobile US, Inc.
Q2 2016 Earnings Call Transcript

Published: 28 Jul 2016

[Operator:]

Good morning, and welcome to the T-Mobile US Second Quarter 2016 Earnings Call. Following opening remarks, the earnings call will be open for questions via the conference line, Tweeter, Facebook, or text message. I would now like to turn the conference over to Mr. Nils Paellmann, Head of Investor Relations for T-Mobile US. Please go ahead, sir.

[Nils Paellmann:]

Thank you. Good morning. Welcome to our second quarter 2016 earnings call. With me today are John Legere, our President and CEO; Braxton Carter, our CFO; and other members of the senior leadership team. Just read the disclaimer. During this call, we will make projections and statements about the future performance of the company, which are based on current expectations and assumptions. Our Form 10-K includes risk factors that could cause our actual results to differ materially from the forward-looking statements. Reconciliations between GAAP and the non-GAAP results we discuss on this call can be found on the Investor Relations page of our Website. With this, let me now turn it over to John Legere.

[John J. Legere:]

Okay. Good morning. I know that I'm happy to see that the warning and disclaimer has yet to be updated (1

[J. Braxton Carter:]

Yeah. Thanks, John. And it's so exciting to be here for another quarter of solid execution. Let me give a quick snapshot of our strong financial results and an update of our 2016 guidance. Let's start with the financial results for the second quarter. Our customer growth is translating into a very strong financial growth as we once again deliver the industry leading metrics. Service revenues grew by 12%, and adjusted EBITDA came in at $2.5 billion in the second quarter, up 36% year-over-year. The adjusted EBITDA margin expanded from 30% to 36% year-over-year. This compares with 32% in the first quarter, if you exclude the large spectrum of gain that we recorded in the first quarter. Adjusted free cash flow improved year-over-year from $73 million to $485 million. Net cash from operating activities increased by 52% and benefited from a cash inflow of $0.4 billion in connection with the sale of EIP receivables. The increase in net cash from operating activities was partially offset by higher cash CapEx, which increased by 13% year-over-year. Cash CapEx was more front-end-loaded this year due to our very aggressive rollout of the 700 megahertz A-Block, which is bringing a lot of goodness as you're seeing in our customer retention or churn metrics. This is just the timing issue which we will normalize in the course of the year. Compared to the first quarter, working capital benefited even further from a reduced take rates for leasing, which amounted to just 3% of total devices sold or leased in the second quarter as we told you at the beginning of the year. We continue to expect a significant improvement in free cash flow for this year especially with the front-end loading of cash CapEx, the free cash flow story is going to get very exciting in the second half of 2016. Earnings per share came in at $0.25 per share in the second quarter, compared to $0.56 in the first quarter. Recall that the first quarter EPS included an after-tax impact of $0.46 related to the spectrum gain. So, underlying EPS was up strongly. When comparing EPS to last year, recall that net income in the second quarter of the prior year benefited from an unusually low tax rate due to several discrete income tax items whereas this quarter the effective tax rate was essentially normal at 39.5%. Branded postpaid ARPU grew by 1.9% sequentially. Excluding Data Stash, the sequential growth rate amounted to 0.8%, which represents the second quarter of sequential underlying growth. Overall, we are very pleased that ARPU continues to be generally stable. In terms of customer quality, we saw continued improvements in the quarter. Total bad debt expense and losses from sale of receivables was $165 million, or 1.79% of total revenues. Compared to 2.10% in the first quarter of 2016 and 1.91% in the second quarter of 2015. EIP receivables classified as Prime was 53% at the end of the second quarter, including the EIP receivable sold, compared to 52% at the end of the first quarter. Let met update you on our recent transaction. In June 2016, we entered into an agreement under which we agreed to sell our marketing and distribution rights to certain existing T-Mobile co-branded customers to a current MVNO partner. The transaction expected to close late third quarter of 2016 and subject to regulatory approval and other closing conditions. Assuming closing, approximately $1.4 million branded postpaid phone customers and approximately 0.3 million branded prepaid customers would transition to being reported as wholesale customers. The customer transition is expected to have a significant impact on reported branded postpaid phone churn following closing. For example, on a pro forma basis as of the transaction close at the beginning of the second quarter of 2016, reported branded postpaid phone churn would have been 18 basis points lower at 1.09%. Yes, 1.09%. Identical to the consumer mobility postpaid churn reported by AT&T in Q2. Now, let me give you an update on our 2016 guidance. In light of the continued strong customer momentum, we are taking up our target for branded postpaid net customer additions to 3.4 million to 3.8 million, up from the prior target of 3.2 million to 3.6 million. For adjusted EBITDA, our new target range is $9.8 billion to $10.1 billion, narrowing the prior target range of $9.7 billion to $10.2 billion. This target range includes the spectrum gain of approximately $0.6 billion recorded in the first quarter. Our EBITDA target also includes the aggregate impact from leasing and Data Stash of $0.8 billion to $1.0 billion, again narrowing the prior range of $0.7 billion to $1 billion. For Data Stash, we now expect $300 million to $350 million, compared to the prior expectation of $250 million to $350 million. Finally, we target cash CapEx of $4.5 billion to $4.8 billion in 2016, which is unchanged from prior guidance. In summary, we delivered very strong financial results in the second quarter and expect continued strong growth in 2016. We won't stop. Now, let's get to your questions. You can ask questions via phone, text message or via Twitter or Facebook. We will start with the questions on the phone. Operator?

[Operator:]

Thank you. Our first question comes from John Hodulik with UBS.

[John Christopher Hodulik:]

Okay. Thanks. Two quick ones if I could. First of all, you gave us some good stats around for T-Mobile Tuesdays. Is there any way you can tease out the benefits you might have seen in terms of churn and the cost that may have gone along with that initiative? And then, Braxton, in the past, you've talked about a margin target of 34% to 36%. You're at, call it, 36% or so now. Obviously, there's some leasing in there. But, I mean, as you guys see leverage in the business, can you – do you have sort of line of sight to sort of 40%-plus margin sort of longer term? Is that something we could expect? Thanks.

[John J. Legere:]

Okay. Let's move around. Mike, make sure your mic's on. I'll let Mike talk about the phenomenon where we learned that Americans love their pizza much to the detriment of those that don't have enough dough on Tuesday. But maybe you can talk about this ongoing phenomenon with the – and by the way, I'll just say coming in, you never know when you launched these things which thing is going to strike the nerve of a whole nation. And I would say we've had 6.6 billion social media impressions associated with this and a phenomenal amount of media stories and reach that actually matches or exceeds most Un-carrier moves or Super Bowl advertising. So, when you think of some of those statistics, not only is the phenomenon so far as Mike will describe critical to our relationship with our customers, but it's got legs in a very, very big way. So, Mike, do you want to talk? And then we'll go to Braxton.

[G. Michael Sievert:]

Yeah, John. It's kind of amazing what's happened here. I mean, some people were asking whether or not we were running out of ideas on Un-carrier moves. And I think the results around Un-carrier 11 show that that's an emphatic no. As John said, this has just been – this has captured the imagination of Americans. This was the most talked about Un-carrier move we've ever done and also the most covered in the media with 56 million broadcast impressions. As John said, 6.6 billion social impressions from conversations, 3,600 new stories. That app hit number one in the App Store multiple days over a two-week period, and number one in the App Store isn't like a categorical thing, number one in our category. That means like number five is Facebook, number four is Instagram, number two is Snapchat. The number one app in America for many days of the launch sequence over two weeks was T-Mobile Tuesdays.

[John J. Legere:]

But don't remember number 793 was Go90.

[G. Michael Sievert:]

That's true. Yeah. Over the last week, the number one app was Pokemon, the number two app was Pokemon related, and the number three app was T-Mobile Tuesdays in America. So, it continues. We're not going to be able to unpack for you the business results sort of line-by-line. But remember, we had a record low churn in Q2. And as John said, we're off to an amazing start in Q3 with more postpaid phone nets than anyone in the industry did in the entire quarter of Q2. And what we've tapped in here, what we like to do with Un-carrier moves is tap into a sentiment, tap into a pain point, a preexisting belief. And in this case, it's the idea that there's a big difference between a loyalty program and a thank you program. Loyalty programs are something that companies do to say you the customer should comply with what we as a company want. You should do things for us. And what we'll do as a company is we'll track you. We'll keep track of how compliant you are in the form of points or something and one day someday, we'll give you something. Whereas a thank you program just says thank you. Not once. Not down the road, but every single week. And people love it. They love the phenomenon. So stay tuned for even more results down the road.

[John J. Legere:]

And let's switch to Braxton, but a footnote. This is where – there's a couple of things that are important to me when we announce earnings. There's a lot of focus on short-term metrics, but also, not enough on the real qualitative investments that are going on into creating the business in a sustainable way. There's also a weird comparison all the time still about what are the price of the four carriers. And I think what you've got to do now is you have to realize that the things that come with being a T-Mobile customer, whether it's Music Freedom and free music streaming or BingeOn that now has a hundred providers participating. T-Mobile Tuesday, every Tuesday having value that's delivered contact-free international data roaming, including high-speed data in Europe for the summer, the things like we just did for our customers going to the Olympic Games. These are embedded in the basic pricing for T-Mobile, so it makes the comparison very, very important, that's why we spent so much time on this. Braxton, do you want to talk about the margin?

[J. Braxton Carter:]

Yeah. Good morning, John, and really good questions. I'll put one final answer on your cost question on Un-carrier 11. Of all the Un-carrier moves, this was actually very, very ranked at the bottom of total cost investment, fully embedded in our actual results and fully embedded in the guidance that we put out. And you got to remember, there's a lot of innovation, and we're partnering with other companies to the benefit of other companies in what we're doing with Un-carrier 11. So it's actually quite affordable. On your margin question, I think you very accurately pointed out we're already at the top end of our EBITDA margin guidance that we have reiterated multiple times, which definitely tells you, as we continue to scale, the opportunity is to significantly grow our margins past the 36% range. And the other thing that we need to take into account is, remember, we had over 100% of the growth in postpaid voice phone in the second quarter, almost 200% in the first quarter. We're growing significantly, and that has significantly impacted our margins. We have a lot of momentum. We have a lot of growth ahead of us, but we're achieving this margin expansion, while being the fastest-growing and truly in certain categories, the only growing wireless carrier in America.

[John J. Legere:]

Okay. I think I'm going to jump – John, are you done?

[John Christopher Hodulik:]

Yes, all set. Thank you.

[John J. Legere:]

Okay.

[J. Braxton Carter:]

Thanks, John.

[John J. Legere:]

Let's take the next question on the phone, and then I'm going to – if it's not this topic, I'm going to jump back because there's a tremendous amount questions, Roger and Walt and a number of others, about porting. And I'd be glad to hit that and make sure that we're setting the right tone on that. But let's take the question from – the next one from Simon.

[Operator:]

And we'll next hear from Simon Flannery with Morgan Stanley.

[Simon Flannery:]

Great. Thanks a lot. I think you said Neville was there. It'd be great to get an update on the network. In particular, talk about the CapEx trending through the year and how that relates to rolling out the 700 megahertz, getting Chicago deployed. And then I think, John, you touched on small cells and get – adding capacity to the network. It'd be great to get Neville's perspective on how you see the sort of economics of small cells and the ability to add capacity at an effective – cost-effective manner.

[John J. Legere:]

Okay. Neville?

[Neville R. Ray:]

Yes. Thanks, Simon. Thanks for the question. So, obviously, we're delighted with the progress that we're making on our LTE rollout. John touched on key stats there. The 311 million covered POPs with LTE is pretty remarkable when you look back at where we were a year or two years ago, so continued tremendous progress on that front. The low-band rollout is also well ahead of our schedule. Braxton referenced in his comments at the beginning of the call that, that count somewhat front-loaded our CapEx in the first half of the year. We're at over 200 million people now covered with our low-band spectrum. And it's very clear when you look at our customer results, record-breaking churn levels now, our lowest levels ever in the company's history, that the impact of that low-band spectrum is truly starting to take effect for the company. So great progress on many, many fronts on the LTE rollout. Couldn't be happier with the progress we're making. We have a lot more to run at as we go through the balance of this year. We have almost 270 million licensed POPs now with low-band, so another 70 million to go after or just under. We will take down a big chunk of that in 2016 in the second half of this year. There isn't a team that works faster and harder in this industry than the team I have here at T-Mobile in terms of deploying LTE networks. So there are many areas that will benefit from low-band through the end of this year. You referenced Chicago, which is a new spectrum addition for us. We're starting to work very hard on that. Obviously, the deal still has to go through final approvals, et cetera, with the FCC, should be no issues at all on that front. But Chicago is a fairly recent acquisition, so I would expect Chicago will be more of a 2017 turnout than much to see in 2016. But you can take it to the bank that we will have a much bigger number than 200 million covered POPs on low band by the end of this year. So coverage piece, tremendous progress. You referenced small cells and capacity. I think as we've talked many times before, we benefit from the strongest mid-band spectrum position in the industry. We have a tremendous macro network, which is delivering the fastest LTE across the U.S. today. That's a great proxy for the offered capacity that's available on the network. It's truly broad-based coverage. We are starting to densify our network, as you hear from many others, but we don't have to move at the same pace that they are. We are working small cell opportunities, which you specifically asked about, Simon. We have several thousand that we're working on. Not all of those will come up this year. But because of the strong spectrum position we have and the very dense macro network that we have and the types of spectrum that we're deploying, we don't have to rush headlong after the densification that you hear from some of our competition. We're re-farming our spectrum very rapidly. I often talk about having not just the fastest and fastest-growing LTE network in the U.S., but the most advanced. We have now over – almost, actually, 90% of our data traffic is on our LTE network, 58% of our voice traffic; 58%, nobody can match anything like that, of our voice traffic is now on LTE. Why is that important? It allows us to free up legacy technology-bound spectrum. Much of our competitive set is wrapped up in old legacy technology, so they can't free themselves up for several years to come. So more and more LTE from us, more re-farming, allows us to really strengthen that capacity position that we've done so well with over the last year or two years. So coverage, capacity, all coming together, lots more to talk about, we'll see other questions that come on the call. And obviously, we're in the midst of a very, very exciting auction, one that I think will forever change the competitive landscape in the U.S. to the benefit of T-Mobile.

[Simon Flannery:]

Just a quick follow up; what's the 700 megahertz handset penetration at this point?

[Neville R. Ray:]

It's very strong, Simon. It's well more than half of the base. Pretty much everything we sell now is 700 megahertz banded. North of 70% of our customers have LTE-banded handsets. And the lion's share of those have band 12, so tremendous progress, not just rolling out the network, but getting the benefit of the network into our customers' hands.

[Simon Flannery:]

Thank you.

[John J. Legere:]

And I think it should be evident that as news unfolds, we need time to be able to factor them into our future-looking results for the business. I really just want to say, it's too early for us to have figured out the impacts of our company on the fact that we now learn that $300 million of CapEx is sufficient for investing in a growing network or that you can drive at high speeds down the road with a truck and just throw poles out to densify your network. But we're also – interesting to learn that now in the future, you can just open your desk and push a button and increase the capacity. All of these things could have potential significant upside to our business, but we haven't had time to factor them in to our future-looking view. Let's go – let's take – in a lot of fashions, I saw Walt, I saw Roger, I think I saw (34

[Operator:]

And our next question comes from Phil Cusick with JPMorgan.

[Philip A. Cusick:]

So, with nothing better to do, let's go to Phil. Thank you. Thanks, John. I wonder – no, that's a win. I wonder, John, if you can talk about your competitors' vertical integration strategy. It seems like T and Verizon are doing more and more outside of just wireless. Is this increasingly necessary for you over the next few years? And what about the guys sitting in the cable footprint, do you think they need to do more in wireless as well? Thanks.

[John J. Legere:]

Okay. Well, let's bounce around with that, right? I think amongst the things that are important to note is Verizon has now spent over $10 billion in their fussing around. And there's a couple of pieces to this strategy and I think both of their strategies. Pretty clearly, they are trying to create new revenue streams and new businesses, and they're not successfully migrating their way from the bank of their business, which is their wireless business. The facet of buying content and having preferential access to content as a way to solidify a relationship with a group of customers, I just don't – I don't think that's the strategy. It's clearly not the strategy for us. What we try to do is we try to partner with innovative players that have established bases of customers who want to view their content and provide the capability through our various offers to allow those to coexist. And the benefit of that is as those players emerge and fall, so do our relationships and our ability to drive that. So I think at the surface level, it's an old school, and each of the endeavors that both AT&T and Verizon have tried in these areas have failed miserably. I mean, we're not looking back yet at all the money they spent. We're looking at the shiny new toy, which is Yahoo!, who's mysteriously gone from $128 billion worth of market value to $4 billion. But I'm sure with their polishing up strategy they can do something miraculous with that. Underneath this, though, is a pretty clear strategy by Verizon to compete with Facebook and Google in the advertising space. And that is a very risky, longer-term strategy against two of the very powerful self-endowed players. And for us, we will clearly not self-invest to go into those. But that's a broader game. That's a game of looking at your customers as a unit cost – a unit opportunity of advertising load, and that's very different from where the Un-carrier is. And segueing over, I think you mentioned the cable players. These – this is the battle that's going on. And I did listen to Comcast earnings today. I think you can anticipate nothing other from the heads of the cable players right now, except to put forth the belief that they're going to stick Wi-Fi nodes out at the same rate that Sprint is going to stick out poles and that everything is going to be beautiful and they're going to launch an MVNO with Verizon, while Verizon is ready to attack and fight back. That's all just to grow up and learn that you need a deeper ownership economics. And yes, I firmly believe that there will be a dramatic coming together of everybody that want to serve customers across multiple devices with content. And we will play aggressively in that space from our own point, but we are going to be very open-minded to who we play with our brand in the future. So I may have touched on a number of your points in there, but my opinion on those topics has been consistent, I think.

[Philip A. Cusick:]

If I can follow up. Neville, there's been the FCC approved the cable – or excuse me, the 5G spectrum bands. How does that make you think about the world in terms of densification and maybe working with cable?

[Neville R. Ray:]

Yes. I mean, obviously, we're – we applaud the FCC's efforts to move forward on 5G spectrum sources for the industry. It's key. And Chairman Wheeler and the team have done a great job of pushing forward here at a great pace and well ahead many other places in the world. So that's good to see. And clearly for us, I mean, one of the bands that they've – they're slating for 5G users is a spectrum band where we already own spectrum unlike most of our competitors who are begging, stealing or borrowing. We actually do own a chunk of – and a sizable chunk of 28 gigahertz. So, some good alignment pieces there. But to your question, Phil, I mean, I think for me, jury is still out on what's going to happen on the 5G story. We could talk about this for the next 30 minutes, but I'll avoid it. I'll try and do it in a couple. It's clear that Verizon has attempted to take a leadership position on 5G and got way out in front of their feet (44

[John J. Legere:]

Okay and I'm going to use this moment. One push button to say that – this is another part. I'm sorry if I'm cranky today, but this is part of these earnings call every quarter, where the [explicit language] (47

[Neville R. Ray:]

Thanks very much guys.

[John J. Legere:]

I won't let those pick on you anymore. Okay. Next question on the phone.

[Operator:]

Next, we'll hear from Brett Feldman with Goldman Sachs.

[Brett Feldman:]

Thanks for taking the question. And I want to talk a bit about some of the network expansion or the distribution expansion that you're planning. How do you decide which markets makes sense to bring the T-Mobile brand into? I would imagine these are obviously markets where you've deployed 700 megahertz A-Block. Do you also deploy any mid-bands in order to make sure you have sufficient spectrum in that market or do you spend it afterwards? How do we think about SG&A levels as you prepared to build out and enter these markets? And then just your historical experience when you put up the T-Mobile sign in a place you haven't been before, how quickly can you ramp penetration?

[John J. Legere:]

I'll let Mike cover these. But the footnote going in is the exciting possibility of how much extra expansion in our retail that we can have based upon the networks. So, we've already talked about the 30 million to 40 million extra people that we can reach with the 400 stores that we will deploy. And this is Magenta. We're not talking about Metro which is an entirely different reach story. And we're also – I'm going to ask Mike, when he gives his answer to it, double-click not just on the 30 million to 40 million new people we're going to get by 2017, but what we're doing to increase the penetration where we already are and what that kind of looks like in the opportunity spectrum. Mike?

[G. Michael Sievert:]

Yeah. Brett, it's kind of an interesting question when you think about all this expansion potential that we have. In the context of the fact that we, for 10 quarters in a row, have been leading the industry in postpaid phone growth while only competing in about two-thirds of the country and in about two-thirds of the segment. So, think about it this way. As John said, we've been – we have our full mix with distribution and full network in about 230 million POPs. And as we've been saying, we see an opportunity to add 30 million to 40 million to that by the middle of next year and we're well on track for that. Secondly, from a segment standpoint, we're underpenetrated both with prime consumer suburban families as well as with businesses, including large enterprises and small businesses. And these are areas where again we've been kicking everybody's ass on growth without normative penetrations in those segments. And so, those are big growth areas for us as well. We pick the markets pretty simply. I mean we're – as you know, we're rapidly rolling out network and we go into the places where our network is newly strong and where distribution needs to be there to take advantage of it. And as John was saying, that's not just new cities and greenfield areas, that's also dense of places where we have densified or extended out into the suburbs and in the hinterland. So, it could be areas where we've added infill, it could be areas out in the suburbs or it could be greenfield markets. So, that's a mix of those in our distribution expansion. About 400 stores this year, and we're on track for that. Above 1,000 MetroPCS stores, something we don't talk about as much as we should, because that's a big part of our expansion. As we finished this year, we're looking at more than 4,000 T-Mobile branded doors, 9,000 MetroPCS branded doors, a huge source of strength for us. In terms of the ramp time, it does take a little bit of time. So, when we come in, there's a buildup time both for our team to get productive and for the local market to really understand the T-Mobile value proposition. So, it doesn't all roll in right away. But what we see is a path towards our normal SoGA levels over a period of time. And we make the investment together with our distribution partners with that success in mind.

[Brett Feldman:]

Great. Thanks for that color.

[John J. Legere:]

And we're going to put one within a mile of your house, Brett, (53

[Brett Feldman:]

I need a new phone.

[John J. Legere:]

All right. I'm with you. There's a new one coming out soon. Okay. Next question. Wait, we'll let's take. I don't want to do the same thing to Ric. Let's go to Ric, the next question on the phone, and then you guys pick from this plethora. I'm tempted to go to Walt Piecyk but he keeps spewing facts as opposed to questions. By the way, I just want to say this, Walt Piecyk is posting on social a fact that's fascinating. I hadn't seen it this way. Looking at the wireless capital investment in Q2 and look at the absolute numbers of Verizon, T-Mobile and Sprint, but then breaking it down per subscriber. And what it shows is that Verizon invested $25 per subscriber. T-Mobile invested $26 per subscriber. And Sprint invested $8 per subscriber, which I – again, as soon as we can figure out that trick, we're all on that. So, let's go to next question from Ric.

[Operator:]

And, Ric Prentiss, with Raymond James, your line has been opened.

[Ric H. Prentiss:]

Yeah. Thanks. Morning, guys.

[J. Braxton Carter:]

Morning, Ric.

[John J. Legere:]

Morning, Ric.

[Ric H. Prentiss:]

Hey. A question. You mentioned distribution partners. I want to circle back to Braxton, something you talked about where you're going to sell some of your customers to a current MVNO partner. Walk us through a little bit about what triggered this. Why are you selling them? What do you guys get? And I would expect there's some changes not just on churn but how revenue and EBITDA may be play out on as well. So, it seems like an interesting item that you're doing.

[J. Braxton Carter:]

Yeah. Let's have Mike start with that and then I'll be happy to finish off.

[G. Michael Sievert:]

Yeah, Ric, as most people are aware for a long time now, for many years, our postpaid business has been comprised of our branded T-Mobile business as well as a co-brand called Walmart Family Mobile. And we have taken a decision to transact with one of our wholesale partners to have them takeover the sales and distribution of Walmart Family Mobile for a variety of reasons. To help us streamline our operation, and we think they're in a great position to be able to more effectively grow that business and we retain the network side of the value chain on that. It's a great transaction. It's not closed. And so, there's work still left to be done. But we felt like it was important enough we needed to go ahead and disclose it to you today since we've signed the agreement with that partner. And what it does, and one thing that it does with that disclosure is it causes us to show you how the underlying T-Mobile business, which is the vast majority of our postpaid business, all but 1.4 million of our subscribers, is performing. And what's interesting is this last quarter, had that been the postpaid business as it would be prospectively, our postpaid churn on the T-Mobile brand was 1.09% completely flat with AT&T consumer churn, just for a point of comparison. That really shows the amazing progress that this business has made with its brand, with its customer service, but most importantly with its network. Going forward, presuming that the business closes, as we expect, we would be reporting our postpaid business with only the T-Mobile brand that you would see comparisons going forward that build off of this quarter. Now, that 1.4 million subscribers is generally stable. It has not been a contributor to our growth in a long time. It's not declining substantially. It's a stable business that's been out there that's been contributing to our results and that we think we can get better financials out of going forward in the hands – with marketing and distribution point at least in the hands of one of our wholesale partners.

[John J. Legere:]

Anything else to add, Braxton?

[J. Braxton Carter:]

Yeah. No, I think that was a great recap. And I think – the only thing I would add is that is our only co-branded partner that was embedded or currently embedded in our postpaid number. So, this is completely a one-off. From a EBITDA standpoint, it's fairly neutral, but certainly the ARPUs on Walmart Family and the underlying demographics are very differ from the rest of the T-Mobile base. And I think that one thing that's going to be exciting to seeing true T-Mobile branded postpaid results going forward. And it is best-in-class.

[Ric H. Prentiss:]

Great. Yeah, we've been hearing that Walmart might reduce the number of people they were carrying in the store. So, probably it also locks you in that way you have a better shot at keeping the shelf space.

[John J. Legere:]

Okay. Let's jump around. I did want to note, I love the social interaction here. And I'm going to read the tweet from Aaron Pressman that says he's impressed that I'm reading Walt's tweet. I'm going to point out, Aaron, because I'm a fan of your writing as well. There is a Walt Piecyk question here coming here in Twitter that I am going to take. And it says, have you talked to Comcast about selling prepaid TV at MetroPCS stores? And what I'm going to tell you, Walt, is we have absolutely no interest in using our MetroPCS store in that fashion and I'm sure it's a roundabout way of – I guess the Boost stores had to do something. But, in general, again, my feelings about where the industry are going on a substantive basis stand. And, from a standpoint of dating or showing any leg, I'm not interested. And in my case, unlike Verizon, I would say the last two letters in MVNO are no. So, just, the answer – there were some people that wrote and said, it's interesting that the people talking about consolidation the most, and T-Mobile are the only ones that haven't been invited to the party. And if you think that's true, then I have some land to sell you. T-Mobile is an extremely powerful brand, and coveted highly. But opening up our stores to sell some unproven prepaid TV product, that's not integrated at all, is not part of what we plan to do with our brand or with our stores. But all the power to you over there if you got excess capacity. Okay. Let's go back to the phones.

[Operator:]

And our next question comes from Jonathan Chaplin with New Street Research.

[Jonathan Chaplin:]

Thanks. Two quick ones for Braxton. So, Braxton, there's been quite a meaningful working capital drag in the first half of the year, it's – you said that the trends in the second half of the year would look a lot better, just want to sort of make sure we're still on track for what we were expecting previously. So, if I look at the midpoint of EBITDA and CapEx guidance and takeout where you are in interest expense, it looks like we're at about sort of $2 billion to $2.5 billion in free cash flow, but for whatever the drag is in working capital, should working capital be more or less neutral for the full year this year? And then my second question is, I know you don't really want to talk about this now, but as we sort of look ahead to 2017, you'll end the year below your leverage threshold. And it seems like we're getting into the zone where capital returns should come on to the table, I know that capital returns or decisions that have to be taken by the board. But is there any reason why you wouldn't keep this business level at three times or more, given the operating trends that you have? Thanks.

[J. Braxton Carter:]

Yeah. Sure. Thanks, Jonathan. Great questions. Yeah, I think the whole free cash flow story is one the things that we actually get the most excited about here at T-Mobile when we look at future projections. And I think it's informative to look at the differences in the first half of this year versus the first half of the prior year. And even though we're showing very substantial growth in our free cash flow, that's in the context for the first six months of this year, that we've spent $500 million more in CapEx on a fairly flat CapEx budget from 2015 to 2016. So, it's a much more front-loaded in 2016 than it was in 2015. And we're doing that because the goodness of rapidly rolling out the 700 megahertz and it all it does for us from a lift, from an expansion, and from a retention standpoint is key. The second thing if you really teased the numbers out, when you look at the net payables for the first six months of 2016 versus the first six months of 2015, there was an incremental $300 million-plus reduction in payables over the prior year. And that's coming out of a strategy of really trying to optimize every part of the financial equation. And we're in a position where we have entered into new agreements with early pay discounts and trying to take full advantage of those early pay discounts. It falls right to the bottom line. And that's a really shift in strategy that we've had over the last year. Those two items alone are organically $800 million more in working capital generation in 2016 versus what we did in 2015. We're investing it in those types of initiatives. But I think what gets really exciting is, yeah, the thesis is fully intact. You look at the midpoints of the guidance, you look at the front ending of CapEx during the year, you're going to see some very nice working capital increases the balance of the year, and just wait for 2017. This story really with the leverage we're getting, with the scale we're getting, we're extremely excited about it. Your final question, we do have a capitalization policy that has been keeping our net leverage between three times and four times. And we do think that leverage is healthy to the equity component if it's reasonable and prudent. We're certainly going to be increasing the leverage based upon everything that we've announced on debt we've raised and the commitments we have from DT which again was better than anything we could've gotten in the open market. But the way that this model is performing and the way we're executing, we very rapidly delever. So, when you look a year out, what we'll have at our disposal is a decision to make on are there opportunities to invest in our business that will create a higher return versus returning capital to shareholders. And, ultimately, that's the right way to look at it from a fiduciary standpoint. And, we'll see what develops, we'll see what opportunities develop. I think we're very uniquely positioned to capitalize on several opportunities in the future. And, certainly, with the way this model is working and the way that we're executing on return of equity or cash to shareholders in the future, it will certainly happen. I would position it more as mid-term being two years to three years out before we'll probably be looking at that type of scenario. But, hey, let's see what develops.

[John J. Legere:]

Just double-click here as well because the work that Braxton has done in this company on so many fronts preparing us, for example, for where we sit in this historic auction, these are things that don't get covered on quarterly earnings calls. And I know early this morning, there was at least one or two analysts that were confused about our cash generation for the quarter. And so I think what Braxton just covered where in this type of environment that we're in he was even aggressively paying down payables. That's just a qualitative phenomenon when you hear the other earnings that have taken place to be prepared for an auction, making the down payments, generating cash, and bringing payables down qualitatively is something that Braxton has done an incredible job on and doesn't get enough focus on here. So, I'd hope that bridge with the payables also answers your questions that we're running around this morning. And, Braxton, great job by your team on all this. I also saw a couple of things go by. I'm going do a two-second commercial. There's been a number of comments and questions about how much of information is flowing here at Twitter. And I actually saw one joking comment as Jack call you to thank you for the Twitter flow. I wanted to be clear. I and we are big fans of Twitter. The product is extremely powerful in how we run our business. We're running our earnings calls on it. At the tip our fingers, how much information we have. I use Periscope extensively along with other social media. So, I just wanted to make sure that, from a business standpoint, this company and me personally, we're all in on Twitter. So, I know there's a lot of negativity or question not for us. We find it to be an extremely useful and growing platform for us and we continue to focus on it. So, that's my shout out to Jack. Okay. Let's go to the next question on the phone.

[Operator:]

Next, we'll hear from Mike McCormack with Jefferies.

[Mike L. McCormack:]

Hey, guys, thanks. Braxton, maybe just a quick comment on ARPU. It seems like obviously Simple Choice penetration has gotten very high. Can we anticipate – as we progress to the back half of the year that we could see year-over-year growth in ARPU and what would be the drivers there? And then, secondly, I guess on the promos targeting families. Can you just dig a little bit deeper on what you're doing there and whether or not the 700 megahertz deployment is a big help there?

[J. Braxton Carter:]

Yeah. Let me start with that and we'll have Mike address the family plan component. For the second quarter in a row, adjusted for Data Stash, you've seen sequential growth in our ARPUs. Again, adjusted for Data Stash, it was up 0.8%. If you look at the balance of the industry and you look at the trajectory of ARPU, it's another way that where I think we're really differentiating. The strength comes with data attach as well as penetration of insurance on higher end iconic devices. Those are two of the strengths that we have and data attach being the most significant. And that's even in the context of Binge On, but remember to really participate in Binge On, you have to be at least on a 3-gig plan. So, a lot of what we do is very well thought through from an Un-carrier standpoint that encourages placement of the consumer in the appropriate bucket for their usage. But as data usage has gone up, you're seeing that progression in data attach. And that's been the strength and the underlying driver of what's causing the two quarters in a row in the sequential improvement in ARPU. Offsetting that are family plan promos. And the interesting thing about family plan promos, you're doing discounts on your additional lines in the family unit. But when you look at the overall NPV, you're sacrificing some ARPU but you're creating more value for your company, it has a better retention, lower overall SAC costs, so it's a trade-off well worth making. And you can look at our per subscriber metrics, consistent quarter-over-quarter on the number of lines per account has been significantly increasing which is showing the results of this emphasis on family plans, and that absolutely will continue. And that's when we talk about ARPU as we talk about general stability, certainly there's underlying strength there. But the family penetration especially when you look at the AT&T and Verizon base where over 80% of their customers are family plan units, that's very, very important for us. Let me hand it over to Mike to...

[Mike L. McCormack:]

Hey, Braxton, I'm sorry. Before you jump, just on the churn data point there, if it's normalized this quarter for 1.09% presuming next quarter there's some seasonality, but 1.09% should be the jumping off point as we look at the forecasting?

[J. Braxton Carter:]

Well, remember that this transaction will not close and it has not closed now, and it will not close towards the later part of the third quarter. And it's not a retroactive. It will be a prospective. So, no, you would not get the full benefit of that transaction when it closes in the third quarter. You'll see run rate in the fourth quarter.

[Mike L. McCormack:]

Okay.

[G. Michael Sievert:]

And the other thing on churn is that – and by the way, we're just – we're so delighted with what's going on on churn. 1.27% is an all-time record driven by the health of our brand, the progress of our network and certainly seasonality. In this case, there was no iconic phone launch in the quarter, and that brought everybody's churn down a little bit. But year-over-year, it was about 5 bps. And if you just look in the past years, we don't guide on churn, but if you look in the past year's churn, it has been a lot higher in the second half than in the first half. And so you got to keep that in mind as you look at the full picture. But we're seeing nice year-over-year progress here, and that's the important point. As Braxton said on these family plans, 2.64 lines per account is an all-time record for T-Mobile. So, we've been after families now for about two years. We really launched in at the beginning of 2014, so 2.5 years of progress. And we continue to update and change the way we're bringing value propositions to families. Our latest promotion is one we're really excited about, which is being able to provide the entire family with a smartphone included with your plan at no extra charge and smartphones are getting affordable enough that we can do this in a very cost-effective way and we found a way to provide that. And obviously the market is very excited about it. So – and we will stay focused on this market. And as Braxton said, data attach is growing and family plans are hitting an all-time high. Those generally offset each other to provide ARPU stability of the kind we've been talking about and telling you to expect.

[Mike L. McCormack:]

And, Mike, just as it relates to the 700 megahertz, does that sort of driving the message home on network quality?

[G. Michael Sievert:]

Absolutely. And because at the end of the day, what people care about is coverage. We are the fastest network in the country. We have been for well over two years. But what they really care about is coverage. We've more than doubled our coverage in the last year and 700 megahertz is mostly gets the credit for that. And as you know, I mean that's something that is just an epic achievement of the company, now having 269 million POPs of licenses for extended range LTE and we're rapidly rolling out against that. So, still some potential...

[John J. Legere:]

And, Mike, this is still – for us, not just the retail expansion, but for us the challenge and the opportunity is the same. We have a relatively small share player and our network is wildly ahead of the ingrain perceptions for the outdated experiences of customers. So, it's a very much still a game where we've got to get people to update their experiences including you. I mean, that's – you're next on the list.

[Mike L. McCormack:]

John, you know I'm already there.

[John J. Legere:]

Yeah. (1

[Mike L. McCormack:]

Thank you, guys.

[John J. Legere:]

Okay, Mike. Thanks. Let's go to the next question. I think it's Craig Moffett who'll be fun. I've been sitting here reading stories about Craig and his assessment of everything that's happened and who's buying us and who's not buying us. So, let's open the mic to Craig and maybe we'll ask him some questions.

[Operator:]

Next, we'll hear from Craig Moffett with MoffettNathanson, your line is open.

[Craig Eder Moffett:]

I'm game here. Go ahead and ask whatever you want. I was actually going to ask a network densification question if I could sort of take the bait on some of the things you've been talking about capital budgets across the sector. So, there's sort of two levels of network densification, I guess. There is network densification in the context of LTE that you and everybody else are sort of doing at a steady pace. But then there is a completely different order of magnitude of network densification for millimeter wave that others are talking about for fixed wireless broadband, you were pretty dismissive of that opportunity. But how do we think about that? Maybe for Neville first, how do we think about the kind of network densification that's going to be required for those kind of cell radii in 5G? And then maybe Braxton's perspective on the same question of how you would fund something like that.

[Neville R. Ray:]

Yeah. Let me run it, Craig. I mean I think the – if you look at densification today and what's being talked about, you have to come back to the spectrum that you own and the assets that you have. And unfortunately, for the Sprint folks, they are still trying to figure out how to deploy effectively 2.5 gig spectrum. It's a challenge of physics. It doesn't propagate that well. And so, they are having to adopt mass densification strategies. The rest of the competitive set, quite frankly, don't at this point in time. That's a big challenge for them. It's an even bigger challenge if you have no money to fund it. And so, they are in a tough spot. I give the network team credit. I mean they're working hard to solve the problem, but I think they're on Version 352 with their network plan to fix this thing. And it seems to be pretty damn stalled at this point in time, be that capital, be that permitting, be that vendor equipment or a combination of all of those things. So, when you hear Verizon and us and AT&T talk about densification, it's a much more measured story. And it's because of the spectrum assets that we have. Verizon and AT&T have to do more because, today, they have a bigger customer base than us, and they don't have the wealth of mid-band spectrum that we have following the combination with Metro. And so, we're in a very strong position with a very powerful macro network that allows us to look at densification where our customer loading or payload on the network is at its most intense. And so, that's just an offload strategy more than how do I deliver my core LTE product to my base strategy which Sprint is still struggling through. Now, when you come to 5G, I mean it's the current debate on steroids, right? 28-gig and with everything that will happen with massive MIMO and beam forming, sure the physics will help. But it's going to be very, very difficult to match 28-gig to even 2.5-gig spectrum performance. And so, the industry is working very hard on those things, but I think early 5G rollouts will be pretty much capacity-type offloads. You'll see them in small dense areas of network, maybe core areas in big cities. That's why you'll see this stuff happen in urban footprints to begin with. But it's going to be years, decades, maybe even never when you're going to see 28-gig deployed on a broad scale basis. The physics just don't work and the costs to make it work across that type of range. If Sprint can't make it work in 2.5-gig, how is the industry going to break the back of it in 28 gigahertz or 70 gigahertz? And so, I think your question about what does that all cost from a 5G vision perspective? Right now, this game, right, in the next three years to four years in this industry, it's all about what you do on LTE, and LTE Advanced. That's the game. And as I mentioned at the beginning of my comments, we're the most advanced LTE network in the U.S. We have delivered the functionality and capability on LTE features be it MIMO, carrier agg, whatever the situation or feature may be ahead of our competition. And we're moving very, very quickly to ensure that LTE capacity and coverage is delivered to meet the requirements of our customer base. That's the game in the next two years to three years. 5G will come on and the densification strategies will evolve as we resolve the physics on propagation. But it's going to take some time. It's going to take several years for the whole economics here to work through.

[Craig Eder Moffett:]

Okay. That's really helpful. And, John, by the way, since what I said is a little different than what's been reported with what I said. All I said is I wish people would stop focusing so much on M&A and start focusing on how well you guys are actually doing.

[John J. Legere:]

And I read it that way as well. And so you know what we're talking about, there's a number of headlines. And I think what Craig said is, these guys were executing on the business and there's value and headlines were – M&A might will be off the table because there's so much momentum as opposed to we've had an incredible standalone strategy that's going extremely well. The world of consolidation is inevitable but it's not the path forward. I got it, Craig. I appreciate it very much. Okay. We got about eight or nine minutes but we got a pretty big queue here. So, let's click down some of these questions and let's try to be one quarter as voluminous as that great answer that Neville just gave on network. Operator?

[Operator:]

Next in queue, we have Michael Rollins with Citi.

[Michael I. Rollins:]

Hi. Thanks for taking the question. Two, if I could. First one is, I'm wondering if you could talk about the ongoing proceeding from the FTC on special access which they're now calling business data services. In terms of your exposure to that, how do you think it might play out and the impacts to your financials over time? And then secondly, could you just talk a little bit about device leasing and your latest thoughts on leasing devices to your customers versus the installment plans. Thanks.

[John J. Legere:]

Good. Neville, can you do a quick shot at the first one and then perhaps to Mike.

[Neville R. Ray:]

So, special access to all business (1

[G. Michael Sievert:]

(1

[John J. Legere:]

I think just to your credit, Mike, you and Braxton, we did in leasing in Q2 exactly what we said we were going to do. And so, stay tuned. I think we're very pleased with the trend of what we're doing with EIP, but it's a weapon in our arsenal that we can pull. Okay. Operator, next question.

[Operator:]

Next, we'll hear from Amir Rozwadowski with Barclays.

[Amir Rozwadowski:]

Thank you very much. Just a network question for Neville. Recognizing a lot of the initiatives that you folks have put into place in order to enhance capacity and speed on the network side, one of the questions that we tend to get from investors is with the success of initiatives, such as Binge On and the growth in data usage across your network, is there a point in time where you would need to consider augmenting your spectrum portfolio in the mid-band range? I recognize that you're in the midst of a low-band spectrum auction at the current moment, but thinking about sort of the longer term pieces in order to further accelerate network improvement?

[Neville R. Ray:]

I mean, Amir, you never say never, but obviously we have a rich spectrum of portfolio today and our LTE is about just north of 60% of the spectrum assets that we own. So, we have a long way to go in terms of driving LTE into the balance of the spectrum assets. I'm excited about new capabilities like Unlicensed-LTE. That's something that we need to break the back of, not just for the industry, it's a great technology, it's a foundational story for 4G, we really need to make progress within the U.S. environment on technologies like that. The low-band stuff, obviously, that's great spectrum. We're in the middle of an auction, great spectrum. I mean, so there are a lot of options and opportunities to go and attack before you have to go whole scale at massive densification of your network with steel and concrete.

[Amir Rozwadowski:]

That's very helpful. And then just a quick follow up to some of the comments, Mike, that you had made on some of the new market opportunities and some of the greenfield builds. Any color you can give us in terms of the trajectory of your subscriber trends in some of those markets? I think one of the questions that we tend to receive from investors is how much longer can the momentum with subscriber trajectory, as it stands right now, go going forward given sort of where you've been in terms of share in metro markets versus some of these newer markets?

[G. Michael Sievert:]

Yeah, Amir, of course. So, there's a couple of things here. One is we have seen places where we have built out network and then followed it with distribution. And what we've seen is that we can achieve our normative SoGA, share of gross add, rates when we come into the market late like that. And one of the reasons – it's kind of obvious, I mean, we do most of our marketing nationally. And so there are places where – actually, there is some pent-up demand where people have been for years seeing commercials about T-Mobile and they can only get in that market, maybe in that small town or mid-size – maybe Verizon and a rural carrier. And now, there's exciting new choice, and so there is an opportunity for us to achieve our normative SoGA levels. It takes a little time. And so, when we tell you that we're going to achieve 30 million to 40 million more in POPs and distribution by the middle of the next year, you can't do straight line math, but the end point is normative SOGA levels.

[John J. Legere:]

Okay.

[Amir Rozwadowski:]

Thank you very much for the incredible color.

[John J. Legere:]

Operator, I think we have time for one or two more. Who's next in the queue?

[Operator:]

Next, we have Walter Piecyk with BTIG.

[John J. Legere:]

He's everywhere.

[Walter Piecyk:]

I am everywhere. Thanks, John, for increasing my Twitter followers and a couple of trolls along with it. Appreciate that.

[John J. Legere:]

Are you up to 10 now?

[Walter Piecyk:]

Yes. Now, I'm verified. So, I'm all good. On the cash flow statement, there's obviously a very big payment which I don't think you close on $2 billion worth of spectrum this quarter. So, I'm assuming that that was an early upfront payment for the auction. Based on my math, that can buy you a pretty big chunk of spectrum. So, I know you can't really talk about the auction, but maybe Braxton can talk about past comments about the type of – the amount of money that you would spend and whether is this just kind of an indication that, look, if the numbers are really low and you can't pick up, that amount of spectrum that that down payment implies that you will. Or is there a possibility that some of the numbers that you've talked about in the past might actually go higher?

[J. Braxton Carter:]

Yeah. Walt, again, you're very astute when it comes to looking at all aspects of our financials. But the one thing I would say is we really cannot comment anything related to the auction. But I can tell you that we fully stand behind all the public comments that we've made in the past. And I'll have to leave it at that.

[Walter Piecyk:]

Okay. I think that does answer the question. If I can do a follow up then for Neville. In the past, you've talked about kind of partnering with fiber companies and putting and embracing small cells as long as you can put them along those lines as opposed to maybe making some of these extensions. I'm just curious where you are on your own small cell rollout, and have you seen any delays in being able to do that based on what some of the guys, like Crown Castle or maybe Mobility have been doing in the market? And have you seen any reaction by local municipalities pushing back on those types of rollouts? Or has it been pretty much at the same pace or your ability to rollout small cells as it's been in the past?

[Neville R. Ray:]

You seem to know more in the space than I do, Walt. So, maybe you could share what you know. But I think obviously our small cell strategy is moving. I reference earlier, we're not in the massive rush that you will see from big yellow at this point in time. But we have thousands of opportunities we're pursuing this year. And a big chunk of them, we hope, to come online and that's for capacity needs in 2017, 2018 and beyond. I think to the heart of your question, we've been very carefully making sure we have the right economics and right deployment models for small cells. And back to John's earlier comment, if you just kind of run crazy around the country, trying to drop poles in every right of way that you can find, there is going to be some community pushback and backlash. And I think there are some signs of that. I think that's clearly driving some delays for some of the competitive set, but not for us. I mean we've been very thoughtful about how we've engineered these solutions. The partners that we've selected and we're fully on track with what we're doing. But I'm not trying to do something at the massive scale that some of the other folks are. And we're having more success than they are, I think, at this point in time.

[Walter Piecyk:]

Okay. Can I just have one follow-on, which is where do you – how many. Yeah. Just one more, John.

[John J. Legere:]

You and Neville going to have your bromance after the call.

[Walter Piecyk:]

Can I just have one more. Just five years from now, how many small cells will you have in the ground? 10,000? 50,000?

[Neville R. Ray:]

That's tough to predict, Walt. At least...

[John J. Legere:]

Walt, do a Twitter poll and let's see what comes up.

[Neville R. Ray:]

Let's do one.

[Walter Piecyk:]

Okay.

[Neville R. Ray:]

At least 10,000.

[Walter Piecyk:]

Sounds good. All right, great. Thank you.

[John J. Legere:]

Let's make a note to allocate up to 15 minutes for Walt's multiple questions. We're going to take one last question, operator, and then we'll going to wrap up.

[Operator:]

Our final question comes from James Ratcliffe with Buckingham Research.

[James M. Ratcliffe:]

Morning. Thanks for taking the question. I'm just looking at the strength on prepaid on the gross add side, do you have any read on where – I know you know where the customers are porting from, but what sorts of services they're coming from or are these people moving from postpaid offerings or are these people moving from postpaid feature phones to prepaid smartphones? I know you don't get that specific data, but any color on that would be helpful.

[John J. Legere:]

Yeah. Mike, why don't you take that, and including launching into the fact that we're now selling the iPhone in Metro.

[G. Michael Sievert:]

Yeah. Everything we can tell, Metro is not only the biggest prepaid business, the fastest-growing prepaid business, but the most effective at taking postpaid subscribers from competitors. It competes very well in a group we measure carefully which is people who port their numbers, who've had their phone number for at least a couple of years, who have a proven ability to pay, MetroPCS is highly effective at winning those kinds of customers. And that's why, as John said, we have an all-time high prepaid ARPU this quarter. And so, it's really important to start to dig in to the fundamentals of this prepaid business because it's a fantastic business. As John said, we now carry the iPhone at our MetroPCS stores. We're adding 1,000 stores this year to roughly 9,000 stores nationwide. We're covering 200 million POPs with MetroPCS in 65 markets in 100 cities. So, this is a powerhouse, the biggest, the fastest-growing and the most effective at competing for postpaid style customers.

[James M. Ratcliffe:]

Okay. Thank you.

[John J. Legere:]

Braxton?

[J. Braxton Carter:]

Yeah. Thank you, everyone, for tuning in. We very much look forward to speaking to you again on next quarter and thanks for your participation.

[John J. Legere:]

And tune in to Power Lunch on CNBC and Bloomberg and you can watch Braxton Carter telling more of the story. All right, thanks, everybody.

[Operator:]

Ladies and gentlemen, this concludes the T-Mobile U.S. second quarter 2016 conference call. If you have any further questions, you may contact the Investor Relations or Media departments. Thank you for your participation. You may now disconnect and have a pleasant day.