Q3 2019 Earnings Call
Good stuff this call will be available at the company's website, a triple double you that you need be dotcom beginning November seven 2019, and will remain available for 14 days.
Time, all participants are in listen only mode.
Just depends on the call we'll have the opportunity to ask questions. Following the company's prepared comments.
The company would like to remind you that today's remarks include forward looking statements and actual results could differ materially from those projected in the statement.
The factors that could cause actual results to differ are disclosed in the company's filings with the FCC.
The company Dreamworks and this afternoon will reference slides posted on its website and you are encouraged to refresh your dose materials. During this call.
Discussions during the call will also includes Jersey financial measures that were not prepared in accordance with generally accepted accounting principles.
Reconciliation of those non G.A.B. financial measures to do most directly comparable G.P. financial measures can be founded the company current reports on form 8-K dated today.
I would now like to surgical over it so you need be scoop Chief Executive Officer.
Can you can do ma'am. Please go ahead mr. getting there.
Thank you.
Good afternoon, everyone and thank you for joining.
Before I review entities operational results for the third quarter I'd like to reiterate some communities priorities. During this volatile period relating to watch trends bankruptcy.
We must scrutinizing, our portfolio of assets and operations with an eye towards selling for de emphasizing businesses that we believe order impediment to achieving a full communications infrastructure valuation.
We believe the true value of our core operations strategy and assets have been under appreciated and our efforts. It optimization will help how like this value as we move into 2020.
Slide four of our Investor presentation highlights these priorities.
First our main initiative is to drive high margin low churn recurring revenue and all of our business units.
We sold numerous assets at attractive valuations, including the Latin American tower business, and our U.S. ground lease business.
Today, we're also highlighting that we're deemphasizing some existing operations that do not fit our core strategies, such as hardware sales non strategic construction and our residential see like business called talk America.
All of which are low margin volatile and largely nonrecurring businesses.
Further lit Ethernet services continue to transition to longer term dark fiber in small cell contracts waiting to much more predictable revenue.
Second we continue to secure attractive long term anchor builds orders with high quality customers such as national wireless providers data in content providers and multinational carriers that facilitate building mission critical communications infrastructure.
Many of our existing dark major dark fiber and small cell builds are nearing completion.
The gun to selectively add new anchor orders, which I'll discuss later.
Importantly, we're continuing to accelerate the lease up of that infrastructure with enterprise wholesale the rate and government customers at attractive cash flow yields.
Substantially less capex.
The similarities between anchor leases economics of our fiber towers and leasing businesses are very strong we will continue to highlight those they move forward.
Third our how we proprietary M&A efforts continue.
It's like lofty private market valuations, we continue to source and execute on attractive bolt on acquisitions and sale leaseback transactions that valuable infrastructure in customers to our portfolio.
We will continue continue to develop this fall execute on it selectively and prepare to accelerate our activities. When this period of volatility proceeds.
Lastly, we we continue to focus on favorable resolution to the Windstream bankruptcy, which we believe will result in a meaningful improvement and the credit quality of our overall customer base.
Mutually beneficial resolution of our leases.
Slide five demonstrates the effect of our optimization efforts thus far.
Virtually a 100% of unities revenue will be recurring going forward.
Almost 90% of that revenue, having monthly churn was 1.5%.
We believe these initiatives will better we'll achieve better revenue diversification and higher margins for our businesses as well as improve the overall quality of our customer base and cash flow overtime.
I'll now turn to an update on our operational results.
You any fiber sales bookings in the third quarter were approximately 45 million of them are.
Definitely 75% of our bookings and the third quarter came from local enterprises governments schools at wholesale.
While the remaining 25% came from before national wireless carriers, mostly for dark fiber backhaul in small cells.
We continue to expect non wireless bookings to comprise the majority of our normal course bookings going forward as we continue to ramp the lease up of our networks, including those dark fiber in small cell networks that are nearing completion by the end of this year and into early 2020.
We also expect to continue to have large anchor bookings periodically that include wireless backhaul small cells are unity leasing awards.
In fact, RFP activity remains very strong for both small cells and backhaul from our wireless carriers as they continue to rollout Fiveg networks.
For example in October and not reflected in our third quarter bookings, we signed the contract with a major wireless carrier to deploy 800, combined macro backhaul and small cell sites across our southeast footprint, adding $500000 of monthly recurring revenue. Once all sites are delivered over the next three years.
This is a tremendous went for unity from a national wireless customer for which we currently provide full suite to fiveg infrastructure services.
Excluding backhaul small cells and towers.
In addition to the $6 million of new annual revenue from this contract. The fiber network is highly synergistic with our existing networks and will provide substantial lease up potential for many years ago.
Your new carbon <unk> point 8 million of them are ordering on third quarter inline with prior quarter.
Year to date, we've installed $2.3 billion EMR of 18% from the same period in 2018.
During the third quarter, 46% of gross installs related to non wireless opportunities, 36% related to wireless was 29% total gross installs.
<unk> dark fiber backhaul in small cells.
And 18% related the bandwidth upgrades.
Excluding revenue that churn as a result of selling our Midwest operations to Bluebird Cory.
Total churn for the quarter was point Sixmillion, resulting in a monthly churn rate of 1% Preeti Carver.
Disconnect churn was 0.8% for the quarter, primarily driven by list I called disconnects.
As we mentioned previously we expected churn to be slightly hard in third quarter, when compared to the second quarter due to increased churn from with backhaul converting to dark fiber and E rate churn related to the renewal several contracts.
Some of the churn related to lift backhaul sites converting to dark fiber that was expected to occur in the third quarter is now expected to be realized in the fourth quarter.
However, we do expect churn in the fourth quarter to be consistent with this quarter.
As a reminder, although the dark fiber sites that are replacing the lift backhaul sites are installed at a lower EMR or.
The contract length of those dark fiber sites is approximately 20 years versus average of three average remaining term of approximately four years, let's tackle sites.
His opening in a net increase in total remaining contract value and substantially more predictable cash flow.
Turning to towers.
In the U.S., we now expect to complete the construction of approximately 240 towers in 2019.
The lease up of our tower portfolio with additional tennis continues to be a priority and we expect our lease up activity on U.S. towers to ramp as we enter 2020.
As I mentioned last quarter, we now have analyzed in place with three of the four major wireless carriers, which reinforces our belief that wireless carriers are looking to diversify their vendor relationships in the tower industry.
Further highlights the value of our multi product infrastructure offerings, including fiber small cells and macro towers.
Unity leasing we continue to see momentum and pursuing additional lease up opportunities that utilize our existing fiber network.
We're actively working several opportunities with a well diversified customer base of wireless carriers invesco's and content providers.
For example, we signed a 20 year MLP with the domestic carry in the third quarter to increase our to lease long haul fiber along to diverse routes are existing network, representing total contract value of approximately 17 million.
Lastly, mediation negotiations windstream and its creditors are still ongoing and remain confidential.
We will provide an update as an update as soon as possible on the process.
Allows us to assess the process allows us to discuss it publicly.
With that I will turn the call over to Mark.
Thanks kidney good afternoon, everyone.
We reported another solid quarter as we continue to execute well in our priorities for this year.
We have made good progress towards the completion of our major dark fiber in small cell projects fiber with most scheduled to be delivered near the end of this year and three scheduled to finish in early 2000 2020.
We are increasingly turning our attention to leasing up those anchor builds with both wireless and our wireless customers.
But we we closed the sale leaseback in fiber acquisition with Bluebird through an Opco propco and Opco Propco partnership with Macquarie infrastructure partners during the quarter.
As part of that transaction, we completed the sale of Uniti fibers Midwest operations, while retaining ownership of the existing fiber network.
This transaction.
Should serve as a contract for future Opco Propco transactions. It also demonstrates along with the recent sale of our Latin America tower assets and our US ground lease business. Another instance, where we've been able to recycle capital at attractive valuations.
And last as can be is can you mentioned, we continue to work through the wintry bankruptcy and mediation process.
Turning to slide six.
We reported consolidated revenues of 264 million, which was up 4% from the same quarter in 2018, we achieve consolidated adjusted EBITDA of 203 million up 2% from the same period in the prior year.
Hey, AFFO attributable to common shares was 99 million in a AFFO per diluted common share with 40 47 cents.
Net loss attributable to common shares for the quarter was $19 million are 10 cents per diluted share. It included just over 15 $15 million, a transaction integration and Windstream bankruptcy and litigation related cost.
With that overview I'll start with a review of our third quarter.
Well I'll start with a review of our third quarter for each business unit and then discuss our updated guidance.
Turning to unity leasing with the from third quarter, our leasing segment revenues were $180 million with adjusted EBITDA of 178 million.
Not windstream revenues and adjusted EBITDA was 7.2 million and 6.3 million, respectively and will represent a growing share of utility leasing revenue over the next several years as we execute on our ARPU on the opportunities in our sales funnel.
As a reminder to Bluebird transaction includes a 20 year initial term ashley's within initial cash yield of 9.6%.
Over $20 million of annual cash rent.
Our sales funnel a year to leasing continues to grow and now represents about $365 million at total contract value or approximately $70 million of annual revenues.
The opportunity set acuity leasing remains well diversified across international domestic and regional carriers as well as cable and content providers.
As we have emphasized before unity leasing represents a priority proprietary business strategy within the communication infrastructure space that allows fiber networks to be positioned for the most productive use.
In addition to attractive initial yields these transactions can be structured with multiple growth drivers to enhance returns over the entire lease term.
During the quarter Windstream made approximately $40 million of improvements our network with their capital, bringing the cumulative amount since our spin off to just under $730 million F. Kennedy capital improvements.
Moving now to our fiber to our fiber business during the quarter, we turned over approximately 420, dark fiber and small cell sites for wireless carriers.
The installs were across multiple markets, including Alabama, Florida, Georgia in Louisiana, and added annualized revenues of nearly $3 million during the quarter.
You will be fiber reported revenues of $78 million in adjusted EBITDA $31 million, achieving adjusted EBITDA margins at 39% for the quarter.
Core revenues and margins were consistent with our expectations non core revenues consisting of equipment sales in construction services were lower than expected by approximately 9 million.
As Kelly mentioned earlier, we have made a decision to deemphasize lower margin products and services that are non recurring and non strategic to our fiber business.
Uniti fiber net success based Capex was approximately $40 million in the third quarter. We also incurred $3 million of integration capex related principally principally to our off net savings initiatives.
Maintenance Capex for the quarter was approximately $2 million are 2% of revenues.
Uniti towers reported revenues of 3.3 million near breakeven adjusted EBITDA for the third quarter.
Cowers Capex was approximately $21 billion during the quarter.
We completed the construction of 55 towers, which was 11 more than previously expected due to increased development activity with our anchor tenants.
For the first nine months at 2019, we've completed 198 hours in the us, bringing our completed an in service currently out at quarter end to 628 towers.
We currently have approximately 225 additional to have additional towers in various stages of development.
Hi power portfolio currently spans across 32 states, while our Callar business is predominantly a relatively small part of our overall company. Nevertheless, it is one where we have a first class team investment grade anchor tenants and can create substantial value.
Please turn to slide seven and I will now cover our current 2019 outlook.
Our updated outlook for 2019 revises, our prior guidance principally for the following items.
First the impact of closing the Bert Bluebird transaction, one much earlier than anticipated.
Second transit transaction costs and other income reported year to date.
And three other business unit level revisions.
Our outlook excludes future acquisitions capital market transactions and future transaction integration in Windstream bankruptcy and litigation related costs, except those specifically mentioned here in.
Our current outlook anticipates that Windstream continues to make highly payments of alred due under our master lease.
I look at subject to adjustment based on events are rising during when Trina reorganization proceedings and related litigation, the timing and closing of acquisitions any future capital market transactions market conditions Finalization of purchase price allocations related acquisitions and other factors.
Actual results could differ materially from these forward looking statements a reconciliation of our current outlook to our prior guidance is included in the presentation materials posted on our website today.
Our current full year outlook includes the following for each segment.
Starting with the unity leasing we now expect unity leasing 2019 revenues and adjusted EBITDA to be 716 million and $710 million respectively at the midpoint.
This is a 2 million dollar increase from our prior guidance due to the incremental TCR revenue and the early closing of the blooper transaction.
2019, non windstream revenues and adjusted EBITDA are expected to be 28.7 million at 24.7 billion respectively.
Subsequent to the Bluebird transaction annualize non windstream related revenues are expected to be $45 million.
Moving to slide eight we now expect unity fiber to contribute 300 $322 million to revenue.
$130 million of adjusted EBITDA and achieve adjusted EBITDA margins of about 40% for the full year at the midpoint.
Revenue at unique fiber is $12 million lower than our prior guidance, primarily due to two items.
First about about $10 million at the change is related to the non core equipment sales and construction services that we are discontinuing and second we experience a three to five month delay in delivering certain segments of an air Force base contract where completion is now expected in the first half of 2020.
The the delay resulted from the Air Force base, having to negotiate for the right to build one of the fiber segments, which in turn or delayed commencement of construction.
While adjusted EBITDA is approximately $3 million lower than our prior guidance due to the flow through margin effect of these items.
Adjusted EBITDA margin.
Has improved about 50 basis points.
We now expect our net success based capex for Uniti fiber in 2019 to be about 150 million at the midpoint.
Of which about 25% will be directed to dark fiber in small cell projects.
At the seven dark fiber and seven small cell projects currently under construction, we still expect all of these two completed by year end, except for three dark fiber projects and one small cell project that should finish early in 2020.
In aggregate upon completion, we expect these projects to habit initial anchor cash yield of approximately 6%.
We now expect Uniti fibers net success based capital intensity to decrease to about 45% in 2019.
Trend towards the mid 30% range by the end of next year.
We also expect integration Capex and maintenance Capex for 2019 of approximately $12 million and $8 million respectively.
Turning to slide nine for 2019, we expect tower revenues to be about $15 million reported adjusted EBITDA near breakeven near breakeven this year.
We expect towers to complete construction of about 240 towers in the U.S. This year with capital expenditures forecast to range from 95 million to winter and $5 million.
That were is already Uri towers, having 670 completed towers in the us at year end.
Turning to slide 10.
For 2019, we now expect full year FFO to range between $2.07 $2 in 12 cents per diluted common share with the midpoint of $2.10 per diluted share.
On a consolidated basis, we expect revenues to be nearly $1.1 billion and adjusted EBITDA to be $817 million at the midpoint.
We expect weighted average diluted common shares during the full year 2019 to be approximately 202 million shares.
As a reminder guidance ranges for key components of our current outlook or included in the appendix to our presentation posted today.
As a room on slide 11, we've provided a taboola reconciliation of our prior guidance to our updated 2019 outlook, which summarizes some of my comments this afternoon.
Turning to our balance sheet at quarter end, we had approximately $198 million of combined unrestricted cash and cash equivalents.
Our leverage ratio at the end of the third quarter stood at 6.3 times based on net debt to annualized adjusted EBITDA.
On November 5th our board declared a dividend at 22 cents per share to cut stockholders of record on December 30, Onest payable January 15th.
Following the payment of this dividend we have distributed to the maximum out allowed under our credit agreement.
For tax year 2019.
We continue to expect our board will reconsider our dividend policy eggs key developments can windstreams reorganization process occur in context over a longer longer term business strategy and financial profile.
With that I'll turn the call back to Kenny.
Thanks, Mark I'd like to close by Reemphasizing. Some of my opening comments regarding our priorities and the quality of our strategy and portfolio of assets.
Slide 13, as an example of how unity continues to execute on his proprietary M&A pipeline.
Hey, this is a very strategic bolt on acquisitions now part of our unity fiber footprint at an attractive valuation.
During this volatile period, we've intentionally focused on smaller acquisitions as we said four.
However, the opportunity set remains robust, including additional bolt on transactions as well as so we expect opportunities.
Turning to slide 14, the quality of our portfolio of over 6 million strand miles and valuable own fiber 1600 small cell locations either in service or in our backlog and 628 macro towers is highly underappreciated.
We're one of the select few providers of all three critical components that are enabling the Fiveg Revolution and as a result, the opportunity set for us is tremendous for sustainable growth for many years ago.
Our infrastructure provide substantial highly predictable revenue and cash flow material lease up potential and attractive margins.
When compared to other publicly traded communications infrastructure reads as shown on slide 15, many of our characteristics compare favorably and we believe that theres, a substantial valuation discount implied for unity due largely to the windstream bankruptcy.
The initiatives I described earlier will only drive further improvement and many of these key metrics.
With that I'd like to open it up for today, operator, we're now ready to take questions.
Your first question comes from the line of Mr. Franc Globin from Raymond James Your line is open to.
Great. Thank you very much just wanted to get to get a sense for how customers are feeling currently what do you. What do you what do you see hearing on the sales front with the with everything on Windstream is that still not really an issue.
Then I've got to follow.
Sure Frank as Kenny.
Yeah look I think not a huge change from from prior quarters I think theres a.
We were very proactive about being communicative with customers getting out in front of them.
Particularly those.
Bigger customers of ours and explain the situation and I think that was that was very helpful and we continued to be.
Clear and transparent as we possibly can be along the way. So I think that's that's all been been helpful.
When that I've mentioned with the with one of our big wireless carrier customers.
In October is an example of how theres still lot of confidence out there among our big customers our ability to execute so that's that's a good syndication.
And just the increasing.
Creasing.
Level of growth in our non wireless bookings is an indication that theres that there will continue to make progress there. So with all that said Theres obviously our names in the news a lot. So there I think there is some impact.
Hard to quantify the most board I think we're continuing to power through.
Okay, Great and walk us through the capital intensity decline, what sort of driving that and then where what areas are you going to be focused on with your capital as we look into 2020 and beyond.
Got.
Right. This marks the capital. It's the decline is really as I mentioned, it's really the completion of those 14 projects that we've been tracking now for a while.
All but as I said, all but three the dark fiber one of the small cell projects will finish by the end of this year and then the balance of those will finish in early 2020. So as we said before a lot of those projects. We inherited as we acquired acquisition. So one thing that drives a down is that we'll be able to manage the number of those laws.
Okay, great anchor bills that we are that were interested in taking on anyone period time.
And then also after that than our real key folks are key focus that we're turning our attention to now is leasing up both those anchor builds as well as unutilized capacity across the balance of the footprint.
Alright, great. Thank you.
Thank you Frank.
Okay.
Your next question.
From the line of Mr., David Barden from Bank of America. Your line is open.
Hey, guys, it's Josh in for Dave Thanks for taking the questions in the in the past you've talked about being a part of Firstnet can you give us an update there and how far along do you think that build is and generally and general and then how much of that do you think could possibly go through the small cell business and then.
Second question are you seeing any particular carrier being more aggressive on small cells or is it kind of split across the board.
Hey, Josh its Kenny.
So on on on first that we.
We're very active there.
I wouldn't.
I want to comment too specifically on it because we try not to comment on on specific.
Customers, but just say, we're very active there across the board.
And.
Many of our big wireless customers, our customers for whom we're doing.
All of our infrastructure offerings, including traditional backhaul small cells and macro towers. So so I'll leave it at that.
With respect to with respect to small cells.
It ebbs and flows in terms of which carriers are more active at any given time in our markets at least.
But I would say across the board, we're seeing activity from from particularly three of the before.
Which has been pretty consistent for us over the past 12, 18, 24 months, so pretty steady pretty steady demand.
Got it thanks for taking the questions.
Sure.
Your next question comes from the line of Mr feel that cusick from JP Morgan Your line is open to.
Hi. This is we fulfill thanks for taking my question too on the small front small cell front too if I may.
First could you break out the amount of small cells that are on air versus in the backlog and then second could you maybe compare contrast, the level of competition in tier two and three markets versus the NFL cities. What did you lose market share look like there and and.
To what degree or carriers or other customers, you're serving opting to self perform thanks.
So I'll take the first question this mark on the small cells or 12 1200 on air and there is 450 in the backlog.
Yeah. So I'll take the question about competition. So the vast majority of our markets are tier two three or four markets.
And I would say.
One of the principal reasons were we'd like those markets. We've targeted those markets continue to target those markets is because.
The level of competition from scale national fiber providers is limited.
And so we really do have a competitive advantage.
In many of those markets and I think.
That competitive advantage is only going to grow over time, particularly as in many of these markets today.
I don't see a lot of small cell deployments, but as we've said, we really think the small cell opportunities coming in those markets in a bigger way as carriers.
To begin to.
Saturate the bigger markets and then eventually move into the tier two and three markets and when that happens we will be there with networks that are Dennis and have a big.
Tom to market advantage over over any others.
So.
Real big fans of the tier two and three markets and really like the competitive dynamics, there and look with respect to two.
Market share.
It's hard to gauge market share, but I would say in the markets, where we have existing network or in markets, where we are.
That are in our core operating footprint.
We definitely when a disproportionate share of the opportunities.
And in many cases, if we don't when it isn't because we we have we were out bid or for some other for some reason like that it's just it would be more of our own choice frankly on not not pursuing it. So I'll just leave it at that assays.
Disproportionate share of wins in our core markets.
Thank you.
Your next question comes from the lineup Mr., Brett Feldman from Goldman Sachs. Your line is open.
Thanks for taking my question I, just want to talk a little bit about some of the plans around the non strategic operations and and I'm looking at slide five we kind of showing the current outlook versus the adjusted I just want to clarify first of all some of these non strategic operations like equipment sales of the construction is your potential them to sell any of that or is it just you're going to kind of Uh huh.
All operations.
What's the timeline said in other words at what point would all of these revenues be out of the run rate and then if we can just think a little more broadly than that.
You know, how but other parts of the business you know it did the tower business the that the fiber business.
I understand that there are some compelling elements as businesses, but are you opened to maybe continuing to refine the portfolio and get to the point, where you really are.
Predominantly if not only leasing or Opco propco type of company. Thank you.
Yeah, all good questions Brett.
So first of all on the non strategic operations. The these are all.
Essentially businesses that we acquired through M&A.
So when you're building a business largely through M&A you don't always good.
Things that are that are what you.
Considered core you pick up.
The other thing So for example talk America.
As you know was the residential see like that we took us for the Windstream spin off and.
The other businesses hardware and the non core construction were.
Thanks.
For acquisitions that we made along the way and these are not bad businesses, but they just don't fit what we're really trying to achieve from a reasonable income and predictable recurring cash flow perspective.
So with that said directly to your to your question I think there is an opportunity to just to sell slash monetize some of the assets and we are as you.
We are actively evaluating that but I wouldn't want to 70.
Expectations in that regard so.
We are evaluating it but I think more likely you'll see each of these run down most likely during the course of 2020 for sure.
And by the way on hardware just to too.
To make sure.
Sure on that one we're not going to exit the hardware business entirely were this exiting the portion of it that we believe we view as non strategic.
And in some cases, there are customers who are on our fiber network that take multiple products or services from us.
We will continue to offer hardware sales to them.
One of the portfolio approach with but but as a standalone individual product.
It will be substantially.
Yes.
So I think I've got all the questions. It's up the last one in terms of.
Just looking at other assets.
Look I I'd say that.
We have built.
We are very attractive.
We think best in class fiber business, especially if you combine uniti fiber and union leasing.
We think we have a fantastic small cell business. We think we have fantastic tower business, one fastest growing tower tower companies.
I agree with the best in class team.
And they're all core to our business and they're all highly synergistic with each other and we're seeing that those synergies grow every day.
And as we were long term holders of assets.
But having said that.
We're we're in the business of trying to create shareholder value and then a world where public market valuations, great I'm, sorry, private market valuations greatly exceed.
Public market, we are open minded to opportunities to to recycle capital where it fits our strategy.
And we've done that in the past with selling Latin American towers, and the ground lease business and even the Midwest operations.
Fibers network, there, but retaining.
Retain the network so ultimately.
Brett to your last point in terms of.
Focusing more on leasing.
Traditional leasing.
Versus operation that's that's clearly.
The direction that we're going and we'll continue to focus on that.
Great. Thank you for the color.
Thank you.
No more questions can you. Please continue sir.
Okay. We appreciate your interest in Unity group and look forward to updating it further on future calls thank you for joining.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may now disconnect.