Q1 2020 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin momentarily discontinuities standby.
For your pension.
Ladies and gentlemen to these concerns are scheduled to begin momentarily discontinuities standby. Thank you for your thinking.
[music].
I will be your operator for today.
A webcast of this call will be available in the company's website www Dot unity Dot com beginning may 11, 2010, each I know remain available for 14 days.
At this time all participants are we know it's you know.
But it 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 did today's remarks include forward looking statements.
Well the smallest could differ materially from those such as I've said in the state.
The factors that could cause actual results to differ Oh gosh in the company's filings with the S. E C.
The company remarks. This afternoon will reference slides posted on its website and you are encouraged to refer to those materials, Germany. This call.
Discussions during the call will also include certain financial measures. So we're not prepared in accordance with generally accepted accounting principle.
So you should have those non G. H E B financial measures to the most directly comparable G. HP financial measures can be found in the company's current reports on form 8-K, maybe today.
I would now like to Transicold over two unique group's Chief Executive Officer, Kenny Gunderman. Please go ahead Mr. Benjamin.
Thank you.
Good afternoon, everyone and thank you for joining.
Please turn to slide four in our presentation.
Before we review our operational performance from first quarter I'd like to first discuss he has been impacted as responding to the cold.
First and foremost unit is focused on the health and safety of our employees customers and vendors Vigilantly following federal and state suggested guidelines.
As a result, approximately 70% of our employees are working Oh.
Remaining employee base remains active working in the field with first responder designation.
Any hard at work servicing existing customers and installing services for new customers.
We're taking every precaution.
Let's say four remaining active especially since our customers.
Our demanding our mission critical service now more than ever.
In fact, our installation activity in the first quarter was quite strong and that momentum has continued into the second.
Also our network continues to perform well and although we've been we've seen a decrease in IP traffic due to state stay at home orders.
His carrier traffic has increased by 20% with no degradation of the performance of our network.
Today, we have not seen any order or service cancellations for customers. As a result result of cold chain, having only discernible negative effect, thus far our small timing related.
For example, approximately 50000 a day mark to be installed has been delayed due to customers physical locations must remain closed and the timing of installs for what is the permitting delays.
There's also the potential for another 50 to 75000.
Right.
Related to new bookings from enterprise sales, depending on how long businesses in our markets continued to be impacted by Carbonite team.
Conversely, we have seen any more than offsetting increase in request for new.
From numerous critical industries, including health care customers and government entities for communications infrastructure upgrades and builds as more providers turned to telemedicine and other happen with bandwidth usage technology technologies to serve their their patients and customers.
We also recently built and turned up in Emergency Command Center in New Orleans within 24 hours for the department of defense to help support treatment and response efforts in that region.
Importantly demand installation activity from our wireless customers is very robust.
We currently expect a trend to continue.
In short our business has proven highly resilient and truly mission critical.
Looking forward to oppose to cope with 19 World. We believe there are many trends the proof positive for our business.
The demand side, we believe distributed work environments are likely to persist, creating greater urgency for five be five GE bandwidth and network security.
Other high bandwidth functions, such as telematics and corporate video conferencing virtual educational instructions will be more widely accepted sooner than expected.
With respect to installs. This crisis was highlighted the significance of our infrastructure at the federal and state.
Municipal levels like never before.
We believe will result in more fluid access to permitting.
For example, some permitting agencies are already adopting new technologies that allow them to accept digital submissions.
We believe will be a significant positive for unity and the industry moving forward as it allows for more streamlined and efficient process.
Turning to Windstream.
We're pleased with U.S. bankruptcy court for the Southern District of New York approved our previously announced settlement agreement with Windstream on Friday.
We believe disagreement adds significant strategic value for unity as it further expands and enhances the value of our national network strengthens windstreams competitive position.
It provides unity with a clear path forward.
We're also announcing today improved terms for the previously announced sale of our U.S. towers.
As you May recall unity had an exclusive go shop period to evaluate offers from other parties.
Following this period unity is now agreed to sell 90% of its U.S. tower business to melody investment advisors, while retaining a 10% investment interest.
This transaction realized significant value for unity, while allowing the company to all this a meaningful interest at a scale wireless tower owner and operator.
I'll provide more details on the revised silver towers in the Western settlement agreement later in my prepared remarks.
We continue to drive high margin low churn recurring revenue in all of our business units and the results from our core business continued to be inline with our expectations.
We continue to deemphasize non for operations that do not fit our strategy such as our non strategic construction business and our residential see like business called talk America.
Both of which are non readable low margin nonrecurring businesses.
As it was all of our actions 97% of our revenue is now recurring with an average term of approximately nine years.
Companywide CERC also remains low and for the quarter was less than the 0.3%.
We continue to evaluate opportunities that optimize as well as monetized the highly valuable infrastructure assets.
Oh, yes.
In the past two years alone inclusive of our recently announced US tower sale, we generated approximately $350 million and proceeds from recycling capital have premium multiple transactions.
Including our Latin American tower business, our U.S. ground lease portfolio and sale of our U.S. tower business.
Through lease up of our fiber infrastructure leasing we've generated additional approximately 90 million of proceeds through opto propco and I are you transactions.
Spec similar activities in the coming 12 to 24 months could generate meaningful proceeds.
Let me now provide an update on our operational results for the first quarter.
Gary Farber sales bookings in the first quarter were approximately <unk> point sixmillion of them are.
Approximately 85% of our sales bookings in the quarter came from local enterprises government schools and wholesale customers.
Enterprise bookings during the quarter increased 40% from prior year levels.
Reflecting our continued focus to drive lease up our southeast markets.
We also added over 10000 on that near net buildings in our markets, providing significant opportunities for future Lisa.
Due to Carbonite team the E rate submission deadlines for New awards has been extended 30 days.
Provide a more comprehensive update next quarter on E rate, but early indications are we're able to renew virtually all of our customers that are pursuing several new opportunities.
The remaining 15% of our bookings activity came from the four national wireless carriers as we continue to focus on adding on that and internet sites, while pursuing a handful of greenfield opportunities.
As I mentioned earlier, we've seen minimal impact so far from bookings from covered by team.
Unions unity fiber installed point 6 billion of them are our during the first quarter was 65% of growth gross installs related to non wireless opportunities.
25% related to wireless and 10% related demand with upgrade.
The unity leasing we continue to pursue additional lease up opportunities that utilize our existing fiber network as well as pursuing larger scale sale lease back an opco propco transactions.
We're actively working several opportunities well with a well diversified customer base that includes wireless carriers national and regional cable providers and global content providers.
We've also seen a material increase in interest from our wholesale customers after announcing our settlement agreement with Windstream in February for the fiber, we're acquiring as part of this agreement.
With that I will turn the call over to Mark.
It proves to be incredibly stable in resilient, even in times of crisis economic downturns onto.
Car with towers in data centers Accordingly, our operations performed exceedingly well across the board during the quarter and that translated to solid core financial results.
Updated guidance for this year remains largely inline with our previous outlook. We are adjusting our guidance primarily for the timing and changing structure of the sale of our U.S. powers business and slightly higher corporate costs. This year, which we expect to decrease to normalized levels in 2020 21.
Please turn to slide five and I'll provide a brief update on our first quarter results.
We reported consolidated revenues of $266 million consolidated adjusted EBITDA of 202 million, Hey, AFFO attributable to common shares at 97 million at eight AFFO per diluted common share a 45 cents.
Net loss attributable to common share for the quarter was 79 million or 41 cents per diluted common share and included I 73 million dollar right off of non cash unamortized debt discount and issuance cost as a result of the full repayment of our term loans on February 10, and $60 million a transaction related.
And other cost.
Our unity leasing segment revenues and adjusted EBITDA increased 5% and 4% respectively over the year ago period.
During the quarter beauty leasing deployed approximately $5 billion or capital associated with the growth capital investment initiatives principally for Bluebird at initial yield of nine in one quarter percent.
Wintry made $36 million of improvements to our network with their capital during the quarter, bringing the cumulative amount since our spin off to just over $800 million of tenant capital improvements.
Turning to turn into unity fiber during the quarter, we turned over 300 dark fiber in small cell sites for wireless carriers across multiple markets, adding annualized revenues of 2.5 million.
We currently have over 1100 dark fiber in small cell sites remaining in our backlog, representing an incremental $5.3 million of annualized revenues.
Unity fiber core revenues and margins were in line with our expectations when compared to the same quarter last year. It's important to remember that our first quarter 2020 results do not include revenue our adjusted EBITDA related to our unity fiber mid west operations as they were sold at Macquarie as part of the Bluebird trains.
Action in August of last year.
Non core construction revenues.
And you already fiber were consistent with our expectations, while the related adjusted EBITDA was lower than expected by approximately $2 million due to compress margins on certain construction projects.
As previously noted we continue to deemphasize lower margin nonrecurring products and services there are not strategic to our fiber business.
Unity fiber net success based Capex was approximately $49 million into first quarter was higher than expected due to the timing of upfront customer NRC payments. There are now expected to be received over the next two quarters.
We also we also incurred $1 million of integration capex $1 million and maintenance capex for about 1% of revenues.
As I mentioned last quarter. We continue continued to complete deployment of the remaining three out of the original 14 major dark fiber in small cell builds.
Still expect all of these to be completed by the end of this year.
We completed projects achieved in aggregate initial anchor yield of 7%.
Hi, Uniti towers, we incurred $60 million at the Capex spend in the first quarter, while completing the construction of 32 towers and decommissioning one tower, bringing our completed in service power clout count to 703 towers at quarter end.
Please turn to slide six and I will now cover our updated 2020 guidance.
As I mentioned, we're revising our prior guidance for primarily the following items first the impact from the timing and final structure of the sale of our us power business to transaction related costs and other items reported in the first quarter this year and last other relatively modest.
His view that level revisions.
Our guidance excludes any impact from the court approved settlement with Windstream relating to its rebar organization process as the effective date in the accounting treatment are uncertain at this time.
Our outlook anticipates at Windstream lease continues in full force that effect and the Windstream continues to make all lease payment on time under the existing master lease.
Our current outlook excludes future acquisitions capital market transactions and future transaction and other costs not specifically mentioned.
Actual results could differ materially for these forward looking statements a reconciliation of our prior 2020 outlook to our current outlook is included in the presentation materials posted on our website today.
Our current full year outlook for 2020 includes the following create segment.
Started with UTI leasing.
We now expect leasing revenues and adjusted EBITDA to be 740 million and 729 million respectively at the midpoint.
Representing adjusted EBITDA margins of 98%.
The slight increase from our prior guidance just due to incremental TCR revenues recognized in the first quarter. This year.
Unity leasing sales team is currently focused on leasing up.
Our existing fiber portfolio as was 2.2 million fibers trends, we are receiving as part of the wintering settlement agreement.
Unity leasing sales funnel represents $510 million of total contract value and $23 million of annual revenue consistent with the prior quarter and we could and we continue to assume leasing activity. This year contributed 4.5 million of annualized incremental revenue.
Our current guidance contemplates continued to reflect $28 million of net success based capex that unity leasing principally related to bluebird.
As a reminder of the investment in blip in the Bluebird network will earn an initial yield of 9.25%, resulting in incremental annualized.
Cash rent of just over $2 million.
Turning to slide seven.
We expect Uniti fiber revenues of $306 million and adjusted EBITDA of $116 million at the midpoint of our 2020 outlook, which remained in line with our prior guidance.
Net success based Capex for Uniti fiber this year, it's expected to be about $100 million at midpoint up about $10 million from our prior guidance due to the timing of capex been on some of our fiber builds.
Remaining of the three remaining large dark fiber and small cell projects. We now expect one of the projects to be completed by the end of next quarter with the two remaining projects completed by year end.
Once all 14 projects are completed they will represent annualized recurring revenue of over $20 million.
We continue to focus on leasing up our anchor wireless built and are actively selling to numerous enterprise and wholesale customers as well as schools and government facilities in many of our markets.
Our enterprise sales bookings activity was strong during the quarter exceeding our expectations by over 20%.
While there is potential to see some delays in bookings related to covert 19, we are optimistic the momentum we saw in the first quarter. We'll continue later this year as we continue to wrap up sells activities in our recently completed anchor markets.
We expect Uniti fiber net success based capital intensity to now be about 33% this year.
Declining from 50% in the first half a 2022 about 12% in the second half of this year.
We expect integration and maintenance Capex for 2020 of about $6 million each respectively.
Going forward, we expect Uniti fibers net success based capital intensity to be into 330% to 35% range are lower as we continued to bill continue to pursue a handful of greed greenfield dark fiber in small cell builds.
We are very focused on managing down fibers capital intensity and realizing the value in embedded in the event investments we've made over the last few years.
Turning to towers as can you give me as Kelly mentioned earlier, we have signed an agreement to sell 90% of are you This tower business to melody.
Cash consideration of approximately $220 million, implying a 34 times annualized tower cash flow multiple for the entire business.
Study will retain a 10% investment interest through an affiliate of net written affiliate ability.
Also as part of the agreement entity will receive an incremental earn out payment in March 2021 for each additional pipeline tower completed in 2020, which we currently estimate to be about $2 million.
We expect the transaction to close by the it into the second quarter, having had included operating results in our 2020 guidance only up to that estimate closing date.
For the full year before the full year 2020, we now expect towers revenues to be about $7 million with reported adjusted EBITDA loss of $1 million.
The expected pretax gain from the sale of US Biz tower business of 38 million.
Is expected to be reported as a gain on sale or real estate and accordingly, we will be excluded from our reported revenues adjusted EBITDA and FFO.
As a read as a result of the change in timing structure. The sale of our tower business, we expected capital expenditures for the full year at Uniti towers to range from 20 million to 25 million.
Reflecting approximately 50.
Towers constructed during the first half of the year.
Upon closing of the transaction with melody not expect any further tower related capital expenditures for the remainder of the year.
Turning to slide nine.
For 2020, we now expect full year FFO to range between $1.79 cents and $1.93 cents per diluted common share with the midpoint of $1.91 cents per diluted share.
On a consolidated basis, we now expect revenues to be 1.1 billion and adjusted EBITDA to be 810 million at the midpoint.
Our guidance now contemplates consolidated interest expense for the full year of approximately 420 million, excluding any deferred financing cost write offs.
As noted reported interest expense in 2020 includes an additional $73 million of noncash write off of deferred financing costs.
That was reported in the first quarter this year related to the pay off of our term loans.
Corporate issue Nay, excluding amounts allocated to our business segments should be approximately $42 billion, including $9 million of stock based compensation expense.
Now expect weighted average diluted shares outstanding for full year 2020 to be approximately 222 million shares.
As a reminder guidance ranges for key components of our outlook are included in the appendix to our presentation.
On slide 10, we have provided popular reconciliation of our prior guidance to our updated 2020 outlook, which summarizes my comments this afternoon.
Now turning to capital structure. This morning, our board declared a dividend at 15 cents per share to stockholders of record on June 26 payable July can.
We expect our board will continue to evaluate our dividend policy. Its key development in key developments in Windstreams reorganization occur.
And on reform Windstreams emergence from bankruptcy.
Any decision to change our dividend policy will be bay by our board of directors at the appropriate time.
At quarter end, we had approximately $149 million of combined unrestricted cash and cash equivalent and undrawn revolver capacity.
Our leverage ratio at the ended the first quarter stood at 6.4 times based on net debt to annualized adjusted EBITDA.
Proceeds from the sale of our tower business will provide additional liquidity and ensures that we have no need to addition to raise additional capital this year.
It will also be slightly de leveraging as we currently expect to initially use the net proceeds to repay borrowings on our revolving credit facility, but ultimately reinvest the proceeds into fiber assets.
We expect to continue our emphasis on optimizing and monetizing our portfolio.
Given the recent volatility in the capital markets. We believe it it's prudent to focus on recycling capital at attractive valuations where appropriate.
While our outlook does not include any capital market transactions, we continue to monitor and evaluate the capital markets.
Engage with market participants routinely and may take advantage of attractive opportunities.
Looking forward, we believe the court approval of our settlement agreement.
And ultimate emergence of Windstream from bank correctly, Roxy opened up a wide range of strategic Optionality for unity, we remain optimistic about the fundamentals of our business. The long term demand for communication infrastructure, and our ability to deliver value for our stockholders and with that ill turn the call back over to Kenny.
Thanks, Mark Please turn to slide 11.
We have agreed to sell 90% of our us tower business to melody for approximately $220 million or roughly 34 times annual tower cash flows a premium of approximately 30 million to the previously disclosed transaction.
Unity will also retain a minority investment interest in the tower business.
As far the transaction unity, we will receive an incremental earnout reach additional pipeline tower completed in 2020.
We believe this transaction realizes significant value for our stockholders as it represents an economic gain of approximately $55 million an unlevered our of approximately 20%.
Which does not factor in potential future upside from our retained investment interest and ongoing strategic partnership.
The transaction also allows us to reduce our ongoing capex investment while at the same time solidifies strategic relationship with the New tower company that will enable us to serve wireless carriers with integrated solutions.
Turning to slide 12.
Our settlement agreement with Windstream will now become effective at the earlier of Windstreams emergence from bankruptcy in February 20 to 2021.
The effectiveness of the settlement is still subject to finalizing executing various definitive documentation.
Federal state regulatory approvals and the unity received true lease and re opinions.
We expect that all these conditions will be met.
As a reminder, all litigation and stayed during the pendency the settlement and the Master lease remains in full force and effect with Windstream remained current osmosis lease payments.
Well wishers emergence from bankruptcy and our agreements becoming effective we expect to be well positioned for accelerated growth for years to come.
Slide 13 illustrates the many long term benefits our court approved settlement provides for unity, including making the master lease stronger.
Helping windstream become a healthier tenet and acquiring attractive fiber assets, while at the same time, making long term fiber investments that are value accretive unity.
As it relates to making wish him a healthier 10, it's important remember that 90% of our capital is being used to acquire build mission critical fiber infrastructure at attractive yields which is consistent with our historical strategy.
Further we fully expect this agreement will enable a reorganization of windstream and emergence from bankruptcy with ample liquidity and a de leveraged balance sheet at emergence.
While positioning windstream for.
Sustainable growth and margin expansion.
Slide 14 demonstrates our new MLS with Windstream will be substantially enhance for unities benefit the number ways.
First our ability to add financial covenants to lease agreements as well as including both Western holdings and Windstream services as tenants anomalies provides enhanced security versus our existing lease.
Second annual aggregate rent is not expect changes we've consistently stated before.
Finally, we believe bifurcated the master lease into two separate leases that govern the I look and see like networks separately unlocks value strategic optionality for both unity and Windstream.
While providing a chance.
Diversification for unity, James New owners decides to sell the ceiling or highlight.
Slide 15 expands on the potential diversification opportunities.
Based on the midpoint of our 2020 outlook Western represents 65% of our total revenue.
However, however of wondering where to sell a sea legs and transfer the lease to third party and if you were to layer in the approximately 30 million of incremental EBITDA from the dark fiber. Our use we are acquiring the revenue diversification shifts significantly to where windstream would represent less than half of our total revenue.
Which as you may recall was the goal we originally set out to achieve before western metric restructuring.
Turning to slide 16 were acquiring for 40000 fiber strand miles that are currently not owned by unity today as well as gaining rights to sell or lease to third parties 1.8 million strand miles that are part of the unity on Windstream lease network.
Together these additional 2.2 million fiber strand miles increase our leasable fiber available to third parties by approximately 90%.
This national network, not only bring substantial Lisa potential, but also synergies with uniti fiber and unity leasing.
Fortunately the expanded footprint also greatly enhances our opportunity set for additional Opco propco and company acquisitions.
As a frame of reference on slide 17, we previously acquired a national network from century link in 2018.
Which has contributed lease up of approximately $50 million of upfront IRU payments and $10 million of annual recurring revenue and a span of just two years.
Our newly acquired assets and rights equates to 2.2 million strand miles for roughly 10 times the capacity of the Centurylink network.
And includes metro fiber and numerous markets, providing additional sale opportunities such as small cells fiber to the tower and enterprise services, all of which are not able to be sold utilizing the current centurylink routes because they are long haul routes Omar.
As I mentioned earlier, we expect similar success monetizing the acquired fiber assets and rights for the Western settlement after the effective date.
In addition, we're acquiring dark fiber argue contracts that currently generate approximately 30 million of EBITDA day and are comprised of a mix of well diversified customer as detailed on slide 18.
This is high quality revenue with 100% of the customers on that at approximately 75% we acquired revenue from top 25 customers our existing customers immunity.
Similar to the existing lease up our unity leasing network. This revenue is also near 100% margin with little to no incremental capex required.
Slide 19 illustrates the benefits of the Gcs Capex program.
As part of this post emergence business plan Windstream has stated intent increases fiber to the whole footprint with a plan to bring one big broadband service to over 50% of this homes passed by 2028.
This compares favorably to most other national Alex today, which should enable windstream to be more competitive and most of its markets.
The GCA investments will enable these high speeds and the assets will immediately new communities assets generating an initial yield of 8%.
Which compares favorably to most of our existing unity leasing and unity fiber contracts as highlighted on slide 20.
In addition, we'll have numerous additional lease up opportunities during the junior initial term.
Based on our new contractual ability under the new Emily's to joint build new fiber with shared used unity and Windstream has an anchor customer.
We continue to be very excited about this agreement as we've.
We've reached with Windstream.
Not only does this agreement enable restructured windstream to emerge at a much lower leverage thus removing the biggest overhang unity has had historically.
But it also it's also very strategic substantially enhances our overall portfolio of assets and cash flow.
Turning to slide 21, the quality of our portfolio of almost 7 million strand miles of valuable own fiber and 2200 small cell locations either in service or in backlog continues to be highly underappreciated.
One of the select few providers of these critical components that are enabling the Fiveg revolution and as a result, the opportunity. So there's tremendous for sustainable growth for many years ago.
Our infrastructure provide substantial highly predictable revenue and cash flow materially so potentially attractive.
Yes, well experienced at managing through times of crisis in our beer business has proven resilient not just in the early days of the Cobrand pandemic, but throughout other crisis our history.
Slide 23 shows we've been able to grow consistently our revenue adjusted EBITDA and AFFO over the past four years.
Importantly through our proprietary M&A efforts, we've added over 3 million fiber strand miles to our network 2200, small cells and 700 towers to our portfolio since our spinoff in early 2015.
Later this year after the impacts of code 19 of hopefully started to subside.
And windstream emerges from bankruptcy.
We will be a substantially stronger company with a healthier tenet and enhanced validated lease with over 7 billion of predictable high margin revenue.
Ample liquidity and no near term maturities.
And we're the largest independently of mission critical communications infrastructure businesses.
With a highly valuable portfolio.
With that operator were now ready to take questions.
Thank you as a reminder, yes. Good question you you'll need to press star, one or new jobs. So to withdraw your question seats basketball team.
Again to answer your question you need to plan Star one on which also please stand by will become Bobby Keaveney Boston.
Thank you just first question comes from the line of Frank Leuven. Your line is now open.
Thank you.
Yes through a little bit on on the tower business, you give us an idea of what the temperature and interest that you're going to hone is and where that where that's going to show up and then can you comment a little little further on what you think the dividend policy might look like.
When you get all the puts and takes from Windstream. Thank you.
Hey, Frank is getting I'll start and end market.
Finish up so.
As we mentioned on our last call we.
We're in the midst of a go shop.
For the tower business.
We had a deal in and but we were.
Just beginning to engage with with other potential parties interested parties.
Turns out it was a robust process good amount of interest and so as a result, we were able to improve the economics and also just change the terms to make them a little simpler owed say, where we're effectively.
Monetizing the entire business, including the team.
But we're retaining a stake as opposed to having the offtake arrangement.
As we as we had a structured previously so little simpler.
But gives us the same benefits, including improved economics.
Liquidity.
Potential future upside in the business as well as the ability to continue offering holistic solutions to our to our carrier customers through our strategic.
Partnership with the new business, which again will be the same team that's been operating for unity in the past several years.
So.
Mark you want to comment on.
With a 10% will be.
Account it.
Yes, the timber sale will be accounted for as an equity equity interest will pick up our share of earnings that's not in our forecast because we didnt have a good basis right now to estimate what it was there will be picked up as equity in earnings in our financial results coming forward.
And your question about the dividend I don't think there's she really think about the dividend going forward any differently than what I expressed on our call up on our last quarter's call. So as you know currently given out what we can pay under the restrictions that we're currently under.
For for this year to the extent that we are able to achieve the conditions to hitting the covenant reversion to.
Threshold than than we would be able to payout and may consider paying out a 100% or taxable income in may also consider paying out any capital gains that we generate this year.
And so I think it's.
Obviously in order to hit that the Q2 key thresholds are hitting that covered reversion.
Criteria of would be which needs to emerge from bankruptcy and then we need to get leverage to 5.7 500 net leverage basis, and we may very well be able to do that but in order to do so we need to execute on some of these things that can you mentioned earlier about lease up of our existing.
Kaleo and then some other asset monetizations as well.
Alright, great and congratulations go shop, I guess, one follow up there a lot longer term how do you think about the tower business will be more flipping them in will this partnership part of it or will you guys buildup.
Essentially as we go forward.
Yes, Frank I think vis a vis.
Cartner ship.
One of the one of the reasons this partnership as appealing and I did mention is.
That I think theres, a substantial amount of capital that's going to be put behind it.
Realty and its and its Lps and so I think the we think the amount of new towers.
That are going to be built is probably a lot more than it would have been has continued to be own outright by unity, 100% by unity.
So on a go forward basis, I think theres going to be a lot of development activity.
We're very excited about that we're excited to retain an interest in the and the upside potential and I think.
Probably through the foreseeable future that will be how we're participating in the macro tower.
Investment cycle.
Yes.
Alright, great. Thank you very much.
Thank you. Our next question comes from the line as Greg Williams. Your line is now open.
Great. Thanks for taking my questions I just wanted to confirm in your scripted remarks, you said there would be no need to raise additional capital this year.
And you did say you would look at recycling capital as you always have.
On that question.
Are you seeing activity in selling possibly your fiber assets or our buyers.
Pause at the moment.
The last question is from where you sit when do you anticipate windstream emerges from bankruptcy timeframe you planting corn kernel. Thanks.
Yes. So on your first question, Yes, you heard me correctly that given the tower sale, we have no need to raise additional capital this year.
So we have the with the ability to be patient and.
Raise capital when when the time as right as opposed to being required to raise capital. This year I'll, let Kenny addressed address your question.
So Greg I think you asked about.
Interest in our fiber assets unity fiber.
The short answer is we get regular inbound interest in that business.
So that hasn't changed and Frac, maybe the the level of interest is probably gone up.
It continues to be a very strategic part of our.
Portfolio has been from the beginning continues to be it's a great assets, especially now that we've fully integrated the businesses that we've acquired and we're really hitting our stride on on the key metrics like bookings installs churn et cetera.
Really proving out the lease up of the model I think that's critically important.
And there is tremendous opportunity in that business on a go forward basis with the.
Tailwinds of Fiveg, especially we think accelerated through this cobot pandemic and just the.
Attractive competitive nature of the tier two markets that were had.
And frankly with this settlement with Windstream. The network has been supercharged with a lot of this fiber that we're getting and so there's going to be off net on that savings in areas, where we currently have lease network.
On that.
And we've got an increase in our leasable capacity about 90%. So the the interest it has been has been consistent.
For for good reason and as we've always.
Done and I think as we've proven we'll continue to consider that interest.
In a shareholder friendly fashion, while also balancing the.
The fact that were rate and long term holders of assets and eventually we think make the right decisions for our shareholders.
And then timing in the Windstream bankruptcy you are best that's.
Yes estimation on that.
I think windstream settled I call. This morning that they were targeting emergence in the August September timeframe. So we don't have any better information than that so we're looking forward to them hitting that.
Target.
Great. Thank you.
Our next question comes from the line has slipped Kissick. Your line is now open.
In our next question comes from the line of similar to Q Sig. Your line is now open.
Hi, guys. Thanks.
Sounds like the timing of capital raise become sort of and that September October timeframe Windstream is that the way to think about it.
Yes so.
So we're not at a if you missed my comments earlier, we're actually not not required to raise any capital this year.
For Windstream or otherwise so we don't really have any timing of capital raise in our guidance and.
So out well, we'll evaluate capital raises as the opportunity presents itself and the capital markets, but.
But we don't have enabled requirement to do them.
Okay. Thank you and then as we think about the potential diversification away from Windstream.
Any movement in terms of potential sellers are partners with the overall prices happening out there are you see being a little bit of shutting down the discussions are the people need that capital and pulling forward a little bit.
Hey, Phil it's Kevin.
So.
The.
Interest.
In.
Infrastructure assets, particularly fiveg.
Infrastructure assets like fiber small cells towers.
Has not dissipated I would say, it's probably accelerated certainly held steady at least during this period, especially when you consider that.
A lot of the interest historically and continuing through today has come from.
For structure funds or private equity or just nontraditional.
Investors and so that that interest has not at all dissipated so I think.
We foreshadowed a couple of years ago are.
Likelihood of of.
Working with partnering with.
These types of funds and we've done that now in a number of ways by.
Monetizing assets, whether it be towers or partnering on acquisitions like Bluebird.
New starboard Midwest operations Opco propco structures.
And we've done that now three or four different times in I think theres, a likelihood that we'll continue to do that and shareholder friendly value accretive ways. Given that interest has not dissipated. So I think you some of the probably the public companies where cost of capital or little bit volatile now there may be some some cooling event.
Interest or pause going on but from our standpoint.
Both the proprietary M&A discussions and the answers from nontraditional capital sources as not as not dissipated.
Thanks, guys.
Thank you. Our next question comes from the line MCV Barbie Your line is still open.
Hey, guys. Thanks for taking the questions.
So I guess.
First question Kelly for you is.
You know Windstream is saying that that is a function of this settlement that they are arrived yet with you the.
Benefited to the tune of 1.25 billion on an NPV basis.
You historically said that you were willing to talk about the lease if it was kind of value neutral.
I was wondering if you could kind of.
Elaborate a little bit on the game theory here and.
Whether this is a one plus one equals three type of situation, where dumping healthier makes you healthier if you could kind of walk us through how you thought through this process and why this settlement is net good thing for unity would be super helpful.
And then I think the second thing is you've talked about this pipeline that's been kind of waiting around obviously the cost capital Unities, then too high to do a lot of deals that would otherwise be doable.
At what velocity might we expect things to start to unlock as we get passed the August windstream.
Bankruptcy, reemergence et cetera et cetera. Thank you.
Good good questions David So.
First of all on the on the settlement.
Given the public nature of the bankruptcy process. It's some been somewhat of a challenge for us to to comment.
And.
In a full throated fashion I would say given aspen negotiated publicly and also.
It's been it's been important for windstream to be able to articulate to its stake holders of the value of the settlement.
In order to get settlement approved.
And so.
It isn't it isn't it is an uncommon.
To to hear those types of comments, but.
In reality when you you mentioned the billion to 50.
A value that the settlement brings the Windstream I think the reality is the numbers, probably higher and I've said that repeatedly during the.
Mediation that I thought what we're bringing to the table for the Windstream estate was was was was higher than that.
And I think that doesn't mean.
That the negotiation was a zero sum negotiation because it never was and we foreshadowed going into the discussions that it wouldn't be.
And what I mean by that is yet it's valuable to windstream, but it's also materially valuable to unity.
And when you when you when you bifurcate the different parts of the deal and really unpack it.
And and think about it from the standpoint of our historical strategy.
Of of investing for our customers it starts to make more sense. So for example.
The GCI program, when we're investing billions 750 to two to upgrade effectively our network.
Thats in addition to.
800 million, a roughly 800 million of investment that Windstreams already made.
Our benefit so effectively $2.5 billion to upgrade.
Our network.
Which substantially.
De risks our renewal in 10 years.
And in the meantime, windstreams paying us an 8% cap rate.
In order to facilitate those investments which is in line with the five to seven to eight percents anchor yields that we get on our dark fiber projects with rise under 18, 80 or otherwise so that for that particular part of the of the transaction as is exam.
Equity inline with what we've done historically.
With other customers.
And we're excited about how that is going to add a lot of value the unity down the road.
And off obviously also help windstream in the meantime.
Paying roughly 650 ish million dollars for 42000 route miles of fiber, which is effectively what we're getting here in addition to.
25 to 30 million of of valuable readable EBITDA is also on strategy.
And.
As I mentioned that fiber.
It's relatively unused by Windstream. So this is a valuable.
It's a valuable part of the transaction to them, but it's going to be valuable to us as we leased it up.
Lisa the consistent with what Weve been able to do in the past with other transactions. So this is not a theoretical exercise for us we have the team and the processes in place to do that to have to optimize that value.
In addition to the synergies that it brings with our existing business from an off net on that.
Perspective so.
We're we're enhancing our lease up potential by the 90%.
We're we're going to be able to I think realized material.
Proceeds from doing that.
And even the mix of consideration here in the settlement of using cash and equity.
We're always careful about using our equity, especially at these prices but.
But we've also use equity and all of our previous historical.
The material M&A transactions.
And use that as a way to aligned interest of our of our stakeholders, the sellers and transactions and here.
The the owners or the the new owners of Windstream, 90% owners of Windstream, we're going to get.
They are going to have 10 15, 20% of our equity.
And having that alignment of interest really for the first time on a go forward basis, I think is going to be very valuable to us and so that.
Yes, that's part of the consideration mix was was was was important in terms of in terms of aligning that interest. So all of those are benefits, even before you get to the benefit of of us having a much stronger healthier.
Customer in Windstream without near term.
Maturities and plenty of liquidity and all of the enhancements to the ml a.
The ml A's that that that we've talked previously in our prepared remarks, so so net net I.
I definitely think unities get and getting substantial value.
In this transactions and so as Windstream. So it is really a one plus one equals three.
Transaction, which is what we've contemplated and talked about for for really years now leading up to this moment.
For say Oh your second question was about the.
The velocity of.
Transactions and kind of like your capacity, there really start executing on the business.
Yes, good question as well so we look we've never breast pause on our M&A discussions over the past year year and a half two years, we continue those.
And in many cases, we talk about the proprietary bottle all the time and if you look back over the past couple of years, we've actually done transactions.
I think probably the most material what was the Bluebird transaction.
And but there have been other.
Bolt ons smaller bolt ons, both sale leasebacks and M&A, just along company acquisitions, which we intentionally lowered the size of the deals we were pursuing because we didnt want to over expose ourselves to needing to raise capital given all the volatility.
So we remain very engaged with Counterparties. That's one of the reasons, it's it's easy for us to or easier for us to monetize assets. When we need to it's also one of the things that.
Causes counterparties to continuously call us expressing interest in assets or interest in deal ideas. We're just we're very engaged so I think when when the moment comes later this year.
Early next when there is no stabilization of our cost of capital.
I think we'll be well prepared to reengage.
And be more acquisitive, both in terms of.
In terms of assets and companies. So we're looking for that.
Good great to hear thanks.
Thank you and your last question comes from the line of same then Flannery. Your line is now open.
Great. Thank you very much good evening.
The unity fiber what are you seeing in terms of cobot impact. So it sounds like that the bookings are generally looking good accrue at least I mean, right, but what about permitting and zoning any big changes to your construction timing on that and then on the the Windstream GBCI program that was.
Kind of designed prior to the Colin Powell crisis. So we have seen some of the wireline peers pulling back on some of their initiatives.
How do you think cobot might affect some of the timing of that program or any major changes and then well. So how do you think and how do you work with windstream around what they might do and the rural digital opportunity from the option.
Replacing some of the Caf two is not something that you can work with them on and what are your latest thoughts there. Thanks.
Simon it's getting I'll try to take all of those and keep me honest if I Miss him. So on unity fiber yet we hit this in our prepared remarks.
The short answer is there's been very little effect from Covance, frankly, and we had to kind of dig deep to two to come up with the effects to help put numbers that are script, but in essentially about 50000 of EMR has been delayed from an install perspective.
Either because customers are not there for us to to install or for per because of permitting delays.
And I would say I would tell you that that number has actually come down post the end of the first quarter, because we're starting to now chip away at that at that basket.
We've we've I think conservatively estimated that roughly 50 to 75000 of enterprise bookings.
May be delayed because of cove. It because we we don't have salespeople out making physical customer calls there they're doing it virtually than there are certain customers who are just not.
Making purchases today, but even that number I would say.
As conservative and as an estimate on our part as opposed to an actual effect to our business.
So it's been very minimal.
I think part of that is because when you look at the customer segment across the industry that's been affected the most.
Go, but it's really the small business area.
And small businesses.
For unity represent about 1% of our total revenue.
So just that alone.
Causes the effect to be minimal for us, but secondly.
I think.
Proven the industry largely has proven that that fiber infrastructure is is truly mission critical in this business.
I think this health care.
Catastrophe and the fact that our services continued to be mission critical through that has proven that.
Now of course the longer this crisis goes on what to continue to monitor it and we'll keep you posted on any in any changes, but thus far we've we've proved very resilient.
With respect to your questions about the GCF program. So we have not begun to engage actively with windstream on this I think.
One of the features of this program is that we will actually be very engaged with windstream wants the settlement as effective we will actually be working hand in hand with windstream on making these investments identifying make routing these investments.
But we've not done that yet because the settlements not.
Actually.
Finalized it won't be until later this year.
So I can't.
Respond to your your comment about any timing delays Simon I just have no perspective, yet I will say art off.
Again no no.
No comments on on effects on Windstream, yet, but with respect to art up in general we definitely believe theres lots of opportunities for us to work with other counterparties on facilitating those investments where we have fiber infrastructure.
In these tier two is three or even tier four type markets.
So we're not going to be using that.
At federal funding ourselves, we're not going to be providing services directly to residential customers ourselves.
But we are we do have fiber infrastructure and a lot of areas that could be an uptake for.
Those types of investments in some of these more rural community. So we think this nice opportunity for us.
Great. Thank you.
Yeah.
Thank you at this time I would now like to turn the conference that seems to can you can do amazing for any comments.
Thank you would like to once again, thank all our poised for continued dedication during these uncertain times.
As well as our loyal customers, who continue to work hard for US every day.
We appreciate your interest in Unity group and look forward to updating you further on future calls. Thank you for joining us today, if we stay safe.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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