Q2 2020 Uniti Group Inc Earnings Call
Momentarily.
[music].
And I'm 20 conference call.
My name is still I'm and I'll be your operator for today.
A webcast of this call will be available on the company's website www Dot unity Dot Com beginning August 10, 2020, and will remain available for 14 days.
This time, all participants are the listen only mode.
Participants on the call, we'll have the opportunity to ask questions. Following the company's prepared comments.
He would like to remind you that today's remarks include forward looking statements and actual results could differ materially from those projected in these statements.
Factors that could cause actual results to differ are discussed in the company's filings with the FCC.
The company's remarks. This afternoon, we reference slides posted on its website and you're encouraged to refer to those materials. During this call.
Discussions to during the call will also include certain financial measures that were not prepared in accordance with the generally accepted accounting principles.
Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the company's current report on form 8-K data today.
I would now like to turn the call over to Unity group's Chief Executive Officer, Kenny Gunderman. Please go ahead Mr. government.
Thanks to <unk>. Good afternoon, everyone. Thank you for joining [laughter], Please turn to slide four in our presentation.
Second quarter showed continued positive momentum for unity, our largest customer received approval for its plan of reorganization, putting it on a path to emerge from bankruptcy later this year as a substantially healthier tenet.
Our settlement will also become effective providing unity with a 90% increase and leasable fiber.
Approximately $30 million of new third party revenue at a hardened master lease.
We're also responding well to the cobot 19 crisis.
The majority of our employees are working from home, while our remaining employee base is actively working in the field with first responder designation.
Our installation activity in the second quarter was one of our strongest ever with a 40% increase in activity from the prior quarter.
Our network continues to perform well with no degradation and has normalized after we saw an uptick in traffic last quarter.
[noise] today, we've not seen any order nor service cancellations from customers as result of Copel 19, and we continue to see only marginal delays relating to new sales and install activity.
For example, only about 13000 of them are are to be installed continues to be delayed compared to 50000, Vinmar our last quarter.
Depending on how long businesses and our market continued to be impacted there could be a potential for another 50 to 75000 to them or delayed and the second half of this year.
Less than 5% of our revenue is is from enterprise customers and 75% of those enterprises provide a central services.
Thus, we expect any future impact from Cove, it to continue to be minimal.
On the flip side, we can do need to see increased demand from these critical industries, including healthcare customers for communications infrastructure upgrades and builds as more providers turned to telemedicine and other high bandwidth usage technologies to serve their patients.
Demand in installation activity from our wireless customers can remains very robust.
We are and we currently expect that trend to continue with increased rollout of five you services in our markets, especially given working from home is likely to persist.
We're driving high margin low churn recurring revenue and all of our business units and the results from our core business continues to be inline with our expectations.
We deemphasized or sold non core operations that do not fit our strategy such as our non strategic construction business, which we expect to be mostly wound down by the end of this year.
We fully wound down our residential see like business talk America this quarter as well.
As a result of our actions 97% of our revenue is now recurring with an average term of approximately nine years.
Companywide churn also remains low and for the quarter was less than 0.3%.
We're focusing on leasing up our existing fiber network, both at unity fiber and unity leasing.
Hi margin cash accretive opportunities.
As I'll discuss further later apart approximately three quarters of our new sales at unity fiber or two non wireless or non anchor customers.
Our unity leasing we generated meaningful proceeds from Opco propco and I are you transactions in the past two years and the fiber we're acquiring as part of the Windstream settlement will increase our leasable capacity by 90%.
We expanded our strategic partnership with Macquarie as we sold a portion of our ownership interest in the propco entity that leases, our Midwest fiber network ask assets to blue burden on July 1st.
When including the proceeds from them Corey transaction are available liquidity immediately after quarter end was $550 million and we currently foresee no requirement to raise new capital at least through 2021.
We also continued to demonstrate success at executing on our highly proprietary M&A funnel as evidenced by our recent transaction with Macquarie.
And we have additional opportunities in the second half of this year and into 2021.
Finally, the quality of our portfolio of 6.5 million strand miles of own fiber continues to be under appreciated.
We are one of the select few providers of the critical components that are enabling the Fiveg revolution.
And as a result, the opportunity set is tremendous for sustainable growth for many years to come.
Our infrastructure provides highly predictable revenue and cash flow with material Lisa potential at attractive margins.
I'll now provide an update on our operational results for the second quarter.
The unity fiber the focus has been leasing up our wireless anchor builds including additional wireless and non wireless customers.
Slide five illustrates over the past four years, we've already booked incremental lease up of almost three times. The recurring revenue on the major wireless anchor builds that have either been completed or will be later this year.
Said differently, we've added the equivalent of three new tenants in these markets over the past four years.
We've also seen substantial Lisa progress this year, having sold 7 million of annualized lease up revenue that is expected to generate incremental yields of approximately 40%.
These relatively new markets are still highly underutilized and we expected to yield additional lease up in the coming years.
With this proven success, we will continue to pursue select anchor greenfield builds and lease up.
Of those networks.
The mix of additional wireless and non wireless customers.
As further evidence of this strategy unity fiber sales bookings in the second quarter were approximately point sevenmillion of EMR and approximately three quarters of ourselves bookings came from non wireless customers.
Wholesale and enterprise bookings during the quarter increased over 20% from prior year levels, reflecting our continued focus to drive cash accretive Lisa.
For example, we signed a long term dark fiber are you agreement with a regional carrier during the quarter that included $14 million of up front are you fees and represents approximately $1 million of annualized revenue.
Despite the challenges posed from cobot 19, we were able to renew almost all of our existing E rate customers. This year.
We recently installed and delivered services with a large enterprise large Metropolitan School district in Florida that will add over 100000 of EMR.
The remaining 25% of our bookings activity came from the four national wireless carriers as we continue to focus on adding select on that near net sites, while pursuing strategic greenfield opportunities.
Any fiber installed point 9 million of EMR during the second quarter with 70% of gross installs related to non wireless opportunities, 20% related to wireless and 10% related to bandwidth upgrades.
Turning to slide six.
Through lease up of our fiber infrastructure unity leasing, we generated and an additional $90 million of proceeds through Opco Propco and are you transactions over the past two years we.
We continue to expect similar activities in the coming 12 to 24 months could potentially generate meaningful proceeds.
In the second quarter. For example, we signed three sizable dark fiber are you agreements with wireless carriers and a national cable provider that when combined represent $3 million of on front are you fees and approximately 850000 of annualized revenue.
We've also seen a material increase in interest from our wholesale customers after announcing our after announcing our settlement with Windstream in February for the fiber, we're acquiring as part of that agreement.
Sales pipeline has roughly doubled from the previous quarter and now represents nearly $1 billion of total contract value.
$44 million of annual revenue reflect reflecting the significant opportunity. These additional fiber strands provide us and Dennis demonstrating the strategic value of this fiber to unity.
Over 75% of the deals were currently pursuing will utilize fiber we are acquiring as part of the settlement.
As a frame of reference on slide seven we previously acquired a national network from Centurylink in 2018.
Which has contributed lease up of approximately 50 million $52 million of up front are you payments and $14 million of annual recurring revenue and a span of just two years.
Our newly acquired assets and rights equate to 2.2 million fiber strand miles or roughly 10 times the capacity of the Centurylink network.
And includes metro fiber in numerous tier one markets, providing additional sales opportunities such as small cells fiber to the tower and enterprise services all of which we are not able to offer utilizing the centurylink routes as they are long haul routes only.
In summary, our already attractive unity leasing business has materially enhance to growth potential going forward.
With that I will turn the call over to Mark.
Thanks, Ken and good afternoon, everyone.
I'll start my comments today with a summary, you developments that are affect both our actual results this quarter and our outlook for the full year.
First windstream receive a quarter approval of the chapter 11, Plano reorganization in early May and Unity recently received the read into lease opinions pertaining to the barricaded I look and see like leases.
At were important conditions precedent to our settlement, becoming effective which we expect to occur later this summer.
Accordingly, we are updating our guidance today for the first time to include our preliminary estimated impact from the settlement.
For financial accounting purposes, we are generally required to identify material inseparable separable components of our settlement agreements and record those at estimated fair values.
Accordingly in the second quarter, we recorded a 650 million dollar litigation charge related to the settlement.
Charges, an estimate and subject to change in future periods.
We had excluded the charge from both adjusted EBITDA and FFO.
The asset purchase stock issuance and other components of the settlement are not expected to be recorded until closing for windstream to emergence and I'll cover those more in my guidance comments.
Additionally.
We closed the sale of our U.S. power business to melody in June with proceeds of approximately 220 million and we closed on the sale Cory of the ownership stake and begin to be that controls the blueprint propco generating $168 million in proceeds on July onest.
Gains related to these transactions are also excluded for both at from growth adjusted EBITDA and FFO.
Collectively these transaction significantly strengthened our balance sheet sit here are our future windstream cash flows and position unity very well for growth and enhancing value for our stakeholders going forward.
With that introduction, please turn to slide eight and I'll provide a review of our second quarter results.
We reported consolidated revenues of 267 million consolidated adjusted EBITDA of 203 million.
AFFO attributable to common shares of 94 million and AFFO per diluted common share of 44 cents.
Net loss attributable to common shares for the quarter was 588 million, our $3 and six in six cents per diluted share, including the windstream settlement charge and $90 million and 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, you re leasing deployed approximately $4 million of capital associated with growth capital investment initiatives principally for Bluebird.
Wintry made $50 million of improvements to our network with their capital during the quarter, bringing the cumulative amount since our spin off to approximately $860 million Tinet capital improvements.
Hey, unity fiber, we turned over 190 dark fiber in small cell sites for wireless carriers across our southeast footprint, adding annualized revenues of 1.3 million.
Year to date, we have turned over approximately 500 dark fiber in small sales representing of about $4 million of annualized revenue.
We currently have 909 hundred 50, dark fiber in small cell sites remaining in our backlog that we expect to deploy over the next two years, representing $5 billion of annualized revenues.
Core revenues and margins were in line with our expectations.
When compared to the same quarter last year remember that our second quarter 2020 results did not include revenue our adjusted EBITDA relating to our unity fiber Midwest operation There were so to Macquarie as part of the Bluebird transaction on August Thirtyth 2019.
Also the second quarter last year's results included $6 million of insurance recoveries related to hurricane, Michael which benefited adjusted EBITDA during that period.
Unity fiber net success based Capex was 22 million in the second quarter.
Proximately $9 million lower than expected.
Due to better than anticipated collection of upfront customer NRC payments.
We also incurred $1 million of integration Capex and $2 million of maintenance cap capex are about 3% of revenues.
We continue to.
Next we continued to complete deployment of our major dark fiber in small cell builds.
With the two remaining projects expected to be completed by the end of this year.
The completed projects have achieved in aggregate initial anchor yield of 7%.
Five financial results for the tower segment. This quarter reflects operations up until June one closing date.
At towers, we incurred $9 million of Capex spend in the second quarter and completed the construction of 18 towers.
Reported a pretax gain on the sale.
The U.S. tower business 64 million.
Please turn to slide nine and I will now cover our updated 2020 guidance.
We are revising our prior outlook primarily for the following items first the preliminary estimated impact from our settlement agreement with Windstream second the impact from the partial sale of the Bluebird propco.
Third transaction related and other items reported in the second quarter this year.
And for other relatively modest business unit level revisions.
Our outlook and team continues to anticipate that when that the Windstream lease continues in full force in effect and Windstream continues to make all these payments on time.
Our current outlook excludes future acquisitions capital market transactions future transaction related and other costs not specifically mentioned here end.
Actual results could differ materially from 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 for each segment.
Starting with unity leasing and the effects of the Windstream settlement on our guidance.
Our outlook assumes settlement effectiveness at core occurs on September Thirtyth.
We expect to recognize rental revenue on the bifurcated I look and see like master leases starting in the fourth quarter.
As you'll recall the aggregate cash rent remains unchanged and is currently $665 million annually.
Unity leasing is outlook also includes expected revenue and adjusted EBITDA relating to the assets a dark fiber IRU contracts, we are acquiring for windstream of $8 million and $6 million respectively.
After incorporating all of the aforementioned items, we now expect unity leasing revenues and adjusted EBITDA to be 739 million in 728 million respectively at the midpoint.
Representing adjusted EBITDA margins of approximately 99%.
Regarding unities remaining interest in the Bluebird Propco, we will report our continuing investment as an unconsolidated entity under the equity method of accounting.
Our proportionate share of the rent from the lease net of expenses will be reported as equity in earnings from unconsolidated entities in our income statement.
We will report a pre tax gain on the sale of the Bluebird propco of approximately $23 million in the third quarter.
Our current guidance reflects $123 million, a net success based capex that Uri leasing.
Which $108 million relates to the estimated GC investments that are part of the Windstream settlement agreement.
Other components at Sidoti leasing Capex included $7 million of investments in the Bluebird network made in the first half of this year at $8 million, we expect to invest for other tenants.
Turning to slide 10.
We are maintaining our pinedale guidance for unity fiber and continue to expect unity fiber revenues at $306 million in adjusted EBITDA of $116 million at the midpoint of our 2020 outlook.
Net success based Capex for Uniti fiber. This year is still expected to be approximately 100 million dot $100 billion at the midpoint.
We expect Uniti fibers net success based capital intensity to be about 33%. This year declining from 45% in the first half of this year to about 20% in the second half of this year.
We continue to expect integration and maintenance Capex for 2020 of about $6 million each respectively.
As we've mentioned before we continued to be focused on managing down uniti fibers capital intensity, realizing the inherent value embedded in the investments we've made over the last few years.
As such we expect Uniti fibers net success based capital intensity to be in that 30% to 35% range or lower as we continue to pursue a handful of greenfield dark fiber in small cell builds and leverage our existing anchor fiber networks that drive incremental lease up opportunities that are substantially less capital intensive.
Turning to slide 11.
For 2020, we now expect full year I AFFO to range between $1.70 cents and $1.73 cents per diluted common share with the midpoint of $1.71 cents per diluted common share.
On a consolidated basis, we expect revenues to be approximately $1.1 billion and adjusted EBITDA to be $809 million at the midpoint.
Our guidance now contemplates consolidated interest expense for the full year of approximately $419 million, excluding deferred financing cost write offs.
Reported interest expense. This year includes an additional 73 million dollar right off of deferred financing costs that we reported in the first quarter. This year relating to the payoff of our term loans.
Corporate DNA, excluding amounts allocated to business segments should be approximately 43 million, including $9 million and stock based compensation expense.
We now expect weighted average diluted common shares outstanding for the full year 2020 to be approximately 232 million shares compared to 222 million shares in our prior guidance.
The increase reflects the incremental shares we will issue to certain creditors of Windstream as part of the settlement agreement.
We expect a weighted average diluted common shares outstanding for the third quarter and fourth quarter of this year.
Approximately 222 million and 261 million shares respectively.
As a reminder guidance ranges for key components of our outlook are included in the appendix to our presentation.
On slide seven we have I'm sorry on slide 12, we have provided the tabby of the reconciliation of our prior guidance to our updated outlook, which summarizes my comments this afternoon.
Turning now to our capital structure.
On August four our board declared dividend of 15 cents per share to stockholders of record on September 18.
Payable October 2nd.
At quarter end, we had approximately $378 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity.
Immediately following quarter in and deliberate propco transaction, we had approximately $550 million of combined unrestricted cash and cash equivalents, including fully undrawn revolver capacity.
Our leverage ratio at the end of the second quarter sit at 6.1 times based on net debt to the annualized adjusted EBITDA.
Before I turn the call back to Kenny I'd like to cover a few topics that investors have recently expressed interest in.
First we continue to have discussions with all three major rating agencies and I expect each to take action near the time, the wintry as the emergence from bankruptcy.
As you know Fitch and S&P has had us on credit outlook positive since March and new Moody's recently indicated that our ratings are under review for an upgrade.
Second we continue to make substantial project progress to shrink that our liquidity and balance sheet such that we currently don't foresee a requirement to raise new capital through 2021.
That said, we are focused on refinancing our revolver, which matures in April 2022.
And it started discussions with our bank group.
Furthermore, we we always monitor capital markets closely and May take advantage of attractive opportunities to optimize our capital.
Third I want to emphasize that the bifurcated master leases had significant credit enhancements relative to the currently.
Such as underwriting standards financial and other covenants.
Windstream Holdings, Windstream services, and certain direct and indirect subsidiaries of Windstream services.
Our all tenants and give our tours under the new leases. Furthermore, the bifurcated master leases are both cross Collateralize Cross collateralized and cross guaranteed.
Lastly, we expect holler file our 10-Q later today.
You will see in our updated disclosures. We believe we made substantial progress in alleviating the going concern related risks that we have previously identified.
In closing we are fortunate to operate in the communication infrastructure industry that is proven to be incredibly stable and resilient in time to crisis similar to towers and data centers.
With the Windstreams the emergence from bankruptcy expected to occur soon and our strengthened balance sheet. We expect our cost of capital to continue to improve and are focused on continued growth diversification and value creation.
And with that I'll turn the call back over to getting.
Thanks, Mark Please turn to slide 13.
We recently sold a portion of our ownership stake in the propco the controls our Midwest fiber network assets to Mccorry for approximately $168 million.
Yes, Thats in Propco include the fiber that was originally leased to Bluebird as part of the Propco Opco Propco transaction.
Unity will retain an ownership interest in the propco come will receive an incremental earn out payment in 2023, if bluebird achieve certain milestones.
Macquarie and Bluebird are highly valued partners and discussions remain ongoing to expand our relationship in the future.
Example, we're working to lease Bluebird additional fiber unity owns in adjacent footprints, including strands, we're acquiring as part of the settlement.
Importantly, this propco partnership also provides a blueprint for future potential propco partners and efficient capital sources to expand our real estate portfolio.
In closing to reenter reiterate we're fortunate to operate in an infrastructure industry industry that should experience secular tailwinds for many years.
When compared to other publicly traded communications infrastructure reads as shown on slide 14, many of our fundamentals compare favorably and we believe there is a substantial valuation discount applied to unity as result of Windstreams bankruptcy.
With that uncertainty resolve them with our high recurring revenue low churn improvement Lisa model, along with ample liquidity.
Unity is now poised for accelerated accretive organic and inorganic growth.
With that operator, we're now ready to take questions.
Thank you Sir as a reminder to ask a question you would need to press star one on your telephone to withdraw your question. Please press the pound key.
Please standby, while we compile the acuity roster.
I sure first question comes from the line of Frank Louthan from Raymond James. Please go ahead.
Great. Thank you can you give us an idea and a couple of things one additional capital that you can spend for Windstream I have you begun any of that that you expect to spend in 2020, and then can you give some color on the 650 million in costs with the settlement is any of that to do what they need to payments, you're making the windstream is that just.
Just full legal cost and so forth. Thanks.
Yes, Mark you want to take the yes, so Frank I'll start the the amount of GC eyes that we expect for Windstream. This year is $108 million.
Thats the estimate that is based on.
Their most recent forecast in the bankruptcy proceedings that we have access to so thats, what we have in some of that would be in the.
That would be primarily we haven't spent any of that so far so it would only be incurred after they emerge from bankruptcy that number could change depending on what they've actually completed this year and the the timing on when they emerge but thats our expectation based soda based on September Thirtyth divergence day.
And then on the 650 me and so.
As I said in my remarks, the $650 million litigation.
Charge.
It's really just an allocation of the total value as part of the Windstream settlement agreement and so.
Really you take the different components you take the overall settlement valuation you take the different components.
And you try you value each one of those separately using different.
At the dollars use that are appropriate for the circumstances and thats the number that.
Working led our auditors and working with outside.
Isolation experts that we thought was the appropriate amount.
Okay, great. Thank you.
Sure. Thanks.
Thank you. Our next question comes from Phil Cusick from JP Morgan. Please go ahead.
Hi, guys. Thanks.
Can you talk about the impact of covered on the pipeline potential deals anything significant.
Accelerating.
Companies that need money more urgently or holding off.
Yes.
Phil its Kenny I'll take that so with respect to our our our business our operating business I think my prepared remarks, it hit that and essentially the impact has been minimal to both installs and bookings and I'm happy to elaborate on that but it's been quite quite small and we expect that to.
Continue going forward.
But I think your question is probably related to M&A.
And and if it's not you can correct me, but.
I don't it hasn't had.
It hasn't had a really much of an impact I think a lot of the businesses that.
We would be interested in as an acquirer.
Our very infrastructure heavy.
And of course that includes fiber predominantly fiber.
And and I think many of those businesses certainly the private ones are seeing the same resiliency in their businesses. As we are so I don't think theres any there's certainly no feeling of forced sellers out there.
Maybe just the opposite given given the the resiliency that these businesses are showing so I would say our and our pipeline is not really dependent upon.
Companies that are forced sellers anyway, it's not dependent upon companies that hard, but our bankers and go and run a process, it's really much more of a bespoke.
Proprietary pipeline anyway.
And that's always been indication will continue to be going forward. So we've not seen.
A pickup nor nor degradation I would say.
Thank you and then.
Then second.
And then we're getting close to define what you're going to yeah.
Sort of a normal company again.
Hey.
Just curious your thoughts because.
You're not really being paid for your dividend now.
Or in the past you aren't being introduced into that Youre going to need capital if not not this year next year, which is great but.
But it sounds like there's a lot of things you could do with your capital than paid out.
How do you think about.
Need or desire to be paying a bigger dividends over time.
Yes, so Phil I'll take that Mark you can add on if you want but it's a great question and we actually think we've always been a normal company. We've just been through a period of time, where the rhetoric and the noise around our story has been has clouded.
The fundamentals.
But I think your point is real well taken now that were.
About to emerge it's certainly a time that we think investors should refocus on our story in our fundamentals and refocus on us as an investable story.
So I agree with your your conclusion and with respect to the dividend.
As we say in the talking points, our every quarter our board evaluates it and you can bet that we have debate said the board about capital allocation the best way to spend our capital the best way to spend our cash flow.
And I think as Weve demonstrated we've got ample liquidity and we continue to generate cash flow.
We also have great opportunities to invest that capital organically. We were were showing the proof of our of our model, which is anchor attractive anchor economics, but really attractive lease up successes. We've also proven that we've got great M&A opportunities in those are going to continue.
So I think there's always a healthy debate I think it it's dependent upon a lot of different things I can't give you any more color than that other than we've got lots of good opportunities spend our capital on and we will continue to evaluate the.
The merits of a higher dividend going forward.
Thanks, Ken.
Sure.
Thank you.
Our next question comes from the line of Simon Flannery from Morgan Stanley. Please go ahead.
Great. Thanks very much.
Good evening I Wonder if you could just got into the details of the partial sale to.
A little bit more.
What's the percentage is fair and what was the rationale for going back on.
Doing a second piece of this deal at this point and then just more broadly in the past. The goal has been really to reduce your exposure to windstream and obviously the lease bifurcation helps with that but do you have sort of percentage targets that you are looking out over the next couple of years on that.
Yes, so thats Kenny the rationale on the prop propco sale to Macquarie was partially that.
It was something that our partner was interested in doing.
That was that was clear.
Really from the outset I think.
Many infrastructure investors.
Find the propco component of what we're doing to be really interesting.
There's it's an investment in infrastructure.
With a highly predictable cash flows stream in a mission critical asset and Thats that is right in line with what a lot of the infrastructure funds want to do.
So my my comments in my prepared remarks about this being.
A blueprint for future deals is very important because we viewed it we view it as that.
In addition to being something that than our than our partner was interested in doing our financial partner in this transaction was interested in doing.
And also it's good liquidity at a time when when were beefing up the balance sheet and beefing up liquidity. So those three things together our was led us to let us to that conclusion, and we're very pleased with the outcome very pleased with the valuation in our economics you haven't it now.
We have not disclose the split.
But I would tell you that the majority of the we sold the majority of the partnership and retained a minority stake.
Right.
And then on the diversification, yes. So our goal there Simon continues to be to get Windstream below 50% as the next.
As the next goal, which has not changed from what we were saying prior to the bankruptcy, obviously, that's been delayed a little bit.
A year, so because of the bankruptcy, but that continues to be our focus and we think thats, that's very much within our very much within our reach.
Great. Thank you.
[music].
Thank you.
As a reminder to ask a question you would need to press star one on your telephone which are your question first the county.
Our next question comes from David Barden from Bank of America. Please go ahead.
Hey, guys. Thanks, so much.
So first Kenny I think last quarter, we talked about this windstream settlement being kind of a one plus one equals three type of arrangement.
But you know here, you've taken a $650 million charge off.
To reflect the negatives could you kind of revisit maybe the positives and how you think that they offset that $650 million charge estimate and then second mark.
You've given kind of this guidance that you don't think you need to access the capital markets or raise new funds.
Through 2021 could you kind of give us a sources and uses that box that up because.
You know the sources is pretty straight forward based on the business with lease in the fiber business, but the uses of going up a lot in terms of the capital contributions to Windstream. The acquisition of the fiber the 400 million dollar installment payments et cetera.
Could you kind of walk us through that and tell us how you get to that conclusion. Thank you.
So David first on the on the settlement charge.
I think.
The first point to make there is that none of the economics of the settlement of change. This is just how were accounting for it from a GAAP perspective.
And I'd also point to point out that theres not a lot of precedence for.
This situation, where we have this massive settlement agreement that was in the context of the bankruptcy and in the context of us being sued not only by our customer but also by numerous creditors involved in the bankruptcy. So it's a highly unprecedented situation and as a result.
I wouldnt try to put it into.
Typical box.
You may have seen in the past.
So it doesn't change the economics, it's somewhat unprecedented in our chosen path of accounting forward here is relatively straightforward we're trying to.
Show it in a way that.
Puts it behind us as a onetime charge.
And keeps the focus for our investors going forward on the benefits of the transaction and our ability to utilize the valuable parts of the settlement, which.
To your second part of your point.
None of those have changed in fact as time has gone on the past several months I would say I feel better and better about the economics of the settlement so.
And they're all on strategy for what we have pursued with other customers and what we were pursuing with even with windstream prior to the bankruptcy, including.
The majority of the capital here is a capex program, where the net dollar amount being invested from our perspective is about $1 billion in the Gcs program. So net of the of the incremental rent that we will get.
About a billion dollars spent over 10 years, so over long period of time that will be used to upgrade our network.
And we will see.
The benefits of that.
At renewal. So every dollar that goes in the ground, we're hardening our network and securing our future. In addition to obviously, helping our customer who who has recently shown.
The success of investing in the Alec business with incremental broadband adds and so we we think theres proven success there with the with the roughly 800 million of Tcs Thats been invested historically.
And so on top of that the incremental roughly $1 billion that we're investing going forward, we feel very good about the return on that especially since we're getting a market return on it.
Over the next 10 years.
And then on top of that we're getting another 40, roughly 42000 miles of fiber.
We are getting roughly $30 million of EBITDA.
From third party revenue attractive third party revenue and the ability to use that fiber and that network.
We're already.
Seeing seeing the benefits of that and we're in we're trying to show the proof of the opportunity set for us through the the incremental funnel and I'm confident that in the near term youre going to start to see some prince related to that to that funnel as well.
And we'll we'll get.
A nice uptick in return from from that fiber and when you think about David what that means for our business on a on a pro forma basis, we're going to have 125000 route mile fiber network, which is is comparable.
To.
Many of the National networks out there today so.
That makes us a much more strategic business than we were before.
And we're very very excited about that lastly, and I don't think its talked about enough, but and mark referenced this in his prepared remarks, but the the credit enhancements and the hardening of the master lease or that the master leases now have real value for us.
The the tenant has been moved from a holding company down to the services level.
We've gotten covenants added to the master leases and obviously, we have a healthier tenant.
In addition to all all the things I just mentioned so we feel really really good about this deal I continue to to believe it's a valuable deal for Windstream and I continue to say it is a one plus one equals three outcome. Because this is not a value transfer from from unity to Windstream. This is a.
This is a commercially negotiated.
Valuable outcome for for for both parties and and how were accounting for it from a GAAP perspective does does not change that.
Thank you.
Hi, David This Mark I'll I'll try to address your question, obviously, we haven't given 2021 guided checks at Florida. The comment I made regarding cap than the not needing to raise any capital.
But not having a capital raise requirement, but generally the things.
To consider here and that go into the calculus are there's the current liquidity, there's the lower capital intense intensity that we've talked about it at the unity fiber coming down.
There's also the billion dollar Lisa leasing pipeline unity leasing that can you talked about.
Earlier, so that we expect to come to fruition in terms of actually.
Rating revenue, but also as we mentioned previously I think any mentioned in his remarks in many cases on those type of lease that deals in many cases. We also get substantial are you upfront fees as well so that also contributes to additional liquidity.
And then there's also in there. So there's also transactions in 2021. They are included in the base that day and our pipeline as well as others that were also contemplating that will go into more detail when we when we get when it was 21 guidance, but those are the key things. In addition to what can you had already mentioned about the the additional 20.
All right $30 million.
EBITDA revenue that we're getting from the winter in contracts as well.
Got it.
Thanks, Mark So if I could ask just one follow up I apologize.
Relatively soon I guess September 30 based on your assumption.
You have an investor that's going to be one of your biggest is not your.
If not the biggest investor you company and that Investor has been very critical of the fiber investment strategy of another company.
Out there.
Saying that the fiber investments have been sub subpar returns and such.
Have you had any conversations with that investor about their views on fiber investment and the kinds of fiber investments you should be making have they wait in any of that with you at all to this point.
Yes, David I don't want to get into conversations that we may or may not had have had with with any particular at investors, but but I will say, it's a good question and I will say we follow what.
This particular investor says very closely we follow our our competitors in the industry and so we're very.
Familiar with what you're referring to and I would say, we think a lot of the observations made our are correct. When I when we look at them through the the unity Leds I'm not I'm not commenting on anyone else's.
Business, but when we look at it through our our wins, we thanks, a lot of those observations are right, including a focus on return on capital Hanting and including a focus on.
The lease up of those of networks fiber networks and from our perspective, it's really one of the things that has led us to.
Show, a little more disclosure this quarter on the success of leasing up our network.
Including the of the.
The 16 recent large builds that we've been talking about rather publicly.
And the distinction I would point out is that in our markets generally tier two markets that are generally less competitive we have always talked about the importance of targeting non wireless customers. In addition to wireless customers. So we don't have a small cell centric.
Focus business, we never have weve focused on wireless whether its fiber to the tower or small cells as an anchor customer, but then focused on all other customers to lease up the networks and to drive.
Optimal return on capital.
And you can see from our prepared remarks that generally.
We're doing that roughly a quarter of our businesses anchor and then roughly three quarters of the revenue three quarters of bookings in three quarters of installs are on the second.
And third and fourth tenants.
And I think Thats, that's that's important in terms of driving return on capital and driving optimal economics and.
And I think another part of what this particular investor was was referring to and not.
Unity specific but referring to a comparison of fiber towers.
And obviously, we know both of those businesses well and I think we believe one of the things where.
Fiber really really compares very favorably to towers is the lease up potential in fiber. We think is materially higher just because you've got a lot more capacity and because you've got a lot more customers to pursue.
And we've been we've been demonstrating that success in our business. So long long winded answer David sorry, but we've certainly been following that.
That.
That back and forth very closely.
Thank you.
I show no further questions in the queue at this time I like to turn the call back to Mr. Kenny Gunderman for closing remarks. Please go ahead Sir.
Thank you I'd like to thank all of our employees for their continued dedication during these turbulent times as well as our loyal customers and stakeholders, who we continue to work hard for every day.
I appreciate your interest in unity and look forward to updating you further on future calls. Thank you for joining us today.
Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.
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Okay.
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