Q3 2020 Uniti Group Inc Earnings Call
I said this call will be available on the company's website www Dot Dot com beginning November 19, 2020, and will remain available for 14 days.
This time all participants are in a listen only mode participants on the call will have the opportunity to ask questions. Following the company's prepared comments.
Company 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 the fab.
Factors that could cause actual results to differ our discussion in the company's filings with the FCC. The company's remarks. This afternoon for reference slides posted on its website and you are encouraged to refer to those materials. During this call discussions during the call also include certain financial measures that were not prepared in accordance with the journal.
Stuff in 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 dated today I would now like turn the call over to you seen any groups Chief Executive Officer, Kenny Gunderman. Please go ahead Mr. Harman.
Thank you.
Good afternoon, everyone and thank you for joining.
Please turn to slides for our presentation.
We had another successful quarter at Uniti fiber and leasing businesses, both performing well.
We continue to see strong demand for our wireless and on more of a service offerings at Uniti fiber, while focusing on meaningful lease up of our major wireless anchor builds.
You have any leasing we're also driving incremental lease up on our national fiber network of 124000 route miles.
This is underscored by the strategic Opco transaction that we're announcing today whatever stripe Oh.
More comments later in my prepared remarks regarding this transaction, but this deal reinforces the substantial value of our national network, including the fiber acquired our settlement with Windstream.
During the third quarter, our settlement with Windstream became affective families in connection with Windstreams fully emerging from bankruptcy. So.
The settlement provides unity with a 90% increase in leasable fiber 25, 29 million of New third party revenue and and strengthened master leases.
With 124000 route miles of fiber unity is one of the largest independent for fiber providers in the country with a national network spanning across 42 stage.
As it relates to cope with my team, we continue to see minimal disruption within our businesses. The majority of our employees continue to work from home, while our remaining employee base is actively working in the field with first responder designation.
Although there was a decrease in IP traffic on our network early on during the pandemic and then leveled off we saw traffic levels returned to pre covert levels during September.
Our installation activity in the third quarter remained robust we've not seen any order nor service cancellations from customers as a result of covert 18 well.
With only marginal delays relating to new sales and then selectivity.
As a reminder, less than 5% of our revenues from enterprise customers and 75% of those enterprises provides a central services.
Thus, we expect any future impact from Cove, it to continue to be minimal.
[laughter] demand from critical industries, such as healthcare education, and government remains strong as the need for high bandwidth usage technologies continues to grow in.
In fact September was a record month for enterprise bookings that unity fiber driven in part by the demand from these critical industries.
Demand in install activity from our wireless customers remains robust driven by the broader rollout of Fiveg services in our markets.
As I mentioned earlier, we continue to focus on leasing up our existing fiber network, both at fiber and leasing with high margin high highly accretive opportunities.
Over 90% of our new sales unity fiber during the quarter were to non anchor customers.
Our unity leasing, including yet from proceeds from the ever streams that transaction. We are announcing today, we generated total proceeds of approximately $225 million from Opco Propco and I are you transactions in the past two years and the fiber we're acquiring as part of the settlement will increase our leasable capacity about 90%.
Our highly proprietary funnel is healthy and we're currently evaluating numerous opportunities including additional opco.
So leaseback transactions.
Probably the quality of our portfolio of a 124000 route miles and 6.7 million strand miles of own fiber and 2400 small cell locations either in service or backlog remains highly under appreciated.
We're one of a select few providers of these critical components that are enabling new technologies, such as Fiveg 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 lease up potential at attractive margins.
Turning to an operational update for the quarter.
As I discussed last quarter, the focus at unity fiber continues to be leasing up our wireless anchor builds including additional wireless customers and non wireless customers.
As slide five illustrates over the past four years, we've sold incremental lease up EMR or a $5.2 million almost three times the recurring revenue on the major wireless anchor builds that have either been completed or will be later this year.
We continue to see significant lease up progress this year, having sold $10 million of annualized lease up revenue that is expected to generate incremental cash flow yields of approximately 50% by.
By leveraging our existing network.
Including the lease up today, we've sold since we began construction on our major wireless builds we expect to generate a cumulative cash yield of 14% on these projects doubling the initial anchor yield within a four year time frame.
These relatively new networks are still highly underutilized and we expect to yield additional lease up in the coming years.
We'll continue to pursue select anchor greenfield builds and lease up those networks with a mix of additional wireless and on wireline wireless customers as well.
[noise] unity fiber sales bookings in the quarter were approximately <unk> point 4 million of them are our end approximately 93% of our sales bookings came from non wireless customers.
Enterprise bookings during the quarter increased over 15% from the second quarter.
Reflecting our continued focus to drive incremental lease up in our southeast markets.
Unity fiber installed point 7 million of them are our during the third quarter was 76% of gross installs related to non wireless opportunities, 22% related to wireless and 2% related upgrades.
The continued solid performance at unity fiber not only validates our strategy of focusing on less competitive tier two and three markets, but also highlights the mission critical nature of our fiber network.
Turning to slide six.
Through lease up of our fiber infrastructure unity leasing, including the upfront proceeds from the ever stream transaction. We've generated an additional 225 million of proceeds through Opco and our you transactions over the past two years.
We continue to expect similar similar activities in the coming 12 to 24 months could generate.
Meaningful proceeds.
Now the other settlement with Windstream has affected we've begun actively marketing the fiber we acquired as part of that settlement.
As a result, we continue to see significant interest from our wholesale customers.
Our sales pipeline represents over a billion dollars of total contract value $358 million <unk> upfront are you payments and $57 million of annual recurring revenue, reflecting the significant opportunity there is expected to be realized over several years.
And the strategic value these additional fiber strands provide unity.
The opportunities. We're currently pursuing utilized 500000 strand miles of fiber and approximately 75% of the deals utilize farberware acquiring as part of the settlement.
Turning to slide seven.
When combining the lease up Weve sold to date on the major wireless anchor projects with the lease up we've generated a unity leasing year.
He has sold approximately 67 million of annualized lease up revenue, resulting in more than doubling the initial anchor cash yield for approximately 7% to cumulative yield of 16%.
This does not include potential lease up from the Farberware acquired as part of the settlement, which we expect will provide significant additional upside.
We recently recently realigned our sales teams to ensure we're targeting the right mix of customers, while ensuring we address the needs of our customers effectively.
Our national strategic accounts team is led by Greg Wortel.
We will focus on large wireless and other national accounts, such as cable and content providers domestic and international carriers and data centers.
Our regional wholesale and enterprise sales efforts are being led by Joe Mccourt and.
Our strategy continues to deploy local sales people into several of our major wireless anchor markets to further drive incremental Lisa through wholesale enterprise healthcare and government.
[noise], our first investments were made during the quarter under the GPCR program as part of our settlement with Windstream.
And as a result, we're now generating incremental revenue from that program.
As a reminder, the investments unities committed to make must meet certain underwriting criteria, including being long term value accretive fiber and generating minimal threshold returns for our tenants.
Said differently. The program is designed to not only ensure investments are being made to help our tenant now, but also future proofing unities network for future renewals.
The majority of investments are likely to be fiber to the home and markets with favorable demographics capitalizing on the demand for broadband.
As first movers in many of these markets our network will be defensible for many years to come.
The investments that qualify under the program will be added to the master leases at an 8% initial yield at the one year anniversary of unity, making such investment subject to a half percent annual escalator and results in near 100% margin revenue.
With that I will turn the call over to Mark.
Thanks, [laughter] Katie good afternoon, everyone.
Our settlement agreement with Windstream became effective it became effective this quarter and accordingly, our financial results and our revised outlook reflects the impact of the various elements of the settlement agreement.
As has been updated from the estimates provided on our last earnings call.
Therefore, I'll start with a summary of the major components.
To affect our financial statements.
Refer to certain aspects of the agreement.
Mark.
As you know when she may emerge from chapter 11 on September 21st concurrent with our settlement agreement becoming effective.
The bifurcated I like to see like leases, which are cross defaulted across guaranteed and affect the current.
Aggregate annual cash rent.
265 million.
At closing, we acquire received rights to 2.2 million fiber strand miles and dark fiber are you contract generating annualized revenues.
Approximately 29.
We issued 38.6 million shares of common stock receiving $224.5 million proceeds that were transferred to Windstream settlement consideration.
We also made cash payments totaling $40 million relating to the purchase of fiber assets.
Contracts.
Financial accounting purposes, we are generally required to combine the consideration provided to windstream and allocate that consideration to the identifiable separable component of the settlement at their estimated fair values.
During the third quarter, we recorded assets of $73 million principally representing.
400000, SRAM miles of fiber dark fiber, our new contracts acquired from Windstream.
Our balance sheet at quarter end, we flex a settlement obligation cable that is valued at $438 million.
Presents the discounted value of 490.
So.
We are required to make to windstream.
The next five years subject to certain pre payment options at our discretion.
Settlement liability will be accreted over the term of the obligation.
We should be reported as a component of interest expense, which we expect to be 80 million.
The next.
[music].
Our first quarterly settlement.
$24.5 million.
Over seven.
Now the Windstream has emerged from bankruptcy, we expect to recognize incremental straight line noncash revenue of approximately $25 million over the next 12 months.
Turning to the new Windstream, M.L. A's and GC.
Although we will not receive incremental cash rent.
Until their one year anniversary under gap, we will record the straight line revenue impact.
The time the GC investment is made.
Moving now to Bluebird as I mentioned on our last call. We closed on the South Korea ownership stake.
It could be that controls the bluebird propco.
The $160 million of proceeds on July 1st the book gain of $23 million related to the blip.
Her transaction.
Excluding from both adjusted EBITDA and.
Yes.
Last as Kenny mentioned we.
Announced today, a strategic Opco propco transaction whatever screen.
As expected to generate $135 million.
$3 million in annual recurring revenue upon closing.
The transaction is expected to close in the second quarter a 2021.
Together these transactions further strengthen our balance sheet and position us very well to execute our strategy going forward.
With that please turn to slide eight and I'll provide a review of our third quarter results.
We reported consolidated revenues of $259 million dollars consolidated adjusted EBITDA of 100.
Yes.
FFO attributable to common shares of 93 million.
Oh per diluted common share of 42 cents.
Net income attributable to common shares for the quarter was $7 million or four cents per diluted common share, including a $23 million gain on the sale of our ownership stake in the entity that controls the Midwest fiber network and $21 million of transaction related and other costs.
Unity leasing we reported segment revenues of 182 million and adjusted EBITDA of 181 million.
During the quarter, UTI leasing deployed $31 million of capital, including $29 million.
It was related to the windscreen TCR program.
These investments added about 35000 train miles.
Five or to your body's own network.
Primarily deployed across 13 I like markets.
As you will recall these investments are added to the rent payments or the master leases at an 8% initial yield subject to a half half percent annual escalator or the one year anniversary of unity make.
The investment.
The investments made during the third quarter are expected to add 2.3 million of annualized revenue.
Unity fiber, we turned over 180, dark fiber and small cell sites for wireless carriers across our southeast footprint.
Annualized revenues of 1.1 million.
Year to date, we have turned over approximately 680, dark fiber and small cells, representing about $5 million of annualized revenue.
We currently have 750, dark fiber and small cell sites remaining in our backlog that we expect to deploy over the next two years representing incremental.
An incremental $4 million of annualized revenue.
Unity fiber core revenues were in line with our expectations.
EBITDA margins were slightly lower than expected due to restoration costs associated with hurricane Sandy and Laura and slightly higher employee cost.
Excluding these items core margin would have been about 38% and consistent with our expectations.
When compared to the same quarter last year remember that our third quarter results do not include revenue or adjusted EBITDA.
Fiber fibers Midwest operations that were sold in the Corey It's part of the Liberty transaction August three 2000 22019.
Unity fiber net success based Capex was $35 million in the third quarter or approximately $2 million higher than expected due to the accelerated deployment of capital and support of several of our fiber build outs that were previously expected to occur in 2021.
We also incurred $1 million of integration, capex and $2 million maintenance capex or about 2% of revenues.
We continue to complete deployment of a major dark fiber and small cell builds with the two remaining projects expected to be completed in the fourth quarter of this year.
Please turn to slide nine I'll cover our updated 2020 guidance.
We are revising our prior outlook primarily for the following items first the revised impact from the effectiveness of the settlement agreement with Windstream.
Second transaction related costs and other items reported in the third quarter of this year.
And last other relatively modest business unit level measures.
Our current outlook excludes future acquisitions capital market transactions, and future and transaction related and other costs not specifics specifics.
Specifically mention here in.
Actual results could differ materially from these forward looking statements a reconciliation of our prior 2020 outlook. 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.
Beginning with unity leasing we've updated our full year guidance for the timing of our settlement with Windstream, becoming effective on September 21st, whereas our prior guidance assumed effective at the beginning of the fourth quarter.
As I mentioned, we will recognize cash rental revenues on the bifurcated I like and see like master leases.
With aggregate annual rent remaining unchanged at $665 million.
We are including revenue and adjusted EBITDA.
$6 million, respectively relating to the straight line rent associated with the master leases.
Yes.
Most windstreams emergence from bankruptcy.
Revenue and adjusted EBITDA related to assets and dark fiber are you contracting we are acquiring windstream.
It's still expected to be $8 million and $6 million, respectively. In 2020, reflecting the period from what our settlement became effective.
On an annualized basis and excluding the dark fiber contracts, we are selling as part of the ever screams transaction.
We expect revenue and adjusted EBITDA of approximately $26 million and $19 million respectively.
After incorporating all of the aforementioned items, we now expect the leasing revenues and adjusted EBITDA to be $746 million and $736 million, respectively at the midpoint, representing adjusted EBITDA margins of approximately 99%.
Our current guidance reflects $104 million of net success based capex that you know the leasing of which $90 million relates to estimate a GC investments that are part of the Windstream settlement agreement.
Turning to slide 10, we are maintaining our full year revenue guidance for unity fiber of $306 million.
We now expect adjusted EBITDA of $114 million at the midpoint of our outlook, which is slightly lower due to compressed margins in our noncore construction business.
As a reminder, our noncore construction construction business is expected to be wound down by the end of this year and the annual revenue of $30 million. We expect this year will not recur in 2021.
Excluding our construction business margins would be in line with our prior guidance.
Due to the acceleration of the various project Buildouts that were previously expected to occur early next year.
Success based Capex returned 500. This year is expected to be approximately $120 million at the midpoint up $20 million from our prior guidance.
We now expect Uniti fibers net success based capital intensity to be about 40% this year with capital and can see averaging approximately 33% for the second half.
2020.
We expect integration capex of approximately $5 million to $7 million respectively.
We do not expect further integration capex after 2020.
Well, we've accelerated our capital deployment on some projects.
We remain focused on managing down you know the fibers capital intensity.
We continue to expect Uniti fibers net success based capital intensity to be in the 30% to 35% range or lower going forward as we pursue a handful a handful of greenfield dark fiber and small cell builds.
And.
Average our existing anchor fiber networks to drive incremental lease up opportunities that are substantially less capital intensity.
Turning to slide 11 for 2020, we continue to expect full year EBITDA FFO to range between $1.69 cents and $1.33 cents per diluted common share with a midpoint of $1.71 cents.
On a consolidated basis, we expect revenues to be 1.1 billion and adjusted EBITDA to be $870 million at the midpoint.
Our guidance contemplates consolidated interest expense for the full year of approximately $424 million.
Excluding any deferred financing cost write offs.
Ported interest expense and 2020 includes an additional $73 million write off of deferred financing cost that was reported in the first quarter. This year related to the pay off of term loans and it's an interest accretion on settlement obligation.
Yes.
Corporate SG today.
Amounts allocated to our segments via product.
He went million dollars, including $9 million of stock based compensation expense.
We now expect weighted average diluted common shares outstanding for the full year 2020 to be approximately 230 million shares compared to 232 million shares in our prior guidance, reflecting the timing of incremental share certain credits Scream, it's part of the settlement agreement.
We expect weighted average diluted common shares outstanding for the fourth quarter of this year to be approximately 261 million shares.
As a reminder guidance ranges for key components of our outlook are included in the appendix to our presentation.
On slide 12, we have provided popular reconciliation of our prior guidance to our current outlook, which summarizes my comments this afternoon.
Turning now to capital markets November.
The board declared a dividend of 15 cents per share to stockholders of record on December 15 payable.
Payable January four.
At quarter end, we had approximately $484 million of combined unrestricted cash and cash equivalents, an undrawn revolver capacity or.
Our leverage ratio at the end of the third quarter stood at 6.1 times based on net debt annualized adjusted EBITDA.
All in Windstreams emergence all three rating agencies.
Yep.
In our us getting those has continued to trade well.
We continue to be focused on refinancing our revolver expect to launch that initiative this quarter.
As a reminder, we continually monitor capital markets closely and they take advantage of attractive opportunities and with that I'll turn the call back over to Ken.
[noise]. Thanks, Mark Please turn to slide 13.
We've entered into a strategic Opco propco agreement whatever stream for total upfront consideration to unity of $135 million in.
In addition to the upfront proceeds unity will receive annual fees of approximately $3 million from every stream over the initial 20 year term of the IR you lease agreements subject to an annual escalator of 2%.
For the transaction yearly unity will enter into 220 year IRU agreements to lease ever stream 220000 strand miles of unity own fiber across 10000 route miles and eight states within the northeast and Midwest.
Including 165000 strand miles of fiber unity acquired as part of the settlement.
Also unities agreed to sell ever stream a portion of Uniti fibers northeast operations and certain dark fiber are you contractionary acquired as part of the settlement that on a combined basis currently generate approximately $24 million of annual revenue and 17 million of annual adjusted EBITDA.
With this transaction there are several key themes to highlight on slide 14.
First the transaction increases the total contract value the unity by approximately $107 million.
Secondly, we are replacing actively manage lit services revenue with passively managed dark fiber revenue.
This not only extends the average contract term from approximately four years to 20 years, but also improves the average margins from 73% to 100% and virtually eliminates any churn risk.
Lastly, this is a material lease up transaction on the recently acquired settlement fiber and highlights the strategic value of this network to unity.
We continue to have substantial fiber available for further lease up including in these northeastern markets.
In closing, we continue to focus on driving high margin low churn recurring revenue in all of our businesses.
We've deemphasized or sold noncore operations that do not fit this profile such as our non strategic construction business, which which we expect to be wound down by the end of this year.
We also fully wound down our residential see like business talk America last quarter.
As a result of our actions are 97% of our revenue is now recurring with an average term of approximately nine years, while companywide churn remains low and for the quarter was 0.3%.
With the addition of the ever stream deal and our expectation to pursue similar transactions in the future. We are actively working to improve and build upon each of these key metrics.
With that operator, we're now ready to take questions.
Thank you as a reminder to ask a question press star one on your telephone to withdraw your question press the pound key.
Our first question comes from Frank Louthan of Raymond James Your line is now open.
Great. Thank you.
So you mentioned Mark mentioned refinancing the revolver does that I guess I would assume that would include a path to getting out of the current covenant restrictions you have with your with your current revolver and just to be clear. The guidance. All include sort of the puts and takes for all these train all these trends different transaction that you talked about.
And and they closed in the quarter and so forth as well thanks.
Yes. So the guidance does include all the transactions absent every screen, which obviously is as I mentioned is going to close next year.
In terms of the revolver, yes, I would expect that any of you have all the refinancing would eliminate the covenant restrictions that are currently in the revolver.
Keep in mind that those with similar restrictions are also in the last series of notes that we issued.
And those will be in effect until we meet the criteria in those notes, which primarily would be we need to get leverage to 5.75 on that basis. So they won't be in the I wouldn't expect them to continue in the revolver, but they will still be in the bond that we make those criteria.
And what do you what is your outlook for for getting getting there does this ever see every stream transaction help a bit I mean, how should we think about that.
Yeah. So I don't want to give a specific timeframe. There is different ways that we can get there we get there partly by doing additional.
Transactions that bring in upfront proceeds like everything transaction or over a higher yourselves.
We can get there.
Growing EBITDA and cash flows over time and.
We could also.
Get there by doing things.
It's actually to the capital markets. So I would expect us to get there.
Time in 2021, but when we get there and how we get there.
Just.
Little bit partly opportunistic and currently wind trends.
All right great. Thank you.
Thank you and our next question comes from Brett Feldman of Goldman Sachs. Your line is now open.
Hi, Thanks for taking the question you sort of reiterated during your remarks that you are going to be increasingly focusing on winning business, where you can lease up the existing buyer I think you have to have a positive impact on your capital intensity side I have two follow up question to that.
First it would seem like if that's really the way youre operating the business organically.
Other than maybe looking to accelerate delevering. It seems like you could probably find your business with cash generating EBITDA.
Maybe incremental debt you can do off the balance sheet without equity and I'm curious if that's a fair way of thinking about it.
We've kind of thought that equity might be predominantly used for for M&A, but if you have a different view on how equity fits into the cap structure that would be helpful. And then second putting aside some of the near term puts and takes in terms of just kind of completed the process of getting out of all of the residual elements of the windstream deal, including some of the covenants.
Why why not look to deploy more capital I mean, you can make the case that you've never had more.
More attractive access to the capital markets in light of all of the deals Youve done to resolve the windstream situation, So why ratchet down capex.
Yeah, Brett this is Kenny I'll take those and Mark may want to add but first on your first question I think your instincts are correct I mean, when you [noise].
Look at our pivot away from being largely construction and greenfield to now being increasingly and eventually predominantly lease up.
You're going to see.
Lower capital intensity and better margins in the business and you're starting to see early signs of that now, but you will certainly see that going into 2021.
And as a result, youre going to have inorganic.
Actively inorganic deleveraging, but EBITDA growing and so funding the business through cash flow and debt is certainly a new debt is certainly a possibility and.
And our strong first the possibility of using equity for M&A is something we've done in the past, it's something we're doing as part of the settlement, which I consider essentially M&A and so I think your instincts are all right. There personally equities not even all not on my radar screen for for raising capital right now.
We've got plenty of other alternatives and attractive opportunities.
With respect to your second question I think you're right that there is a terrific opportunity to put capital to work today in our business, both organically and through M&A and that.
The opportunity is probably never been better.
And when we look at organically.
Greenfield builds or or just carrier projects are not all greenfield builds but even the non greenfield builds.
Acquired capital there.
There is just really strong tailwinds in the business a strong pipeline of opportunities.
You know for example, today, we have within our grasp seven to $10 million to $12 million of or recurring revenue for wireless projects that.
That we could easily I think relatively easily take on that add capital next year and the year after.
That would certainly increase our capital intensity and lower our margins, but are really attractive projects that could add to growth. So it's really just a balance between how much we want our capital intense how we how what level, we want our capital intensity to be what we want our margins to be.
And so the but the opportunity is there there's no demand problem. There is no shortage of demand there is no shortage of opportunities and and particularly with the success that we're showing on leasing up fees markets and leasing up these anchor awards I feel a great deal of confidence and I think our board feels a great deal of confidence.
It's in pursuing more.
More anchor builds and more greenfield builds because we've proven that we can drive those yields to 14% and 16% like we like we talked about in our in our prepared remarks, but with all that said its a balance with kept capital efficiency and balancing that with the balance sheet and with.
And with cash flow.
Great. Thanks for the color.
Thank you and our next question comes from David Barden of Bank of America Merrill Lynch. Your line is now open.
Hey, guys. Thanks, so much.
So can you maybe the first question for me is.
As a function of the settlement with Windstream, you've got a new cohort.
Of equity holders I am I'm wondering if you have any sense, specifically with respect to the Elliott cohort.
And what their intentions are with respect to those shares are they.
Are they working with you are they are they looking to just monetize in the short term are they looking to see the long term.
And hold if you had any color that would be super helpful. I guess the second quick.
Question is from Mark.
On slide six.
If I do the math on.
You know contract value minus upfront are you are you paying an annual revenue minus the $18 million of.
Of.
Are you amortization it implies about a 4.7% yield and.
I'm wondering if I'm doing that math right and if I am how how are you. How are you getting there from a cost of capital perspective in terms of explaining those those opportunities and then I guess the last question if I could would be.
There's so many moving parts now in the fiber business, because you're doing all these transactions and you're selling this piece of your buying that piece.
And I know that there is.
Then a slow down with respect to permitting covidien listens, but what do you. What do you guys think we should also see the underlying core growth rate.
For unity fiber.
Fiber services business right now thank you.
So David it's Kenny on your first question do we have a regular dialogue with our.
Shareholders.
More so.
Some some some more some less but certainly don't want to give any any color on what shareholders share with us.
With respect to the B.
New shareholders, who got equity as part of the settlement we have a very good dialogue there and have you got.
Preceding the bankruptcy so.
We think that will continue the one.
Tangible thing I can tell you is with respect to Elliot there is a one year lockup on their shares and Marc keep me honest on that but I think it's one year or one year lockup on their on their shares.
And.
Come back to Mark come back to the second question on the third question, David You're right. There's a lot of moving pieces and some of these are.
As a part of business is winding down and part of this is because of lease up and part of this is because of M&A and part of this is because of just the pivot from from construction more of a construction mode to lease up mode.
I think when when we get to 2021.
A lot of these moving pieces will be in our rearview mirror. So when it comes time to give.
And for 2021.
We intentionally planned a lot of the changes that we've that we've that of that have been in process to coincide with windstreams exit from bankruptcy and coincide with being able to give a much clear picture.
For 2021 and ultimately.
The end result will be will be nice growth in the fiber business and we'll be able to give a more more clear picture of that.
Mark do you want to take the second question.
Yes, Dave I think I follow what you're saying on the math right I think I think your math is assuming that the total contract value of the 1.2 billion is a capital deployed.
Total contract value if you look at the definition.
Total contract value.
Recurring payments.
Thanks contracts, so realistically here, there's almost there.
Very little capital that has to be an employee because these are this is lease up on existing network. So I don't I don't think you're Mad is exactly right, but if you want to call back on Oh, we get off the call happy to kind of work through the numbers with you, but the total contract value.
Capital deployed virtually no.
Perfect. That's helpful. That's helpful color. Thank you so much guys.
Thank you and our next question comes from Simon Flannery of Morgan Stanley. Your line is now open.
Great. Thank you my friend much good evening, Mark on Windstream I noticed in the Q that you didnt attached financials, and but you are monitoring their performance, where do you stand and how much information, we will get a overtime in terms of the 10-K's or whatever and anything you can tell us about.
Hi, Windstreams Q3 was would be great.
I Wonder if you could just also help us with the ever stream accounting a little bit how do we think about next year, you've got a 73 million IR you or upfront from the IR. You. So you had called out 4 million a year ago straight lined and then another $3 million in payments so I.
You are recognizing maybe 7 million a year is that right on and then on the on the other side, you're you're losing at least for the first four years the the EBITDA from the northeast stops, which as you know.
I think you said it was 17 million something like that EBITDA is that the right way to think about the near term impact of those.
Transactions. Thanks.
Yeah, So I'll start with Windstream. So in connection with filing our 10-Q, we do expect to attach their annual financial statements or.
As far as.
As part of our annual filing.
And then I would expect on a quarterly file the 10-K, not the 10-Q right.
Sorry, sorry, I said there are other things that when the 10-K as far as the annual 10-K filing I do expect that will be.
Including.
Annual financial statements as part of the 10-K and then over the quarters. We will continue to give quarterly updates as part of our quarterly 10-Q filings I can't.
Yeah exactly.
The format that will be there.
Give updates we don't have the third quarter information. Thanks.
Quite yet.
So I can't really think about how those.
How that looks yet.
You will be getting updates.
So you might do an amended 10-Q by chew with those filings.
We could do it that way depending on what information is available at the time of the Q filing.
Same thing with me.
Okay. Thank you.
Information maybe.
They are babies that separately separate.
Okay. Subsequent subsequent to year end.
Great.
Okay and then on your question about the ever stream accounting so.
Well just in terms of.
The way the way it would affect.
2021, and keep in mind that we expect closing probably in the second quarter next year. So what you would have is you'd have a.
So I'll kind of give you. This on an EBITDA basis, let me get the on a revenue basis.
Kind of work through it.
So on the on the operations that are being so.
Well basis.
It would be subtracting out about $20 million.
The dark fiber contracts that we get from Windstream that are being sold as part of that transaction that would be a negative about 3.5 million.
And then on the average stream are you on the deferred on the upfront payments there will be an amortization component to that of about 3.6 million.
And then on the annual payments that we mentioned that would be about $3 million in here as well so those would be the primary revenue components.
That would affect the 2020.
Keep in mind again, those are full year number so.
Really.
Take a pro rata amount transaction expected to close in April.
Great. Thank you and then any update on that on the thoughts on dividends.
Sounds like you're obviously part of the revolver renegotiation, we part of that conversation funding neutral out there.
I don't think the dividend is so much tied into the revolver discussions is really just a board decision that we'll make.
Okay, when we give guidance on the.
On the next call.
Thank you.
Thank you and our next question comes from Tim Long of Barclays. Your line is now open.
Thank you.
Yes, just to two questions if I could first I did want to follow up on the.
The slide with the leasing sales pipeline you just give us a little color on on what you think timing could look like for that and any of those buckets mentioned from a customer side that might be.
A little bit more upfront loaded in that opportunity set.
Then secondly, if we just get back to the wireless customer.
Customer base and you talked about Fiveg service rollout are you.
Starting to see uptick of activity, there with new spectrum coming et cetera, and.
Any impact on what we'd expect to see from small cells over the next year or two thank you.
Hey, Tim It's Ken on your first question.
On on on timing, it's hard to predict.
Specifically because the sales cycle on many of these transactions are are longer because they are generally larger transactions negotiated transactions as opposed to cook Cookie cutter because you're these are really network solutions and your piecing together in.
In many cases numerous routes so in the past, we've we've not given specific guidance on our national infrastructure lease up.
What what I would point you to however is the cadence of activity that you saw after we did the Centurylink National Network acquisition.
And what you saw where you generally so one or two larger deals. Initially and then you saw sort of a steady drip of smaller deals and then occasionally a larger deal and so it was little bit steady drip and then and then mid size to larger transactions and I think thats, probably the cadence you'll see here based upon the funnel and the timing that I see in.
Funnel based on conversations.
So, but with all that said in general.
It's a very very healthy funny funnel very good conversations with a good cross section of customers and carriers, which we show you graphically so feel feel very very good about it.
The with respect to two wireless activity in our markets continue to see very strong activity and as I was suggesting earlier, we're actually at a point where we're deciding.
How many new opportunities, we want to take all and it's sort of a luxury position to be in versus spending our capital on lease up so it's a nice.
Place to be.
Plenty of activity on both traditional backhaul fiber to the tower. In addition to an increasing amount of small cells.
And to your point there, we small sales have never been a huge part of the opportunity set in our markets generally because we're in the tier two and three ish markets.
But we have always said that they are coming eventually.
[music].
NFL cities first and then our market segment and we are starting to see more activity and we're starting to see that activity across all of our customers as opposed to just one or maybe two so still too early to say, it's like the dam bursting.
Perhaps.
Later in 2021, maybe into 2022, we'll see a substantial pick up.
But for now we're just seeing the early stages of it on small cells in particular.
Okay. Thank you very much.
Sure.
Thank you.
Next question comes from sales of JP Morgan Your line is now open.
Hi, guys. Thanks, I saw the Windstream took some of the GCA funding down.
How do you think about that both for the fourth quarter and for 2021 at this point.
Mark you want to.
Correct.
So for this so for this year we forecast.
In dollar investments.
I don't really have a forecasting any yet for a 23 in line.
Yes.
But I don't have that.
As for next year.
And can you share with us some of where that money is being used so far.
Phil It's Kenny I can start and then Mark can can add a little more color. Because there was you gave some some color in his prepared remarks, just as a reminder, the the program is designed to have a underwriting standards and those underwriting standards or.
Fairly well laid out and lease agreements, which are public, but but the but the upshot is the investments are are are they have to be in largely in long term value accretive fiber.
And they also have to come with a minimum.
Return threshold for our tenants. So there has to be a big.
Basically a business case.
For the investments in long term value accretive fiber and and there is some other criteria, but those are the the sort of the headline criteria. What we have seen so far and what we what we expect is that the vast majority of this is going to be built is going to be fiber to the home.
We'll be extending our current network into the home and then tying back into the metro and long haul aspects of our fiber business. So, but we think a lot of it is going to be spent in the ILEC upgrading copper to fiber.
And there will be some of that spent on tend to see like.
Either building new routes, where we have the ability to joint build cost efficiently for both us and windstream.
And potentially over building some some routes in the sea legs, but we're very happy with the investment program as we've seen it as we go on and as we understand it and obviously, we're going to have a proactive and in that plan as part of our underwriting standards, but mark do you want to comment on.
Where some of the current investments have been made over the past quarter.
Can you I think you covered it well I mean I said in my prepared remarks, it was 35000.
Fiber strand miles.
Never highlight market, but I think.
Okay.
You know kind of Alabama.
All of them are.
Arkansas, Florida, Georgia, Iowa.
Yes number of markets.
Yeah like territories.
I think.
Getting covered everything.
Okay. That's helpful and last one for me the ever string deal was that.
I guess predicated on the Windstream close or was that sort of waiting on that windstream close and if so are there other substantial deals that were waiting on that windstream close that can now sort of fall month. Thank you.
[noise], Phil we definitely started negotiating well with with engaging with ever stream well well in advance of the settlement closing but.
But after knowing that we had a deal on the settlement. So with that said I don't think the deal would have happened could have happened without the settlement.
Discussion started well in advance but in in anticipation of the settlement closing.
To your second question. So so point being the settlement was a critically important part of bringing that deal together for us.
There have certainly been other conversations that have started.
And are progressing through the sales funnel.
And so in terms of timing and just general cadence I I don't want to give any specific guidance there, but but these are long sales cycles. Many of them have started months in advance and they are progressing very well through the sales model.
Great. Thanks, guys.
Thank you. Thank you.
And ladies and gentlemen, this does conclude our question and answer session I would now like to turn the call back over to Kenny Gunderman for any closing remarks.
Thank you. We appreciate your interest in Unity group and look forward to updating you further on future calls.
Thank you all for joining us today.
Ladies ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.