Q3 2022 Uniti Group Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Welcome to Uniti group's third quarter 2022 conference call. My name is Gigi and I'll be your operator for today.
Webcast of this call will be available on the company's website www dot unity dotcom, you're getting today and will remain available for 14 days at.
At 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.
Forward looking statement disclaimer the company would like to remind you that today's remarks include forward looking statements and actual results could differ materially from those projected in these statements and the factors that could cause actual results to differ are discussed in the company's filings with the S. E C.
Remarks, this morning will reference slides posted on its website.
You are encouraged to refer to those materials during this call.
Discussions during the call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles reconciliation of these 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 to turn the call over to Uniti group's Chief Executive Officer, Kenny Gunderman. Please go ahead Mr. Gunderman.
Thank you and good morning, everyone.
Starting on slide three.
For the third quarter were once again strong as demand for our mission critical fiber infrastructure continues to grow we achieved our sixth consecutive quarter of elevated new sales bookings, which we now consider the new norm. As importantly, we also had another strong quarter of gross install activity with a meantime to deliver of less than 100 days consistent book.
It's balanced between anchor and lease up along with installs that can be turned up quickly and our industry, leading monthly churn of 2% demonstrate that our strategy is sound and that we're executing on it well.
To reiterate our strategy continues to focus on buying and building mission critical fiber infrastructure, and then leasing infrastructure to anchor customers in the 5% to 10% cash yield range and additional lease up customers driving cumulative cash yields above 10%.
This strategy has resulted in unity, becoming the second largest independent fiber operator in the country with 134000 route miles and a long runway for profitable growth.
Slide four demonstrates unity continues to track well on these shared infrastructure economics.
We're building new fiber largely for our wireless customers and then successfully adding additional tenants with very high margins and minimal capex, resulting in a cumulative cash flow yield today at 22%.
More than three fold increase from the anchor yield on these projects.
Yes.
Slide five illustrates that the majority of new bookings continue to be lease up in nature, and along with our intentional focus of balancing wholesale non wholesale and anchor lease up opportunities has resulted in outsized margin enhancement <unk> growth in a business that remains relatively immune to swings in the economy.
Turning to slide six.
High capacity long haul routes are needed by all of our customers.
Wireless carriers are hyperscale or international carriers, Msos and large enterprises to connect their disparate markets Datacenters and Pops.
Today dark fiber in North America is an approximately $1 $5 billion annual market opportunity and is expected to grow about 10% annually over the next several years.
A growing component of our wholesale strategy is wavelength services, which represent a $2 billion annual revenue opportunity today in North America and is expected to grow approximately 7% over the next several years.
We're selectively lighting more long haul routes to provide wave services and capitalize on growing demand while maintaining the same discipline on anchor in lease up economics.
For example, we recently announced two new long haul routes that will offer wavelength services in multiple terabits spectrum services to key markets and our southeast footprint.
This is in addition to our previously announced Miami Tampa Route.
The anchor cash yields are approximately 10% and we have a clear line of sight to a combined cash yield of low to mid teens once leased at least over the next few years.
Having an owned national network as a meaningful competitive advantage for unity.
Especially given that it would take billions of dollars of many years to build a new national network.
We estimate there are only five truly own national networks in two independent fiber providers with national networks in the U S today with unity being one of them.
Thus, our ability to deploy dark fiber and wave services present unity with a unique growth opportunity with minimal competition.
The contract term from a blended two and a half years remaining to eight year for me.
We're actively working with another of our major wireless carriers retirement additional 1200 liftback all sides.
Together. These two agreements represent over 60 per cent of our existing lit backhaul portfolio and provide stability and increased visibility far earnings going forward.
Now turning to slide seven [noise], although enterprise sales represent less than 5% of our total revenue today and will likely always represent a minority percentage. It remains a critical element of our lease up strategy.
Enterprise, new sales bookings and install activity during the third quarter, where again, both very strong.
These trends to continue as we further capture market share in our existing and new Metro markets.
As a result of our consistently strong bookings activity enterprise recurring revenue was up 16% during the quarter.
Slide eight is an example of how we're executing to increase market share in markets with existing fiber and we're we're currently offering lit services.
Birmingham is the largest metro area in Alabama, and the 50th largest metropolitan Statistical area in the U S.
It's a very attractive tier two market, which we originally entered in 2017 with a large greenfield bill.
Today, we have an extensive fiber network there with almost 27000 strand miles of dense fiber and despite our growth over the years or enterprise market share is still only approximately five per cent.
Homewood isn't affluent neighborhood in Birmingham and for less than a million dollars of capital. We can expand our already robust network to reach an additional 600 attractive enterprise customers.
These investments not only expand our market share, but will result in very attractive economics for unity.
Resulting in cumulative cash yields of approximately 50 per cent and Irr's 30 per cent.
These type of investments are only available to providers like community with an extensive network already in place.
Equally exciting and as we've mentioned before we own metro fiber in nearly 300 markets nationwide, which represents terrific capital and margin efficient growth potential for enterprise wireless backhaul and even small cells.
We only recently acquired most of these new most of these markets on our 2020 settlement with Windstream.
So we're just beginning to capitalize on the opportunity.
Given the proven success of our anchor at least up strategies and the attractive economics of these enterprises opportunities with payback periods of almost half the initial contract term and cash yields a 50% plus we continue to actively prioritize these metro markets for expansion in both 2023 and beyond.
And looking at our National wholesale network in our 300 Metro markets combined we estimate that less than 5% of our total 8 million strand miles of fiber or actually lit.
This virtual blank canvas provides us with a terrific runway for disciplined growth without the burden of legacy declining products.
With that I'll now turn the call over to Paul.
Thank you Kenny and good morning, everyone.
We were once again pleased with how our business is performed during the quarter with robust booking and install levels driving inline consolidated revenue in better than expected adjusted EBITDA [noise].
Nonrecurring revenue annuity fiber was lower than expected during the quarter recurring revenue, both that unity fiber and unity leasing was strong.
He remains well positioned to whether current macroeconomic conditions given are robust level of long term revenues under contract or declining capital intensity and the work we have done to strengthen our balance sheet and push out our debt maturities as a result of the strength of the quarter and our expectations for the fourth quarter, we are increasing the midpoint of our <unk>.
<unk> 22 outlook for consolidated revenue and adjusted EBITDA.
Please turn to slide nine and I'll start with comments on our third quarter.
We reported consolidated revenues of $283 million consolidated adjusted EBITDA of $225 million a F. F O attributed to common shares of $112 million and <unk> per diluted common share of 43 cents.
Net loss attributable to common shares for the quarter was approximately $156 million or 66 cents per diluted share, which includes a 216 million dollar goodwill impairment charge related to our unity fiber segment that was driven by an increase in the macro interest rate environment.
And unity leasing we reported segment revenues of $209 million and adjusted EBITDA of $203 million, both of which were up 5% from the prior year.
Accordingly, unity leasing achieved an adjusted EBITDA margin of 97% for the quarter.
Turning to slide 10, our growth capital investment program continues to provide positive results for unity over the past six years or tenant has invested approximately $1 billion a tenant capital improvements in our network unity continues to invest its own capital in long term value accretive fiber largely focused on highly valuable.
Last mile fiber, including fiber in commercial parks and fiber to the home.
Collectively these investments have resulted in 18800 route miles of newly constructed fibre and 23% of the legacy copper network being overbuilt with fiber.
Based on the investments made to date and our expectation that Windstream will utilize most if not all of the GCI program, we expect that nearly half of the legacy copper network will be overbuilt with fiber by 2030.
During the third quarter, nearly leasing deployed approximately $72 million towards growth capital investment initiatives with the majority of the investments relating to the Windstream GCI program. These GCI investments at at 2250 route miles of fiber to unities owned network across several different markets.
As of September 30th Unity has invested approximately $460 million of capital to date under the GCI program with Windstream, adding around 13500 route miles and 731000 strand miles of fiber to our network.
These investments will be added to the master leases at an 8% initial yield at the one year anniversary of immunity, making such investment they are subject to a 0.5% annual escalator and result in nearly 100 per cent margin. The investments. We have made today will ultimately generate approximately $38 million of annualized cash rent and increase the over.
Overall value of our network.
At unity fibre, we turned over almost 300 lit backhaul dark fiber and small cell sites for our wireless carriers across our southeast footprint during the third quarter.
These installed at annualized revenues of approximately $3 million.
We currently have around 1200 lit backhaul dark fiber and small cell sites remaining in our backlog that we expect to deploy over the next few years. This wireless backlog represents an incremental $11.5 million a annualized revenues.
At Unity fibre, we reported revenues of $74 million and adjusted EBITDA of $29 million during the third quarter revenues were lower than expected due to lower non-recurring equipment sales and installs, resulting from several factors, including the timing of those sales a modest impact from delivery delays and key employee.
Turnover within R E right group.
However, adjusted EBITDA was slightly higher than expected given the low margin nature of the equipment sales combined with lower than expected costs.
Unity fiber net success based Capex was $26 million in the third quarter. We also encouraged $2 million of maintenance capex or about 3% of revenues.
Please turn to slide 11, and I will now cover are updated 2022 guidance.
We're revising our guidance primarily for business unit level revisions and the impact of transaction related and other costs incurred to date or outlook excludes future acquisitions capital market transactions and future transaction related and other costs not specifically mentioned here in actual results could differ materially from these forward looking statements.
Our current full year outlook for 2022 includes the following for each segment.
Beginning with unique leasing based on our continued strong lease up success, we now expect revenues and adjusted EBITDA to be $827 million and $805 million, respectively at the midpoint, representing adjusted EBITDA margins of approximately 97%.
Revenue and adjusted EBITDA each include $14 million of cash rent associated with the GCI investments and $25 million related to the straight line rent associated with a windstream master releases and GCI investments.
We still expect to deploy $275 million a success based capex of the midpoint of our guidance of which $250 million relates to estimated windstream GCI investments.
Turning to slide 12, we now expect unity fiber to contribute $305 million of revenues at the midpoint given the factors I mentioned earlier that are impacting our nonrecurring revenue. However.
However, we are increasing the midpoint of our full year recurring revenue outlook on the strong bookings and install activity. We continue to see our full year outlook for adjusted EBITDA remains of $121 million with a lower nonrecurring revenue offset by higher recurring revenue and lower costs.
When adjusting for the average dream transaction that occurred in May of 2021, the year over year revenue and adjusted EBITDA growth is 5% and 8% respectively. The strong growth demonstrates our continued success in managing our cost structure and improving margins, while executing on lease up that leverages, our existing dent southeast fiber footprint.
As I mentioned last quarter, we expect 2022 to be the peak year for sprint related churn as a reminder, as returned to 2023, we still expect to realize some ETS fees, but most likely $12 million to $13 million less than what we recognized in 2022.
Also still expect that our core recurring revenue at unity fiber will increase by a mid single digits percentage rate for full year 2023, when compared to 2022.
Net success based Capex reunify, where this year is expected to be $120 million at the midpoint of our guidance a 12% decrease from levels in 2021.
Turning to slide 13 for 2022, we still expect full year isso to range between $1.70 cents and $1.77 cents per diluted common share with a midpoint of $1.74 per diluted share a 4% increase from 2021.
Consolidated basis, we expect revenues to be one $1 billion and adjusted EBITDA to be $900 million at the mid point.
Our guidance contemplates consolidated interest expense for the full year of approximately $390 million.
Corporate SG&A, excluding amounts allocated to our business segments is expected to be approximately $34 million, including $8 million of stock based compensation expense.
We still expect are weighted average diluted common shares outstanding for full year 2022 to be around 267 million shares.
As a reminder guidance ranges for key components of our outlook are included in the appendix to our presentation.
Turning now to our capital structure, given the current macroeconomic an interest rate environment, we will continue to be opportunistic and our approach to managing our capital structure over in the near term.
Quarter, and we had approximately $270 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity or leverage ratio stood at 580 Thom it's based on net debt to last quarter annualize adjusted EBITDA.
On November 1st our board declared a dividend of 15 per share to stockholders of record on December 16th payable December 30th.
That I will now turn the call back over to Kenny.
Thanks, Paul.
We continue continued to believe that our core business will likely see little to no noticeable impact from any economic downturn, given the mission critical nature of broadband.
Further the vast majority of our revenues wholesale in nature with long term contracts.
Lastly, 95 per cent of our debt is fixed rate and we have no significant near term maturities.
As it relates to potential debt refinancing and M&A, we have the ability to be patient.
Our strategy since 2015 has been to acquire and build mission critical communications infrastructure, and then least that infrastructure to quality anchor customers with a clear path to lease up <unk>.
Resulting in combined cash yields of 10% plus.
While in our early years, our priority was more focused on acquiring rather than building as we established our national fiber platform.
We're now much more focused on building given the attractive returns, we're seeing in the challenging economic and capital markets backdrop.
We believe our strategy is working in the initial investments both in M&A in Greenfield builds are paying off.
We currently have over 7 billion of revenue under contract with an average remaining term of approximately eight years.
Majority of this revenue is passively managed in the form of Triple net are dark fiber M. L. As.
As a result, the operating costs associated with this revenues very predictable, which results in a cash flow rich business over the mid to long term.
About 2030, we expect to have generated approximately one and a half billion dollars cumulative free cash flow. If we maintain our current dividend at approximate level of annual capital investment.
This trajectory lead to substantial deleveraging.
Resulting in two and a half to three and a half times net leverage in more than doubling the size of our fiber business.
Our network is highly underutilized presenting profitable growth potential for some time.
We expect net capital intensity to decline from our current level of approximately 35%.
5% to 10% by 2030.
And is indicative of accelerating operating leverage in the business and many years of high margin at high yielding Lisa, including dark fiber lighting unique long haul routes and expanding deeper into our existing 300 virtual markets.
With that said are cash rich mla's provide great optionality to pay an increasing dividends.
And invest even more in our core business in Lula paying down debt.
Regardless of our capital allocation policy or runway for organic growth appears long and fruitful, especially given strong industry tailwinds.
With that operator, we're now ready to take questions.
As a reminder to ask a question you would need to crash Star one line on your telephone.
Please stand by when we compile the Q&A wrong okay.
Our first question comes from the line of David Pardon from Bank of America.
Hey, guys. Thanks for taking my question appreciate it [noise].
[laughter] Kenny can you [noise].
You know you've got a banking background can you talk a little bit about.
Where are we now with with the sale leaseback business where.
Every incremental capital dollar you're putting them to work kind of generates an 8% return they won.
But your bonds.
Are yielding 9% to 13%, presumably that's the cheapest part of your capital structure. Your equity is going to be more expensive. So.
You your cost capitals a lot.
Lot higher than than the yield that you're generating at the at the margin in this business how do we how do we think about resolving that.
As in Investable thesis and then.
Second on.
On the fiber business itself.
Again.
The inevitable question is.
The transformational.
You know transaction out there that that's gonna.
Unlock the value that.
You guys see in this fiber business.
Is that a is that practically doable.
And the current market climate kind of with the rates going where they are in the recession coming.
How do you how do you.
Convince people that that that's still a thing that can be done.
[noise] good morning, David.
Yeah on your first question I think you're right I mean generally in the five to theorize part of what you said generally in the our anchor yields whether it's still leasebacks or.
Greenfield builds or any other anchor type.
Agreements or in the five to 10 per cent raise you know as you mentioned, 8%. So that that's kind of at the higher end of that range.
Ben or what part of our <unk>.
True North if you will for many years kind of sticking to that range, but importantly than through Lisa you are getting well above 10%.
Yields in the second page in our materials consistently is where we tracking on that level of tracking it 22% cash yields as a result, so yeah. There there are different projects that are at different stages of maturity along the way, but on an aggregate basis. Our core business is returned.
King.
22% yields and frankly those are those are going higher and.
See everyday or dashboard of of yields that are generated being generated from our cast capex and they're they're very attractive 50% plus yields so with respect to what could be a temporarily high interest rate environment. Yeah. I I agree with you you know you're looking at a single.
Digits low low double digits in terms of some of the yields that are out there, but we're still hurdling those comfortably with our with our core business I don't see that changing.
With with respect to your second question.
We're really trying to get away from this quarter to quarter play by play on M&A, It's just not give constructive.
But look I I do think that it.
And these types of about put the old banker had back on.
Types of environments.
There's.
Two three different types of Counterparties out there one is those that just go into a bunker mode and wanted to do nothing you know the fetal position if you will and there's no no no.
No criticism of that the.
The other is counterparties, who look to take advantage of for sellers, our forest fires and we call them bottom feeders, you know people who are just looking to be.
Take advantage and frankly, we're not engaging with with parties like that.
And frankly, I never have but thirdly their parties, who are much more savvy, who have a lot of capital and make no mistake. Despite the the market backdrop. There is a lot of equity capital and and that capital sitting on the sidelines looking to be put to work whether that be in public.
Securities are private.
And a lot of it is out there earmarked for digital infrastructure.
So there's a huge opportunity out there there are savvy sophisticated counterparties, who look at situations like this as an opportunity to engage in more creative structures or in more bespoke type transactions and you're seeing some of those deals happen and we.
So I deal a few days ago, one of the large funds.
Did a large transaction and basically spoke of the debt financing themselves as opposed to as opposed to relying upon the public markets. So look opportunities are out there I think one thing we've proven hopefully we've proven in our history.
Doing M&A is that we're able to execute on down the fairway cash acquisitions and we've also executed on mergers we've executed on a much more creative type transactions and that's never going to be never not going to be a part of our DNA, but but.
I also think very strongly at our board thanks very strongly that.
Having the ability to be patient in M&A is critical because being a forest fire or a forced seller almost always results and a subpar outcome and for us.
Every day, we're executing on a business that's generating we think terrific returns. We think it's a business that is highly valued especially in the private market.
And with that execution in the platform, we think we're creating value every day and it and it affords us the ability to be patient for.
What could be value accretive M&A, either in the near term or longer term.
Thanks can he makes sense.
Thank you one moment for our next question.
Our next question comes from the line I'm Gregory Williams from Cowan.
Great. Thanks for taking my questions. Just first one you mentioned Kenny about expansion to eventually that 300 market your Indiana sort of cadence on you know how many market you would expand you know per quarter report per year that'd be helpful.
Second question is just interesting any labor supply or inflation.
Concerns on the business just in the last few days you know we heard looming talk about out.
Slowing down on their fiber enable makes their homes in the day.
Before that I think consolidates at a cost of our own past is coming up a little bit and wondering if you're seeing that uhm broadly or maybe more particularly in the lynching fabric of a homestay. Thanks.
Good morning, Greg I I'll, let Paul comment on some of the second part of the question, but on the first part yeah. We're actively.
Looking at all of our Metro markets and prioritizing I I don't have a.
Something we're ready to roll out yet in terms of the cadence I think probably in February will have a little more color on that but but the reality is part of the reason we picked one of our markets. In this case, Birmingham and showed some of the investment opportunity in that market. That's a that's a terrific market for us and it's.
It's right down the fairway for being a tier two market.
Not a lot of competition there we've been in there since 2017 with an anchor award and we'd been chip chipping away at enterprise market share now for four or five years, and we're still only at 5% and we've got these.
What I characterize as low hanging fruit investment opportunities in those existing markets. So we mentioned being able to expand into the into the elmwood neighborhood for less than a million dollars that the reality is that's Ah.
When you really Peel back the onion, it's spending a couple of hundred thousand dollars to expand the backbone and then the rest of that is just all success base to light up new new customers.
And the returns on that capital back back to the earlier question are just terrific.
It's very.
Very high yielding returns without a lot of incremental opex, because we already have people on the ground. There. We've got salespeople operations people et cetera. So all that to say the near term opportunities for us on market expansion are building out existing markets.
As opposed to.
In the near term at least expanding into brand new markets. We have a we have a robust fiber network in little rock for example.
And today, we're not offering any enterprise services, but we're a wholesale provider here, we're providing wholesale to.
Three or four additional carriers and so.
While while we're focusing enterprise on on more of the south eastern markets and eventually will start to expand that footprint in the meantime, we're getting really nice returns on some of these other metro markets through dark fiber sales or just wholesale in general and so I think it's just a real nice.
Wait for our unity fiber in unity unity leasing businesses to be to be complementing each other.
With respect to the to the supply side I I think that.
We are feeling some pressure like we've said generally on the labor side finding.
In order to keep crews are fully staffed and even our.
Quote and quote a bearing a number of quota bearing reps is down I mean, we're hitting all of our targets exceeding our targets on bookings, but the reality is our number of enterprise sales reps is down something like 15, or 20% compared to our plan. So the silver lining in that is we're still hitting our bookings numbers because.
Our existing reps are are more productive, but but we're still behind plan and frankly, we'd be doing a lot better. If we if we could keep that fully staffed but that's just day to day blocking and tackling I think with respect to pricing pressure or cost.
Increasing I mean, Paul you can comment, but we're seeing some of that but not.
Not huge yeah.
I agree with that comment Kenny I mean, it is obviously, a very tight labor supply market out there, but in terms of our.
The construction of our network the labor that we rely on rely on to construct our network.
We use primarily a con.
Contractor Labor force.
To to to build that network and we really have not seen to date any market increase and the cost we're paying for labor in our construction and the construction part of our business and.
I contribute that to attribute that to a few things.
One we have a deep bench of contractors that are focused really primarily in one region in the southeast we have a really steady consistent supply of work.
And we have a very robust.
Robust competitive bidding system for those for all of those jobs and I think those.
Those factors together have helped to keep those costs stable for us, which doesn't mean that we're completely immune from rising like labor costs, there either but to date, we really have not seen any material increase in the labour piece of with the cost of construction.
That's helpful. Thank you.
Thank you one moment for our next question.
Our next question comes from the lineup Franklin Sandy from Raymond James.
Great. Thank you.
[noise] material downtick there in the in the quota bearing heads where are you, losing folks too and and do you think you can get that back up and and maybe expand that and is there any concern for the outlook for next year with the base going down that much.
Yeah for a no no concern about next year I think.
Again, the the the real.
Take away from from that is a positive one in the sense that we're still hitting our numbers because our existing reps are more productive and we just have so much opportunity to monetize the network going back to some of the slides and are prepared remarks.
With that said yeah, we're very focused on on getting that number higher and look if you go back in our history over the past couple of three years, we've always struggled to keep that number where we want it to be and part of the reason for that is we're very our team is very selective on adding new rep.
And once we get those reps onboard. We're also very proactive about churning out reps, who are not productive I think or I can't remember exactly but I think our churn rate is something like 20% on reps who aren't productive.
We don't you know I I don't consider it.
Problem or a leading indicator of a problem that that number is lower but but at the same time, yeah. We're constantly looking to add new quality reps.
We're always looking for ways to tweak our existing.
Commission plan or compensation plan or otherwise in order to do that but at the same time, we're not going to move away from the discipline and the rigor that we apply to hold holding those reps accountable.
And productive.
And at the end of the day I think if we wanted to just hit a number for number of reps, we could do that but but that's not that's not what we're gonna do.
Sure, Okay and to follow up on a previous question is.
Is do you think windstream as having any issues and getting trucks or equipment or so forth to hit their build plans and any chance. They would they would they would stretched a bill plans out due to increased costs.
So frankly have an opinion on that but but we're going to we're going to let them address that Ah I think they've got an earnings call coming up so we'll let them address that.
Directly.
Alright fair enough. Thank you very much.
Thank you one moment for our next question.
Our next question comes on the line a finite planet Morgan Stanley .
Great. Thank you very much good morning.
On the fiber business I think I'm, Kenny you did talk about capital intensity coming down over time, but also you've got this nice backlog here. So how should we think about near term capital intensity you are still over that 40 per cent level. This year is that gonna come down to that's what I'm mid thirties, you've talked about over the next year or two and.
Any update on dish I think it's sort of sad that they hope you hope that as the sprint business came off the dish would start to kick in and twenty-three any update it Tom clarity on what their plans are.
[noise], Hey, Simon Yeah R capital intensity is gonna come down so so nothing nothing new or no no changes to any forward looking guidance, we have given their I think the reality is.
And part part of what we're trying to show and some of our materials is just where our capital is being invested and how we're getting the good returns that were that were getting and and as I said the the yields that we're getting on the capital is actually better than we've been we've been forecasting so theoretically we could spin Lee.
Less capital and get the same returns and.
And so we're looking for ways to spend the capital always looking for ways to spend the capital more efficiently Ah get get the get the highest returns.
And so that's not going to change, but with respect to.
The trajectory of the of the capital intensity coming coming down that said that isn't that isn't going to change.
Dish.
Continue to make great great strides with dish.
When we first started talking about dish and spread Ah a coupla years ago, I think we said.
There would be some sprint churn I think we said it would probably be in the five to 10 million dollar recurring revenue range that we would lose in that we thought that dish would eventually replace that and more and in the meantime, there'd be some pretty lumpy eto fees to sort of smooth transition and.
And in hindsight I think that is playing out as we expected.
The Sprent churn is on track.
With with Hot details this year dropping off a little bit next year and dish has really been ramping up and I think.
We will more than hurdle that $5 million to $10 million on on on this last sprint churn with dish.
With with with the business that we have already turned up or that we have in the backlog and again I think going forward over the longer term.
We think there's a really really attractive opportunity for us.
Great. Thank you.
Thank you one moment for our next question.
Our next question comes from the line I'm, Michael Rolling from City.
Thanks, and good morning.
Just a strategic question. If you think of the fiber portfolio. If you think about communications infrastructure more broadly their business models in this category.
And then it really doesn't matter how big the portfolio at the local asks the right asset right.
Tend to get sales, there's other portfolios like data centers, where there's been a nice cross sell the larger the portfolio as it seems like it's been this natural benefit for that how would you describe fiber infrastructure and that is it one that benefits from being part of a larger portfolio or is it the.
If you have the right acid to the right location you have a great chance of getting the win and then headed that instruct.
The type of strategic aspiration that you have for unity over a multiyear period.
Good morning, Michael scale does matter and fiber.
I think that.
Especially on the wholesale side.
National Network.
When you have a national network you are in a very different class.
S of providers and your your ability to have conversations with.
Large carriers the data center providers the Hyperscalers.
You're you're just in a different class because they need national network.
From our vantage point.
When you look at our national strategic accounts business today versus what it looked like a year or two go it's changed dramatically to.
To the point, where it's just kind of rolls off the tongue that we're having conversations with.
The the Hyperscalers I won't use any specific names, but we're just in a different category with with respect to those types of conversations and therefore, the business opportunity that it presents and so are leasing business is growing at 10 15, 20% a year as a result with with very high margins and great returns.
And it also having that national network.
Provide you with the ability to have more bespoke type transactions and conversations and we mentioned the lit backhaul return that we that we that we just just signed.
That's 1100 sites there aren't very many people that have that many sides with each of the carriers and when you have that many sites and you have the <unk>.
Capital available and the brand that.
To deliver 10 gig that puts you again on a different on a different plane and extending a litte backhaul contracts in two and a half years to eight years is a big deal and that's why we called it out but you don't you don't get those types of opportunities unless you have real real scale.
With all that said Michael.
If you don't have high quality dense metro fiber in select markets with <unk>.
Minimum competition good demographics, good growth potential you you can't be successful in fiber in our view and so as a result, we're really focused on the.
The metro element of our business, where we like to say with a local partner with the national scale.
And so in markets like Birmingham.
We've got boots on the ground, we know the various permitting authorities, we know the local Ah Ah.
We know all the local businesses, we know the the the terrain, we know what it cost to build we know where the where the opportunities are to expand our network and pick of low hanging fruit and you don't get that unless you're very conscious about which metro markets you go into.
And you make investments you stick to the 5% to 10% anchor yields and you've got a clear path to lease up and.
And if you pick the right markets you, you've got a plethora of customer opportunities, including enterprise schools traditional wholesale and then of course lit backhaul dark fiber backhaul in small cells and that's that's really what we're seeing when when you got the right network and the right market you can have a.
Great opportunity for both anchor and lease up in a healthy balance of both.
Thanks, and just one quick follow up what's the algorithm. These days for the minimum capital intensity and fiber as a percent of revenue to replace chern and to keep that fiber revenue flat organically growing overtime.
Yeah, we we haven't we haven't disclosed that number I think it's some time I don't know if we ever had actually but our maintenance capex is around 3%.
In our.
Capital intensity is from an aggregate basis I I really think we're in our in our churn is very low I mean, we talk about it as industry, leading it's certainly right up there with a right down there in terms of industry, leading so very low 0.2%. So we'll have to refresh on that number Michael but I really think it's kind of around probably around 10%.
Plus or minus a little bit, but right around 10%.
Thanks.
Thank you.
At this time I would like to turn the conference back to kidney Gunderman closing remarks.
Comfort updating you further on future calls and Unity group community group and look forward to updating you further on future calls thank you for joining today.
This concludes today's conference call. Thank you for participating you may not disconnect.
The conference will begin to T to raise your hand doing <unk> you can dial 911.
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Welcome to Uniti group's third quarter 2022 conference call. My name is Gigi and I'll be your operator for today a webcast of this call will be available on the company's website www Dot unity dotcom, beginning today and will remain available for 14 days.
At this time all participants are in a listen only mode participants on the call will have the opportunity to ask questions. Following the companys prepared comments.
Forward looking statement disclaimer the company would like to remind you that today's remarks include forward looking statements and actual results could differ materially from those projected in these statements.
Factors that could cause actual results to differ are discussed in the company's filings with the S. E C. The company's remarks. This morning will reference slides posted on its website.
And you are encouraged to refer to those materials. During this call discussion during the call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles.
Reconciliation of these non-GAAP financial measures to the most directly comparable.
Comparable GAAP financial measures can be found in the company's currently or on form 8-K dated today.
I would now like to turn the call over to Uniti group's Chief Executive Officer, Kenny Gunderman. Please go ahead Mr. Gunderman.
Thank you and good morning, everyone.
Starting on slide three our results for the third quarter were once again strong as demand for our mission critical fiber infrastructure continues to grow we achieved our sixth consecutive quarter of elevated new sales bookings, which we now consider the new norm. As importantly, we also had another strong quarter of gross install activity with a meantime to deliver of less than 100.
Days.
<unk> bookings balanced between anchor and lease up along with installs that can be turned up quickly and our industry, leading monthly churn of 2% demonstrate that our strategy is sound and that we're executing on it well.
To reiterate our strategy continues to focus on buying and building mission critical fiber infrastructure, and then leasing infrastructure to anchor customers in the 5% to 10% cash yield range and additional lease up customers driving cumulative cash yields above 10%.
This strategy has resulted in unity, becoming the second largest independent fiber operator in the country with 134000 route miles and a long runway for profitable growth.
As slide four demonstrates unity continues to track well on these shared infrastructure economics.
We're building new fiber largely for our wireless customers and then successfully adding additional tenants with very high margins and minimal capex, resulting in a cumulative cash flow yield today at 22%.
Now more than three fold increase from the anchor yield on these projects.
Slide five illustrates that the majority of new bookings continue to be lease up in nature, and along with our intentional focus of balancing wholesale non wholesale and anchor lease up opportunities has resulted in outsized margin enhancement <unk> growth in our business that remains relatively immune to swings in the economy.
Turning to slide six.
High capacity long haul routes are needed by all of our customers.
<unk> wireless carriers, hyperscale or international carriers, Msos and large enterprises to connect their disparate markets Datacenters and Pops.
Today dark fiber in North America is an approximately $1 $5 billion annual market opportunity and is expected to grow about 10% annually over the next several years.
A growing component of our wholesale strategy is wavelength services, which represented a $2 billion annual revenue opportunity today in North America and is expected to grow approximately 7% over the next several years.
We're selectively lighting more long haul routes to provide wave services and capitalize on growing demand, while maintaining the same discipline on anchor lease up economics.
For example, we recently announced two new long haul routes that will offer wavelength services in multiple terabits spectrum services to key markets and our southeast footprint.
This is in addition to our previously announced Miami Tampa Route.
The anchor cash yields are approximately 10% and we have a clear line of sight to a combined cash yield of low to mid teens once leased that leased up over the next few years.
Having an owned national network as a meaningful competitive advantage for unity, especially given that it would take billions of dollars and many years to build a new national network.
We estimate there are only five truly owe national networks in two independent fiber providers with national networks in the U S today with unity being one of them.
Thus, our ability to deploy dark fiber and wave services present unity with a unique growth opportunity with minimal competition.
The resulting economics of our national wholesale business are very attractive with high margin passively managed revenue virtually no churn long term contracts that routinely have escalators built into them and minimal capex requirements.
Before turning to our enterprise business I'd like to comment briefly on lit wireless backhaul.
Lit backhaul is a terrific way to lease up existing network or build new network with attractive yields for wireless carriers.
Remember the contract lengths are are typically shorter than that of dark fiber and there is some pricing pressure on returns.
As such unity is always considered managing return risk.
Strategic imperative and we manage that risk by offsetting re term discounts with lease up on the networks additional business from the wireless carriers and Upselling bandwidth.
As an example of this focus today, we're announcing that we recently returned approximately 1100 lit backhaul sites with one of our major wireless customers.
Resulting in a net price increase of approximately 20% as we upgrade these sites to 10 gig.
And we're extending the contract term from a blended two and a half years remaining to eight years remaining.
We're actively working with another of our major wireless carriers to return an additional 1200 lit backhaul sites.
Together these two agreements represent over 60% of our existing lit backhaul portfolio and provide stability and increased visibility for our earnings going forward.
Now turning to slide seven although enterprise sales represent less than 5% of our total revenue today and will likely always represent a minority percentage. It remains a critical element of our lease up strategy.
Enterprise, new sales bookings and install activity during the third quarter were again, both very strong.
And we expect these trends to continue as we further capture market share in our existing and new Metro markets.
As a result of our consistently strong bookings activity enterprise recurring revenue was up 16% during the quarter.
Slide eight is an example of how we're executing to increase market share in markets with existing fiber and where we're currently offering lit services.
Birmingham is the largest metro area in Alabama, and the 15th largest metropolitan Statistical area in the U S. It's a.
Very attractive tier two market, which we originally entered 2017 with a large greenfield build.
Today, we have an extensive fiber network there with almost 27000 strand miles of dense fiber and despite our growth over the years, our enterprise market share is still only approximately 5%.
Homewood is an affluent neighborhood of Birmingham and for less than a $1 billion of capital. We can expand our already robust network to reach an additional 600 attractive enterprise customers.
These investments not only expand our market share, but will result in very attractive economics for unity.
Resulting in cumulative cash yields of approximately 50% an IRR of 30%.
These type of investments are only available to providers like community with an extensive network already in place.
Equally exciting and as we've mentioned before we own metro fiber and nearly 300 markets nationwide, which represents terrific capital and margin efficient growth potential for enterprise wireless backhaul and even small cells.
We only recently acquired most of these most of these markets on our 2020 settlement with Windstream.
So we're just beginning to capitalize on the opportunity.
Given the proven success of our anchor lease up strategies and the attractive economics of these enterprise opportunities with payback periods of almost half the initial contract term and cash yields of 50% plus we continue to actively prioritize these metro markets for expansion in both 2023 and beyond.
And looking at our National network, and our 300 Metro markets combined we estimate that less than 5% of our total 8 million strand miles of fiber or actually lit.
This virtual blank canvas provides us with a terrific runway for disciplined growth without the burden of legacy declining products.
With that I'll now turn the call over to Paul.
Thank you Kenny and good morning, everyone.
We are once again pleased with how our businesses performed during the quarter with robust booking an install levels driving inline consolidated revenue and better than expected adjusted EBITDA.
While nonrecurring revenue at Uniti fiber was lower than expected during the quarter recurring revenue both at Uniti fiber and Uniti leasing was strong.
<unk> remains well positioned to weather current macroeconomic conditions, given our robust level of long term revenues under contract are declining capital intensity and the work we have done to strengthen our balance sheet and push out our debt maturities as a result of the strength of the quarter and our expectations for the fourth quarter, we are increasing the midpoint of our.
2022 outlook for consolidated revenue and adjusted EBITDA.
Please turn to slide nine and I'll start with comments on our third quarter.
We reported consolidated revenues of $283 million consolidated adjusted EBITDA of $225 million.
<unk> attributed to common shares of $112 million and <unk> <unk> per diluted common share of <unk> 43.
Net loss attributable to common shares for the quarter was approximately $156 million or <unk> 66 per diluted share, which includes a $216 million goodwill impairment charge related to our unity fiber segment that was driven by an increase in the macro interest rate environment.
At Uniti leasing, we reported segment revenues of $209 million and adjusted EBITDA of $203 million both.
Both of which were up 5% from the prior year occur.
Accordingly, Uniti leasing achieved an adjusted EBITDA margin of 97% for the quarter.
Turning to slide 10, our growth capital investment program continues to provide positive results for <unk> over the past six years, our tenant has invested approximately $1 billion of tenant capital improvements in our network unity continues to invest its own capital and long term value accretive fiber largely focused on highly valuable.
Last mile fiber, including fiber and commercial parks in fiber to the home.
Collectively these investments have resulted in 18800 route miles of newly constructed fiber and 23% of the legacy copper network being overbuilt with fiber.
Based on the investments made to date and our expectation that Windstream will utilize most if not all of the GCI program, we expect that nearly half of the legacy copper network will be overbuilt with fiber by 2030.
During the third quarter community leasing deployed approximately $72 million towards growth capital investment initiatives with the majority of the investments relating to the Windstream GCI program. These GCI investments added 2250 route miles of fiber to <unk> own network across several different markets.
As of September 30th Unity has invested approximately $460 million of capital to date under the GCI program with Windstream, adding around 13500 route miles and 731000 strand miles of fiber to our network.
These investments will be added to the master leases at an 8% initial yield at the one year anniversary of unity, making such investments they are subject to a 5% annual escalator and result in nearly 100% margin. The investments. We have made to date will ultimately generate approximately $38 million of annualized cash rent and increase the <unk>.
<unk> overall value of our network.
At Uniti fiber, we turned over almost 300 lit backhaul dark fiber and small cell sites for our wireless carriers across our southeast footprint during the third quarter. These.
These installed at annualized revenues of approximately $3 million. We currently have around 1200 lit backhaul dark fiber and small cell sites remaining in our backlog that we expect to deploy over the next few years. This wireless backlog represents an incremental $11 $5 million of annualized revenues.
At Uniti fiber, we reported revenues of $74 million and adjusted EBITDA of $29 million during the third quarter revenues were lower than expected due to lower nonrecurring equipment sales and installs, resulting from several factors, including the timing of those sales are modest impact from delivery delays and key employee.
Turnover within our E rate group.
However, adjusted EBITDA was slightly higher than expected given the low margin nature of the equipment sales combined with lower than expected costs.
Uniti fiber net success based Capex was $26 million in the third quarter, we also incurred $2 million of maintenance capex or about 3% of revenues.
Please turn to slide 11, and I will now cover our updated 2022 guidance.
We are revising our guidance primarily for business unit level revisions and the impact of transaction related and other costs incurred to date, our outlook excludes future acquisitions capital market transactions and future transaction related and other costs, not specifically mentioned here and actual results could differ materially from these forward looking statements.
Our current full year outlook for 2022 includes the following for each segment.
Beginning with Uniti leasing based on our continued strong lease up success, we now expect revenues and adjusted EBITDA to be $827 million and $805 million, respectively at the midpoint, representing adjusted EBITDA margins of approximately 97%.
Revenue and adjusted EBITDA each include $14 million of cash rent associated with the GCI investments and $25 million related to the straight line rent associated with the Windstream master leases and GCI investments.
We still expect to deploy $275 million of success based capex at the midpoint of our guidance of which $250 million relates to estimated windstream GCI investments.
Turning to slide 12, we now expect uniti fiber to contribute $305 million of revenues at the midpoint given the factors I mentioned earlier that are impacting our nonrecurring revenue.
However, we are increasing the midpoint of our full year recurring revenue outlook on the strong bookings and install activity. We continue to see our full year outlook for adjusted EBITDA remains $121 million with a lower nonrecurring revenue offset by higher recurring revenue and lower costs.
When adjusting for the average stream transaction that occurred in May of 2021, the year over year revenue and adjusted EBITDA growth is 5% and 8% respectively. This strong growth demonstrates our continued success in managing our cost structure and improving margins, while executing on lease up that leverages, our existing dense southeast fiber footprint.
As I mentioned last quarter, we expect 2022 to be the peak year for sprint related churn as a reminder, as we turn to 2023, we still expect to realize some <unk>, but most likely $12 million to $13 million less than what we recognized in 2022.
Also still expect that our core recurring revenue at Uniti fiber will increase by a mid single digits percentage rate for full year 2023, when compared to 2022.
Net success based Capex for Uniti fiber. This year is expected to be $120 million at the midpoint of our guidance a 12% decrease from levels in 2021.
Turning to slide 13 for 2022, we still expect full year <unk> to range between $1 70, and $1 77 per diluted common share with a midpoint of $1 74 per diluted share a 4% increase from 2021.
On a consolidated basis, we expect revenues to be $1 1 billion and adjusted EBITDA to be $900 million at the midpoint our guidance contemplates consolidated interest expense for the full year of approximately $390 million.
Corporate SG&A, excluding amounts allocated to our business segments is expected to be approximately $34 million, including $8 million in stock based compensation expense.
We still expect our weighted average diluted common shares outstanding for full year 2022 to be around 267 million shares.
As a reminder guidance ranges for key components of our outlook are included in the appendix to our presentation.
Turning now to our capital structure, given the current macroeconomic and interest rate environment. We will continue to be opportunistic in our approach to managing our capital structure over the near term.
At quarter end, we had approximately $270 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity, our leverage ratio stood at 580 times based on net debt to last quarter annualized adjusted EBITDA on.
On November one our board declared a dividend of <unk> 15 per share to stockholders of record on December 16 payable December 30.
With that I'll now turn the call back over to Kenny.
Thanks, Paul.
We continue continued to believe that our core business will likely see little to no noticeable impact from any economic downturn, given the mission critical nature of broadband.
Further the vast majority of our revenue is wholesale in nature with long term contracts.
Lastly, 95% of our debt is fixed rate and we have no significant near term maturities.
So as it relates to potential debt refinancing and M&A, we have the ability to be patient.
Our strategy since 2015 has been to acquire and build mission critical communications infrastructure, and then lease that infrastructure to quality anchored customers with a clear path to lease up.
Results in combined cash yields of 10% plus.
While our early years, our priority was more focused on acquiring rather than building as we established our national fiber platform.
We're now much more focused on building given the attractive returns we are seeing in the challenging economic and capital markets backdrop.
We believe our strategy is working and the initial investments both in M&A and Greenfield builds are paying off.
We currently have over $7 billion of revenue under contract with an average remaining term of approximately eight years.
The majority of this revenue is passively managed in the form of triple net or dark fiber MLA.
As a result, the operating costs associated with this revenue is very predictable, which results in a cash flow rich business over the mid to long term.
By 2030, we expect to have generated approximately one 5 billion of cumulative free cash flow. If we maintain our current dividend at approximate level of annual capital investment.
This trajectory leased to substantial deleveraging.
<unk> in two and a half to three five times net leverage and more than doubling the size of our fiber business.
Our network is highly underutilized presenting profitable growth potential for some time.
We expect net capital intensity to decline from our current level of approximately 35% to 5% to 10% by 2030.
And is indicative of accelerating operating leverage in the business and many years of high margin and high yielding lease up including dark fiber lighting unique long haul routes and expanding deeper into our existing 300 Metro markets.
With that said, our cash rich MLA to provide great optionality to pay an increasing dividend and invest even more in our core business in lieu of paying down debt.
Regardless of our capital allocation policy, our runway for organic growth appears long and fruitful, especially given strong industry tailwind.
With that operator, we're now ready to take questions.
Yes.
As a reminder to ask a question you will need to press star one one on your telephone.
Please standby, while we compile the Q&A Rob.
Our first question comes from the line of David Barden from Bank of America.
Hey, guys. Thanks for taking the question appreciate it.
Kenny can you.
<unk>.
You've got a banking background.
Can you talk a little bit about.
Where we sit now with with.
The sale leaseback business, where.
Every incremental capital dollar you're putting to work kind of generates an 8% return day one.
Your bonds.
Our yielding 9% to 13%.
Similarly, that's the cheapest part of your capital structure. Your equity is going to be more expenses. So your cost capitals.
A lot higher than the yield that you're generating at the at the margin in this business how do we how do we think about resolving that.
As an investable thesis.
And then.
Second on.
On the fiber business itself.
Again.
The inevitable question is.
The transformational.
Transaction out there that that's going to.
Unlock the value that you guys see in this fiber business.
Is that a is that practically doable.
In the current market climate kind of with the rates going where they are in a recession coming.
How do you how do you.
Convince people that that.
Still a thing that can be done.
Good morning, David.
Yes on your first question I think Youre right I mean generally in the 5% Youre right about part of what you said generally in our anchor yields whether it's sale leasebacks or greenfield builds or any other anchor type.
<unk> agreements are in the 5% to 10% range as you mentioned, 8%. So that that's kind of at the higher end of that range that's been our.
Part of our.
True North if you will for for many years kind of sticking to that range, but importantly, then through lease up youre getting well above 10%.
Yields in the.
Second page in our materials consistently is where are we tracking on that level of tracking at 22% cash yields.
As a result, so yes, there are different projects that are at different stages of maturity along the way, but on an aggregate basis, our core business is returning.
22% yields and frankly those are those are going higher and.
See everyday a dashboard of <unk>.
Yields that are generate being generated from our cash capex in there. They are very attractive 50% plus yields so with respect to what could be a temporarily high interest rate environment.
<unk> with you.
Looking at high single digits low low double digits in terms of some of the yields that are out there, but we're still hurdling those.
Comfortably with our with our core business I don't see that changing.
With with respect to your second question.
We're really trying to get away from this quarter to quarter play by play on M&A, It's just not constructive but look I do think that.
And these types of it they have put the old banker hat back on.
And these types of environments.
There is.
Two three different types of Counterparties out there one is those that just go into bunker mode and want to do nothing the fetal position. If you will and there is no no.
No criticism of that.
The other is counterparties, who look to take advantage of forced sellers are forced buyers and we call them bottom theaters people, who are just looking to be.
Take advantage and frankly, we're not engaging with parties like that.
And frankly, I never have but thirdly their parties, who are much more savvy, who have a lot of capital and make no mistake. Despite the market backdrop. There is a lot of equity capital and debt capital sitting on the sidelines looking to be put to work whether that'd be in public.
Securities are private.
And a lot of it is out there.
Earmarked for digital infrastructure.
So there is a huge opportunity out there there are savvy sophisticated counterparties, who look at situations like this as an opportunity to engage in more creative structures or in more bespoke type transactions and youre seeing some of those deals happen.
We saw a deal a few days ago, one of the large funds did a large.
Transaction basically spoke of the debt financing themselves as opposed to.
As opposed to <unk>.
Relying upon the public markets. So look the opportunities are out there I think one thing we've proven hopefully we've proven in our history.
Doing M&A is that we're able to execute on down the fairway cash acquisitions and we've also executed on mergers we've executed on.
Much more creative type transactions, and that's never going to be never not going to be a part of our DNA.
But budd.
I also think very strongly our board thinks very strongly that.
Having the ability to be patient.
M&A is critical.
Being a forced buyer or a forced seller almost always results in.
A subpar outcome and for us.
Every day, we are executing on a business that's generating we think terrific returns. We think it's a business that is highly valued especially in the private market.
And with that execution in the platform, we think we're creating value every day and it affords us the ability to be patient for what could be value accretive M&A either in the near term or longer term.
Thanks, Kenny makes sense.
Thank you one moment for our next question.
Our next question comes from the line of Gregory Williams from Cowen.
Great. Thanks for taking my questions. Just first one you mentioned Kenny about expansion to eventually the 300 market share and do you have a sort of cadence on how many markets you would expand per quarter report per year that'd be helpful.
Second question is just if youre seeing any labor supplier inflation.
Concerns on the business just in the last two days, we heard lumen talk about.
Slowing down on their fiber enablement care homes in the day before that I think consolidated cost per home passed is coming up a little bit wondering if youre seeing that broadly or maybe particularly in the windstream fiber to the home space.
Good morning, Greg I'll, let Paul comment on some of the second part of the question, but on the first part yes, we're actively.
Looking at all of our Metro markets and prioritizing I don't have a.
Something we're ready to roll out yet in terms of the cadence I think probably in February we'll have a little more color on that but but the reality is and part of the reason we picked one of our markets. In this case, Birmingham and showed some of the investment opportunity in that market, that's a terrific market for us and.
It's right down the fairway for being a tier two market.
Not a lot of competition there.
There we've been in there since 2017 with an anchor award and we've been chipping away at enterprise market share now for four or five years, and we're still only at 5%.
And we've got these just what I characterize as low hanging fruit investment opportunities in those existing markets. So we mentioned being able to expand into the into the homewood neighborhood for less than $1 million, but the reality is that's.
When you really Peel back the onion, it's spending a couple hundred thousand dollars to expand the backbone and then the rest of that is just all success based.
Light up new customers.
So and the returns on that capital back back to the earlier question are just terrific.
It's <unk>.
Very high yielding.
Returns without a lot of incremental opex, because we already have people on the ground. There we've got salespeople operations people et cetera. So all that to say the near term opportunities for us on market expansion or building out existing markets as opposed to.
In the near term at least expanding into brand new markets. We have a we have a robust fiber network in little rock for example.
And today, we're not offering any enterprise services, but we are a wholesale provider here, we're providing wholesale two three or four additional carriers and so while we're focusing enterprise on on more of the southeastern markets and eventually we'll start to expand that footprint in the meantime, we're.
We're getting really nice returns on some of these other metro markets through dark fiber sales or just wholesale in general and so I think it's just a real nice.
Wait for our unity fiber in unity Uniti leasing business has to be to be complementing each other.
With respect to the to the supply side I think that.
We are feeling some pressure like we've said generally on the labor side.
Finding.
In order to keep crews fully staffed and even our.
Coating quota bearing.
Number of quota bearing reps is down I mean, we're hitting all of our targets and exceeding our targets on bookings, but the reality is our number of enterprise sales reps is down something like 15, or 20% compared to our plan. So the silver lining in that is we're still hitting our bookings numbers, because our existing reps or more.
Productive, but were still behind plan and frankly, we'd be doing a lot better if we could keep that fully staffed.
But that's just day to day blocking and tackling I think with respect to pricing pressure or cost.
Increasing I mean, Paul you can comment, but we're seeing some of that but not.
Not huge yes no.
I agree with that comment Kenny I mean, it is obviously, a very tight labor supply market out there, but in terms of our.
The construction of our network of labor that we rely on rely on to construct our network.
We use primarily a.
Our contract Labor Force.
Two two.
To build that network and we really have not seen to date any market increase in.
The cost where we're paying for labor in our construction and the construction part of our business.
I contribute that to attribute that to a few things.
One we have a deep bench of contractors that our focus really primarily in one region in the southeast we have a really steady consistent supply of work.
And we have a very.
Robust competitive bidding system for those for all of those jobs and I think those.
Those factors together have helped to keep those costs stable for us, which doesn't mean that we're completely immune from rising labor costs, there either but to date, we really have not seen any material increase in.
The labor piece of the cost of construction.
That's helpful. Thank you.
Thank you one moment our next question.
Our next question comes from the line of Frank Louthan from Raymond James.
Great. Thank you.
Material downtick there.
The quota bearing heads.
Where are you, losing folks too and do you think you can get that back up and maybe expand that and is there any concern for the outlook for next year with the base going down that much.
Yes, Frank No concern about next year I think again the.
The real.
The takeaway from that is a positive one in the sense that we're still hitting our numbers because our existing reps are more productive.
And we just have so much opportunity to monetize the network going back to some of the slides in our prepared remarks.
With that said, yes, we're very focused on on getting that number higher.
Look if you go back in our history over the past couple of three years, we've always struggled to keep that number where we want it to be and part of the reason for that is we're very our team is very selective on adding new reps and once we get those reps on board. We're also very proactive.
About churning out reps, who are not productive I think or I can't remember exactly but I think our churn rate is something like 20%.
On reps, who arent productive so we don't.
I don't consider it a problem or a leading indicator of a problem that that number is lower but at the same time, yes, we're constantly looking to add new quality reps, we're always looking for ways to tweak.
Our existing.
Commission plan or compensation plan or otherwise in order to do that but at the same time.
We're not going to move away from the discipline and the rigor that we apply to holding those reps accountable.
And productive.
At the end of the day I think if we wanted to just hit a number for a number of reps, we could do that but that's not that's not what we're going to do.
Sure, Okay and to follow up on a previous question is.
Do you think windstream is having any issues in getting trucks or equipment or so forth to hit their build plans.
Any chance they would they would do they would.
The bill plans out due to increased costs.
So frankly, we have an opinion on that but but we're going to we're going to let them address that.
I think they've got an earnings call coming up so, we'll let them address that directly.
Alright fair enough. Thank you very much.
Thank you one moment for our next question.
Our next question comes from the line of Simon Flannery from Morgan Stanley .
Great. Thank you very much good morning.
On the fiber business I think Kevin you did talk about capital intensity coming down over time, but also you've got this nice backlog here. So how should we think about near term capital intensity youre still over that 40% level. This year or is that going to come down to that sort of mid thirty's, you've talked about over the next year or two and any update.
On dish I think you'd sort of said that they hope you hope that as the sprint business came off the dish would start to kick in in 'twenty three any updated clarity on what their plans are.
Hey, Simon Yes, our capital intensity is going to come down.
Nothing nothing new or note no changes to any forward looking guidance, we've given there I think the reality is.
Part of what we're trying to show in some of our materials is just where our capital is being invested and how we're getting the good returns that we're that we're getting.
And as I said the yields that we're getting on the capital is actually better.
We've been we've been forecasting so theoretically we could spin.
Less capital and get the same returns.
And so we're looking for ways to spend the capital always looking for ways to spend the capital more efficiently.
Get the get the highest returns.
And so that's not going to change, but with respect to.
The trajectory of the capital intensity coming coming down that debt.
That isn't going to change.
Dish.
To make great great strides with dish.
We first started talking about dish and sprint.
A couple of years ago, I think we said.
There would be some sprint churn I think we said it would probably be in the $5 million to $10 million recurring revenue range that we would lose.
And that we thought that dish would eventually replaced that and more.
And in the meantime, there'd be some pretty lumpy eto fees to sort of smooth transition and in hindsight I think that is playing out as we expected.
The sprint churn is on track with Etfs this year dropping off a little bit next year.
And dish has really been ramping up and I think we will more than hurdle that $5 million to $10 million.
On on this loss sprint churn with dish.
With with the with the business that we have already turned up or that we have in the backlog and again I think going forward over the longer term.
We think there is a really really attractive opportunity for us.
Great. Thank you.
Thank you.
One moment for our next question.
Our next question comes from the line of Michael Rollins from Citi.
Thanks, and good morning.
The strategic question as you think of the fiber portfolio and if you think about communications infrastructure more broadly there are business models in this category.
That it really doesn't matter, how big the portfolio lead at the local assets the right asset right.
Tend to get sales yet there's other portfolios like data centers, where there's been a nice cross sell the larger the portfolio. It seems like Theres been this natural benefit for that how would you describe fiber infrastructure and that is it one that benefits from being part of a larger portfolio or is it the.
If you have the right assets the right location you have a great chance of getting the win and then how does that instruct.
The type of strategic aspirations that you have for using the <unk> over a multiyear period.
Good morning, Michael scale does matter in fiber.
I think that.
Especially on the wholesale side.
National Network.
When you have a national network you are in a very different class.
Yes.
Providers and your ability to have conversations with large carriers, the datacenter providers, the hyperscale or <unk>.
You're just in a different class because they need national network.
And from our vantage point.
You look at our national strategic accounts business today versus what it looked like a year or two go it's changed dramatically.
We're just kind of rolls off the tongue that we're having conversations with.
The Hyperscale is I won't use any specific names, but we're just in a different category.
With respect to those types of conversations and therefore, the business opportunity that it presents and so our leasing business is growing at 10 15, 20% a year as a result, with very high margins and great returns.
And it also having that national network.
It provides you with the ability to have more bespoke type transactions and conversations.
We mentioned the lit backhaul return that that we that we that we just signed.
That's 1100 sites there aren't very many people that have that many sites with each of the carriers and when you have that many sites and you have the capital available and the brand.
Delivered 10 gig.
That puts you again on a different on a different plane and extending a lit backhaul contract from two five years to eight years is a big deal and that's why we called it out but you don't you don't get those types of opportunities unless you have real real scale.
With all that said Michael.
If you don't have high quality.
Dense metro fiber in select markets with <unk>.
Minimal competition good demographics, good growth potential you can't be successful in fiber in our view and so as a result, we're really focused on the.
Metro element of our business, where we like to say with a local partner with a national scale.
And so in markets like Birmingham.
We've got boots on the ground, we know the various permitting authorities we know the local.
We know all of the local businesses, we know that.
The terrain, we know what it costs to build we know where the where the opportunities are to expand our network and pick a low hanging fruit and you don't get that unless you are very conscious about which metro markets you go into.
And you make investments you stick to the 5% to 10% anchor yields and you've got a clear path to lease up and.
And if you pick the right markets, you've got a plethora of customer opportunities, including enterprise schools traditional wholesale and then of course lit backhaul dark fiber backhaul and small cells.
That's really what we're seeing when <unk> got the right network in the right market.
You can have a great opportunity for both anchor and lease up and a healthy balance of both.
Thanks, and just one quick follow up.
The algorithm these days for the minimal capital intensity and fiber as a percent of revenue to replace churn and to keep that fiber revenue flat organically growing overtime.
Yes.
Haven't we haven't disclosed that number I think it's sometime I don't know if we ever have actually but our maintenance capex is around 3%.
And our.
Our capital intensity is from an aggregate basis I really think.
Our churn is very low I mean, we talk about it is industry, leading its certainly right up there with a write down there in terms of industry, leading so very low 2%. So we'll have to refresh on that number Michael but I really think its kind of around probably around 10%.
Plus or minus a little bit right around 10%.
Yeah.
Thanks.
Thank you.
At this time I would like to turn the conference back to Kenny Gunderman for closing remarks.
Updating you further on future calls community group.
<unk> group and look forward to updating you further on future calls thank you for joining today.
This concludes today's conference call. Thank you for participating you may now disconnect.