Q3 2023 Uniti Group Inc Earnings Call
[music].
Welcome to unity groups third quarter of 2023 conference call. My name is Howard and that will be your operator for today.
This call will be available on the company's website www dot <unk> dot com 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 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 empty statements. The factors that could cause actual results to differ are discussed in the company's filings with the S. P C.
The company's remarks. This morning were reference slice posted on its web site and you are already courage to refer to those materials. During this call.
Discussions during the call will also include a certain financial measures that we're not prepared in accordance with generally accepted accounting principles.
Conciliation up 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 date it today.
I would now like to turn the call over to <unk> groups, Chief Executive Officer Kinney Gunderman. Please go ahead Mr. <unk>.
Thank you good morning, and thank you for joining.
Starting on slide three unity delivered another solid quarter performance and as a result, we're once again reiterating Arkansas dated full year of 2023 revenue adjusted EBITDA and they have.
Hey, I thought the outlook.
Arkansas the core recurring revenue grew three per cent during the third quarter from the prior year.
Or at least up revenue categories continue.
To perform exceptionally well with Nonwireless wholesale enterprise and dark Barber lease up revenue growing at 7% 16 per cent and 20 per cent, respectively. During the quarter when compared to the same period last year.
With our industry, leading 0.3% churn and no legacy services weighing is down we believe I runway for mid single digit growth continues to be lost.
Are scaled National network, an exceptional network performance allows to negotiate for spoke agreements with our wireless carriers, providing steady returns and minimizing chart.
It's five four demonstrates this growth will be disciplined and we believe profitable.
Are substantially under utilized fiber network acquired largely through Sal leasebacks is helping drive our shared infrastructure economics.
Our anchor plus Lisa models, working driving driving cumulative casually yields today of 24% or more than three fold increase from the bank or yields on these projects.
Turning to slide five we continue to grow 139000, Rottweiler network and we added approximately a thousand route miles during the quarter.
Only about 20 per cent of our available network is lit today and as we've mentioned before we own dark metro fiber in about 300 markets nationwide.
Which represents terrific capital and margin efficient growth potential for enterprise wireless backhaul in small cells.
We can say I believe the wireless carriers will eventually needed densify. These not N F L markets and nearly as well positioned for that growth in the future.
So I had six shows that the majority of our revenue this wholesale of nature, which comes with longer term contracts lower chern and less required overhead for execution.
As a result, our business and underlying performance are less susceptible to macroeconomic conditions and we've diversity and we're diversified across numerous use cases for fiber in customer segments.
As an example, even though wireless carriers are spending less this year than last as a group. The decline is offset by other buyers such as hyperscalers internet providers and fiber to the home providers.
We're also starting to see more use cases relating to artificial intelligence.
Trying to slide seven scale matters, and fiber, especially with a wholesale any business model like ours.
Having it Oh National network is a meaningful competitive advantage for unity and our ability to to deploy dark fiber wave services present unity with unique low risk growth opportunity with minimal competition.
Slide eight illustrates are balanced approach to bookings between anchor and Lisa.
Consolidated bookings were essentially in line during the third quarter when compared to the prior quarter.
Interest in our network has never been higher as a sale is ourselves final remains very strong and underscores the growing demand for fiber.
As a result wholesale bookings can appear lumpy given these deals are typically larger in fewer than quantity.
It is not uncommon for one wholesale deal to materially impact bookings in a single quarter from atomic perspective.
Turning to slide not our enterprise strategy is highly disciplined and regional in nature.
As you can see from the map are only offering enterprise services in approximately 30 Metro is concentrated in the southeast which is very favourable demographics.
In fact, the southeast is accounted for more than two thirds of all job growth across the U across the U S. Since early 2020.
Almost doubling its share prior to the pandemic is hounded, Canada 15 fastest growing American large cities.
Our local brand is very strong in this region, helping to contribute to industry, leading enterprise char of around 7%.
Although enterprise sales represent about 5% of our total revenue today and will likely always represent a minority percentage. It remains a critical element of our lease up strategy.
With no significant debt maturities until 2027 floating rate minimal floating rate that and given our organic growth runway and continued steady performance.
Which is backed by nearly 7 billion of revenue under contract with an average remaining term of seven years unity.
Unity is positioned to patiently I skew during these uncertain economic and credit market conditions.
With that I'll now turn the call over to fall.
Thank you Kenny good morning, everyone.
I'd like to begin by reviewing our third quarter performance, followed by an overview of our current 2023 outlook.
All results at both unity fiber and you know you're leasing during the quarter were in line to higher than expected with consolidated recurring revenue growth of 3% during the quarter when compared to the prior year. As a result are 2023 outlook for consolidated revenue adjusted EBITDA and a F. F O remains unchanged as we expect to end the.
Year within the previous guidance range is provided.
Please turn to slide 10, and I'll start with comments on our third quarter.
We reported consolidated revenues of $291 million consolidated adjusted EBITDA of $233 million <unk> attributed to common shareholders of $95 million in a F. F O per diluted common share of 35 cents.
Net loss attributable to common shareholders for the quarter was approximately $81 million or 34 cents per diluted share and includes 153 million dollar goodwill impairment charge related to our unity fiber segment that was driven by an increase in the macro interest rate environment.
Ah you know you're leasing we reported segment revenues of $215 million and adjusted EBITDA of $209 million representing growth of approximately 3% for each and the third quarter of 2023 compared to the prior year period.
Accordingly, you didn't releasing achieve an adjusted EBITDA margin of 97% for the quarter.
Turning to slide 11.
Our growth capital investment program continues to provide positive results regard you can respond, but I still can't hear anything.
Just tell me Everything's fine.
Operator, you need to go on view.
Over the past nine years or tenant has invested over $1 billion of tenant capital improvements in our network.
He continues to invest its own capital in long term value accretive fiber largely focused on highly valuable last mile fiber <unk>.
Collectively these investments have resulted in 25000 round miles of newly constructed fibre and 24% 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 unity leasing deployed approximately $86 million towards growth capital investment initiatives with the majority of the investments relating to the windscreen GCI program. These GCI investments added about 1000 route miles of fiber communities owned network across several different markets.
As of September 30th Unity has invested approximately $780 million of capital to date under the GCI program with Windstream, adding around 19200 route miles in 1.1 million strand miles of fiber to our network.
These investments will be added to the master releases at an 8% initial yield at the one year anniversary of unity, making such investment they are subject to a 0.5% annual escalator and resulted in nearly 100 per cent margin.
The investments we have made today will ultimately generate approximately $63 million of annualized cash rent and increase the overall value of our network year.
Year to date, we've turned over 659 lit backhaul dark fiber in small cell sites for our wireless carriers across our southeast footprint at unity fiber. These.
These installed at annualized revenues of approximately $6 $5 million. We currently have around 775, let backhaul dark fiber in small cell sites remaining in our backlog that we expect to deploy over the next few years. This wireless backlog represents an incremental $7 million a annualized revenues.
At <unk>, we reported revenues of $76 million, an adjusted EBITDA of $30 million during the third quarter achieving margins of 39%.
Revenue was in line with our expectations, while adjusted EBITDA was slightly better than expected due to the mix of nonrecurring higher margin ATL fees versus lower margin equipment sales as.
As a reminder, the exact timing of our nonrecurring revenue in related margins can be difficult to predict and thus can fluctuate from quarter to quarter.
Unity fiber net success based Capex was $30 million in the third quarter, which was about $5 million higher than expected due to the acceleration of certain projects. We also incurred about $2 million of maintenance capex during the quarter.
Please turn to slide 12, and I'll know cover are updated 2023 guidance.
We were revising our guide is 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 in future transaction related and other costs not specifically mentioned here in actual results could differ materially from these forward looking statements are current full year out.
Look for 2023 includes the following for each segment.
Beginning with unity leasing, we expect revenues and adjusted EBITDA to be $853 million and $828 million, respectively at the midpoint, representing adjusted EBITDA margins of approximately 97% of <unk>.
$3 million increase in our outlook reflects the acceleration of GCI investments during the quarter.
We now expect to deploy $285 million a success based capex at the midpoint of our guidance of which $250 million relates to Windstream GCI investments in October we funded $16.5 million of GCI, which brought us to the maximum annual amount, we will be responsible to fund this year.
Turning to slide 13, we expect duty fibers contribute $311 million of revenues and adjusted EBITDA of $120 million at the midpoint for full year 2023, we now expect core recurring revenue growth of 4% from the prior year. This is slightly lower than our previous outlook due to delayed buying decisions from certain hall.
Sale and enterprise customers that we highlighted in the possibility last quarter. However.
However, our sales funnel remains extremely strong and we're not seeing any significant outright cancellations of orders from our customers. We still expect ETS fees in 2023 to be approximately $15 million compared to $24 million in 2022.
Net success based Capex reunify were this year is expected to be $120 million at the midpoint of our guidance, reflecting the acceleration of deployed capital during the third quarter that I mentioned earlier.
Turning to slide 14 for 2023, we continue to expect full year <unk> at a range between $1.38 and $1.45 per diluted common share with a mid point of $1.41 per diluted share as a reminder, <unk> in 2023 will be impacted by incremental interest and diluted shares relating to our convert.
Edible and secured no refinancings over the past year.
On a consolidated basis, we still expect revenues to be $1.2 billion, an adjusted EBITDA that would be nine $925 million at the midpoint our guidance contemplates consolidated interest expense for the full year of approximately $514 million, which includes a $10 million right off of deferred financing costs and $32 million of early.
Premium premium repayment premium in the first quarter of this year related to the redemption of our 778% senior secured notes do 2025.
Corporate SG&A, excluding amounts allocated to our business segments is expected to be approximately $30 million, including $7 million of stock based compensation expense are weighted average deluded common shares outstanding for full year 2023 is expected to be around 290 million shares, reflecting the full year impact of the incremental diluted shares relating to the us.
Counting of the convertible notes issued late last year using the if converted method.
As a reminder guidance ranges for key components of our outlook are included in the appendix to our presentation. Finally, our board declared a dividend yesterday at 15 cents per share to stockholders of record on December 15th payable January 4th.
With that I will now turn the call back over to Kenny.
Thanks, Thanks, Paul.
As I mentioned earlier, we continue to be focused on driving high margin recurring revenue, while targeting disciplined mid single digit top line growth.
Slide 15 demonstrates the investments, we're making in our fiber network will lead to a more sizeable invaluable fiber business over the next several years.
We also expect the end of 2025 to be the inflection point, where we become free cash flow positive after dividends and we expect to generate cumulative free cash flow of over $1 billion. During the five year period ending in 2030, if we maintain our current dividend an approximate level of annual capital investment.
This trajectory along with our predictable organic growth outlook would lead to substantial deleveraging.
Resulting in net leverage between four to five times and.
Roughly doubling the size of our fiber business that 2030.
Before opening the call the questions I'd like to briefly comment on some recent trends in the industry that are directly impacting unity.
First asset back Securitizations also known as ABS financings have become more prevalent in the fiber space. After many years of application in both the tower data centers basis.
This trend not only confirms that fiber is analogous to towers data centers as being stable mission critical communications infrastructure.
But just as importantly provides a new attracted form of financing.
To that end unity has had substantial conversations with several parties, including regarding ABS, including various rating agencies in our advisers.
As a result of these conversations we believe ABS is a vast viable attractive financing source for us.
Secondly, there have been a number of recent M&A transactions or investments validating attractive fiber to the home and commercial fiber valuations.
These investments have come from strategic buyers and public and private capital sources, indicating the breadth of interest in these assets.
As an asset rich company with one of the largest fiber portfolios in the country.
He is uniquely positioned to benefit from both of these trends.
As a reminder, over the past five years unity has sold our monetize up to $1 billion of assets at premium multiples.
Our dashboard of opportunities today inclusive of ABS and asset sales far exceeds $1 billion and we expect to explore these alternatives and M&A in coming quarters.
With that operator, we're now ready to take questions.
Ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad.
If your question has been answered or you wish to remove yourself from the queue simply press the pound key.
Again, if you have a question or comment at this time. Please press star one one on your telephone keypad.
Please stand by while we can.
Confirmed Q&A roster.
Our first question or comment comes from the line of Frank Loosened from Raymond James Mr. Losing your line is now open.
Thank you can can you just follow up on that last comment you know looking at avs or asset sales. How you think about that from a mix is this just more of a pure refinancing opportunity that you look at your looking at going forward or are they are dark fiber sales or others or maybe kind of kind of you said greater than 1 billion give us.
An idea of kind of what the different buckets are a opportunity you have there. Thanks.
Sure Frank I think.
From an avs perspective.
The opportunity there is in it.
Of itself is probably well north of 1 billion.
If we choose to go to go down that path.
I think on the asset sales.
And opportunities there I'd say, that's also probably in and of itself well north of $1 billion.
And.
With respect to how we look at it from a use of proceeds perspective, I think it's certainly could be used for for refinancing opportunities.
Could also just be part of our normal course, right I mean part of the reason we mentioned the fact that we've done close to $1 billion up to $1 billion over the past four or five years is is sort of what we what we do and we've got a big portfolio of real estate.
Historically towers ground leases, certainly fibre and we've and we've used.
We've used the market appetite for digital infrastructure too.
222.
Realize value for our shareholders, along the way whether it be through selling.
Business segments like towers and ground leases.
Looking to trends transition lit portfolios into dark portfolios like we did with the ever strange transact transition selling sizeable hire us, especially without a territory dark fiber that were not currently lighting.
Monetizing joint ventures, monetizing sale sale leasebacks are <unk>.
Portions of cell leasebacks. So when you when you aggregate. These different things, we just consistently have that portfolio of opportunities and we felt it worth mentioning just given that there is a substantial amount of capital on the sidelines, especially equity capital looking to be put to work within.
Digital infrastructure and we're in the thick of those conversations.
So.
I would think about it both from the standpoint of refinancing opportunities and just general realisation of of intrinsic value for our shareholders.
Okay, and just to follow up I mean, the the the pool of capital chasing digital infrastructure has been around for awhile is there anything in particular, that's changed a new set of demand or have you seen some movement on multiples that are more interesting to you, what's what's kind of change that you're highlighting this now.
Yeah, I would say two things Frank for Us and he won so there's always the macro backdrop and then there's unity specific as we talked about a quarter or so ago.
We were we were very focused on refinancing the balance sheet and pushing out maturities and prioritizing that.
Over M&A and now that that's behind us largely behind US we're more focused now on M&A. So we've just been we've just been more focused on these opportunities over the past several quarters.
The macro backdrop is also I think changing we we've we've consistently talked about the the debt markets as being an impediment when there's a lot of volatility in the debt markets in particular.
And although interest rates are still elevated.
Do think theirs.
A bit more stability, because there's an increasing view that we are going to be higher for longer. That's the phrase these days and so some of that volatility.
Certainly the volatility still there, but I think there's there's a there's a view about where interest rates are leveling out for the next 12.
12, 24 months, if you will and so that that gives both buyers and sellers a better view of what their cost capital is going to be right and so I think that helps that helps lubricate.
Opportunity and activity.
And look you look at the past.
This quarter, there's been several deals in the in the fiber to the home of commercial fiber space I mean consolidated.
Got their take private done at an attractive near double digit multiple.
Horizon, another combination ILEC CLEC is being sold for 2000 times multiple.
Cable south one of our large sale leaseback customers is bringing in a substantial equity investment and and all of these are deals that are either done by strategics or or private or quasi public capital sources and all it very attractive multiples and in some cases.
No external debt is being used to help finance the deals.
It demonstrates creativity on use of capital being put to work.
Minimal amount of new debt being used but also very attractive multiples that are validating the evaluations and this and this collective space that unity unity plays in.
Alright, great thanks to and it's really helpful.
Thanks, Brian.
Thank you.
Next question or comment comes from the line of.
Gregg Williams from TB Cowan.
Mr. Williams Your line is now open.
And you wanted to go back to the a b S that comment.
Wow.
More on commercial fiber or would you be carving out.
The fiber to the home, which being fiber on the ladder I mean, how how does that work you owe the a and the a b S. So to speak.
The underlying fiber to the home, but when she knows customer receivables.
And I'm curious to see it.
Complication, there and and and how that can work out a second question is just an AI you mentioned it both on your script today marks in and then the press here.
I can understand the opportunity for unity is this really waves and dark fiber tying to the new training data centers at this point and maybe move eventually can for instance, interconnect over time and and what is the growth opportunity. Today I was just more confidence in the mid single digit growth for fiber or does this possibly move the needle higher higher single digit.
Thanks.
Greg Hey, this is Paul I will take the first question and then turn it back to Kenny to answer your second question there on AI.
With regard to ABS most of the work that we've done is really concentrated on our non windstream assets in.
In particular, our unity fiber assets, we think Lynn.
Lend themselves very well too.
Transaction it would be well received bye bye.
By that market just given the the density of those markets the stability of that cash flow the diversity of the customers and the long longer term contract that we have with us.
With those customers and that most of the work. We've we've done has been around.
Around those assets as opposed to the Windstream assets. The Windstream assets I think are we.
We do on those assets like like you said, but I think it's more challenging with regard to an avs financing just given the separation of the operations there in the concentration of our revenues into into just the master releases that we have with woodwinds dream.
So.
We think it's probably more likely that we would do something on the the non windstream side of the house with regard to ABS in the near term.
Hey, Greg and on your AI question.
First of all we're looking at it.
Both from a from a internal perspective.
And external and what it means for our customers for US internally, we are done worked on.
How we can use it to make our work processes more efficient more cost division more capital efficient more human human capital efficient.
And I think we will have more to say on that in the coming quarters, but I think that's something that all all companies probably are looking at and we certainly are and think that there's some opportunities there to use it.
With respect to our customers Yeah, I think the the demand broadband.
Broadband demand being generated by AI is tremendous and it's going to grow exponentially overtime.
And as per usual when that.
Future growth is real and relatively near term.
Our customers need to start buying network capacity to get ready for it I've got to stay ahead of the.
Ahead of the curve and we're seeing that.
Not not so much on mobile broadband.
Wireless carriers have been down this year, so I haven't really seen it that much there. Although we think next year is going to be different but really when it when it comes to the Hyperscalers in particular, we've just seen a lot of activity, they're tremendous activity and to your to your question. Yes, I think it's it manifests itself not only in waves, but dark five.
Driver and even conduit sales.
And add building new network connecting unique data centers connecting nodes.
That may be otherwise connected or not and so for us to build new fiber.
We're we're effectively getting paid by our customer to build it and they take a portion of the capacity and we leave the rest of it for ourselves release of those are those are really attractive deals for us and for our customers. So the demand.
As per usual and.
Unique by customer it could could range from lit to dark to just building new fiber. So we see there's a really attractive opportunity.
Both now and in the near term.
And certainly over the longer term.
Yeah on mid single digit growth, we I think we feel good about our range I mean, I think it ebbs and flows.
A little a little bit of the low end of that range. This year, we talked about.
The expectation that wireless carrier demand would would be down this year coming into the year. So we beg that into the cake if you will.
And it's probably been a little lower than we expected and so that's why you're seeing is at the low end of that range, but when we look out to next year. We think that we think we're gonna have we think we're going to have more more growth.
Sure.
And in other places, but I wouldn't we wouldn't change that that mid single digit growth outlook, we think that 4% to 6% range is still still right.
Got it. Thank you and you wouldn't change your balance of Lisa nurses anchor build given the advil.
I don't think so we do so I mean, that's a good question Greg for sure we do see an increasing amount of.
Greenfield new build opportunities I think as a result of AI and.
One of the byproducts of this elevated interest rate environment is that customers are generally more understanding of the need for higher costs, but from vendors like us.
To build and so.
More and more of those opportunities I think look attractive when you even when you're bacon are elevated cost of capital.
And I and I do think we're going to see more and more of those if you. If you talk to our wholesale sales team.
They will tell you that there's large parts of the U S national infrastructure that we're going to need to be overbuilt and added capacity, including whether it's existing fiber and so we do think that is a growing opportunity over time.
But but I wouldn't change our our expectation on mix anytime soon because we.
We also have to overlay just our general cost of capital and the balance sheet and those those sorts of things, but but where we found attractive customer opportunities, where they are going to really lean in and help us finance new Bill we absolutely are going to take advantage of those situations.
Alright, thank you.
Thank you.
Thank you. Our next question or comment comes from the line of David W. Barner from Bank of America Mister Barter. Your line is now open.
So I guess I got three questions I could.
A David you're coming in very very light in fact, we can't hear you right now.
Is that any better Kenny.
That's a lot better thanks, okay, sorry about that so three questions we could [noise].
I guess the first one would be with respect to kind of the rebalance of the leasing as a function of the GCI and then the.
The fiber sales kind of maybe coming in a little later on disability decisions would you kind of characterize that as maybe idiosyncratic with respect to a couple of.
Specific customers that are in your pipeline or would you say, it's more structural given the macro backdrop.
The second question would be maybe for Paul just on the now that we've got the 15 cent dividend reiteration from yesterday.
Can you remind us kind of.
To what degree you're over distributing at the margin, which represents maybe the potential cushion if you will that exists inside.
Cash flow structure.
We kind of look at today, and then I guess my last question.
Is Kenny for you you know with with Tony Thomas is exit from Windstream and pulse of new taking over does this mean anything for US is unity investors in terms of how that relationship could change or develop differently than it has to date. Thank you.
Volume take their dividend question, Yeah, I'll take the dividend question first aid and then turn it back over to Kenny Yes. So yeah. We mentioned a few quarters ago that we would expect given the current dividend level of 15 per quarter, we would expect to be over distributing above the 90%.
At.
Minimum requirement for distributions.
Tuna about $100 million to $150 million through.
Through 2025, so now we're we're here at the end of 2023. So I think that number is still a good number but you're probably looking at now is closer to $100 million kind of going going forward through 2024 2025.
Got it.
David on your question about the mix shift between unity leasing immunity fiber.
I think it's a combination of things it certainly certain customer.
Specific to customers. So for example, the GCI revenue being higher is certainly a result of windstream being able to use more of the GCI earlier in the year and so that that's clearly customer driven and we're very happy about that by the way, we love to see that build getting done sooner rather than.
Then later.
We also have.
Very specific customer decisions happening throughout our wholesale portfolio. All the time, we see it on a regular basis customers are they asked for an RFP and it's got to be done today, and it's gotta be done lit.
This week and then you hear from a couple of weeks later and no no. No. This is now at 2024 plan or even at 2025 plan. So it just ebbs and flows but.
Based upon network planning of customers whatever their capital allocation situation might be and I think that's always been the case of among wholesale customers and I think it will will continue to be the case going forward and so it's.
It's very hard to call those decisions anything other than that customer specific.
Occasionally you see a few a few of the customers like the wireless carriers move in packs like like I think they are this year, but even that is not not not something that happens every year.
I think but but but that said I do think there's we do think there is some macro backdrop.
Impacts, especially probably on the enterprise side.
We.
We just have more customers there obviously.
There continues to be economic uncertainty inflation.
It continues to be elevated despite coming down the labor market is is is schizophrenic.
So I think that that is having some impact and probably more impact than we thought coming into the beginning of the year, we we sort of expected some weren't sure how much but I think.
With a lot of the year now in hindsight I would say that there's probably been more than we expected.
And so being at the low end of our mid single digit range is partly a reflection of that with that said you know we're still growing enterprise 10, 15% a year. So it's continues to be a very healthy business wars, and we expect that to be the case.
Going forward.
With respect to our relationship with Windstream I've I've always said it I think it's better than the market actually thinks it is and that continues to be the case, we we wish Tony well in his next endeavor and we're we're very pleased to see Paul in that role. He has an industry veteran and he is Ah frankly, a longtime friend too. So we look forward to working with them.
Going forward.
Thanks Kenny.
Thank you.
Thank you. Our next question or comment comes from the line of Laura Lee from RBC capital markets. Mr. Lee. Your line is now open.
Mmm, Okay and good morning.
Referring back to your comment about.
Hi.
Provide any opportunities.
On pricing.
Standpoint.
Secondly, could you remind us if there are any.
Yeah.
Okay.
Alright.
Hey bore [noise] excuse me.
Yeah, I think the short answer to your first question is yes.
Does I think specifically when when we're engaging with wholesale customers because.
A lot of these big network deals are almost by definition they are bespoke and they require a lot of.
They have a lot of moving pieces, there's NRC components.
Darcy component, there's there's a potentially escalators and among other things right.
Six years 10 different moving pieces, but net net when when you look at returns thresholds for US we absolutely have been incorporating a higher cost of capital into those returned thresholds and we've been including that for some time now and I think on a on a go forward basis that that is not going to change.
Anytime soon it may even go higher frankly, and so when we when we set those hurdles for ourselves for our for our team.
By definition that leads to higher nrc's or that leads to higher mrc's and so forth and so ultimately what we're finding is that customers are understanding of that and that we're getting we're still getting deals done.
I think on the enterprise side, it's a little different you don't just change pricing.
On a regular basis, you gotta be a little more disciplined and conscientious about making changes there were actually in the process of refreshing thinking on that I think there might be some changes.
Around that going into next year, but we really haven't made any material changes there.
This year, we've actually asked ourselves.
If we were to make changes you know how much impact would that have on demand either positively or negatively.
But we're kind of going through that analysis, but haven't really made any changes in that in that regard.
I'm sorry, what was the second yeah.
Yeah.
We're we're definitely we consistently look at both federal and state funding.
We're always looking at it from the from the standpoint of how we can we can use it for are not only for ourselves, but also how our customers might use it.
We definitely have a large number of customers who are benefiting from from the federal federal and state funding for the fiber of the home and I think we're as we've talked about were.
We're a beneficiary of that by.
By extension for ourselves.
We are actually looking at some mental model opportunities.
That in the past we've always concluded did not make sense for us a variety of reasons, but we are currently looking at some that we think could.
And.
Won't go through all the reasons, why but but in general.
It needs to be the funding needs to be in a territory and as part of a network that we think is strategic as opposed to just building. It because you can get the money and.
And so if we can do it in a way that actually adds to the overall strategic value of our network. It's something that we think is worth it and it's worth spending our time and resources on.
So probably more.
Got it just a couple of follow ups actually on that price on the pricing side is that key.
Maintain the spread between returning cost cap at all or.
Compression or expand and then on the middle mile.
Would you consider that as doing that with a partner <unk>, an option as well that too.
Yeah, so that definitely.
On your first question yet.
Maintaining that margin between cost and return and.
We look at returns and a lot of different ways. We look at payback, we look at immediate cash flow yield.
And we look at [noise] excuse me, we look at IRR.
Among others and so yeah, we're using the cost of capital as a baseline costs and then we're hurdling those that costs in order to get returns that are attractive for our for our shareholders and we talked about this before but we're generally looking for 10% plus yields.
On Ah sorry, five to timber.
Builds with an immediate.
Clear line of sight to 10% plus.
Lease up yields and we certainly look for our ours in the double digit range as well.
And yes, we're always looking.
We are consistently looking for partners to build network, whether it be with subsidy subsidies are not back to the question about AI I think one of the big opportunities. There is building network in partnership with some of the Hyperscalers, where they're bringing a big NRC or upfront.
Cyber commitment to the table to help to help.
To help justify the investment by us and so we are and that's really sort of.
Core part of our wireless strategy I mean, that's really what we've done historically with the wireless carriers, where they they needed greenfield build in there the anchor customer to help finance the network for us.
We take the risk on Lisa.
So that's really a core part of our business and adding.
The added benefit of state or federal subsidies and partnering there is absolutely something that we're looking at.
And sorry to ask that you cut out for a brief second when you were making your comments on the return.
Repeating <unk>.
The first couple of seconds Sir.
Yeah, I'm not sure where I got cut out, but really I think I was agreeing with your question that we use our cost of capital and other costs as the baseline and then our returns are a markup from that baseline cost of capital.
And then from there, there's obviously a lot of different levers to toggle.
Using nrc's mrc's et cetera, So does that does that answer that.
Pardon.
No I think there was an actual.
You are referring to.
Oh I was just yet so.
Yeah sure. We look at we look at we look at <unk>, we look at a variety of return metrics, we look at cash flow yields.
We look at.
Paybacks, we look at Irr's.
And I think our casual yields we've said consistently over time that we look too.
Look for 5% to 10%.
<unk> for our anchor customers with a clear line of sight to 10% plus yields through lease up and we look for double digit higher ours.
And we.
Think those targeted irr's are little different depending on which type of customer and customer segment, but they're double digit double digit irr's.
Okay. Thanks very much.
Thank you. Our next question or comment comes from the line of a lineup Papa from Morgan Stanley.
It's property your line is now open.
Hi, I'm, calling for signing Flannery just a question on higher thinking about capex or 24.
Any comments.
Maybe the <unk> C I program getting Windstream tennis.
Certainly unexpected this year thanks.
Yeah, Hey, a lot of this is Paul I will take that.
With regard to Capex for 2024.
We're not we haven't put out guidance.
Don't use it put out guidance.
Until the first part of the of the year, but generally what we've said I think continues to be true. So.
Our unity fiber business, we expect capital Capex to remain about the same level that it's been.
This year.
And so that Capex I think would be b flat going into 2024 roughly.
As an expectation and then with regard to GCI it's the.
<unk> program is.
Specifically calibrated.
With Maximums.
Each year and some ability of rollover unused portions from previous years. So if we look out into 2024.
The maximum amount of GCI for 2023 with the 250 that we talked about in our comments, but then going to looking at 2024.
That maximum deep.
Decreases to $225 million with rollover up to $250 million, but they will only be about.
About five or so a million dollars of rollover.
That could could apply to next year. So so at Max next year would be 2220 $5 million to $230 million.
And in terms of in terms of the pacing for that for next year.
We would expect it to be kind of similar I would think that did this year, but.
Windstream has to make those investments and complete those construction projects and submit them for.
For reimbursement so it really depends on the pace of their construction and the pace of resubmitting those those expenses for reimbursement.
Alright, thank you.
Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to Mister gone to some for Amy closing remarks.
Thank you. We appreciate your interest in Unity group and look towards updating you further on future calls. Thank you for joining us today.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day speaker standby.
Yeah.
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Okay.
Okay.
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