Q4 2024 Uniti Group Inc Earnings Call
Speaker Change: Good morning and welcome to today's conference call to discuss Unity's fourth quarter and full year 2024 earnings results.
Gigi: My name is Gigi and I'll be your operator for today. Today's call is being recorded and a webcast will be available on the company's investor relations website, investor.unity.com, beginning today and will remain available for 365 days.
Gigi: 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.
Speaker Change: It is now my pleasure to introduce Bill DiTullio, Unity's Senior Vice President of Investor Relations and Treasurer. Please begin.
Speaker Change: Good morning everyone and thank you for joining today's conference call to discuss Unity's fourth quarter and full year 2024 results. Speaking on the call today will be Kenny Gunderman, our CEO, and Paul Bullington, Unity CFO. Before we get started I would like to quickly cover our Safe Harbor Statement.
Please note that today's remarks may contain forward-looking statements.
Speaker Change: These statements include, but are not limited to, statements about our 2025 outlook, expectations regarding lease above our network, demand trends, business strategies, growth prospects, the benefits of the proposed transaction between Unity and Windstream, including future financial and operating results of either company or the combined company.
Speaker Change: statements related to the expected timing of the completion of the transaction and combined company plans and other statements that are not historical facts.
Speaker Change: Please also note that Unity and Windstream, through the entity that will be the combined parent company following the merger, have filed a Form S-4 registration statement with the SEC, which was declared effective by the SEC on February 12, 2025, and includes a definitive proxy statement and prospectus that was mailed to Unity stockholders on or about February 18, 2025, seeking their approval of the transaction-related proposals.
Speaker Change: Investors are urged to read the Definitive Proxy Statement and Prospectus as it contains important information about the transaction.
Speaker Change: Numerous factors could cause actual results to differ materially from those described in the forward looking statements.
Speaker Change: For more information on those factors. Please see the section titled forward looking statements and the accompanying presentation and the risk factors section of the filed form S. Four.
Kenny Gunderman: With that I would now like to turn the call over to Kenny.
Kenny Gunderman: Thanks, Bill good morning, everyone and thank you for joining.
2024 was the most consequential year annuity history.
Kenny Gunderman: We delivered on our promises and executed exceptionally well.
Kenny Gunderman: The strategic balance sheet moves we made during the year of future proofed, our business and positioned us to create real shareholder value.
Kenny Gunderman: Our strategic recurring revenue adjusted EBITDA, and consolidated bookings growth of approximately 5%, 8% and 27% respectively.
Kenny Gunderman: Not only underscores our strong execution, but the continued strength of the demand for mission critical communications fiber.
Our balance sheet and liquidity remains strong and we're proud to be the first commercial fiber provider to access the ABS market with resounding success.
Kenny Gunderman: We believe the ABS market will be a terrific value accretive financing tool for us going forward.
Kenny Gunderman: In addition, our current business plan is fully funded and in 2025, we expect annuity will generate positive free cash flow.
Kenny Gunderman: And of course, we achieved our goal of positioning ourselves strategically to control our own destiny with our announced merger with with Windstream.
Kenny Gunderman: Are often misunderstood MLA relationship will be simplified and with nine months of hindsight. The approximately five times EBITDA valuation paid looks increasingly attractive for our shareholders.
Kenny Gunderman: The new entity will be extremely well positioned to benefit from the increasing demand from generative AI and of course, the conversion same driving strategic value for fiber to them.
Kenny Gunderman: Okay.
Kenny Gunderman: Our priorities for 2025 will not change materially.
Kenny Gunderman: We will continue to focus on best in class execution, and disciplined top line growth of mid single digits and high single digit adjusted EBITDA growth.
Kenny Gunderman: As Paul will discuss later, we also expect to fully fund the business plan of new unity, using ABS and other tools.
Kenny Gunderman: Lastly, we will have a substantial focus on building new fiber, especially on the kinetic footprint.
Kenny Gunderman: For example, windstream announce yesterday that they expect to roughly double the number of targeted homes passed with fiber for 2025 over 2024.
Kenny Gunderman: As you might recall, when we announced our merger with Windstream, we guided to an initial target of approximately $2 9 million homes.
Kenny Gunderman: By the end of 2025, we expect to reach 2 million homes, which is two years earlier than originally expected.
Kenny Gunderman: As it relates to the pending merger with Western we've received PUC approvals from 16 of the 18 jurisdictions, requiring them, including Washington D C.
And the shareholder vote to approve the merger has been set for April 2nd.
Kenny Gunderman: I encourage all shareholders to vote at the upcoming special meeting.
Kenny Gunderman: Based on where things stand today, we remain on track to close the transaction in the second half of this year and are optimistic we could close as early as July.
Kenny Gunderman: Moving to slide six I could not be more pleased with our growth trajectory and strategy of being a pure play fiber provider in tier two and three markets.
Kenny Gunderman: In the past several years, we've demonstrated predictable solid mid single digit revenue growth and accelerated EBITDA growth as we hit real leverage in the business with a heavy focus on lease up of our existing infrastructure.
Kenny Gunderman: All the while we are achieving this growth our capital intensity continues to come down.
Kenny Gunderman: As slide seven and eight highlight in order for capital intensity to come down we need to continue showing steady predictable new sales.
Kenny Gunderman: While we strive to grow bookings in correlation with our ever expanding Tam even with flat bookings in our industry, leading monthly churn of 2%, we're still able to achieve mid single digit top line growth.
Kenny Gunderman: In addition to steady bookings capital intensity has continued to decline for other reasons.
Kenny Gunderman: First in 2018, and 19, we undertook a heavy build cycle of new fiber largely in metro markets throughout the southeast.
Kenny Gunderman: Our capital intensity peaked at over 50%, but we assured investors that once passed that build phase we began leasing up those assets with attractive incremental cash flow yields and capital intensity would drop we've.
Kenny Gunderman: We've delivered on that promise.
Kenny Gunderman: Average paybacks on capital deployed have declined in that theme should continue, especially as we remain disciplined in the approach of targeting 5% to 10% anchor cash flow yields with a lease up strategy that is currently targeting 27% on a blended basis.
Kenny Gunderman: As an aside we expect to have a similar robust three to four year build cycle at kinetic but will likewise see capital intensity declined materially after the build is complete.
Kenny Gunderman: Finally, as we foreshadowed nrc's continue to creep higher offsetting capital intensity and.
Kenny Gunderman: We expect this trend to continue for the foreseeable future.
Kenny Gunderman: As I mentioned earlier, we had another strong quarter new bookings. We previously stated that 2024 was expected to be a down year for wireless, but we actually ended the year flattish to 2023 and are encouraged by the activity. We've seen so far in early 2025.
Kenny Gunderman: Flat wireless bookings were more than offset however by demand from other customers, including fiber to the home carriers.
Kenny Gunderman: The number of bookings unity saw relating to fiber to the home carriers increased threefold in 2023 versus 2022, and we saw further growth in 2024.
Kenny Gunderman: As we previously mentioned.
Kenny Gunderman: The demand from Hyperscale is continues to represent a meaningful part of bookings.
Kenny Gunderman: While hyperscale or bookings were very small in 2023 in just a year's time. They now represent about 20% of our full year bookings and we're confident this demand will continue.
In fact in addition to new deals were now seeing hyperscale or has come back and lease more fiber from us on the same routes they lease from us originally.
Kenny Gunderman: Despite the year in big activity only two of our top 20 customers in 2024, where hyperscale.
Kenny Gunderman: This demonstrates that we are a well differs diversified customer base and that our business plan is not reliant on targeting hyper scaler.
Kenny Gunderman: Or any one particular type of customers for that matter.
Kenny Gunderman: Moving to slide nine Hyperscale spending approximately $300 billion annually and a meaningful percentage of that is being spent on digital infrastructure.
We estimate the digital infrastructure Tam today to be around $40 billion with roughly $15 billion being spent on fiber and network investments.
Kenny Gunderman: In five years, we see the Tam for both of these areas growing by three to five times, creating an attractive opportunity for unity.
Kenny Gunderman: We also estimate that about 80% of the generative AI spend today is related to building large learning models for training purposes.
We are pursuing and have one fiber infrastructure builds related to training, but only where the transaction is strategically expand our network at attractive economics.
Kenny Gunderman: Said differently, we're approaching hyperscale or deals during the learning phase is anchor deals with the expectation for material lease up in the future.
In fact, although it is still early we're very pleased with the progress we've made to date as the combined yields of our Hyperscale deals inclusive of lease up are already close to 20%.
Kenny Gunderman: As I've said numerous times before we're most excited about the entrance phase of AI, which today represents a minority of the spin but in a few years is expected to be approximately 80% of the Tam.
Kenny Gunderman: During the inference space users of AI will need distributed low latency high bandwidth connectivity on our network is well positioned to benefit from those trends.
Kenny Gunderman: During this phase, we expect to see increasing MLR associated from all high bandwidth users and lease up continued lease up on the builds were undertaking during the learning phase.
Kenny Gunderman: As mentioned earlier, we're already starting to see Hyperscale has come back to us for additional fiber on initial bills.
Kenny Gunderman: In short <unk> is executing well on our core strategy of providing mission critical fiber and we're well positioned for the future.
Kenny Gunderman: I'll turn the call over to Paul.
Paul Bullington: Thanks Kenny.
Paul Bullington: I'd like to begin by reviewing our fourth quarter performance, followed by an overview of our 2025 outlook.
Paul Bullington: Already had another year of strong performance in 2024 with our core recurring strategic fiber business growing approximately 5% while consolidated net success based capital intensity continues to decline ending the year at 27%.
Paul Bullington: This all resulted in our full year 2020 for consolidated revenue adjusted EBITDA and <unk> being in line with our prior outlook.
Paul Bullington: As I'll cover in more detail in just a bit our 2025 outlook reflects the strong tailwind as we continue to see in our recurring business as well as the estimated impact from our recent ABS financing and partial redemption of the 10, 5% secured notes.
Paul Bullington: Finally, I'll end with additional commentary on our current balance sheet and capital structure.
Paul Bullington: We've also provided Windstream is fourth quarter financial information in an 8-K filed with the SEC earlier this morning.
Paul Bullington: Please turn to slide 10, and I'll start with comments on our fourth quarter.
Paul Bullington: We reported consolidated revenues of $293 million.
Paul Bullington: <unk> adjusted EBITDA of $239 million <unk> attributed to common shareholders of $92 million and <unk> <unk> per diluted common share of <unk> 35.
Paul Bullington: Combined gross capital expenditures for both Uniti fiber and Uniti leasing were $24 $3 million during the fourth quarter, which was offset by upfront customer payments totaling $23 $6 million, resulting in net success based capex of only <unk> $7 million for the quarter.
Paul Bullington: As I mentioned last quarter, there continue to be a number of encouraging trends in bookings that are driving this capital efficiency, including our continued focus on lease up and a higher mix of hyperscale deals that generally come with higher nrc's.
Paul Bullington: At Uniti leasing, we reported segment revenues of $222 million and adjusted EBITDA of $214 million representing.
Paul Bullington: And adjusted EBITDA margin of 97% for the quarter.
Paul Bullington: At Uniti fiber, we reported revenues of $72 million and adjusted EBITDA of $31 million during the fourth quarter, resulting in an adjusted EBITDA margin of 43%.
Paul Bullington: As I alluded to earlier slide 11 shows that our 2024 results were in line with our original 2024 guidance range provided early last year.
Paul Bullington: Our reported <unk> per share was lower than our original guidance due to the incremental interest from the $300 million.
Paul Bullington: Add on to our secured notes that was completed back in May and was not contemplated in our original outlook for 2024.
Paul Bullington: Turning to slide 12, our growth capital investment program continues to provide positive results for unity and given our pending merger with Windstream I wanted to highlight a key point, which I believe the market is under appreciating.
Paul Bullington: <unk> community have invested a substantial amount of capital in the network with almost $2 $5 billion invested since 2015. These.
Paul Bullington: These historical investments play a critical role in enabling kinetics industry, leading fiber to the home per passing cost.
Paul Bullington: While we estimate that backhaul equates to roughly 20% of the total cost of building fiber to the home for others kinetic has previously absorbed much of this cost having already built fiber to roughly 95% of its D Slam nodes.
Paul Bullington: Please turn to slide 13, and I'll now cover our 2025 guidance. Our 2025 outlook includes the estimated impact from the recent ABS financing and partial redemption of the 10, 5% senior secured notes our outlook excludes any impact from the expected merger with Windstream future acquisitions capital market.
Paul Bullington: Actions in future transaction related and other costs not mentioned here in actual results could differ materially from these forward looking statements.
Paul Bullington: Beginning with Uniti leasing, we expect revenues and adjusted EBITDA to be $902 million and $872 million, respectively at the midpoint.
Paul Bullington: We expect to deploy $185 million of success based capex at the midpoint of our guidance of which $175 million relates to Windstream GCI investments. We also expect the full $175 million of GCI investments for 2025 will be made in the first quarter.
Paul Bullington: At Uniti fiber, we expect revenues and adjusted EBITDA to be $304 million and $125 million, respectively. At the midpoint for full year 2025, representing an EBITDA margin of approximately 41%.
Paul Bullington: Net success based Capex for Uniti fiber. This year is expected to be $85 million at the midpoint of our guidance and represents a capital intensity of 28%.
Paul Bullington: As a result of the strong financial performance and declining capital intensity Standalone unity is expected to be free cash flow positive on a consolidated basis in 2025.
Paul Bullington: We expect full year <unk> to range between $1 40, and $1 47 per diluted common share with a midpoint of $1 43 per diluted share representing a 6% increase from the prior year.
Paul Bullington: Slide 14 provides a comparison of our 2025 outlook range as to 2024 actuals as a reminder guidance ranges for key components of our outlook are included in the appendix to our earnings presentation.
Paul Bullington: At year end, we had approximately $656 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity, our leverage ratio was five eight times based on net debt to fourth quarter 2024 annualized adjusted EBITDA, excluding the debt and net contributions from the ABS loan facility.
Paul Bullington: Slide 15 illustrates how <unk> cost of capital has improved significantly over the past two years.
Paul Bullington: If you go back to this time two years ago. When we launched our 10, 5% secured notes offering our secured and unsecured debt was yielding over 12% fast forward to today and our debt is currently yielding around seven 5% a 500 basis point improvement in just two years.
Paul Bullington: As a result, we've taken an opportunity opportunistic approach to strengthening our combined balance sheet and we will continue to look for opportunities across all of the debt markets to which we have access most.
Speaker Change: Most recently as Kenny mentioned, we successfully completed our inaugural ABS transaction at a blended coupon of less than six 5%.
Speaker Change: This transaction provided additional capital that we used to redeem a portion of those 10, 5% notes and an attractive premium.
Speaker Change: This redemption, along with financing activities conducted by Windstream last year successfully retires or extends a meaningful portion of our combined debt that was set to mature in 2028.
Speaker Change: Regarding ABS, we continue to view that market as an attractive source of financing that complements our existing capital structure, well and we will continue to evaluate further opportunities to expand our current program.
Speaker Change: To that end, we believe that the potential incremental ABS capacity on our fiber assets at unity and the potential for ABS on the kinetic assets represents a $1 billion plus near term opportunity for the combined company with considerable incremental capacity potential above that over time.
Speaker Change: On slide 16, we provided a 2025 pro forma view of revenue and adjusted EBITDA for new unity by each segment, we expect to report on post close.
Speaker Change: Kinetics and fiber infrastructure consists of a highly predictable core recurring revenue base that continues to grow and yield attractive margins.
Speaker Change: As a reminder, our fiber to the home platform will continue to be branded as kinetic fiber infrastructure will include our current uniti fiber and Uniti leasing segments, along with the Windstream wholesale segment, all of which are highly complementary and will combine to create a premier fiber infrastructure company with both national and deep regional capabilities.
Speaker Change: As well as a fiber network that is predominantly owned and operated.
Speaker Change: Going forward as we continue to transition away from legacy services, such as Windstream Tdm services, we continue to expect but kinetic and fiber infrastructure segments to realize low to mid single digit topline growth with an improving margin profile with that I'll now turn the call back over to Kenny.
Speaker Change: Yes.
Kenny Gunderman: Thanks, Paul.
Speaker Change: Slide 18 showcases the reach of new Unities insurgent fiber network, extending our successful strategy of targeting tier two and three markets for wholesale and enterprise now into residential fiber to the home.
Speaker Change: Our true North is building fiber, one and less competitive markets, giving us the right to win for many years into the future.
Speaker Change: Including connected buildings fiber to the tower and small cell connections connected pops in data centers and the $4 4 million total homes within kinetics current footprint.
Speaker Change: Community will have the potential to reach over 5 million connected on ramps and largely unique locations.
Speaker Change: Each driving increasing amounts of bandwidth onto our owned wholesale network.
Speaker Change: Slide 19 highlights some of the benefits of bringing Uniti and Windstream together.
At Unity, we have been able to drive attractive financial results in large part because of our fully owned fiber network and associated owners' economics.
Speaker Change: Our combination with Windstream not only extends our fiber network materially, but will bring large parts of west change business on net immediately with a four year plan to achieve virtually a 100% on that.
Speaker Change: As such with the owner's economics in our same disciplined growth strategy. We will eventually see similar economic trends and Windstream business, including mid single digit revenue growth growing EBITDA and declining capital intensity.
Speaker Change: A big part of moving Windstream on that is transitioning kinetic off of legacy based copper systems onto fiber.
Speaker Change: As mentioned earlier by the end of 2025, we expect to have converted about $2 million of kinetic $4 4 million homes with fiber and.
Speaker Change: And by 2029, and we expect to have built fiber to between $3 to $3 5 million pounds.
Speaker Change: Lastly, we have aggressively managed out of legacy services at unity and plan to continue that strategy at the combined new unity.
Speaker Change: Our ability to address the burgeoning hyperscale opportunities is going to be enhanced as well west.
Speaker Change: Western's wholesale network is highly complementary to ours on key routes and Windstream is largely lit waves product capabilities are additive to our strong dark fiber portfolio.
Speaker Change: On a combined basis, we'll be able to sell our full product suite and immediately began selling into an expanded customer base.
Speaker Change: Even that Windstream has an incremental 40 different MLA with Hyperscale.
Speaker Change: To complement <unk> current count of only four.
Speaker Change: Finally, as we mentioned previously we believe the real opportunity with generative AI is when the influence phase begins in earnest with.
Speaker Change: With a dramatic increase in distributed endpoints coming with our Windstream combination our ability to provide enhanced broadband connectivity with low latency increases materially.
Speaker Change: We remain committed to making progress on numerous key initiatives between signing and closing of our transaction.
Speaker Change: First both companies continue to execute well and we continue to provide a unified investor relations outreach to help investors understand the new unity.
Speaker Change: Next we're excited to have completed the simplification of our new pro forma balance sheet at closing.
Speaker Change: Paving the way to rollout, our accelerated and expanded fiber to the home plan.
Speaker Change: We're also actively working with kinetic on an integration plan to achieve our synergy goals.
Speaker Change: We expect to receive shareholder approval in April and after that we anticipate providing greater clarity on our ongoing plan focusing primarily on the holistic kinetic build plan, but also other key strategic initiatives.
Speaker Change: Let me close by Restating, how excited we are for our pending merger with Windstream.
Speaker Change: Unity is at the epicenter of the growing convergence theme highlighting substantial strategic value of kinetic and at scale fiber to the home platform.
Speaker Change: Our fiber infrastructure business is uniquely positioned to benefit from the explosion in broadband demand in general, including the demand being fueled by Hyperscale.
Speaker Change: With that we'd be happy to take your questions.
Speaker Change: Thank you as a reminder to ask a question. Please press star one to one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Greg Williams from TD Cowen.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Tony I was just wondering on slide nine are super helpful that your excitement for the infant stage.
Speaker Change: Kind of curious about the timing of that and.
Speaker Change: The opportunity of infant in tier two and tier three markets. Because there is a thought that inference is really going to be any availability zones in major metro markets.
Speaker Change: Trying to gauge how you're going to win in the smaller tier two tier three markets for inference. You did mentioned if windstream is in 40 markets and maybe the opportunities there.
Speaker Change: Second question is on just the AI bidding environment, how rational is the bidding environment with your competitors at the RFP table. I mean, you have disciplined healthy yield but on the deal you don't win do you suspect competitors, you're taking lower yields.
Greg Williams: Good morning, Greg all good questions, let me make sure I hit them all.
Greg Williams: On the upper Phase, Yes, I think it's already started honestly as we said that roughly 20% to 25% of the spend today is related to that.
Greg Williams: And we think thats going to grow we're saying in our slide that by 2030 that will flip to 80% entrance and we think that will just gradually increase that number over time I think things like.
Greg Williams: And Theres, a tremendous amount of dollars being spent on innovation, whether it's from the big Tech companies in the U S or frankly around the world.
Greg Williams: Billions of dollars being invested.
Greg Williams: Foundation States and by various technology companies, obviously deep seek being example of that all of which we think just accelerates the proliferation of AI. So I don't think it's going to take five years for us to get to that 80% spend on efforts, but that's what we're putting on the paper.
Greg Williams: To your question about <unk>.
Tier two and three markets versus tier one it's a recurring theme that our markets tend to be fast followers on some of the themes, whether it's going back to the wireless days of getting good cellular coverage and then eventually <unk> and <unk>. They started in the major metros and that hit our markets.
Greg Williams: And I don't think thats going to be any different for inference, because I do think theres got to be more investment made to push.
Greg Williams: Out to those regions, but the.
Greg Williams: The flip side of that it has always been true of US also which is that's okay. We're getting their first to those markets in first to those regions with our fiber so that when the demand does come we're there and we've been able to build generally build moats around those markets and we'll capture our fair share or a disproportionate.
Greg Williams: The amount of that demand when the time comes so we're excited about that into your comment about the 40.
Greg Williams: Windstream.
Greg Williams: Markets from our prepared remarks, what I was actually referring to his 40 different customer relationships.
Greg Williams: <unk> bye.
Greg Williams: <unk> MLA with hyper scaler, which is really important and at unity. We only have four and we are developing more and more of those but even with that with those four MLA as we're driving the substantial demand that we talked about in our prepared remarks, and so when you're on a combined basis. When you take that for an expanded to 44.
Greg Williams: Having those existing relationships in those existing agreements in place cuts.
Speaker Change: Cuts off a lot of negotiating time, yes.
Speaker Change: <unk> takes six nine some in some cases 12 months to get them in place and so really helps accelerate our sales cycle. So that's a little bit independent of your inference point, but I just wanted to get that out there because it may be my prepared remarks.
Speaker Change: Clear enough on that on that point, but we're very excited about that about the combination with windstream wholesale.
Speaker Change: And look on your question about the rational spending it's a great question, because we've definitely seen periods of time in the fiber business, where irrational capital has pushed yields down.
Speaker Change: And so we have always stay true to our 5% to 10% anchor yields with a really clear plan to lease up on top of that and as I said in my prepared remarks, we're already seeing the early returns of that strategy in our hyperscale deals so over the past.
Speaker Change: 12 to 18 months.
Speaker Change: Building these new Hyperscale deals.
Speaker Change: We've never given an exact yield for the for the anchor deals, but we have said.
Speaker Change: They tend to be at the high end of that anchor range if not above.
Speaker Change: But regardless on a blended basis with those initial economics plus lease up that we're already seeing we're close to 20% yields on those deals and so very excited about the future there and very excited about building more of these large infrastructure deals for Hyperscale is to get the infrastructure further into our.
Speaker Change: Markets.
Speaker Change: Set up for that inference phase.
Greg Williams: The competitive environment, so far to the heart of your question, Greg We think has been rational.
Greg Williams: I can probably count on less than one hand, the number of deals that we have lost at unity that we actually bid for.
Greg Williams: And.
Greg Williams: I suspect that's because we were undercut on price, perhaps we don't know that definitively.
Greg Williams: But in reality.
Greg Williams: We're really going for new business, we've got good enough customer relationships and we've got network in the right places and we've got a track record with for executing with with the various Hyperscale is that we tend to win what we go after and we're winning at economics that are good for us and for our Hyperscale customers. So.
Greg Williams: All that to say so far so good on the rational rationality of the market approaching these spends or at least in our in our patches sandbox.
Greg Williams: Great. Thank you.
Greg Williams: Thank you.
One moment for our next question.
Speaker Change: Our next question comes from the line of Frank Louthan from Raymond James and Associates.
Speaker Change: Alright, great. Thank you. So couple of quick things. So you said youre going to rely on ABS funding largely going forward can you give us what's the optimal mix that we can expect for the combined business for ABS versus other debt instruments and then you mentioned I think you mentioned, the GCI builds compressed and youre going to into Q1.
Speaker Change: You're going to reach 2 million homes can you frame that in terms of the number of homes you expect to build and then.
Speaker Change: Where will that end up with as far as the subscriber adds are you focusing more on the construction and a little less on the marking this year or will that will go in lockstep.
Speaker Change: And should we see an equivalent lift in the subs for the year. Thanks.
Speaker Change: Hey, Frank This is Paul I'll take your first question on ABS and maybe Kenny you will take.
Speaker Change: Your second question on.
Speaker Change: On the kinetic strategy for the year, but.
Speaker Change: Frank I think it's hard to box us into what I think is the.
Speaker Change: As the optimal mix of ABS versus.
Speaker Change: Other.
Speaker Change: Other more traditional debt that at least in terms of <unk> capital structure historically.
Speaker Change: We do think that we do have an appetite for more ABS, we think that the.
Speaker Change: The cost of that capital the leverage.
Speaker Change: Profile.
Speaker Change: Of that in terms of the assets that we move into an ABS type facility. We think is complementary.
Speaker Change: To that and really enhances our cost of capital and the overall healthiness of our balance sheet I think over time. So I do expect it to grow I think over time. The optimal mix is we're going to stay open to.
Speaker Change: Adjusting with how the market moves on that I think if if ABS proves to be.
Speaker Change: A lower cost of capital more attractive source and that market continues to have a large appetite for.
Speaker Change: For that I think youll see us do more but there are certainly times, where the high yield market and other markets have been highly attractive.
Speaker Change: As well, particularly the unsecured.
Speaker Change: Outside of the market, which which hasnt been open for a lot of high yield providers for a few years, but it is opening back up now in terms of unsecured the unsecured market, which we'd like to make sure. We have a healthy mix of that in our capital structure as well so.
Speaker Change: <unk> really answering your question in terms of an exact percentage, but I think I think we'd like to add more and we're going to continue to kind of.
Speaker Change: Move where the market says our best opportunity is for for managing our capital structure to the lowest cost of capital on a go forward basis.
Speaker Change: Okay great.
Frank: Frank Good morning on your on your second question so.
In 2020 for Windstream built about 170000, new homes that seems like a low number but in reality it was.
Frank: Building to a lot of the subsidized homes with with art off and PPP and so those are.
Frank: Longer builds and so the number just just is lower for that reason, but but it set us up for.
Frank: For a substantially higher number in 2025 as we focus on more strategic builds which are the non non subsidize build so in anticipation of our of our transaction closing, we're we're excited and Windstream announced yesterday and we have it in our materials today, but the kinetics is going to build around.
Frank: 325000 homes. This year, so almost doubling what was built last year and we think we think that never can grow over time.
Frank: And as we said in the prepared remarks, we think we think ultimately we can get to three to three 5 million homes economically.
Frank: And the footprint.
Speaker Change: And by the end of 2025 as you said, we should be at around 2 million homes, which if you remember was it.
Speaker Change: Actually just exceeds the original build target that Windstream has put out their previous two hour.
Speaker Change: Combination. So we're excited that that original plan is going to be built by the end of 2025. Two years ahead of the original plan.
Speaker Change: And so look I think that the footprint has a tremendous amount of opportunity in it again, it's a relatively.
Speaker Change: Less urban footprint tier two and tier three markets and so over builders have continued to stay at.
Speaker Change: At Bay in the footprint.
Speaker Change: With that said, we don't want to let any grass grow and we want to get the strategic markets built ASF and then of course, there is the beta beat opportunity out there to reach areas of the footprint that wouldn't be economical without some sort of subsidy. So we're excited about the strategic opportunity plus the.
Speaker Change: The subsidized opportunity around the edges that that's really going to get us to substantial fiber coverage in the footprint.
Speaker Change: And it looks was fiber subs will come.
Speaker Change: Fiber subs are highly correlated to obviously building fiber to the homes.
Speaker Change: And to your point, we're definitely going to stay focused on building and the go to market and marketing at the same time theres not theres not going to be.
Speaker Change: Those are neck and neck from a priority point of view and.
Speaker Change: As Windstream has said publicly and we've reiterated in the past 12 months past 18 months, there's been a substantial improvement in the initial penetration levels in the coke the ladder built cohorts.
Speaker Change: And they're in the 25% to 30% range for initial penetration which is terrific.
Speaker Change: And we expect to continue that focus going forward. We've got we've got some nice.
Speaker Change: Enhancements to the plan that we are.
Speaker Change: Pairing to rollout, but we're excited about the progress thus far and there is the opportunity to go back to those original cohorts, where penetration levels were a little bit lower initially and we're now starting to see with some of the more enhanced local market presence and digital marketing.
Speaker Change: Those penetration levels are also coming up so.
Speaker Change: A lot of growth potential its exciting to see kinetic being a share taker.
Speaker Change: And we don't see that changing anytime in the next number of years.
Frank: Frank I'll, just add just in terms of the timing of GCI.
Frank: But the timing of that kind of all being compressed into the first quarter of this year. It was more a function of just the mechanics of GCI than necessarily correlated to two.
Frank: Towards the Windstream 2025.
Frank: The accelerated build plan so.
Frank: Recall back to last year, we maxed out.
Frank: About mid year about July of last year, and so it hasnt been.
Windstream Hasnt had the ability to submit for GCI reimbursements since last July so they've got they've got a backlog that then becomes eligible.
Frank: In the first quarter. So it was really a little bit more function of the declining GCI.
Frank: <unk>.
Frank: Investment.
Frank: Coming down from 250, plus to now $175 million in 2025.
Frank: Alright, great that's really helpful. Thank you.
Frank: Thank you.
Frank: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced towards the draw. Your question. Please press star one one again.
Frank: Please standby, while we compile the Q&A roster.
Frank: One moment for our next question.
Speaker Change: Our next question comes from the line of Bora Lee from RBC capital markets.
Bora Lee: Good morning, Thanks for taking the questions.
Bora Lee: So I guess first of all I was wondering how have the more recently the hyperscale or change the way you think about how and where your thoughts in terms of the amount of fiber.
Bora Lee: Fiber supply geography number of IL is required and so on.
Bora Lee: With a high level your thoughts there.
Barbara: Good morning, Barbara Yes.
Barbara: In short it certainly has changed.
Barbara: The way, we've approached new builds and in a nutshell the amount of <unk>.
Barbara: Capacity needed from a strand count perspective.
Barbara: Empty conduits excess conduits as all increased dramatically.
Speaker Change: I think I mentioned in a previous which is terrific.
Barbara: I mentioned previously.
Barbara: That.
Barbara: We were selling six months to 12 strands to hyperscale or as recently as a couple of years ago, and now we're selling $4 64 strand counts or well north of that.
Barbara: And as I mentioned in our prepared remarks, we're already seeing Hyperscale has come back to us for additional fiber on top of those of those already large.
Barbara: Initial purchases and again not every transaction is the same.
Barbara: Generalizing, a little bit but ultimately.
Barbara: Substantial increases in strand count substantial increases in excess.
Barbara: Conduit capacity.
That also and we're absolutely looking at <unk> and the implications for <unk> because as a result of the tremendous increase in strand count you've got to think about providing for space and power and cooling and Iowa facilities and so we've got an active work stream going on now too.
Barbara: Two.
Upgrade our standard Iowa facility.
Barbara: Allow for that enhanced.
Barbara: Those enhanced needs as a result, and we're excited to be doing that because that means incremental bandwidth. It means incremental usage and obviously incremental revenue for us and it ultimately can drive greater yields on the on the dollars that we're putting into the ground.
Barbara: Geographically, we've stayed disciplined with respect to the deals that we're pursuing we're really building new fiber in areas that really enhance the strategic value of our network. We're not we're not going off into remote locations, where theres not going to be a second or third use of that fiber.
Barbara: And therefore lease up potential we're really staying focused on routes.
At areas of our footprint.
Barbara: That we've wanted to build for some time, but couldnt make the economic case work or where we're expanding into areas, we hadn't anticipated, but we do see incremental lease up demand, but again in our footprint.
Barbara: We're expanding our footprint around the edges to give us greater opportunity going forward.
Barbara: We're also looking at.
Barbara: The incremental maintenance requirements required of substantially higher strand count. So for example, with.
Barbara: If you need to displace us six strand, count or 12 strand count.
Barbara: The opportunity that is.
Barbara: It's substantially more complicated when you talk about at 864 Strand count.
Barbara: Opportunity right I mean, thats, just a dramatic increase in fiber and so the maintenance requirements go up in the repair requirements go up I mean.
Barbara: 864 strand count cable is cut imagine going in and having to unwind that.
Barbara: And cleared out and replace it Theres just a lot of.
Barbara: Applications, there that that exists today that didn't exist 12, or 18 or 24 months ago again, all good opportunities for us because the hyperscale or don't want to have to deal with those things.
Barbara: Companies like us with boots on the ground around our network.
Barbara: Are able to provide that service.
Barbara: Which give us a stickier customer relationship, especially if we execute.
Barbara: We always have so a lot of implications, but I think all good for our business for us.
Barbara: Alright.
Barbara: And for.
Barbara: My second question in terms of wireless bookings there were a bit.
Barbara: I guess a bit soft last year, just because of the carrier.
Barbara: Industry activity. So I'm wondering how does that close down if there was that pickup towards the end of the year that you thought might happen.
Barbara: And your outlook for that vertical in 2025.
Yes, good question Bora and good recall on our comments at the beginning of 2024, we said, we thought wireless bookings would be down for the year in 2024 versus 2023, but we thought that towards the end of 2024, there would be.
Barbara: Would start to see a pickup in wireless activity.
Barbara: We were right in one regard and wrong in another ultimately the wireless bookings for 2024 were not down they were roughly flat compared to 2023.
Barbara: So still muted.
Barbara: But flattish instead of down.
Barbara: And secondly, rather than seeing the pickup in that.
Barbara: In the second half of 2024, we really are starting to see it at the beginning of this year.
Barbara: And so we're excited about the prospects for 2025 I would I will tell you that when we don't we don't guide to.
Barbara: Bookings categories, but since you asked the question I will tell you that we are expecting wireless bookings to be up this year compared to 2024.
Barbara: And so far the activity that we're seeing at the beginning of this year helps helps give us confidence that that.
Barbara: That should turn out to be the case.
Barbara: Great. Thanks, Kevin.
Barbara: Q.
Barbara: Thank you.
Barbara: At this time I will now turn the conference back over to Kenny Gunderman for closing remarks.
Thank you. We appreciate your interest in Uniti group and look forward to updating you further on future calls. Thank you for joining us today.
Barbara: This concludes today's conference call. Thank you for participating you may now disconnect.
Barbara: Okay.
Barbara: [music].
Barbara: Okay.
Barbara: <unk>.