Q2 2019 Earnings Call
Ladies and gentlemen, please standby today's conference will begin in one minute. Thank you again, ladies and gentlemen, today's conference will begin one minute. Thank you.
A webcast of this call will be available on the company's website www dot units <unk> Dot com beginning August eight 2018 and will remain available for 14 days.
At this time, all participants are in listen only mode.
Your friends on the call will have the opportunity to ask questions.
Following the Companys prepared comments.
The company would like to remind you that today's remarks include forward looking statements.
Actual results could differ materially from those projected in two segments.
The factors that could cause actual results to differ are discussed in the companys filings with the FCC.
The company's remarks, this afternoon referencing slides posted on its website.
And were encouraged to refer to those much else during this call.
Discussions during the call will also include certain financial measures.
But were not prepared in accordance with generally accepted accounting principles.
Reconciliation of dosing on T.A.P. financial measures to the most directly comparable G. Eight financial measures can be found in the company's current reports on form eight does speak they did today.
I would now like to turn the call overseas Guinea Pig <unk>, Chief Executive Officer, Kenny Gunderman.
Please go ahead Mr. gundermann.
Thank you.
Good afternoon, everyone and thank you for joining.
Despite the expected volatility of the Windstream bankruptcy proceedings, all of our business segments continue to execute well on their operating priorities for the year, which is reflected in our solid results from the second quarter.
We also continue to invest in our premier infrastructure assets, primarily through the build out of fiber networks for macro back haul back haul towers and small cells.
As well as new tower builds as our <unk> wireless carriers are moving towards a broader rollout fiveg wireless services.
With this expected closing of a bluebird transaction later this year.
Unity will have nearly 6 million strand miles valuable own fiber.
A significant portion of that fiber uniquely positions, both unity fiber and unity leasing to capture the increasing demand for wireless and on <unk>.
Wireless services.
A unity fiber, we continue to execute on our strategy ever replacing shorter term <unk> wireless back haul with longer term contractual dark fiber and small cell revenue.
As well as leasing up our anchor wireless builds primarily through non wireless services, such as enterprise E rate and government.
This is reflected in our strong levels of bookings and installs in the second quarter with Robert details shortly.
As a reminder, these lease up opportunities drive attractive incremental cash flow yields at substantially less capex in our anchor world.
We're also announcing today the sale of armed U.S. ground lease business, which I will cover in more detail later in the call.
Similar to recent sell over Latin American tower portfolio, the sale of our U.S. ground lease business recycles capital at attractive returns.
Well also allowing unity to primarily focus on a strategy of building towers within the U.S.
We currently have consolidated revenue remaining under contract of nearly $10 billion and excluding revenue relating to the Windstream lease our total revenue under contract grew 15% from the prior year second quarter, which included the TBM Centurylink and stable south transactions.
Nearly 95% of our remaining time revenue under contract.
Relates to leasing towers, dark fiber and small cells.
Which have little to no churn associated with them and provide highly visible steady cash flows over the next 10 to 20 years.
As a result, our companys monthly churn for the quarter remains less than 2.5%.
On par with some of the best operators within the communications infrastructure industry.
Let me now provide an update on our operational results.
Unity fiber sales bookings in the second quarter were approximately 8.7 million of them are or <unk> point Threemillion sequential increase from the prior quarter.
85% of our sales bookings in the second quarter came from local enterprises and government K through 12 schools and wholesale and 15% from the four national wireless carriers.
As I mentioned on our last earnings call. We expect non wireless bookings will continue to comprise the majority of our bookings going forward as we ramp up the lease up of our dark fiber and small cell networks that are nearing completion.
A significant part of our non wireless bookings in the second quarter came from E rate, representing over 2.2 million of them are or.
As you recall, we had a successful E rate season, this year, retaining almost all of our existing direct customers, while adding several new customers, including a large metropolitan School district in Florida.
On wireless bookings, we continue to see robust RFP activity for both small cells and backhaul from our wireless carriers as they continue to ramp up the eventual broader rollout of fiveg.
Unity fiber installed point $8 million of M.R.R. during the second quarter 2019, its highest level of install activity over the past six quarters.
48% of gross installs related to non wireless opportunities, 36% related to wireless with 23% of total gross installs coming from dark fiber backhaul and small cell projects.
And 16% related to bandwidth upgrades.
Total churn for the quarter was point 5 million, resulting in a monthly churn rate of 8.9% for unity fiber.
A sequential improvement of 10 basis points from the prior quarter.
Disconnect churn was 0.8% for the quarter, primarily driven by lit backhaul and enterprise disconnects.
We expect churn to be somewhat elevated in the third quarter due to increased re rate churn related to the renewals several contracts as well as churn related to numerous lit backhaul sites that are expected to convert to dark fiber.
Although the dark fiber sites that are replacing lit backhaul sites are installed at a lower MSR or the contract length of those dark fiber sites is approximately 20 years versus average remaining term of approximately four years of the lit backhaul sites.
Resulting in a net increase of total remaining contract value.
In the fourth quarter, we expect churn to return to more normalized levels.
Turning to towers in the U.S., we now expect to complete the construction of approximately 240 towers in 2019.
We continue to focus on leasing up our towers with additional tenants and we expect our lease up activity on our U.S. tower portfolio portfolio to ramp throughout the remainder of 2019 and into 2020.
Also we recently signed a long term master lease agreement with another major national wireless carrier to co locate their equipment on our macro towers and small cell locations within the U.S.
The initial term of this agreement will be 25 years.
We now have the malaise in place with three of the four major wireless carriers, which reinforces our belief that wireless carriers continue to look to diversify their vendor relationships in the tower industry.
And a further highlights the value of our multiproduct infrastructure offerings, including fiber small cells and macro towers.
And unity leasing we continue to pursue additional lease up opportunities that will utilize our existing fiber assets.
While also pursuing additional value creative sale leaseback opportunities in Opco propco structures.
Similar to the previously announced Bluebird transaction.
I'd like to reiterate that the economics of additional lease up community leasing are very attractive with near 100% margins and little to no additional capex required.
Given this attractive economic profile, we made the board more capital into unity leasing over time than any of our other business segments.
Before I turn the call over to Mark I'd like to take a minute to comment on the T mobile sprint merger.
Consistent with our previous comments, although there is some overlap in our backlog between T mobile and sprint and there's also the potential for near term, Kevin cannibalization of some of our bookings and revenue.
Overall, we view the potential merger as a long term positive for unity as the network investments of the combined company appears to be an increase over each company's investments as a standalone entity.
The commitment by T mobile and sprint to invest substantially in rural broadband and the rollout of Fiveg services would be a great fit for our overall strategy and network.
We also view the possibility of dish, becoming a major facilities based provider as a positive I believe the unity is uniquely positioned to become a full service infrastructure provider for dish in the coming years.
With that I will turn the call over.
Thanks, Ken and good afternoon, everyone.
It was a busy second quarter for unity and I expect the pace of activity to accelerate for the balance of the year.
During the quarter, we accomplish a number of key objectives first we strengthened our balance sheet with the exchangeable notes offering.
Improved our debt maturity profile with a two year extension of our revolver.
Second we closed on the sale of our Latin American tower business and are you at U.S. ground lease portfolio, adding $130 million to our liquidity.
Third we settled our hurricane Michael insurance claims in the fiber for over $12 million.
And last we continue to work through the winter during bankruptcy process with our stakeholder interests being top our top priority.
As importantly, our business units could continue to perform well and industry dynamics continue to be favorable.
With that backdrop I'll start with a review of our second quarter, and then discuss our updated guidance.
Turning to slide five.
We reported consolidated revenues of 264 million, which was up 7% from the same quarter in 2018.
We achieved consolidated adjusted EBITDA of 270 million I'm sorry.
I'm, sorry, 207 million up 5% from the same period in the prior year.
Hey, AFFO attributable to common shares was 105 million and AFFO per diluted common share was 55 cents.
Net income attributable to common shares for the quarter was 38 million or 20 cents per diluted share.
Net income was impacted by a handful of items that did not affect a at the FFO, including 128.8 million pre tax gains on the sale of our Latin American tower portfolio and U.S. ground lease business.
Two a $22.3 million gain on changes in fair value of contingent consideration.
And three transaction and integration related costs 7 million that partially offset these gains.
Our diluted share calculations were also impacted this quarter by a couple of items.
The accounting treatment for the exchangeable notes that we issued on June 28.
And the conversion of the series a preferred stock that occurred on July 2nd increase our diluted common shares by approximately 10 million shares during the quarter, increasing our second quarter weighted average diluted shares outstanding.
To 193 million.
While our diluted common share information reflects the required gets converted method of accounting for our exchangeable notes and series a preferred stock.
I would emphasize that the exchangeable notes contained significant settlement optionality for unity.
In fact structuring flexibility was an important consideration in our decision to access the capital markets.
Ill touch more on this topic later in my remarks.
Starting with unity leasing.
For the second quarter, our leasing segment revenues were $177 million with adjusted EBITDA of 176 million.
Non windstream revenues and adjusted EBITDA were $5.3 million and $4.6 million, respectively, and should continue to represent a growing share of using leasing revenue over the next several years.
Our sales funnel unity leasing remains well diversified with opportunities from international domestic and regional carriers carriers as well as cable and content providers.
Our current UTI leasing sales funnel represent approximately $18 million at annual revenue.
$350 million total contract value.
During the second quarter Wintry made approximately $50 million of improvements to our network with their capital, bringing the cumulative amount since our spin off to just under $690 million at tenant capital improvements.
Moving now to our fiber business.
During the quarter, we turned over approximately 340, dark fiber and small cell sites across multiple markets for wireless carriers, adding annualized revenues of over $2.2 million during the quarter.
Yes, the Fibernet success based Capex was $50 million in the second quarter, we also incurred $4 million of integration capex related principally to our off net savings initiatives.
Integration Capex was higher in the second quarter than we expected as a portion of the integration capex that we anticipated to be incurred later in the year was pulled forward.
Maintenance capex for the quarter was approximately $2 million or about 2% of revenues.
Uniti fiber reported revenues of $81 million and adjusted EBITDA of 37 million.
Achieving adjusted EBITDA margins of 46% for the quarter.
Excluding 5.8 million of income related to Hurricane Michael insurance recoveries adjusted EBITDA margins were approximately 38%.
Consistent with our prior expectations.
Unity towers reported revenues of 3.1 billion at near breakeven adjusted EBITDA for the second quarter.
These results reflect the impact of the sale of our Latin American operations, which were sold on April 2nd and the sale of our ground lease.
Business, which was sold in late May.
Towers Capex was approximately $31 million during the second quarter, we completed the construction of 69 towers.
During the quarter about 11 more than previously expected due to the increased development activity with our anchor tenant.
For the first six months of 2019, we completed 143 towers in the us.
Bringing our completed and in service power count at quarter end to 573 towers.
We currently have approximately 225 additional towers in various stages of development.
Turning now to corporate items during the second quarter, we issued 345.
Billion dollars principal amount of 4% exchangeable senior notes, which mature on June 15 2024.
The initial exchange process. The exchangeable notes is approximately $12.43 per share representing a premium of 32.
0.5% to the closing price of our common stock on the container pricing.
The exchangeable notes, our Ics, which are exchangeable into cash shares of common stock or a combination of both at our election.
In connection with the offering entity also entered into a series of previously announced hedging transaction that effectively increase the conversion price to approximately $16.42.
With regard to the accounting treatment for the exchangeable notes, we were required to reflect the fully diluted impact of the exchangeable notes in the presentation at earnings FFO and AFFO per diluted shares as yet the exchangeable notes had been converted into common shares on the date of issuance.
Currently certainly strictures restrictions under the fourth amendment to our credit agreement preclude us from catch something the exchangeable notes.
What's.
Certain of the conditions are satisfied these restrictions will no longer be applicable and utility may at its option irrevocably elect to settle the par amount of the exchangeable notes in cash.
In that circumstance, we may no longer be required to account for the diluted impact of the common shares outstanding in the presentation of our per share.
For diluted share metrics in future periods.
As previously announced we also entered into an amendment to our credit agreement that extended the maturity date of 575.9 million.
Dollars of commitments by two years to April 24, 2022.
As part of that transaction, our LIBOR boring current cost under our revolving credit agreement increased 200 basis points.
A portion of the net proceeds from the exchangeable notes were used to repay outstanding borrowings under our revolver and to pay the cost of the hedge transactions.
Please turn to slide six and I will now cover our current 2019 outlook.
Our updated outlook for 2019 revises, our prior guidance primarily for the following items.
The sale of the U.S. ground lease business incremental interest expense relating to the exchangeable notes offering and an amendment of our revolving credit facility.
The dilutive impact from the accounting treatment of our exchangeable notes.
In series a preferred stock.
Transaction costs and other income reported during the first half of the year.
In other business unit level revisions.
While our outlook includes the effected sleeper transaction, which is expected to close near the end of the third quarter.
As a reminder, this transaction includes a 20 year initial term master lease with an initial cash yield of 9.6% and over $20 million in annual cash rent.
Our our outlook excludes any future acquisitions capital market transactions and future transactions and integration costs, except for those specifically mentioned.
Our current outlook anticipates that Windstream continues to make timely payments have already under our master lease.
Our outlook is subject to adjustment based on events are rising at a windstream to report reorganization proceedings, the timing and closing of acquisitions in the future capital market transactions market conditions Finalization of purchase price allocations related to acquisitions and other factors.
Actual results could differ materially from these forward looking statements a reconciliation of our current outlook to our prior guidance is included in the presentation materials posted on our website today.
Our current year, our current full year outlook includes the following items for each segment.
Starting with the leasing we now expect leasing 2019 revenues and adjusted EBITDA to be $714 million and $708 million respectively at the midpoint.
This isn't it.
This is approximately $1 million increase from our prior guidance due to incremental TCR revenue.
Moving to slide seven weeks deck unity fiber to contribute $334 million of revenue $133 million of adjusted EBITDA.
And achieve adjusted EBITDA margins of a <unk> of about 40% for the full year at the midpoint of our outlook.
Revenue.
Fiber is approximately $3 million lower than our prior guidance, primarily due to the lower than expected Mandiant services sales at <unk>, yes.
As well as the timing of lower margin construction and equipment sale revenue.
Adjusted EBITDA is approximately $5 million higher than our prior guidance due to due to the hurricane Michael insurance recoveries, partially offset by the net margin effect of lower revenues.
Excluding insurance recoveries adjusted EBITDA margins are expected to be approximately 38% for the full year consistent with our prior outlook.
As previously mentioned our guidance reflects the sale of our unity fiber Midwest operations as part of the Bluebird transactions.
We now expect our net success based Capex for unity fiber for 2019 to be about $140 million at the midpoint of which about 30% will be directed towards the dark fiber and small cell projects.
Of the seven dark fiber projects and seven small cell projects currently under construction, we still expect all of these to be completed by year end, except for too dark fiber projects and one small cell projects that should finish in 2020.
Upon completion. These 14 projects are projected to consume $38 million net capital in 2019 and $29 million in 2020.
In aggregate upon completion, we expect these projects to have an initial anchor cash yield of approximately 6%.
We expect Uniti fibers net success based capital intensity to be about 42% for 2019.
And then trend towards the mid 30% range by the end of next year.
We also expect integration and integration and maintenance Capex for 2019 of $13 million and $8 million respectively.
Turning to slide eight.
As I mentioned earlier, we we close on the sale of substantially all of our US Grantley leases on May 20, Threerd and the results.
And the results reflected our 2019 guidance up to that date.
The impact of our revenue guidance for the remainder of the year from the sale of the ground lease portfolio was approximately $1 million, which is offset by higher revenue with increased power development activity in the second half of the year.
For 2019, we expect our revenues to be about $15 million and reported adjusted EBITDA of $1 million $1 million in 2019.
We now expect towers to complete the construction of 240 towers. This year with capital expenditures forecast to range from 95 million to 105 million that will result in unique towers, having approximately 670 completed towers at year end.
Our outlook range for capital expenditures increased $35 million from our prior guidance.
Due to the expected increase in tower development activity.
Turning to slide nine.
For 2019, we now expect full year AFFO to range between $2.08 in $2.13 per diluted common share with a midpoint of $2.10 per diluted share.
On a consolidated basis, we expect revenues to be nearly 1.1 billion and adjusted EBITDA to be $819 million at the midpoint.
We expect weighted average diluted common shares outstanding for the full year 2019 to be approximately 201 million shares up about 10% from our prior guidance.
Of the approximately 18 million shares increase over our prior outlook, forming and shares relates to the weighted average impact of issuing 9 million shares of common stock in July 2nd for conversion of the series a preferred stock and 40 million shares relates to the accounting for the exchangeable notes.
Which were issued on June .
28, using that gets converted method of accounting.
As a reminder, our guidance rate our guidance ranges for key components of our current outlook are included in the appendix to our presentation today.
On slide 10, we have provided and Taboola reconciliation of our prior guidance to our current.
Updated 2019 outlook, which summarizes some of my comments this afternoon.
Turning now to our balance sheet.
At quarter end, we had approximately $300 million to $300 million of combined unrestricted cash and cash equivalents.
Our leverage ratio under our debt agreements at the end of the second quarter stood at six times based on net debt to annualized adjusted EBITDA.
On August six our board declared a dividend of five cents per share to stockholders of record.
On September Thirtyth payable October 15.
The level of dividends continues to be substantially less than the amount permitted under our credit agreement.
For 2019, our estimated allowable deadwood dividends attributable to our capital stock is just over 180 80 million, including the dividends paid in January April and July of this year.
Over the next two quarters, such a level of dividends are estimated to be approximately 53 million or about 27 cents per common share under our credit agreement.
We continue to expect our board will reconsider our dividend policies is key development in Windstreams regularization process occur and in context over a longer term business strategy and financial profile.
With that I'll now turn the call back to Kenny.
Thanks Mark.
Turning to slide 12.
We sold our ground lease business or wireless infrastructure fund for approximately $34 million or 18 times annualized run rate cash flow.
The portfolio consists of 64 ground leases located across the us.
Not only does this transaction realize value for our stockholders. It also allows unity to focus solely on the development of our US tower portfolio, which continues to be a significant part of our overall strategy.
To provide a full suite of solutions to our wireless and on wireless customers.
I'm also pleased that this is the third example, unity recycling capital.
And locking in attractive returns for our stockholders.
Including the sale of our Latin American tower portfolio, and the sale and the sale of Uniti fibers Midwest operations as part of the Bluebird Opco Propco transaction.
Before turning the call over to Q and I'd like to provide a brief update on windstream.
We're encouraged by the continued levers, but both parties to reach a mutually beneficial outcome regarding the master lease.
In fact, we've agreed with mediation, we've agreed to mediation with Windstream and in order to further facilitate productive discussions among all parties. We've also agreed to an extension of the assumption deadline for the mass to master lease through December six 2019.
Windstream has an exchange provided certain assurances regarding the continued payment of reserve pursuant to the master lease during the extension period and beyond.
To be clear, we did not agree to mediation, nor the extension because our view of Windstreams and its creditors claims has changed.
In fact, we continue to believe those claims are not meritorious and encourage interested parties to review our filings with the bankruptcy court to understand the strength of our position.
If were unable to reach a mutually beneficial outcome and mediation, we are prepared to vigorously defend our network and our rights.
With that said during the extension periods of unity and Windstream.
Have agreed to make have agreed not to make any further public comments regarding the mediation process for on any motions that have been brought forth in the bankruptcy proceeding so far.
Except where required by law.
Therefore, we will be limited and answering any questions on the call today relating to Windstream.
Operator, we're now ready to take questions.
Ladies and gentlemen, if you have a question at this time. Please press the Star then the number one on your Touchtone telephone.
If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Your first question comes from the line of Frank Louthan from Raymond James.
Your line is now open.
Great. Thank you can you give us a little bit more color on the ground leases what was sort of the nature of of those leases and are any of them under your towers are still connect with any other assets that you have.
Hey, Frank it's Kenny.
So.
In reverse order no none of the none of these ground leases were under our existing towers, which is actually part of the rationale for deciding to sell them.
But secondly, it's really.
It's just leases that we have accumulated back in 2016 in 2017, all over the country.
We had a program to go out and accumulate these believing.
They were good long term investments.
But ultimately as we got deeper into the tower business and have.
Numerous opportunities to deploy capital there, we just decided to.
Allocate capital more towards towers versus the ground leases because we.
I believe that's a that's a better long term investment for the company. So that's why we decided to sell them.
Okay and in any other assets like that that you might consider consolidated soles and telephone Poles for nice nice price do you have any of those assets.
Some like that you might be able to monetize as well.
So Frank we have.
That's a tremendous portfolio of assets that.
I think we would garner.
Premium multiples, if we decided to monetize them.
Including Poles for example, but at this time, we don't have anything to add to comment on publicly with respect to that.
Okay and I appreciate you probably can't comment, but as it has a date set for the mediation and what are sort of the steps that need to happen before before you get to there.
Frank I'd love to comment on that but I'll just refer back to our prepared remarks on on Windstream related questions.
Can't blame me for asking all right. Thanks.
Your next question comes from the line appeal its cusick from JP Morgan. Your line is now open.
Hey, guys. Thanks.
That too.
Clear my lay on the tower side does that contain a minimum number of towers or the standard agreement for pricing across your sites.
Hey, Phil its Ken it's more the latter there is no there are no commitments.
Further from the customer's perspective, nor from ours in terms of volume so its really more.
Pricing related.
And other and other important terms.
And do you have any data you can share with us some lease up at this point.
Not yet on towers, obviously, we track it very very closely.
It's obviously a critical critically important part of the returns for that portfolio, but what I can tell you is that it's tracking in line with what we expected when we underwrote.
Business.
So we're pleased with it and I think in the near term, we will be providing more color on Lisa.
Last thing can you just give us the sort of same store sales growth are you on a year ago, what might rather grown year over year. Thanks again.
We've added so we've added a ballot.
Probably about half a million dollars of revenue to those towers, but as Keith said, we'll try to give you some more metrics on thieves busy we really need to split it out to make it meaningful kind of by yield vintage year.
And so we'll try to do that if you were actually working on some of those metrics now.
Thanks again.
Correct.
Your next question comes from the line of David Barden from Bank of America. Your line is now open.
Hey, guys. Thanks for taking the questions.
I guess, they got in trouble over time.
The.
In terms of the mediation like how does that look different.
Then.
The kind of arm's length negotiation that you are.
Have have engaged in arguably there is what we've been talking about meeting windstream for year talking about mutually beneficial outcomes. It is there any color you can give us at all about why mediation looks different than anything that you've done to this point in time.
I guess the second question would be could you elaborate a little bit on.
Any relationship that you already established dish.
To this point in time, and what that could look like.
And I guess the third question would be.
We saw crown downgrade their growth expectations because of the municipal.
Approvals process being an impediment to their growth rate can you talk about kind of what your experience is or has been or if there's a difference between kind of the.
Second and third tier markets that you're involved in versus the kind of major metro said that they've been involved thanks.
Sure.
David It's Kevin I'll I'll try to take each of those Markel keep me honest, but.
First on mediation, yeah, Unfortunately I can't.
Comment.
Beyond what Weve.
Said in our prepared remarks other than to say.
We're not.
Surprised ER.
This outcome. So it was not something that we hadn't expected with respect to mediation.
With respect to dish we yeah.
Not a lot to say other than we've been working on that relationship. We we don't currently do a lot of business with this just given the nature of their business, but we have been.
Engage in conversations for some time and we really believe given what they're trying to do what they've talked about publicly and what we know otherwise about what they're trying to do.
There's a there's a great opportunity for us to really help them with respect to.
Not only backhaul, but macro towers, and potentially small cells and including potentially some of the some of the potential decommission sites as part of the sprint and T mobile merger so.
More to come on that would prefer not to get too.
We are deeply into that.
With respect to permitting in some of the issues there I'd say, what I would say is.
You know.
With respect to our tier two and three markets.
We continue to be very very pleased with the competitive dynamics in those markets with the growth potential there I think as you continue to see the growth in bookings.
We're very pleased with the continued growth in the non wireless bookings in particular, which is.
Indicative of the lease up of our networks. So that's very good our churn rates are continue to be low if not below below market churns were very pleased by that.
And all of that to say.
The real governor on growth for us.
He is in fact installs and so we're very focused on.
On growing installs and there are.
Portions of installs are certain elements of installs like permitting and weather.
The labor market and other things that are outside of our control.
That are impacting us.
And so long winded way of.
Answering your question directly David we do see permitting issues.
And it's really a market by market.
The analysis and in markets, where where we're going in for the first time, where small cells may not have been.
Deploy previously for example, we tend to see longer delays.
But if it's an existing market one that we've been in for many years or one that we've been in for even two or three years.
We don't see delays at all.
So.
It's hard to generalize other than to say, we do see permitting.
Issues as one of the.
Issues that factor into our installs going forward.
Thank you for that and if I could ask one follow up would be.
Obviously the cap too.
Exploration coming up and has become a topic all of a sudden in this space.
As you look at the NPR and with the FCC put out just the other day.
Can you see opportunities for unit in that space or is that separate and distinct from your goals.
Yeah, David we're actually we're looking at that.
Closely not only because it impacts our customers, but we're also looking at it we've had a number of our customers approach us about.
Potentially finding ways to to do joint builds using some of that some of the funding.
So there are some opportunities it's too early for me to elaborate on it because I'm not sure if they'll materialize or not but we're looking at it.
From both angles.
Okay, great. Thanks, guys.
Your next question comes from the line of Michael Rollins from Citi. Your line is now open.
Thanks for taking the question curious if you could help frame within the fiber business.
The revenue growth that you're getting relative to the capital required in other words, if you didn't spend a success based capex.
On slide eight.
What would revenue growth looked like in the absence of that.
How do we think about the relationship over the next couple of years between the capital.
And the revenue growth. Thanks.
Yeah, So Michael so.
Let me try to answer your question. This way I, probably don't have the exact math that you're that area that you're asking for here with me, but so we like what we said is that we expect the business to grow in the 8% to 12% range long term.
We've been a little bit below that in the first half of this year, but as Ken you mentioned in his prepared remarks, the install rates, which are a big focus of what we're currently.
Our big focus right now.
Have we had the best install rate in the in the last six quarters, and we expect that to improve over the balance of year.
The.
We've always said that churn replacement Capex. There is a component of that that we don't break out, but thats probably somewhat.
Equal to maintenance Capex, so on top of the maintenance Capex numbers that we report so.
And then in terms of the capital intensity, what we've consistently said is that as you know the dark fiber projects as I said in my remarks will come on at a.
Anchor yield of about 6%.
We expect to continue and are working now to lease up and had been working to lease up those anchor those those bills as they come on and we'll have more to report on that as we go into as we go into next year.
But generally those anchor builds where underwrite those too.
Somewhere in the double digit range in terms of what we what we expect that used to be.
As we add on multiple tenants. So I'm sure that as I've said, I think you're asking a little bit more.
Quantitative qualitatively I think directionally, that's the right that's the answer to your question.
Okay Thats helpful and are you seeing you mentioned, the 6% upfront yield.
How are those yields been trending and do you see then.
At some point turning up where.
Whether it because you have fiber that that certain companies need or certain routes that are really in demand that you could try to improve.
The upfront yields on on the capital over time.
So in terms of.
In terms of the yields on new projects I would say that the yields are new projects are really very specific depending on the carrier and a particular project that we're working on obviously the yields are dependent a lot on both.
Pricing as well as the Nrcs that were able to negotiate as well.
And so I'd say that but I would say from the ranges that we given our our in our presentation is no real change from those from those yields on new projects.
And I think I don't really have anything to add in terms of the lease up.
On the existing projects that we're completing or any new projects I think again, we always underwrite those too about the.
The a double digit return range that I expressed previously.
Thanks.
Sure.
Your next question comes from the line of Simon Flannery from Morgan Stanley .
Your line is now open.
Thanks, a lot good evening, just a couple of housekeeping if you could just clarify on hurricane Michael I thought at one point, you said 12 million.
And then 5.8 in the numbers. So is it just the 5.8 and does that hit revenues are towards adjusted EBITDA.
And then can you I think you said one point that you would be more focused perhaps on.
Sale and leaseback type transactions more in the leasing area is that to say that you probably won't be doing many more fiber deals that you are really going to be growing that business organically and that the the kind of acquisition M&A is really pivoting and if that's right just what's the.
What's the driving force behind that thanks.
Tom in this mark Thanks for calling and I'll take your first question on the Hurricane Michael I did say those numbers. So the 12 million was the.
Cash settlement.
That we see for the insurance carriers and then the $5.8 million was the gain associated with receiving those proceeds.
The gain relative to what we have previously booked on the recovery has estimated for the recovery.
So on the 5.8 million gain that is included in the fiber adjusted EBITDA and I gave you those numbers the adjusted margin the fiber both with and without that it is included in adjusted EBITDA of the gain is not included in any revenue numbers.
All right. Thanks, that's helpful.
Hey, Simon it's getting so with respect to your second question Youre right. We we are very focused on new sale leasebacks and business and community leasing and so.
That.
It has been the focus will be the focus so thats really new sale leasebacks Thats, new Opco propco opportunities on.
Opportunities are on the assets that we currently don't own or just buying.
Assets outright.
So there's a lot of opportunities. There. In addition to of course leasing up our existing portfolio of assets.
But within unity fiber, we do continue to plan to do acquisitions, there I think it's probably going to be more bolt on.
In nature.
The first four acquisitions that we have done were all generally larger transactions that were purposely done to build up our our portfolio company.
So I think its future deals there will probably be smaller bolt on types, but also.
We might look at Opco propco opportunities using some of the Uniti fiber assets like we did with the Bluebird transaction. So one of the real advantages of Uniti fiber is that it brings optionality to us in strategic ways and the Bluebird transaction to Rod you included the operations of our Midwestern assets from unity fiber and I think that made that transaction.
Much more attractive transaction for both us and our financial partner. So there is a there is a lot of.
Optionality and and benefits that unity fiber brings in addition to just acquisitions.
Great and do you think that you can do these transactions, while the settlement or the resolution at Windstream is pending or is this more.
So kind of you have these conversations but the counterparties probably want to see clarity on that.
Yes, it's hard to say I mean, we have done.
One this year during the filing I think a smaller one earlier this year, we've got others in the funnel that we might execute on so it's partly a question of liquidity and how how sizeable the transaction we want to do just given the volatility of the.
In the cost of capital.
So thats top of mind with respect to counter parties and their willingness to transact we haven't seen any of our opportunities fall out of the funnel.
So, but but having said all that Simon with with the volatility and some of the just.
Rhetoric and uncertainty around the process.
I think I think.
You will see a pickup in activity once once the bankruptcy is behind us.
Great. Thanks, a lot.
I'm showing no further questions at this time I would now like to turn the conference back to Mr. Gundermann. Please continue.
Thank you. We appreciate your interest in Unity group and look forward to updating you further on future calls.
Thank you for joining us today.
Ladies and gentlemen, this concludes today's conference call.
Thank you for Britain Stacy. Thank you for your participation and have a wonderful day you may all disconnect.
Yes.