UNIT - Earnings call transcript Q3 2018

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Operator

Welcome to Uniti Group's Third Quarter 2018 Conference Call. My name is Michelle, and I will be your operator for today. A webcast of this call will be available on the company's website, www.unitigroup.com, beginning November 1, 2018, and will remain available for 14 days. [Operator Instructions] The company would like to remind you that today's remarks will include forward-looking statements, and actual results could differ materially from those projected in these statements. The factors that could cause actual results to differ are discussed in the company's filings with the SEC. afternoon encouraged slides materials to call. this website, on during remarks you're and refer company's will posted reference its the The to those during accepted accounting financial include prepared Discussions accordance principles. will were in generally that not certain the with call the measures also measures report those financial on dated financial Form comparable non-GAAP in found of to the X-K be Reconciliation directly the most measures GAAP can company's current today. Executive turn the call to Officer, now Kenneth would Chief Gunderman. like to I Uniti over Group's Mr. ahead, go Please Gunderman.

Kenneth Gunderman

and you Fiber for everyone, we're afternoon, X acquisitions Uniti Today, Good our announcing segment. you. Thank thank joining. within

The with transaction full Uniti many accelerate first to later and I'll customers. new ITS fiber acquisition to of is provider institutions, will relationship Information ITS Fiber's Transport existing specifics E-Rate product our Solutions, educational of more utilizing the network. service in speak a offerings whom and the call. already are the our primarily strengthen

is local network. Alabama. million is our (sic) a strategic XX.Xx second we announcing a Communications is a Fiber our [MX transaction fit Eastern paying be will which in closing, MX at presynergy located strong historical with a consistent today existing Connections], value This acquisition range. multiple, provider and Uniti are we At with bolt-on The $X is fiber

quarter, we proprietary core on a one transactions, Also produces advantages of XXXX more negotiated we continue is our similar M&A is of in of closing in that acquisitions transactions, the are asset subject well We were our transaction expect like announced that to attractive range reinforcing and experiencing these to a acquisitions footprint. as company and Both core M&A continued on basis. as conditions. quarter with these the first The last fiber solid mature acquisitions business within the expected ones competitive close customary Uniti's our demonstrate strategy. to regular momentum funnel

of scale customer acquisitions reinforce funnel opportunities, Southeast Similar very a recently, operating strong pattern robust acquisitions provide to presence we building of to and our immediate region. synergies. both in our our have Lastly, commitment additional a very which

interest transactions, these Uniti we quarter. and leasing also to in we'll lease-up of more the opco/propco strong existing see We new continue fourth of in sale-leasebacks see structures, transactions and are fiber, additional confident including

we active these to to partners operating to REIT and strategic partners. acquire structures quarter, service mentioned currently our As our while opco/propco retain provide last financial with unique Uniti fiber lease-up use We're and structures allow on to valuable X rights platform working customers. usage infrastructure continue

for $X.X business our provide a sales the now quarter bookings MRR quarter-to-quarter Fiber's deals. small that wireless were me is I'll and will backhaul large the reiterate pursuing Let fluctuate and an somewhat our third on operational results big part anchor cell bookings as quarter. our in Uniti approximately update million of MAR. of

as we or increased stage cells MRR. only example, For in carriers seeing we're in continue X deals markets, small totaling backhaul wireless are for did customers one for contract near single $XXX,XXX from our well. market to of Not the healthy at demand the activity nonwireless see from and we roughly

million fiber quarter Uniti of of these and during XX% from MRR X dark to in with Uniti in and company third fiber about our we fiber upgrades and XX% dark the as XX% a beginning and to Florida enterprises, agreement example, Fiber quarter approximately government federal bookings awarded of projects. of a carriers up-front a wireless For XX% lease on both underlying from represent bandwidth $XXX,XXX recently relating from with third term. deals XX% installed schools, signed MAR government revenue XX-year Kâ€“XX local we of and dark the Southeast. of contract mid-XXXX. were large wholesale. to annual of XXXX, related recently national sales payments came provider $XXX,XXX in Also, an XX-year energy the Combined, $XX in based additional backhaul

customers and these seen Many work projects the further we the continue in which have as Florida, I'll our with expected, delays of located we in impacted been Hurricane while to continue municipalities to projects We heavily discussed to by our anticipate And improvement are cover in last fourth which delays has steady Michael, quarter. quarter. shortly. large we

of expected quarter our by early but able services of market. for forecasted. we future. want in Coast majority was Most recognized will E-Rate deployed fiber quarter. dark large previously rate instead by in existing occurred fully cell churn was be a still lit resulting associated fourth we projects X%, third quarter in a of the the originally were churn be existing as of than for impacted a on Again, However, contractual that the district. near deliver negatively as mentioned, with completed were Total $XX was impacted will construction than and rate wireless churn which in XXXX. sooner for timing slightly was revenue in XXX,XXX, million forecasted the and re-rating originally of existing churn with of to happen the I small to our sites Churn basis to fiber the emphasize are in Houston/Gulf our dark late the higher these quarter site replacement run projects disconnects disconnects Also, vast these school monthly

resulting a savings of impact to we're cost to these services these However, margin. related services, there was since in corresponding delivering little reseller a

especially the Florida's few of company with earlier like storm. ahead weeks addition We Hurricane now as from briefly we history storm preparation damage to expect had A Michael. going growth personnel brought team. retention this day-to-day redeployed never including to about significant seen companies. in the duties along hurricane ITS with of working existing away communities wireless E-Rate before, their Panhandle E-Rate the our of ago, we we've as XX-year mentioned our to As towards the our talk legacy the like with customers for I'd well be a and XXX% customers the forward, year, our opportunity the

are that from expect be we the still as on insurance efforts our storm of assessing impact will Hurricane impact recovery customers Michael While underway, modest recoveries. network financial the we still had are net and the

As cost as mentioned and well in and likely to affect the to customers and the I thankful order storm, our is will well and impacted and projects I'm quick our in the earlier, construction very activations, disaster, impact for to from this to team proud has areas expect received the by as preparation how some fourth responded praise see our quarter. response. our service degree, some most hurricane I we've for we

Panama Department our will large a and area, network. to the which the network in in is markets. become fact, City builds with supplement of In most of Defense, our wireless we're customers We already stages customer that one existing attractive new planning our believe for

with one As Panama XG pleased an of recently example, our Fiber. markets. their trajectory one progress our City We're of intentions Uniti at to first of customers make the announced

We our continue to of work and quarter, we Tier strategy focusing through last we some attractive X committed headwinds of to outlined X on but are dynamics. competitive with the markets

quarter. completed U.S. We during XX the towers. to towers in new the Turning

Colombia, now Mexico also in We towers U.S. the America in stands tower towers. total combined count XX and Latin and X in our XXX and at added

and in on the activity to We lease-up both portfolio tower see U.S. our healthy Mexico. continue

our builds of infrastructure vendor fiber as We continue million they including providers, continue know multiproduct footprint, relationships. diversify $XXX uniquely demand portfolio our to we existing existing wireless the about new annual wireless fiber, with existing value leasing be than include in believe less to engage and our of value. Uniti We're customers, revenue up These allows even contract industry. our our Uniti for the work, network fiber their planning, across assets, With positions and look represents are focused current engaged our see cells also future the assets. MSOs We of funnel carriers needs on country. sales our discussions small largest is to the which tower continue all to competitive customers including us customers to Leasing but coming. our $XX million Leasing, target and we X acquisitions partnerships months for routes in with macro identifying offering, leasing actively to development towers, web-scale furthering over including or of in and where existing additional fiber Uniti In demand leasing strong portfolio

transaction we that we announced the turn now recently CableSouth sale-leaseback both I'll transaction. that, Finally, Mark. and sale-leaseback closed With over TPx the to tranche of call the second the

Mark Wallace

Thanks, Kenny. everyone. Good afternoon,

a to Turning included was shares income common consolidated Net escrow our of of to statement million to quarter gain after income transaction $X.X of attributable and are $XXX Net and income settlement the for or shares of costs million NMS, of common diluted to Slide $X.X the of share. within transaction-related $XXX.X revenues acquisition X. million, on share We and reported AFFO integration-related common for diluted $X.X operations. $XXX.X AFFO per balances adjusted $X.XX. attributable quarter million $X.XX million, consolidated other our of costs on included of the our related which consolidated per million EBITDA

our third $XX million quarter of made their of million, nearly EBITDA improvements with spin-off $XXX bringing to improvements. XXXX. with tenant of segment $XXX.X since to capital, Our Leasing for had million the our adjusted cumulative revenues network quarter Uniti $XXX.X of capital the during capital million Windstream the amount of over

of quarter, results XX. closed are since we the September acquisition the date. TPx California included these and of the closing fiber tranche During sale-leaseback And on

reported level of level quarter related adversely Northeast of these approximately terms October adjusted million. one our representing revenues $X.X the on first CableSouth quarters standards were various completed not service quarter issues to These third network-hardening we $XXX,XXX credits realized the that till credits of cost for certain $XX network and in evaluating These credits X, agreement achieving be achieving in of of of fourth the just of closing $XX.X annualized Media, Uniti the our rate the future. run customers, $XXX,XXX an EBITDA announced results of under sale-leaseback region. Fiber's Uniti which million our Uniti performance date $XX.X Fiber of and result to included service for owed customer Fiber's transaction payable impacted the acquisition this the savings, were the As of currently to a year. million, of to million X and of mitigate results margins from will as previously EBITDA of of adjusted XX% initiatives include impact fiber by our year-end. quarter. results in

related Third service fiber operational cost. transport lit were $X.X locates by of quarter also million to results higher-than-expected and impacted costs

decline performed in-house certain service cost off-net. costs eliminate transport locates We over by from expect time we are to on-net crews as moving circuits and lit these more by our

sites success-based net cell projects our small small fiber Fiber third sites, and turned dark and progress of to annualized Uniti the XXX we cell fiber major was fiber of make dark related quarter, as on adding During revenues to $XX.X XX% was million, dark deploying projects. approximately continued of deployment towards we CapEx our small directed most million. $X which and cell over

of integration savings also or in $X was principally of X.X% CapEx We the during $X initiatives. the in which XX towers Uniti incurred the off-net construction completed million for Mexico. Maintenance revenues. of million and CapEx our is XX to quarter quarter, related the U.S. Towers

XX stages Uniti In This NMS and includes activity. with to completed closed million since to on related acquired bringing third and XXXX. the Colombia for completions the million, development XX amount the CapEx of towers total activities NMS development quarter NMS in NMS was quarter addition, concludes we the for Towers during the approximately in and $X.X associated our development January Mexico $XX.X had towers tower acquisition. for the we acquisition the canceled include and were XXX Uniti quarter-end $X.X projects at completed development. quarter. Towers of million Latin $X.X towers development XXX reported of approximately by XXX XXX total customers. for U.S. of results the America in related towers and towers towers favorable adjusted million in of various in EBITDA cost These of our in service impact and of revenues million recoveries $X.X the to third a that

can costs out potential that customers fall and -- at mitigated. continue canceled costs to with work our that on risk, may sites We so be future become future development closely

issued at-the-market at ATM at October aggregate or prices. aggregate per $XX.XX stock shares share. During issued ranging shares quarter-end our have activity prices through an common to we Including X.X off X, the million an X.X subsequent quarter, of similar we of million from program, to $XX.XX

our to we million recall, $XXX credit Accordingly, repay our within levels turn as organic of guidance. this used CapEx. proceeds our the on targets Please of we to line funded outstanding the cover As XXXX under well manage previously growth to X, I'll revolver established. as updated year Slide were leverage acquisitions and you'll amounts approximately

outlook XXXX sale-leasebacks. the acquisition current and ITS California closing for updated TPx have the CableSouth of transaction, of We our the fiber timing and

for adjusted timing factors. under has of fiber addition, the other outlook of Fiber, and the In at assets, certain shares solutions of the in impact lease-up ATM to the of delays relating the Uniti deployment impact issued program our been

Our current acquisitions, outlook from and our future finalization future capital impacts future subject acquisitions. included release outlook is our forward-looking Michael and is outlook to from market to price Hurricane reconciliation guidance transaction could our on Actual results excludes to transactions, current adjustment any based adverse related costs. A materially purchase allocations this cost of earnings Furthermore, our of later these in in presentation. differ statements. prior the

ITS contributed updated of represents the fourth $X.X our October the outlook of of with year $XX million growth On a will The Our following of add of current segment. the would quarter. XX of and of revenues million Uniti million adjusted reported adjusted and million full full each for guidance of over year At revenue outlook EBITDA range, our XXXX $X.X basis, pro levels. Starting adjusted have ITS EBITDA. includes rate million approximately for midpoint Fiber. on a forma $XXX acquisition $X revenue core X%

primarily to discussed and Adjusted growth revenue 'XX higher-than-expected our due the our midpoint, for guidance Our small EBITDA is is delays fiber primarily expected rate fiber to somewhat organic The with deployment well year service deployment were XX%. annualized which that is XX% customer should core guidance as XQ million, credits as full cell down costs. the X%, to X%, a $XXX.X be decrease earlier annualized from approximately earlier. due 'XX and we prior at of XQ lower be to mentioned of approximately margin of the the delays prior operational than

margins the expected Excluding fourth Uniti to the be quarter. are ITS, XX% impact of Fiber for

$XX.X exit at realize to fourth XXXX $XX.X a savings this annualized cost of year, million. expect million we'll run We rate quarter cost of aggregate and savings

$XXX integration CapEx including about directed invest $XX fiber will in XXXX to about million Fiber expect projects. in at midpoint, Uniti XXXX. the million $XX in CapEx and XX% which We dark Net small success-based towards cell million through of be XXXX, be for should

X. Slide to Turning

at to about $XX We EBITDA with this expect be revenues towers year million, reported breakeven. adjusted

it for outlook. which its We have reduction seen tower largest the has builds new our build opportunities customer priorities the a remainder as capital capital recently site of in our number its impacted as deployment slowed year XXXX, has reevaluates for full of

completed result, we completing fewer a XXX the activity, at expect XXXX outlook. than development in the provided to XXX XXXX we towers XX in acquisition in As in our construct and development of NMS U.S. We've what January was date. towers acquiring out -- our previous

towers. expect development result, we a capital for not further do NMS any As expenditures

million. Our Towers XXXX guidance Uniti to $XX spend $XX is capital million

to Slide X. now Leasing Turning Uniti on

$XXX XXXX Leasing to at EBITDA Uniti $XXX million, million and expect We midpoint. the revenues adjusted and be respectively,

with per we a diluted share. XXXX. for share, revenues over diluted adjusted a and $X.XX basis, Slide to per We $XXX.X billion just EBITDA the range of expect now be million at midpoint. be midpoint consolidated to X and $X to On year full Turning between AFFO $X.XX to expect $X.XX

acquisitions M&A share. that forma our per close AFFO increased the at X, would $X.XX pro recent Assuming our have and on common fiber midpoint January to diluted $X.XX XXXX,

impact for shares guidance this XXX year outstanding the under million our weighted XXX of reflecting program. full shares for Our year, the issued the of million of XXXX shares of quarter assumes ATM and common average shares fourth the

guidance appendix presentation. in of As current the a are to our our reminder, key for our ranges outlook components included

Turning XX. to Slide

agreement. had credits; customer as of the of incorporation to cells; ITS credit share reconciliation of cash In outlook. We due the fiber we XXXX closing, XXXX our deployment revolving into and forecast; approximately Most and outlook at disconnects; service small dark current and earlier-than-expected $XXX.X capacity of and in delays, primarily the issuances. as our is impact the of million unrestricted cash combined well undrawn our change a midpoint to our our prior outlook dilutive equivalents under have provided midpoint quarter-end,

EBITDA. Our I'll debt that, agreements back turn debt annualized net at Xx With adjusted the to stood now leverage at on an ratio our to quarter-end under based Kenny. call

Kenneth Gunderman

Mark. Thanks,

closed acquired As revenue expected service customer we early X.Xx XX% with and average the together having solutions, over already I look are upcoming is on 'XX by educational Alabama earlier, this excellent the the a of last substantially of Fiber's XXXX, revenue pleased the and expect diversification to for and Uniti our evidenced we to We're as XX. team as full E-Rate technology successful a under consideration segments X.X% is of million EBITDA. ITS' excited forma, ITS XX%. stages in network, October institutions working some assets total primarily ownership. to their ITS to transaction Florida. transaction of be of on Uniti grow churn $XX has unique season. on history Fiber's net the take the particularly ITS E-Rate X mentioned a all-cash fastest-growing about Uniti from in portfolio season. ITS forward and ITS in adjusted We monthly approximately in service to years. a And pro provider or of relationships their telecommunications. XXXX own We XX% in transaction Over of the excited We're will

and because classes. across small, yields attractive relatively significant across have the we of asset adding of tenants business all We of incremental capacity drive leaseback can incremental our all units, new is our cost

on sustained call. growth forward our this outlook In will strategic many organic providing for years. position expect XXXX conference well look asset us to for next We our we closing,

our for shareholders. Our strategies underway, create currently and well cycle is we're multiple value XXXX to planning evaluating

our and and our composition, and portfolio we'll capital policies, usual, opportunities advance unit's be goals. As M&A capital business reviewing initiatives structure to allocation diversification strategies, performance operating each

Windstream overhang the has be year. past, As caused to from in more with conservative stated opportunities this the we us litigation the

turn, However, receive operator, to Windstream us in to execute XXXX we our strategic on favorable our will continue more you call. that next believe we should that on a and and questions. in We And take forward allow will look to updating expeditiously beyond. ruling more now options

Operator

David [Operator Instructions] America. Our first question Bank of Barden comes from of

Unidentified Analyst

just comment for on the Windstream up you on in made Josh ruling. last Dave. Guys, Kenny, the following

And, how on have do your in do capital dependent deals I these moves? can So going stock as of you quickly? deals think guess, you could improvement of lastly, if cost your of how are you backlog in the on do act And capital? the is you a very many theory deals cost up

Kenneth Gunderman

Josh, yes.

So funnel we definitely of have forward pushed have the that in we our anticipation not aggressively ruling. opportunities or expeditiously more in

make we the even September, So XXXX be we've the course a on throughout until yes, on that's some as sure balance that or more was last we clarity mentioned I smaller we're really that we there would to transactions from ourselves overextending sheet foreshadowed probably exactly litigation. perspective. think August, not focusing done what And of

of that aggressive our us behind So capital. still which believe the accretive would some do are even there will anticipate very -- absolutely, a ruling more the we the coming. said that, we the at also more as are funnel opportunities once and on favorable on in because be is funnel ruling. current a result there's that, cost in aggressive that be of Having or opportunities confident in I'm it's

attractive transactions at that are we But all stays is, this to have of we us. us. we look where execute world capital on to to so behind cost the a look it still out, looking And forward where when uncertainty getting opportunities

Operator

Flannery question Morgan from comes Simon next Stanley. Our of

Simon Flannery

could side that the little Windstream fiber all maybe some is on Or clarification of related related a Is hurricane. things? to business? into go Just of And a you that going committed the to color might SLA satisfy credits. is And more any that next something your spending the to into bit what's can capital backlog? that you forward? detail And for provide on recur year, the

Kenneth Gunderman

yes, X, Uniti so Fiber. exclusively impact the Leasing We've Hurricane first the at Uniti anything can is almost this the take But point. on take that, yes, not Uniti I'll Simon. beyond Sure, Towers third. identified Michael, Mark nor and

things. your smaller very around SLA question private reporting the One, particularly you're when Fiber. these acquired So historically some was scrutiny respect companies there's complicated. and lot were And a SLA, are carriers. discretion, and, the companies. manual. And companies Uniti all in reports interacting of that with They about that's big a credits so With and as require to the really all capability cases, wireless reminder, the private X we've

we've historically, more not been -- produce which to so process, good And we've much to interact gives ability ability more automated to the these more discretion. be much customers timely us implying honest. the time now much streamlined much reports And applying gives and us it very our a with at and real more instituted

think better so is going that going alone, standpoint I forward. be around and from And our sophistication much capabilities to this

have the pockets mentioned $X was had much that beginning with the equipment the things legacy the issues at earlier to towers year place plan Mark as more are rings and in of harden already the we earmarked replacing on And And in particular. like had with number we reducing at we in and on those roughly the knew our where Secondly, $X some there network a have million, rings, Northeast, this multiple the to for million a we rings core of in numerous manageable the network of towers of also in portions we're equipment to newer related of the year. his capital number. comments,

this nearly the imply level So going forward, I issue that we've all see that as think of to experienced. don't we same that

Mark Wallace

this the CapEx question, XXXX, your of to on the And our $XX then but plus say cycle, year for to I'd business, done Yes. million. it's planning range we're last with not be for maybe going obviously spending tower on in in terms

million in year the much a range I basis, be $XX awards And next we'll depending of on CapEx. fiber on XXX on many next likely think So win. net $XX business, million year how obviously how kind to net XXX probably the -- to to

Operator

Deutsche from comes question next Matthew Bank. Niknam of Our

Matthew Niknam

-- the maybe from on can light tower back business, was think I a on One, pull if shed could. mentioned you your some customer. I you there largest more if two Just

we then can elsewhere to being on Or sites? equity issue is If the about redeployed for can elsewhere? equity guess, you are this facility? credit borrowings going just leverage reduced wanting function they issuance? And talk about through appetite And, M&A secondly, under Is issuance the more equity quarter, for additional that think new during should the or maybe keep I how decision largely clarify, broadly, the below at to ex the capital just a of you Xx?

Mark Wallace

Yes, so Matt, I'll go first on the ATM program.

So the ATM you put size in we access that. a decision program and and in markets need to an the way equity we markets we Windstream access in capital, modest in is to ruling just been back our reluctant effective get litigation of the until equity that capital It's only it just XXXX. a have late when amounts

size. in And you so relatively order wanted the in modest levels to markets manage a to access we wanted but access our it we to as leverage alluded to, also

the was that decision. So

Kenneth Gunderman

providers, other do your And see decision definitely question, our It's towers capital perspective. from really to to we allocation other Matt, those on developers. not going towers customers' a

see backlog And a we so just growing. result, as the

opportunity of It's is perspective. from the a there. still So question timing just our

Operator

Our Raymond James. next from of Louthan comes Frank question

Frank Louthan

they -- what QX little that finish? the the bit once the how is And announced, a more, of once exposure then quantify into is what be you hurricane factored exactly Can revised deals your much that you will the Windstream impact guidance? just in of

Mark Wallace

Yes.

the hurricane. the on Frank, take I'll So one

the the we there's our the I to that's simply I really couple fourth So that into for impact impact, thing we hurricane the now don't have try quarter guidance incorporate cost is the one, of the that reasons not revenue right uncertain is yet. know would incorporated of a and and we impact, revenue say into think fourth quarter results.

how So we're costs weeks. restoration insurance recoverable another some know costs the capitalized, through the then determine work be be will in we the our and for how have versus will And as ongoing to several be we from incurring, of phase we're exactly expensed stream still we'll much don't that the well. coverage much hurricane, of more

And cost I enroll our so on But good in do programs insurance impact what as be that they net are side, into we I acquire them we yet. so would know that's say the as quite cover. don't say -- will I any will terms our as cost programs. insurance companies, what of the

Kenneth Gunderman

think diversification announced And and about I revenue your Frank, the is on transactions have question forma think closed, roughly the XX%. for pro been Windstream we exposure, that

Frank Louthan

And one quick Okay, follow-up. great. then just

towers mentioned Or how largest about those year? Or that? pushed rooftops, Are out that cells things like into quite more we next doing XXX You small trend? customer that your you. incrementally didn't into being turning get or to is think that should

Kenneth Gunderman

Yes, Frank.

visibility So view good you that thinking. really customers' good they're and that getting for question. as But customer, we just have is and characterize out. our our perfect both given best pushed visibility backhaul have cells don't I'd into And as towers pretty can we do do imagine, we the what small and macro

with replaced out. pushed but other not So things

to sure. probably it's those XXXX, come But with we we're back, And if term. it's so respect when not or XXXX sites maybe think might specific do near

Operator

for over the Kenny closing no Gunderman There I'd further back any turn remarks. like questions. to are to call

Kenneth Gunderman

who Michael. infrastructure mission-critical working Thank in finish been our wake again to the restore our have employees thanking like to by you. loyal I'd of tirelessly Hurricane

you next In on to your Group, network. you years progress addition for quarter. we interest our look all fiber future advancing and customer of to region's today, for many us updating the in the joining forward market, we appreciate success our Uniti and Thank with positioned in us relationships best you've

Operator

participating the This you gentlemen, you today's may for and Ladies program, in conference. does and conclude thank all disconnect everyone.+

Uniti (UNIT) 1 Nov 182018 Q3 Earnings call transcript