Uniti Group Inc.

Welcome to Unity Group's third quarter 2023 conference call. My name is Howard and I will be your operator for today. A webcast of this call will be available on the company's website, www.unity.com, beginning today and will remain available for 14 days. At this time, all participants are in a listen-only mode. Participants on the call will have the opportunity to ask questions following the company's prepared comments. The company would like to remind you that today's remarks include forward-looking statements, and actual results could differ materially from those projected in these statements. The factors that could cause actual results to differ are discussed in the company's filings with the SEC. The company's remarks this morning were reference slides posted on its website, and you are encouraged to refer to those materials during this call. Discussions during the call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the company's current report on Form 8K, dated today. I would now like to turn the call over to Unity Group's Chief Executive Officer, Kenny Gunderman. Please go ahead, Mr. Gunderman.

Thank you. Good morning, and thank you for joining.

Starting on slide three, Unity delivered another solid quarter of performance, and as a result, we're once again reiterating our consolidated full-year 2023 revenue adjusted EBITDA and AFFO outlook. Our consolidated core recurring revenue grew 3% during the third quarter from the prior year. Our lease-up revenue categories continue to perform exceptionally well with non-wireless wholesale, enterprise, and dark-fiber lease-up revenue growing at 7%, 16%, and 20% respectively during the quarter when compared to the same period last year. With our industry-leading 0.3% churn and no legacy services weighing us down, we believe our runway for mid-single-digit growth continues to be long. Our scaled national network and exceptional network performance allow us to negotiate bespoke agreements with our wireless carriers, providing steady returns and minimizing churn. As slide four demonstrates, this growth will be disciplined and, we believe, profitable. Our substantially underutilized fiber network, acquired largely through sale-leasebacks, is helping drive our shared infrastructure economics. Our anchor plus lease-up model is working, driving cumulative cash flow yields today of 24%, a more than threefold increase from the anchor yields on these projects. Turning to slide five, we continue to grow our 139,000 route mile network, and we added approximately 1,000 route miles during the quarter. Only about 20% of our available network is lit today, and as we've mentioned before, we own dark metro fiber in about 300 markets nationwide, which represents terrific capital and margin-efficient growth potential for enterprise, wireless backhaul, and small sales. We continue to believe that wireless carriers will eventually need to densify these non-NFL markets, and Unity is well-positioned for that growth in the future. Slide 6 shows that the majority of our revenue is wholesale in nature, which comes with longer-term contracts, lower churn, and less required overhead for execution. As a result, our business and underlying performance are less susceptible to macroeconomic conditions, and we're diversified across numerous use cases for fiber and customer segments. As an example, even though wireless carriers are spending less this year than last as a group, the decline is offset by other buyers such as hyperscalers, internet providers, and fiber-in-the-home providers. We're also starting to see more use cases relating to artificial intelligence. Turning to slide seven, scale matters in fiber, especially with a wholesale heavy business model like ours. Having an own national network is a meaningful competitive advantage for Unity, and our ability to deploy dark fiber and wave services present Unity with unique low-risk growth opportunity with minimal competition. Slide 8 illustrates our balanced approach to bookings between anchor and lease up. Consolidated bookings were essentially in line during the third quarter when compared to the prior quarter. The interest in our network has never been higher as our sales funnel remains very strong and underscores the growing demand for fiber. As a result, wholesale bookings can appear lumpy given these deals are typically larger and fewer in quantity. It is not uncommon for one wholesale deal to materially impact bookings in a single quarter from a timing perspective. Turning to slide nine, our enterprise strategy is highly disciplined and regional in nature. As you can see from the map, we're only offering enterprise services in approximately 30 metros concentrated in the southeast, which has very favorable demographics. In fact, the southeast has accounted for more than two-thirds of all job growth across the U.S. since early 2020, almost doubling its share prior to the pandemic, and is home to 10 of the 15 fastest growing American large cities. Our local brand is very strong in this region, helping to contribute to industry-leading enterprise churn of around 0.7%. Although enterprise sales represent about 5% of our total revenue today and will likely always represent a minority percentage, it remains a critical element of our lease-up strategy. With no significant debt maturities until 2027, minimal floating rate debt, and given our organic growth runway and continued steady performance, which is backed by nearly $7 billion of revenue under contract with an average remaining term of seven years, Unity is positioned to patiently execute during these uncertain economic and credit market conditions.