Uniti Group Inc.

Good morning and welcome to today's conference call to discuss Unity's fourth quarter and full year 2025 earnings results. 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. 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. It is now my pleasure to introduce Bill DiTullio, Unity's Senior Vice President of Investor Relations and Treasurer. Please begin.

Thank you, Gigi. Good morning, everyone, and thank you for joining today's conference call to discuss Unity's fourth quarter and full year of 2025 results. Speaking on the call today will be Kenny Gunderman, our CEO, and Paul Bowenton, Unity CFO. John Harabin, President of Kinetic, will also be joining us this morning during Q&A. 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. These statements include, but are not limited to, statements regarding Unity's fiber build strategy, the business's growth potential, our 2026 outlook, and other statements that are not historical facts. Numerous factors could cause actual results to differ materially from those described in the forward-looking statements. For more information on those factors, please see the section titled Safe Harbor Statement in the accompanying presentation and the risk factors sections in our filings with the United States Securities and Exchange Commission. With that, I would now like to turn the call over to Kenny.

Thanks, Bill. Good morning, everyone, and thank you for joining. 2025 was a landmark year for Unity. We successfully closed our transformative merger with Windstream, establishing us as the premier insurgent fiber provider. We have a scaled national wholesale fiber footprint that puts us in a rare company to win large scale fiber infrastructure deals. And we are first or early with fiber to hundreds of tier two and tier three markets around the country. Within a few months of closing the merger, we have established a new insurgent leadership team with recent successful experience transforming fiber to the home businesses. We've reignited the fiber builds at both Kinetic and Fiber Infrastructure and have significantly lowered our cost of capital through several landmark ABS transactions. We are well positioned strategically. We have the right assets and plan and team in place to future-proof our business. Slide 5 highlights the early success of our execution. In the fourth quarter of last year, we had a terrific year-over-year revenue growth in our core fiber business of 13%. At Kinetic, where our transformational efforts are most acute, consumer fiber gross adds of 38,000 in the fourth quarter were the highest ever, and net adds of 28,000 were the highest in almost three years. Bringing Kinetic churn down to our industry-leading levels at Unity is a big focus of ours, and we've already started to see success, posting the best consumer fiber churn since the pandemic. Importantly, we also hit an inflection point in December and have heavily ramped up the build. Our business is being fueled by twin engines right now, including the fiber to the home build at Kinetic and the hyperscaler AI build at Fiber Infrastructure. As we've previously foreshadowed, the fourth quarter was a record quarter for us in terms of new bookings, bringing the largest customer contracts ever signed in our company's history. Our priorities won't change this year. We're going to ramp our Fiber to the Home build at Kinetic, targeting 450,000 to 500,000 new homes, almost doubling last year's activity, and approximately 700,000 consumer fiber subs by the end of 2026. At Fiber Infrastructure, we're continuing to benefit from all the tailwinds driving wholesale fiber, including fiber to the home, mobile wireless, satellite, and of course, hyperscaler and generative AI demand, among others. For the hyperscalers, we expect to see even more activity in 2026 than last year. Importantly, we're now starting to show solid lease-up on these builds, demonstrating our discipline in making investments in this space. At Unity Solutions, we're beginning to cross-sell products into our on-net fiber base at Unity Fiber and Kinetic. Today, we estimate our managed services attachment rate to be below 0.1 times at Unity Fiber, and we think it could rise to be materially higher over time. Lastly, we're going to continue our track record of optimizing the balance sheet through disciplined access to capital markets, as well as through monetizing non-core assets, as Paul will discuss later. 2026 is an important inflection year for Unity, and in particular is a big investment year at Kinetic. As such, showing progress towards key goals is critical, and we previously committed to some milestones, as highlighted on slide seven. We achieved our first milestone during the fourth quarter of greater than 50% of kinetic subs now on fiber, and we are on track to achieve the other critical milestones throughout the course of this year and next. As such, we still expect to realize consolidated revenue and EBITDA growth in 2027. We are laser focused on operational excellence, customer obsession, intensely growing our fiber business, and executing on our strategy of building fiber into unique locations including overbuilding legacy networks and moving customers onto our owned fiber. All of this combined with aggressively managing out of legacy services will lead to growth. As slide 8 illustrates, we expect to show progress on key metrics every quarter, and as you can see, we continue to grow in the fourth quarter of last year. We're well on our way to 3.5 million homes passed with fiber and 1.25 million fiber subs by the end of 2029. and we're also closer to 90% of our revenue coming from our core business. Our progress on these metrics reinforces our conviction that we're creating substantial value for our shareholders every step of the way. As outlined on slide nine, in order to fully maximize the opportunity in front of us, we have to quickly transform Kinetic into an insurgent fiber provider as opposed to a traditional telecom operator. Within just months of closing our merger, we now have an insurgent leadership team in place. Led by John and Robin, we've hired over a dozen new leaders in construction, sales, operations, customer loyalty, and analytics that have relevant recent Fiber to the Home transformation experience. We've also revamped our go-to-market strategy by focusing on the customer and eliminating obvious pain points, investing in high-impact, value-added products and services, and expanding our direct sales and channel partnerships. As I mentioned earlier, we've also successfully reignited the build by deemphasizing subsidized builds and bringing in third-party crews to help us build more quickly. The metrics I went through earlier indicate that our transformation is showing early signs of success, and I'm highly confident that'll continue. With that said, we're in the early days, so 2026 will not only be an investment year, but a major inflection year on several fronts. While we fully expect to hit some bumps along the road towards achieving these goals, in the end, we will be successful in accomplishing our long-term objectives. Turning to fiber infrastructure, the opportunity in wholesale fiber right now is generational in nature, and we're extremely well positioned with the right strategy, leadership, and assets to capture our share in both dark fiber and waves. There has never been a better time to be a wholesale fiber provider. Broadband trends are accelerating across virtually all categories, especially AI-driven use cases, as evidenced by our record quarter of new bookings. Although we're building substantial amounts of new fiber, especially for the hyperscalers, we're doing it profitably, and our scaled national footprint gives us terrific lease-up potential, driving our blended anchor lease-up cash yields to 34%, the highest we've ever seen. We're in the early innings of an unprecedented fiber build within our industry. This opportunity continues to grow for us, so today we're providing a multi-year view of what we believe the opportunity for unity is at this moment in time. First, I want to reiterate that our focus is on discipline strategic fiber builds and related economics, the same discipline growth we've applied in prior build cycles. The table on the right side of slide 11 shows the early returns we're seeing on the builds to date. We've chosen to use IRRs versus cash yields due to how these deals are structured with large upfront payments from the customers. With that said, you can see that we're not only getting strong economics on the anchor, but the lease up as well. We're highly confident that the lease up will continue to grow substantially, especially since we're building dense fiber networks that pass key strategic locations within our footprint. When we build fiber for the hyperscalers, we plan to build inside our existing footprint or we'll look for ways to strategically expand our connected footprint. We're not building one-off networks. We're building networks where we have the ability to lease them up for many years into the future and we see a long runway, especially when we start to hit the inference phase. We're also seeing benefits from some of these builds by using the backhaul for our own business, including and especially at Kinetic. Slide 12 illustrates over the next three years we expect to build approximately 6,000 new route miles of fiber and we expect to get close to a billion dollars of cumulative non-recurring cash revenue and up to 25 million of recurring cash revenue by 2028. Over the next three years, a meaningful portion of our economics is supported by executed contracts, including 100% of the economics included in our 2026 guidance. Beyond this three-year bill cycle, we not only expect more fiber bills to come, but importantly, we expect to really ramp the lease up. This will lead to additional non-recurring cash revenue of approximately $500 million after 2030. As a result, we expect to achieve a total return on our capital of two to four times. With that, I'll turn the call to Paul.

Thank you, Kenny. Starting on slide 14, I'd like to review key fourth quarter highlights for both Kinetic and our fiber infrastructure segment. We saw another strong quarter with significant progress made across several fronts. Starting with Kinetic, we expanded our fiber network to pass an additional 80,000 homes with fiber, our highest level of new passings in over three years, ending the year with approximately 1.9 million homes passed with fiber. Kinetic also added 28,000 net new fiber subscribers during the fourth quarter, ending the quarter with 535,000 total fiber subscribers. As Kenny mentioned earlier, this was the highest level of net ads in almost three years, and total Kinetic fiber subscribers grew 20% from the prior year period. Kinetic consumer fiber revenue grew 24% year over year during the quarter. This growth is being driven by strong adoption of our Fiber to the Home product, bolstered by the performance of the various marketing initiatives at Kinetic that target both our newer and more seasoned cohorts. At Fiber Infrastructure, we recorded consolidated bookings MRR of approximately $1.7 million, tying the highest level on record. Slide 15 highlights the sustained momentum we are seeing within Kinetic Fiber. We achieved fiber penetration of 29% during the quarter, which was up 30 basis points sequentially and 150 basis points year over year. Fiber ARPU also continued its positive trend, increasing 5% year over year. These trends support higher lifetime value per passing and improving returns on our incremental capital spend for fiber. Turning to slide 16. The strong improvement in our cohort fiber penetration is being driven by highly targeted marketing initiatives being deployed by the Kinetic team. Penetration levels in our year one 2024 cohort now exceed year two penetration rates in our older cohorts. We expect to maintain or improve this trajectory going forward, and the team is now focusing on executing the playbook to increase penetration in our older cohorts. Given our current trajectory, we remain confident that achieving our 40% terminal penetration target is very realistic. Slide 17 lays out our key targets for Kinetic in 2026. As Kenny alluded to earlier, we are targeting to reach 2.3 to 2.35 million homes passed with fiber by the end of this year, which would bring fiber coverage within the Kinetic footprint to over 50%, a significant milestone in our goal to reach 3.5 million homes by the end of 2029. We also expect to end the year with between 675,000 to 700,000 fiber subs and realize $635 million to $655 million of consumer fiber revenue in 2026, an increase of roughly 25% to 30% from the prior year. In terms of cost per passing, we expect the cost going forward will likely be in the $900 to $1,000 range, resulting in a blended cost of $800 to $900 per passing over the life of the FiberBuild program. Slide 18 provides a pro forma view of Unity's consolidated results for the fourth quarter. Consolidated pro forma revenue was down approximately 5% year over year during the quarter, primarily driven by the continued decline in legacy copper and TDM services and at Unity Solutions. However, top-line growth in other parts of the business continue to be strong, with fiber infrastructure growing 6% year-over-year and Kinetic fiber-based revenue inclusive of consumer, business, and wholesale services growing 16% year-over-year. As we continue to execute on and accelerate our fiber overbuild plan, fiber services at Kinetic will deliver consistent, strong growth quarter-over-quarter. In addition to the information provided in our earnings materials, we have also included additional supplemental pro forma financial information on our investor relations website. Slide 19 further demonstrates that the growth in each of our core fiber lines of businesses has been very strong, and we expect that growth to continue given the superior nature of fiber as a service. With this pace of growth, we expect fiber to overtake legacy services as the majority of our revenue by the end of 2026. As a reminder, we will continue to face headwinds from legacy services over the next couple of years that will weigh on consolidated revenue and EBITDA. With that said, there are three important points I'd like to make. First, legacy services in no way diminish the value of our core fiber business. Secondly, within a relatively short period of time, the shift to higher fiber revenue will make legacy services revenue increasingly less material. And thirdly, in the meantime, Unity Solutions is generating significant and predictable cash flow. Please turn to slide 20, and I'll now cover our full year 2026 outlook for the combined company. Beginning with Kinetic, we expect revenues and contribution margin to be $2.15 billion and $905 million, respectively, at the midpoint. We expect to deploy approximately $1.2 billion of net CapEx at the midpoint of our guidance as we accelerate our fiber bills. At Fiber Infrastructure, we expect revenues and contribution margin to be $975 million and $560 million, respectively, at the midpoint for full year 2026. Our outlook for net CapEx at Fiber Infrastructure this year is $140 million at the midpoint of our guidance and represents a capital intensity of approximately 14%. It's important to note that a meaningful driver in the year-over-year growth at fiber infrastructure is coming from dark fiber hyperscaler IRU deals that are expected to be accounted for as sales-type leases. Under GAAP, the present value of the lease payments from these deals are recognized as a one-time amount of revenue in the period that the fiber route is delivered to the customer. This differs from our typical IRU arrangements classified as operating leases under which revenue is recognized ratably over the lease term. Accordingly, we expect the revenue from these large sales type lease dark fiber deals to be lumpy and to come in unevenly during 2026. More specifically, we expect a significant portion of this revenue will be recognized in the first quarter with the bulk of the remaining amount to be recognized later in the year, most likely the fourth quarter. Please also note that has always been our practice, our net CapEx reporting offsets our gross CapEx by upfront payments received in an IRU arrangement as the cash received will offset a significant portion of the CapEx relating to these sales type lease arrangements. Turning to Unity Solutions, we expect revenues and contribution margin of $700 million and $310 million at the midpoint. As we've mentioned several times before, Unity Solutions is not core to our go-forward fiber infrastructure strategy. However, this business does generate meaningful, predictable cash flow. While we expect revenue and EBITDA to continue to decline at a mid-teens pace over the year-over-year over the next few years, a crucial part of our strategy is to retain the most profitable portion of this business while winding down low-value legacy and TDM services. All together, we expect consolidated revenue and adjusted EBITDA of approximately $3.63 billion and $1.45 billion at the midpoint of our 2026 outlook, with consolidated net CapEx of about $1.4 billion. On slide 21, we have provided a tabular reconciliation of our pro forma full year 2025 results to our 2026 outlook that summarizes the contribution from our core fiber businesses as well as the impact from legacy and TDM services. Finally, I'd like to provide some brief comments on our capital structure. Since announcing our agreement to merge with Windstream, we have successfully executed on a series of planned actions that were systematically implemented to extend our debt maturities, lower our overall cost of debt, establish access to new debt markets, optimize our mix of secured and unsecured debt, and drive meaningful interest expense savings. As slide 22 highlights, partially as a result of these actions, the blended yields on our debt have improved significantly, falling an impressive 560 basis points over the past three years from around 12.5% in February of 2023 to around 6.9% today on a blended basis. Recently, we closed on our inaugural ABS financing at Kinetic, which was unlocked as a result of the recombination of our businesses with resounding success. Our kinetic ABS transactions saw the tightest spreads and highest demand for a deal of its kind, further validating the strength of the kinetic fiber business and the attractiveness of the markets in which we operate. Further, in January of this year, we successfully completed a $1 billion add-on to our eight and five-eighths unsecured notes, allowing us to take out our $500 million term loan with similarly priced unsecured debt. to use the majority of the remainder of the proceeds from this transaction to opportunistically reduce other debt in the near term. Going forward, we believe that ABS will play a growing role in our capital structure given its comparative cost advantage. However, as I've said many times previously, we intend to be balanced in our approach and to maintain a healthy mix of both ABS and non-ABS debt in our capital structure. While ABS will be an important part of our strategy to fund the strategic investments we are making in our business, it is not the only source of capital we have at our disposal. For example, as has been our practice at Unity, we are constantly evaluating our portfolio of assets for optimization. Optimization opportunities could include assets that are underutilized or fallow, assets that are outside of our prioritized footprint, or assets for which we can receive premium valuation multiples. Based on our analysis over the past six months, we believe there are $500 million to $1 billion of non-core assets that we could monetize. As slide 23 shows, between excess fiber, non-core, and non-clustered assets and operations, such as select non-clustered kinetic and non-Southeast fiber infrastructure markets, as well as spectrum and other real estate assets, we believe the opportunity exists to generate material proceeds over the next 12 to 36 months. It is important to note that the monetization of these assets would have a negligible effect on our adjusted EBITDA, as many of them are underutilized today and currently produce minimal to no cash flow for the business. To be clear, any divestiture would be entirely opportunistic, and we are not currently running a formal sales process. With that, we'd be happy to take your questions. Operator?

Thank you. As a reminder, to ask a question, please press star 11 on your telephone. and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Gregory Williams from TD Cowen.

Great. Thanks for taking my questions. Kenny, you noted the IRRs here for anchor returns at 22%, obviously a great return. Can you help us with the mechanics? I mean, it's not to get the network scale. And obviously, a lot of it is the upfront cash you'll receive that helps the NPV there. Is this sustainable? The way I think about it is with 22% returns, you'd invite more competition, or do you just have that breadth and scale to keep the competition out? And the second question is just on housekeeping. The billion dollars of non-recurring revenue you're seeing from now to 2028, can you help us with the cadence of that? Is that going to be sort of linear or ramp up in the later years? Thanks.

Good morning, Greg. I'll take the first one, and then, Paul, you can take the second. On your first one, Greg, yeah, we're very pleased with those returns, and as you know, historically, we've typically shown cash yields versus IRRs when it comes to our anchor and lease-up builds, but in this case, those numbers well exceed our traditional anchor yields and lease-up yields, and so we felt that IRRs were probably a better number to show to give a true view of these deals. And I think one of the reasons that you're seeing high numbers is because we are, in addition to some greenfield builds, we are selling some existing infrastructure. So that is a part of what we're doing with the hyperscalers. It has been for some time. And that's a big part of what we did in the fourth quarter of last year and some of the record deals that we talked about. So when you think about a Greenfield build, the IRRs might be a little bit lower depending upon how much of the NRC you have, but then when you blend that with mixing in, selling some existing infrastructure, you obviously drive those yields higher. And selling existing infrastructure, either to the anchor or in lease up, it's very analogous to the words when we describe lease up, right? Because that's really what you're doing. You're selling the second, third, fourth customer off of a build or off of existing infrastructure. And that's really the core business that we're gearing towards. This build cycle is terrific. We're using it to fill in parts of the network that we have strategically wanted to build in the past. We're using it to strategically expand our footprint. And so the build cycle itself is great. But what we're really playing for is that half a billion of recurring cash revenue that's building. And frankly, we feel great about that. I think your question about these returns are attractive. Does that invite competition? I think the reality is, yes, it does. That's why the entire Dan Mansoor- fiber industry is focused on this opportunity and looking for ways to to to play in this space, but I do think and we've said this publicly, but I do think that the hyper scalers prefer to work with large scale. Dan Mansoor- fiber providers who have breath, who have expanded footprints across multi regions and, importantly, have a track record of building. both on time and on budget. And I think for us to drive these returns, as I said, we're leveraging that existing footprint. So I feel like we're really well positioned competitively, certainly relative to upstarts and even relative to other fiber providers, large scale fiber providers, because we're targeting our backyard. We're building in areas where we've got a right to win. So I think we're going to continue to see these great returns going forward. So Paul, you want to take the second question?

Yeah, I'll take the second. And I'll add on to that last point you made, Kenny, and just say that the returns aren't necessarily equal. In most of these deals, we're leveraging existing assets to a great degree. So someone coming in to try to compete against those existing assets might not have a simple return profile. So keep that in mind as well. In terms of the billion dollars you referenced and the cadence, We show in our materials today the growth at fiber infrastructure year over year. That growth is being largely driven by these types of deals that are coming in immediately, so you can kind of see directionally a little bit of the impact in 2026 from these types of deals. We've already booked $670 million in total contract value. Not all that is up front, of course, but we're well on our way towards numbers that are approaching that billion-dollar mark as well with what we're booking today and certainly with what we're seeing and have visibility to within the funnel. It's a little hard to predict because these deals aren't aren't all equal like I said a few minutes ago some of these deals leverage existing assets and can be turned over to the customer fairly quickly some of them can take two to three years to to deploy if there's significant construction involved and so since we're not going you know we don't recognize the revenue from these upfront sales type leases until we deliver the fiber it can take a little time between the signing of these deals and the delivery of the fiber and the recognition of the revenue. So I think you're going to see, Greg, it build over the next two to three years as we continue to sell deals out of the funnel and work to execute on those and deliver the fiber. So I think you're going to see kind of a steady ramp over the next two to three years.

Got it. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Frank Lothan from Raymond James and Associates.

Great. Thank you. Can you give us the confidence you have in the resources for the expanded fiber build and then the hyperscale AI build? Any concerns on labor or material availability to reach those goals? And then a follow-up question. Echostar has been canceling some of their leases with some of the towers. I just wanted to see what sort of exposure you guys might have there on the fiber side, and is any of that factored into your guidance? Thanks.

Great. Good morning, Frank. I'll take part of the first one, and then I'll ask John to comment on the kinetic element of the build, and then I'll come back and talk about addition at Echostar. We feel great about where we are from a resource perspective. We've been planning for reigniting the Kinetic build for 18 months, really, since we announced the merger, so a lot of time and effort went into that. John joined Unity well before the merger closed, so I'm going to let him take it from there on Kinetic. But on the fiber infrastructure side of the equation, we've been in build mode for years, and I think we've got terrific Third party contract relationships around the industry, including supply chain relationships on procuring fiber and labor. And and and as frank as you know, there was a time when at unity we built a large portion of our fiber internally, but we pivoted away from that over the years we're now outsourcing probably 90% of the fiber bills and we've got a few. Internal strategic crews and fiber infrastructure to help us where where we really need it. But for the most part we're relying upon really trusted Third-party relationships where where we've got a track record of performing in both directions and so I feel great about it and and think that when when you know Paul's mentioning the deployment cycle for the next three years in this build cycle, I said I 100% of what's in the funnel is contracted at this point for 2026 and roughly 50% of 2027 is contracted. So we're already working on deploying these deals and are well on track for deploying them on time. So feel great about it. John, you want to comment on Kinetic?

Yeah, I'm really pleased with the progress at Kinetic. I mean, you know, 80,000 is significantly up. since our prior quarter and among the highest quarters the company's ever delivered. And we expect that number to grow every single quarter throughout 2026. So I'm clearly confident that we're on track for the 2.3 million at the end of 2026, which puts us at a little over 50% fiberized in our entire network. and well on track for the $3.5 million at the end of 2029. The new team that came in December 1st has years of experience building and managing fiber networks. I've had the privilege of working with Manny San Pedro, our chief network officer at Verizon, and he and Bobby Walters, our head of construction now at Kinetic, came over from Brightspeed, where they built a million homes a year for the past two years. And so they came in and made a fairly quick impact, you know, putting in new procedures so that we now have, you know, a single pane of glass of every single project in our funnel. And we're able to make sure that we're not surprised that things go wrong left or right. They've got enough engineered PREMs, enough permitted PREMs to deliver the number of homes that we need. So I feel really confident about it and expect that you'll see improvement quarter over quarter. And mathematically, you'll see the clear place to 2.3 by the end of the year.

Great. And Frank, on your Echolstar question, we're very aware of the Forest Missouri position they've taken publicly. We're obviously in dialogue with them ourselves and agree with the rest of the infrastructure industry that that's an inappropriate position on their part, and I'll leave it at that. With respect to the exposure that we have to DISH, I would say that our revenue exposure to DISH is less than 1%, so it's immaterial in our view. And with respect to the impact of that in our guidance for this year, we're really assuming no recurring revenue from DISH throughout the course of this year. So immaterial impact and certainly less material when you include how we're treating it in the guidance. And we think their position is tenuous at best.

Great. I would tend to agree with you. That's great. Thanks for the insight.

Thank you. One moment for our next question. Our next question comes from the line of Richard Chui from JP Morgan.

Hi, I wanted to ask about the $1.5 billion hyperscale opportunity. How much of that do you expect to win? And can you talk a little bit more about how you expect that opportunity to grow as we kind of move forward? You talked about it a little bit, but just wanted to get a better sense of how much bigger is that kind of funnel or pipeline as you're seeing right now?

Good morning, Richard. So I think the $1.5 billion you're referring to is the funnel that we mentioned earlier in the presentation. And then we talk about, on page 12, we talk about how we see the hyperscaler opportunity actually factoring into our various financial metrics, including revenue, route miles built, and CAPEX and NRCs. So I think if you tie those two together, That's really how we see it impacting our financials. So we're winning a good percentage of that funnel. As I've mentioned, a large percentage of the business that we anticipate over the next three years is contracted at this point. And so we're in the process of deploying it. But some of that is based upon our view of the funnel that we're gonna win. And then certainly beyond 2028, there's an estimate of what we think we're gonna win from a funnel perspective. including, by the way, lease up. And I've said this many times, including in answering Greg's question earlier, but a big part of what we're winning with the hyperscalers is not just greenfield deals. It's lease up. It's waves. It's traditional dark fiber. In fact, over the weekend, I heard about a transaction where we won a 200,000 MRR waves deal where we're providing capacity by derivative to a hyperscaler And that's terrific business. So that's part of what's in that funnel. So when you see these numbers and you see the the one time revenue, don't forget about the half a billion dollars of recurring cash revenue that we expect over time. And some of that is coming from hyperscalers. The only other thing and hopefully this is answering your question, Richard, and if not, just jump in with a follow up. But the other thing I'd say And this is a good thing, but we've continuously struggled to try to forecast what the opportunity is for us. We've been very measured in our comments about the hyperscaler business, the AI build over the past, I'd say, 18 months. We progressively gave more and more guidance. We've given our view of what the TAM is for us. We updated our view of the TAM. And frankly, every time we put numbers on a page, go back and look at them later and think those were conservative. And so we continue to be emboldened by the opportunity that we see. But we also know that you and certainly investors want to have our best view of what the opportunity is. And as I said in my prepared remarks, what you see in the deck today is our best view at this moment in time. And we'll continue to update those as we go forward. I think based on the funnel and our success on winning the deals that we really want to win, we feel really great about the opportunity ahead of us.

No, that makes sense, and that does answer the question. I was just trying to get a sense of what you're currently seeing and knowing that the hyperskillers can move very quickly for a lot more capacity with a lot of capital behind it. So that helps. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Brendan Lynch from Barclays.

Great. Thanks for taking my question. It looks like the ARPU in Connecticut was up about 5%. What do you think is sustainable? And maybe just give us some color on what your overall ARPU strategy is going forward.

Yeah. This is John. Thanks for that. Yeah, 5%. I think is a little bit higher than industry averages. And we have a track record of delivering higher than industry average ARPU at Kinetic. As we said last quarter, I don't think the double digit growth that we experienced last quarter is sustainable. I think we're sacrificing customers and volume at that level for incoming customers. And so going forward, I think on a sustainable level will be inflationary increases and inflationary ARPU accretion, 2% to 3%. This next year as we reset, I think it's probably toward 2%, but certainly growth. And I think there's a lot of headroom in ARPU, and we're just getting started. So there's kind of three big levers for ARPU growth, and this is our strategy. inflationary price ups and we do that surgically we do that on a more segmented basis now we're in the process of executing a price up to our fiber base this first quarter and we're doing it this time more surgically based on the customers attributes and profile relative to their speed and trying to get customers to upgrade their speed along with the increase so yes there's an increase but we can also offer you increased speed I mean That's a very standard industry practice, and we're trying to perfect it here. So one is price ups, inflationary price ups. Two is our ability to move our base up the speed ladder. And late last year, we introduced 2GIG into our portfolio. And in the fourth quarter, we set a record in terms of percent of new customers taking gig speeds. We've also set a record for upgrading our base in the fourth quarter of existing customers to gig plus speed. So right now, as we sit here today, we have about 40% of our base on gig plus speeds, our fiber base. We know that we could upgrade 60% of them. And that's not counting the one gig customers that we can upgrade to two gigs. So it's utilizing that speed ladder strategically and upgrading the customers to more advanced capabilities. And the third aspect of our strategy is to sell additional value added services to those customers. We call those VAS services, VAS. And we recently reset our VAS portfolio in the fourth quarter, introduced some new services. We also partnered with Eero. we're going to be introducing at least two new value-added services in the second quarter. And so with the combination of inflationary price ups, upgrading customers along the speed ladder, and selling value-added services, I'm confident that we'll deliver the guidance of 2% this year and 2% to 3% on a durable basis in terms of fiber art proof.

Great. Thanks. That's all very helpful, Culler. Maybe on a similar trend thought there, you could talk a little bit about customer churn and what your strategy is there to address that. And when customers do churn, what is typically their next best option?

Yeah. So like this past quarter, we set a record not only in top line customers, sales growth and fiber sales, and also quality in terms of gig attach rate and VAS attach rate. But we also had our second best churn quarter in the company's history. First best was in first quarter 21 in the middle of the pandemic. That said, we still have more room to go. And last quarter, we talked about the five fundamental actions that we took to lower churn. We executed those actions, and I think the changes that we made are durable and will help our overall churn trajectory. Not only do we make the fundamental changes to value prop and non-pay churn, which is showing up really well in new customer early life churn, but also Fundamentally, we eliminated a bunch of pain points. This past quarter, we set a record in first call resolution, a record in terms of trouble tickets for our customers, a record for repeat visits from our techs, a record for save rates in our retention queue, and a record low in terms of transfer rates, the unnecessary transfers where we're bouncing customers around. Those are real customer pain points. We set a record in the fourth quarter in all those areas, and that's a direct correlation to churn. So I think we're going to see the momentum continue there. And, you know, at Frontier, we were among the worst in the category in terms of churn when we started that transformation in 2021. And by the end this past year, they were among the best or the best outside of, you know, AT&T and Verizon. And I was really pleased that Stacey Vongvineth from Frontier started with us on February 9th as our chief customer officer. Stacey and Jonathan Wu from Frontier led the loyalty and data science and customer operations efforts to drive durable loyalty. And they're both here now. And all our results and all the fundamentals that we put in place are not even the beneficiaries of their more advanced practices of using AI to change workflow and to get ahead of what customers' opportunities are so we can be more predictive and proactive about it. So I'm super excited and bullish about our opportunity to further improve turnover.

Great. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of David Barden from New Street Research.

Hey, guys. Thanks for taking the questions. It's been a great conversation so far. I wanted to maybe ask kind of maybe two interrelated questions. So I guess the first question is maybe for you, Paul. But if you annualize the fourth quarter EBITDA, you're going to get to the very high end of the guidance range that you've given this year. And your guiding for year-over-year EBITDA growth is in the fourth quarter of 2026. So I guess I've got some questions, which are, number one, is there some of this one-time benefit? hyperscale IRU-type revenue that was in the fourth quarter, 2025, that we should not be kind of annualizing as a run rate? And then second is, within the guide, could you be more specific about what is contributing to the revenue in EBITDA from these kind of one-time items that, you know, we maybe shouldn't be using as a jumping-off point for 2027 necessarily? Thank you.

Yeah, David, thank you. Good to have you on the call. I appreciate the question. There was a little bit of one-time hyperscaler revenue in the fourth quarter of 2025. So again, David, this is going to be a little bit going to be a little bit lumpy as we go forward so you know that's kind of one-time revenues are going to make comparison periods a little bit more difficult so I appreciate appreciate the question there was a little bit in the fourth quarter of this year so it increased the jumping-off point a little bit but you know we're not talking about a whole lot there so fourth quarter is pretty pretty close there was some other one-time revenue non hyperscaler related in the fourth quarter as well that Bill and I can take you through sort of offline. I'm happy to do that as well just to make sure you level set. And then in terms of hyperscaler revenue, this kind of sales type lease, one-time revenue that we've talked about in 2026, I mentioned that within 2026 it's gonna be lumpy. Good portion of it coming in in the first quarter and then the bulk of the rest of it probably later in the year Maybe maybe most heavily tilted towards the fourth quarter So we're going to have a little bit of up and down I think as we as we go through the year we provided David and again in the materials of kind of a reconciliation of that fiber revenue at fiber infrastructure from 25 to 26 so you can see a the year-over-year growth there, and a lot of that is being driven by the hyperscaler. So you can kind of get directionally close to the growth over the course of this year that's kind of one-time hyperscaler-type growth. But like I said earlier in the call, you know, we're We've sold some large deals. Some of these deals are going to take a while to implement. We've got visibility, as Kenny's talked about, into future deals that are going to come in. We expect this one-time hyperscaler type revenue to be recurring, in a sense, and to build over the next three years. As we go through the next three years, I would expect it to to actually build year over year, but from any quarter to its comparative quarter, you might see some lumpiness and some jumping around.

And I apologize, I have maybe a follow-up or two. So just as a quick follow-up, so do the rating agencies, when you talk to them, look at this kind of one, you know, recurring, non-recurring revenue EBITDA as recurring, or do they look at it as kind of non-recurring and ignore it?

Yeah, I don't know that that's a conversation that the rating agencies have developed. I don't know a definitive point of view on it. I guess it's kind of new in our numbers and in some of our peers' numbers. So we'll kind of have to have an ongoing dialogue with the rating agencies to talk through that, David, as we go forward. But I don't want to necessarily speak for how they're going to view it.

Thank you. One moment for our next question. Our next question comes from the line of Anna Goschko from Bank of America. Hi, thanks very much.

So just to kind of follow up on the prior question from David. So on the sales type lease accounting for these hyperscale deals that are the cash upfront, Is there something about the nature of those contracts that required you to book it this way? And, you know, I know we've all spent a lot of time kind of, you know, understanding the Lumen deals, their PCF deals, so that they have like $13 billion of these. And they're accounting for it in a different way. So they're receiving the cash up front, but obviously, amortizing it over the life of the contract. So I understand that you don't know all the ins and outs necessarily of their contract, but wondering if you're aware that if there's a difference in the contracts that you have with these hyperscalers versus what they've been selling.

Donna, thanks for the question. I appreciate it. T. Obviously I don't have a lot of insight into into lumen and and their deals and their, their accounting. So I'll kind of stay away from comparisons of our deals to theirs and our accounting to theirs. But what I can tell you T. On as our, our accounting policies have not changed with regard to how we how we account for and recognize revenue from T. From these IRU lease deals. We follow GAAP, we follow lease accounting, and each of these deals really has to stand on its own. We'll take a look at each deal, we'll look at the specifics of the contract, and the specifics of the deal determine whether or not it's accounted for on an operating basis or on a sales type lease basis. So you're going to see both of those accounting methods going forward, and it's going to depend on the characteristics of the deal. I will say sort of directionally that the hyperscaler deals, just given the massive size of those deals, are more likely going to be, more likely to trip into a sales type lease accounting than sort of the traditional lease up, lower volume, dark fiber deals. So, you know, happy to, again, you know, we can kind of get into some lease accounting with you a little bit on operating versus that offline. But I would just leave it at that for the call today.

Okay. And then if I can just follow up, what is the average length of these IRUs? Secondly, do you have the traditional O&M or operating and maintenance contract that is over the life of the contract? And then what's my other question? So one of the things that Lumen has made clear is that they've made clear in the contract with the hyperscalers that the capacity is only for the internal consumption of the customer. Do you have that same arrangement?

Yeah, I'll start. Not all good questions. I'll start and I'll turn it over to Kenny for the last piece. These are IRU deals that are structured very similarly, I would say. to classic IRU deals. What's creating different accounting is just the specifics of the deals, like I said, the size of the deals, and as you kind of go through the analysis of just applying GAAP accounting. But these are generally, if you looked at it just from a business standpoint, you'd see very traditional IRU structures. So they tend to be 20 years in length. They have O&M associated with them that provides a recurring revenue that is MRR, classic recurring revenue that we will be receiving throughout the course of the deal, typically with escalators. And a lot of these deals also have COLO involved as well, so ILA regeneration or other forms of COLO, which we think is likely to be sort of a bit of a growing revenue stream from these deals. just given the massive amount of fiber that's being taken down by a lot of these deals. If you light all that fiber, there's a lot of COLO that you need, a lot of equipment that you need along these routes to power that fiber. So we think COLO could be a much more meaningful part of the recurring revenue stream from these hyperscaler dark fiber deals over time than the traditional deals. And then I'll turn it over to you, Kenny, for that last piece.

Well, I'll hit that last question, Anna, but I just want to add a couple things to the series of questions about the structure of these deals. And Paul hit on all of this really, but just to double down on it. Number one, we recognize this is different than what we've shown in the past, but I think the nature of this opportunity, the nature of these deals calls for it. So this is not necessarily a conscious decision on our part to change accounting methodology or presentation style. This is just what the accounting is driving towards. But frankly, I think it's actually better visibility into the underlying economics for investors than the traditional way of showing these deals. So for example, we've always had one-time fiber sales like this in our portfolio in the past, but at Unity, it's usually been something around 20 to maybe $25 million a year of this, right? others, you'll know that we've had one-time revenue in our business in the past and it's either been equipment sales or deals structured like this from these one-time fiber deals where we're building a big greenfield for someone like the government, for example, or some of our other customers where the economics just calls for it. It's just now these deals are much bigger and it's a much bigger part of the revenue. But so we've done this in the past, number one. Number two, we're showing all the revenue up front as opposed to showing amortized revenue over time. That's the critical difference. And so, for example, if we talk about the record quarter of bookings in the fourth quarter of 1.7 million, but if you actually treated the hyperscaler deals that were turning up in the fourth, I'm sorry, in 2026, traditional IRU revenue that bookings number would have been over four million of MRR so that is a record quarter by a factor of two or two and a half but that four million of MRR would be a little bit misleading because a lot of that would be amortized revenue and so rather than showing an inflated bookings number of four million we're actually just showing higher cash revenue and EBITDA in the time period when this business gets turned up. So I think the real point of all of that is don't think about the economics of these deals any differently than IRU deals. It's the same, it's just a question of how we report it. And that really gets into your last question and really why we talk so much about the lease up because when we sell a greenfield deal, it's not about the anchor for us. It's really about the lease up. Uh, and, and so we're, we're getting all this one-time revenue and, and, and funded and largely funded bills. And we're playing for the half a billion dollars of recurring revenue that comes through, through the lease up over time. And I think, I think the, the way we structure these deals, uh, I don't want to get into specific customer agreements, but we absolutely structure these deals in a way where we have the maximum opportunity for lease up with the minimal amount of competition from our anchor customer. So I'll leave it at that and you can draw your own conclusions about our point of view on that. I would also say, and this is very important, when we put this fiber in the ground, we're not building for just the anchor and the anchor's lease up potential. We're building for lease up potential for traditional wholesale, traditional enterprise, which we think is going to be a huge opportunity once inference comes. As a result, the capex that we're putting in the ground is a little bit higher on the front end because we're adding that extra conduit or we're adding that extra second conduit and we're even blowing fiber potentially through it to provide the ease of lease up after the fact. I'm very focused on the lease up, and I think about the economics of these deals as being very much like traditional IRUs.

Thank you. At this time, I'm showing no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect.