Uniti Group (NASDAQ:UNIT) reported a 3% growth in consolidated core recurring revenue for the third quarter of 2023, backed by significant growth in lease-up revenue categories such as non-wireless wholesale, enterprise, and dark fiber. The company's robust network performance and scalable national network have facilitated customized agreements with wireless carriers, thereby minimizing churn. The company added approximately 1,000 route miles to its network during the quarter and is set on disciplined growth, aiming to become free cash flow positive after dividends by the end of 2025.
Key takeaways from the call include:
- Uniti's 2023 outlook anticipates core recurring revenue growth of 4%, slightly lower than previous expectations due to delayed buying decisions from certain customers.
- ETL fees for 2023 are projected to be around $15 million, down from $24 million in 2022.
- The company expects net success-based CapEx for Uniti Fiber to be $120 million in 2023.
- Full-year AFFO is anticipated to range between $1.38 and $1.45 per diluted common share, with revenues of $1.2 billion and adjusted EBITDA of $925 million.
- Uniti's Board declared a dividend of $0.15 per share.
- The company is exploring asset-backed securitizations (ABS) and asset sales opportunities, potentially exceeding $1 billion, to leverage the current capital interest in digital infrastructure.
CEO Kenny Gunderman emphasized the company's focus on non-Windstream assets for ABS financing due to the operational and revenue concentration challenges in Windstream assets. Uniti is also exploring the use of AI to improve work processes and efficiency, anticipating AI-driven demand for broadband from customers, particularly hyperscalers. The company expects growth in waves, dark fiber, and new network building projects. Uniti is also considering middle mile opportunities that align with its strategic network plan and is open to partnering with hyperscalers and leveraging state or federal subsidies.
Uniti is in the process of refreshing its pricing strategy for the enterprise side, and there may be changes in the next year. The company looks for returns of 10% or more on their builds and double-digit IRRs. The CapEx for Uniti Fiber business is expected to remain roughly the same in 2024, and the pacing of their GCI program will depend on the completion of construction projects by Windstream. The company plans to provide further updates in future calls.
InvestingPro Insights
Uniti Group's recent performance can be better understood with the help of real-time data from InvestingPro. The company's Market Cap is currently at 1180M USD, and it operates with a significant debt burden, as indicated by InvestingPro Tips. Despite this, Uniti's net income is expected to grow this year, which is a positive sign.
The company is trading at a low EBIT valuation multiple, indicating that it may be undervalued. This is further supported by the P/E Ratio of -10.60, suggesting a potential investment opportunity.
InvestingPro's data also reveals a strong dividend yield of 13.3%, reflecting Uniti's commitment to return capital to its shareholders. Meanwhile, the company's revenue growth in the last twelve months as of Q2 2023 stands at 1.66%, highlighting a steady increase.
In addition to these insights, InvestingPro offers numerous other tips and metrics to its subscribers, aiding them in making informed investment decisions.
Full transcript - UNIT Q3 2023:
Operator: Welcome to Uniti 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.uniti.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 the 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 8-K dated today. I would now like to turn the call over to Uniti Group's Chief Executive Officer, Kenny Gunderman. Please go ahead, Mr. Gunderman.
Kenny Gunderman: Thank you. Good morning, and thank you for joining. Starting on Slide 3. Uniti delivered another solid quarter of performance, and as a result, we are 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 allows us to negotiate bespoke agreements with our wireless carriers, providing steady returns and minimizing churn. As Slide 4 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 5. We continue to grow our 139,000 route miles 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 cells. We continue to believe the wireless carriers will eventually need to densify these non-NFL markets and Uniti 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 are 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-to-the-home providers. We are also starting to see more use cases relating to artificial intelligence. Turning to Slide 7, scale matters in fiber, especially with a wholesale heavy business model like ours. Having an own national network is a meaningful competitive advantage for Uniti and our ability to deploy dark fiber and wave services present Uniti 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 9. Our enterprise strategy is highly disciplined and regional in nature. As you can see from the map, we are 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 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, Uniti is positioned to patiently execute during these uncertain economic and credit market conditions. With that, I'll now turn the call over to Paul.
Paul Bullington: Thank you, Kenny, and good morning, everyone. I'd like to begin by reviewing our third quarter performance, followed by an overview of our current 2023 outlook. Overall results at both Uniti Fiber and Uniti Leasing during the quarter were in line to higher than expected with consolidated recurring revenue growth of 3% during the quarter when compared to the prior year. As a result, our 2023 outlook for consolidated revenue, adjusted EBITDA and AFFO remains unchanged as we expect to end the year within the previous guidance ranges provided. Please turn to Slide 10 and I'll start with comments on our third quarter. We reported consolidated revenues of $291 million, consolidated adjusted EBITDA of $233 million, AFFO attributed to common shareholders of $95 million and AFFO per diluted common share of $0.35. Net loss attributable to common shareholders for the quarter was approximately $81 million or $0.34 per diluted share and includes a $153 million goodwill impairment charge related to our Uniti Fiber segment that was driven by an increase in the macro interest rate environment. At Uniti Leasing, we reported segment revenues of $215 million and adjusted EBITDA of $209 million, representing growth of approximately 3% for each in the third quarter of 2023 compared to the prior year period. Accordingly, Uniti Leasing achieved an adjusted EBITDA margin of 97% for the quarter. Turning to Slide 11. Our growth capital investment program continues to provide positive results for Uniti. Over the past nine years, our tenant has invested over $1 billion of tenant capital improvements in our network. Uniti continues to invest its own capital and long-term value-accretive fiber largely focused on highly valuable last-mile fiber. Collectively, these investments have resulted in 25,000 route miles of newly constructed fiber and 24% of the legacy copper network being overbuilt with fiber. Based on the investments made to date, and our expectation that Windstream will utilize most, if not all, of the GCI program, we expect that nearly half of the legacy copper network will be overbuilt with fiber by 2030. During the third quarter, Uniti Leasing deployed approximately $86 million towards growth capital investment initiatives, with the majority of the investments relating to the Windstream GCI program. These GCI investments added about 1,000 route miles of fiber to Uniti's own network across several different markets. As of September 30, Uniti has invested approximately $780 million of capital to date under the GCI program with Windstream, adding around 19,200 route miles and 1.1 million strand miles of fiber to our network. These investments will be added to the master leases at an 8% initial yield at the one-year anniversary of Uniti making such investment. They are subject to a 0.5% annual escalator and result in nearly 100% margin. The investments we have made to date will ultimately generate approximately $63 million of annualized cash rent and increase the overall value of our network. Year-to-date, we've turned over 659 lit backhaul, dark fiber and small cell sites for our wireless carriers across our Southeast footprint at Uniti Fiber. These installs add annualized revenues of approximately $6.5 million. We currently have around 775 lit backhaul, dark fiber and small cell sites remaining in our backlog that we expect to deploy over the next few years. This wireless backlog represents an incremental $7 million of annualized revenues. At Uniti Fiber, we reported revenues of $76 million and adjusted EBITDA of $30 million during the third quarter, achieving margins of 39%. Revenue was in line with our expectations while adjusted EBITDA was slightly better than expected due to the mix of non-recurring higher margin ETL fees versus lower margin equipment sales. As a reminder, the exact timing of our nonrecurring revenue and related margins can be difficult to predict and thus can fluctuate from quarter-to-quarter. Uniti Fiber net success-based CapEx was $30 million in the third quarter, which was about $5 million higher than expected due to the acceleration of certain projects. We also incurred about $2 million of maintenance CapEx during the quarter. Please turn to Slide 12 and I'll now cover our updated 2023 guidance. We are revising our guidance primarily for business unit level revisions and the impact of transaction-related and other costs incurred to date. Our outlook excludes future acquisitions, capital market transactions and future transaction-related and other costs, not specifically mentioned herein. Actual results could differ materially from these forward-looking statements. Our current full-year outlook for 2023 includes the following for each segment. Beginning with Uniti Leasing, we expect revenues and adjusted EBITDA to be $853 million and $828 million respectively at the midpoint, representing adjusted EBITDA margins of approximately 97%. The $3 million increase in our outlook reflects the acceleration of GCI investments during the quarter. We now expect to deploy $285 million of success-based CapEx at the midpoint of our guidance, of which $250 million relates to Windstream GCI investments. In October, we funded $16.5 million of GCI, which brought us to the maximum annual amount we would be responsible to fund this year. Turning to Slide 13. We expect Uniti Fiber to contribute $311 million of revenues and adjusted EBITDA of $120 million at the midpoint for full-year 2023. We now expect core recurring revenue growth of 4% from the prior year. This is slightly lower than our previous outlook due to delayed buying decisions from certain wholesale and enterprise customers that we highlighted as a possibility last quarter. However, our sales funnel remains extremely strong and we are not seeing any significant outright cancellations of orders from our customers. We still expect ETL fees in 2023 to be approximately $15 million compared to $24 million in 2022. Net success-based CapEx for Uniti Fiber this year is expected to be $120 million at the midpoint of our guidance, reflecting the acceleration of deployed capital during the third quarter that I mentioned earlier. Turning to Slide 14. For 2023, we continue to expect full-year AFFO to range between a $1.38 and $1.45 per diluted common share with a midpoint of $1.41 per diluted share. As a reminder, AFFO in 2023 will be impacted by incremental interest and diluted shares relating to our convertible and secured note refinancings over the past year. On a consolidated basis, we still expect revenues to be $1.2 billion and adjusted EBITDA to be $925 million at the midpoint. Our guidance contemplates consolidated interest expense for the full-year of approximately $514 million, which includes a $10 million write-off of deferred financing costs and $32 million of early repayment premium in the first quarter of this year related to the redemption of our [7.875%] senior secured notes due 2025. Corporate SG&A, excluding amounts allocated to our business segments, is expected to be approximately $30 million, including $7 million of stock-based compensation expense. Our weighted average diluted common shares outstanding for full-year 2023 is expected to be around 290 million shares, reflecting the full-year impact of the incremental diluted shares relating to the accounting of the convertible notes issued late last year using the if-converted method. As a reminder, guidance ranges for key components of our outlook are included in the appendix to our presentation. Finally, our Board declared a dividend yesterday of $0.15 per share to stockholders of record on December 15, payable January 4. With that, I'll now turn the call back over to Kenny.
Kenny Gunderman: Thanks, Paul. As I mentioned earlier, we continue to focused on driving high-margin recurring revenue while targeting disciplined mid single-digit topline growth. Slide 15 demonstrates the investments we are making in our fiber network will lead to a more sizable and valuable fiber business over the next several years. We also expect the end of 2025 to be the inflection point where we become free cash flow positive after dividends and we expect to generate cumulative free cash flow of over $1 billion during the five-year period ending in 2030, if we maintain our current dividend and approximate level of annual capital investment. This trajectory, along with our predictable organic growth outlook would lead to a substantial deleveraging, resulting in net leverage between 4x to 5x and roughly doubling the size of our fiber business by 2030. Before opening the call to questions, I'd like to briefly comment on some recent trends in the industry that are directly impacting Uniti. First, asset-backed securitizations, also known as ABS financings, have become more prevalent in the fiber space after many years of application in both the tower and data center spaces. This trend not only confirms that fiber is analogous to towers and data centers as being stable, mission critical communications infrastructure, but just as importantly provides a new attractive form of financing. To that end, Uniti has had substantial conversations with several parties regarding ABS, including various rating agencies and our advisors, and as a result of these conversations, we believe ABS is a viable, attractive financing source for us. Secondly, there have been a number of recent M&A transactions or investments validating attractive fiber-to-the-home and commercial fiber valuations. These investments have come from strategic buyers and public and private capital sources, indicating the breadth of interest in these assets. As an asset rich company, with one of the largest fiber portfolios in the country, Uniti is uniquely positioned to benefit from both of these trends. As a reminder, over the past five years, Uniti has sold or monetized up to a $1 billion of assets at premium multiples. Our dashboard of opportunities today inclusive of ABS and asset sales far exceeds $1 billion, and we expect to explore these alternatives and M&A in coming quarters. With that, operator, we're now ready to take questions.
Operator: [Operator Instructions] Our first question or comment comes from the line of Frank Louthan from Raymond James. Mr. Louthan, your line is now open.
Frank Louthan: Thank you. Kenny, can you just follow-up on that last comment? Looking at ABS or asset sales, how are you thinking about that from a mix? Is this just more of a pure refinancing opportunity that you look at – you're looking at going forward? Or are there dark fiber sales or others or maybe kind of, you said greater than 1 billion? Give us an idea of kind of what the different buckets are of opportunity you have there? Thanks.
Kenny Gunderman: Sure, Frank. I think from an ABS perspective, the opportunity there in and of itself is probably well north of 1 billion. If we choose to go down that path, I think on the asset sales and opportunities there, I'd say that's also probably in and of itself, well north of 1 billion. And with respect to how we look at it from a use of proceeds perspective, I think it certainly could be used for refinancing opportunities could also just be part of our normal course, right. I mean, part of the reason we mentioned that the fact that we've done close to 1 billion, up to 1 billion over the past four or five years is, is sort of what we do. And we've got a big portfolio of real estate, historically towers, ground leases, certainly fiber and we've used the market appetite for digital infrastructure to realize value for our shareholders along the way, whether it be through selling business segments like towers and ground leases, looking to transition lit portfolios into dark portfolios like we did with the Everstream transition, selling sizable higher use especially with out of territory dark fiber that we're not currently lighting, monetizing joint ventures, monetizing sale leasebacks or portions of sale leasebacks. So when you aggregate these different things, we just consistently have that portfolio of opportunities and we felt it worth mentioning just given that there is a substantial amount of capital on the sidelines, especially equity capital, looking to be put to work within digital infrastructure. And we're in the thick of those conversations. So I would think about it both from the standpoint of refinancing opportunities and just general realization of intrinsic value for our shareholders.
Frank Louthan: Okay. And just to follow-up, I mean the pool of capital chasing digital infrastructure has been around for a while. Is there anything in particular that's changed a new set of demand or have you seen some movement on multiples that are more interesting to you? What's kind of changed that you're highlighting this now?
Kenny Gunderman: Yes. I'd say two things, Frank for us. I mean, one, I mean, so – yes, there's always the macro backdrop and then there's Uniti specific. As we talked about a quarter or so ago, we were very focused on refinancing the balance sheet and pushing out maturities and prioritizing that over M&A and now that's behind us – largely behind us, we're more focused now on M&A, so we've just been more focused on these opportunities over the past several quarters. The macro backdrop is also I think changing. We've consistently talked about the debt markets as being an impediment when there's a lot of volatility in the debt markets in particular. And although interest rates are still elevated, I do think there's a bit more stability because there's an increasing view that we're going to be higher for longer. That's the phrase these days, and so some of that volatility – and certainly the volatility is still there, but I think there's a view about where interest rates are leveling out for the next 12, 24 months, if you will. And so that gives both buyers and sellers a better view of what their cost capital's going to be, right? And so I think that helps lubricate opportunity and activity. And if you look at the past – this quarter, there's been several deals in the fiber-to-the-home and commercial fiber space. I mean, consolidated [got their take] private done at an attractive near double-digit multiple, horizon, another combination ILEC, CLEC is being sold for a 20x multiple. Cable South, one of our large sale leaseback customers is bringing in a substantial equity investment and all of these are deals that are either done by strategics or private or quasi-public capital sources and all that very attractive multiples. And in some cases, no external debt is being used to help finance the deals. So it demonstrates creativity on use of capital being put to work, a minimal amount of new debt being used, but also very attractive multiples that are validating the valuations in this collective space that Uniti plays at.
Frank Louthan: All right. Great. Thanks, Kenny. It's really helpful.
Kenny Gunderman: Thanks, Frank.
Operator: Thank you. Our next question or comment comes from the line of Greg Williams from TD Cowen. Mr. Williams, your line is now open.
Gregory Williams: Kenny, I want to go back to the ABS debt comments as well. Is this more on commercial fiber, or would you be carving out the fiber-to-the-home Windstream fiber on the ladder? I mean, how does that work? You own the A in the ABS, so to speak, with the underlying fiber-to-the-home, but Windstream owns customer receivables. I'm curious to see the complication there and how that could work out. Second question is just on AI. You mentioned it both on your scripted remarks and in the [presser] and trying to understand the opportunity for Uniti. Is this really waves and dark fiber tying to the new training data centers at this point and maybe move eventually to inference and interconnect over time? And what is the growth opportunity there? Is this more confidence in the mid single-digit growth for fiber, or does this possibly move the needle higher single-digit growth? Thanks.
Paul Bullington: Greg – hey, this is Paul. I'll take the first question and then turn it back to Kenny to answer your second question there on AI. With regard to ABS, most of the work that we've done is really concentrated on our non-Windstream assets. In particular, our Uniti Fiber assets, we think lend themselves very well to an ABS transaction and would be well received by that market, just given the density of those markets, the stability of that cash flow, the diversity of the customers, and the longer term contracts that we have with those customers and that. Most of the work we've done has been around those assets as opposed to the Windstream assets. The Windstream assets, I think are, we do own those assets like you said, but I think it's more challenging with regard to an ABS financing just given the separation of the operations there and the concentration of our revenues into just the master leases that we have with Windstream. So we think it's probably more likely that we would do something on the non-Windstream side of the house with regard to ABS in the near-term.
Kenny Gunderman: Hey, Greg. On your AI question, well, first of all, we're looking at it both from a internal perspective and external, what it means for our customers. For us internally, we are doing work on, how we can use it to make our work processes more efficient, more cost efficient, more capital efficient, more human capital efficient. And I think we'll have more to say on that in the coming quarters, but I think that's something that all companies probably are looking at, we certainly are. And think that there is some opportunities there to use it. With respect to our customers, yes, I think the demand – broadband demand being generated by AI is tremendous, and it's going to grow exponentially over time. And as per usual, when that future growth is real and relatively near-term, our customers need to start buying network capacity to get ready for it. They've got to stay ahead of the curve. And we're seeing that not so much on mobile broadband. The wireless carriers have been down this year, so I haven't really seen it that much there. Although we think next year is going to be different. But really when it comes to the hyperscalers in particular, we've just seen a lot of activity there, tremendous activity. And to your question, yes, I think it manifests itself not only in waves, but dark fiber and even conduit sales and building new network, connecting unique data centers, connecting nodes that maybe otherwise connected or not. And so for us to build new fiber, where we're effectively getting paid by our customer to build it, and they take a portion of the capacity and we leave the rest of it for ourselves for lease-up, those are really attractive deals for us and for our customers. So the demand, as per usual and unique by customer, it could range from lit to dark to just building new fiber. So we see there is a really attractive opportunity both now and in the near-term, and certainly over the longer term. And yes, on mid single-digit growth, I think we feel good about our range. I mean, I think it ebbs and flows. We're a little bit of the low end of that range this year. We talked about the expectation that wireless carrier demand would be down this year coming into the year. So we baked that into the cake, if you will. And it's probably been a little lower than we expected. And so that's why you're seeing us at the low end of that range. But when we look out to next year, we think we're going to have a little – we think we're going to have more growth there, and in other places. But we wouldn't change that mid single-digit growth outlook. We think that 4% to 6% range is still right.
Gregory Williams: Got it. Thank you. And you wouldn't change your balance of lease-ups versus anchor builds given the AI build?
Kenny Gunderman: I don't think so. I mean, that's a good question, Greg, for sure. We do see an increasing amount of greenfield new build opportunities, I think as a result of AI. And one of the byproducts of this elevated interest rate environment is that customers are generally more understanding of the need for higher costs, but from vendors like us to build. And so more and more of those opportunities I think look attractive even when you bake in our elevated cost of capital. And I do think we're going to see more and more of those. If you talk to our wholesale sales team, they'll tell you that there's large parts of the U.S. national infrastructure that are going to need to be overbuilt and added capacity, including where there's existing fiber. And so we do think that's a growing opportunity over time. But I wouldn't change our expectation on mix anytime soon because we also have to overlay just our general cost of capital and the balance sheet and those sorts of things. But where we find attractive customer opportunities where they're going to really lean in and help us finance new build, we absolutely are going to take advantage of those situations.
Gregory Williams: Got it. Thank you.
Kenny Gunderman: Thank you.
Operator: Thank you. Our next question or comment comes from the line of David Barter from Bank of America. Mr. Barter, your line is now open.
David Barden: So I guess I got three questions, if I could, Kenny, on…
Kenny Gunderman: Hey, David, you're coming in very, very light. In fact, we can't hear you right now.
David Barden: Is that any better, Kenny?
Kenny Gunderman: That's a lot better. Thanks.
David Barden: Okay. Sorry about that. So three questions, if I could. I guess the first one would be with respect to kind of the rebalance of the leasing as a function of the GCI and then the fiber sales kind of maybe coming in a little lighter on this delayed decisions. Would you kind of characterize that as maybe idiosyncratic with respect to a couple of specific customers that are in your pipeline? Or would you say it's more structural, given the macro backdrop? The second question would be maybe for Paul, just on the – now that we've got the $0.15 dividend reiteration from yesterday. Could you remind us kind of to what degree you're over distributing at the margin, which represents maybe the potential cushion, if you will that exists inside the cash flow structure that we kind of look at today? And then I guess my last question is Kenny for you, with Tony Thomas' exit from Windstream and Paul Sunu taking over. Does this mean anything for us as Uniti investors in terms of how that relationship could change or develop differently than it has to date? Thank you.
Kenny Gunderman: Sure. Paul, you want to take the dividend question?
Paul Bullington: Yes. I'll take the dividend question first Dave, and then turn it back over to Kenny. Yes. So yes, we mentioned a few quarters ago that we would expect given the current dividend level of $0.15 per quarter, we would expect to be over distributing above the 90% minimum requirement for distributions. Tune about $100 million to $150 million through 2025. So now we're here at the end of 2023, so I think that number is still a good number, but you're probably looking at, now it's closer to $100 million kind of going forward through 2024, 2025.
David Barden: Got it.
Kenny Gunderman: David on your question about the mix shift between Uniti Leasing and Uniti Fiber. I think it's a combination of things. It's certainly – certain customer specific to customers. So for example, the GCI revenue being higher is certainly a result of Windstream being able to use more of the GCI earlier in the year. And so that's clearly customer-driven and we're very happy about that. By the way, we'd love to see that build getting done sooner rather than later. We also have very specific customer decisions happening throughout our wholesale portfolio all the time. We see it on a regular basis. Customers are – they ask for an RFP and it's got to be done today, and it's got it be done, lit this week. And then you hear from them a couple of weeks later and no, no this is now a 2024 plan or even a 2025 plan. So it just ebbs and flows based upon network planning of customers whatever their capital allocation situation might be. And I think that's always been the case of among wholesale customers, and I think it will continue to be the case going forward. And so it's very hard to call those decisions anything other than customer specific. Occasionally you see a few of the customers like the wireless carriers moving in packs like I think they are this year, but even that is not something that happens every year. But that said, I do think there's – we do think there's some macro backdrop impacts, especially probably on the enterprise side. We just have more customers there. Obviously there continues to be economic uncertainty inflation, it continues to be elevated despite it coming down. The labor market is schizophrenic. And so I think that is having some impact and probably more impact than we thought coming into the beginning of the year. We sort of expected some weren't sure how much, but I think, with a lot of the year now in hindsight, I would say that there's probably been more than we expected. And so being at the low end of our mid single-digit range is partly a reflection of that. With that said, we're still growing enterprise 10%, 15% a year. So it continues to be a very healthy business for us and we expect that to be the case going forward. With respect to our relationship with Windstream, I've always said – I think it's better than the market actually thinks it is. And that continues to be the case. We wish Tony well and his next endeavor and we're very pleased to see Paul in that role. He's an industry veteran and he's frankly, a long time friend too. So we look forward to working with him going forward.
David Barden: Thanks, Kenny.
Kenny Gunderman: Thank you.
Operator: Thank you. Our next question or comment comes from the line of Bora Lee from RBC Capital Markets. Mr. Lee, your line is now open.
Bora Lee: Thanks, and good morning. Just referring back to your comment about customers understanding that higher costs, does that provide any opportunity to move on pricing at all from your standpoint? And then secondly, could you remind us if there are any opportunities for you utilizing federal programs such as the middle mile program or others?
Kenny Gunderman: Hey, Bora. Yes, I think the short answer to your first question is yes, it does. I think specifically when we're engaging with wholesale customers, because a lot of these big network deals are almost by definition, they're bespoke and they require a lot of – they have a lot of moving pieces. There's an NRC component, there's a MRC component, there's potentially escalators and among other things, right? There's six or 10 different moving pieces. But net-net, when you look at return thresholds for us, we absolutely have been in incorporating a higher cost of capital into those return thresholds. And we've been including that for some time now. And I think on a go forward basis, that's not going to change anytime soon. It may even go higher, frankly. And so when we set those hurdles for ourselves, for our team by definition, that leads to higher NRCs or that leads to higher MRCs and so forth. And so ultimately, what we're finding is that customers are understanding of that and that we're getting – we're still getting deals done. I think on the enterprise side, it's a little different. You don't just change pricing on a regular basis. You got to be a little more disciplined and conscientious about making changes there. We're actually in the process of refreshing and thinking on that. I think there might be some changes around that going into next year, but we really haven't made any material changes there this year. We've actually asked ourselves, if we were to make changes, how much impact would that have on-demand, either positively or negatively. But we're kind of going through that analysis, but haven't really made any changes in that regard. I'm sorry, what was the second… Yes, we're definitely – we consistently look at both federal and state funding. Bora always looking at it from the standpoint of how we can use it not only for ourselves, but also how our customers might use it. We definitely have a large number of customers who are benefiting from the federal and state funding for fiber-to-the-home. And I think as we've talked about, we're a beneficiary of that by extension. For ourselves, we are actually looking at some middle mile opportunities that in the past we've always concluded did not make sense for us for a variety of reasons. But we're currently looking at some that we think could and I won't go through all the reasons why. But in general, it needs to be – the funding needs to be in a territory and as part of a network that we think is strategic as opposed to just building it because you can get the money. And so if we can do it in a way that actually adds to the overall strategic value of our network, it's something that we think is worth it and it's worth spending our time and resources on. So probably more to come on that.
Bora Lee: Got it. Just a couple of follow-up actually, on the pricing side, is that to maintain the spread between return and cost of capital or reduce compression or expand? And then on the middle mile, would you consider as doing that with a partner of some sort an option as well that you've been thinking about?
Kenny Gunderman: Yes. So definitely – on your first question, yes, it's maintaining that margin between cost and return. And we look at returns in a lot of different ways. We look at payback, we look at immediate cash flow yield, we look at IRR among others. And so yes, we're using the cost of capital as a baseline cost. And then we're hurdling those that cost in order to get returns that are attractive for our shareholders. And we talked about this before, but we're generally looking for 10% plus yields on a well, sorry, five to 10 builds with an immediate clear line of sight to 10% plus lease-up yields. And we certainly look for IRRs in the double-digit range as well. And yes, we're always looking, not we're consistently looking for partners to build network, whether it be with subsidies or not. And back to the question about AI, I think one of the big opportunities there is building network in partnership with some of the hyperscalers where they're bringing a big NRC or upfront fiber commitment to the table to help justify the investment by us. And that's really sort of a core part of our wireless strategy. I mean, that's really what we've done historically with the wireless carriers where they – they need a greenfield build and they're the anchor customer to help finance the network for us, where we take the risk on lease-up. So that's really a core part of our business. And adding – the added benefit of state or federal subsidies and partnering there is absolutely something that we're looking at.
Bora Lee: And sorry to ask, but you cut out for a brief second when you were making your comments on the returns. Would you just mind repeating just the first couple of seconds there?
Kenny Gunderman: Yes. I'm not sure where I got cut out, but really, I think I was agreeing with your question that we use our cost of capital and other costs as the baseline, and then our returns are a markup from that baseline cost to capital. And then from there, there's obviously a lot of different levers to toggle using NRCs, MRCs, et cetera. So did that answer the part?
Bora Lee: Yes. I think there was an actual return hurdle that you're referring to [indiscernible]?
Kenny Gunderman: Yes. Sure. We look at a variety of return metrics, we look at cash flow yields, we look at paybacks, we look at IRRs. And I think on cash flow yields, we've said consistently over time that we look to, look for 5% to 10%, yields for our anchor customers with a clear line of sight to 10% plus yields through lease-up, and we look for double-digit IRRs. And I think those targeted IRRs are a little different depending on which type of customer and customer segment, but they're double-digit IRRs.
Bora Lee: Right. Thanks very much.
Operator: Thank you. Our next question or comment comes from the line of Alana Papa from Morgan Stanley. Ms. Papa, your line is now open.
Alana Papa: Hi. I'm calling for Simon Flannery. Just a question on how you're thinking about CapEx for 2024. Any comments there? And maybe the pacing of the GCI program given Windstream finished, a bit sooner than expected this year? Thanks.
Paul Bullington: Yes. Hey, Alana, this is Paul. I'll take that. With regard to CapEx for 2024, I mean, we're not – we haven't put out guidance and don't usually put out guidance, until the first part of the year. But generally what we've said, I think continues to be true. So at our Uniti Fiber business, we expect capital – CapEx to remain about the same level that it's been this year. And so that CapEx I think would be flat going into 2024 roughly as an expectation. And then with regard to GCI, the GCI program is specifically calibrated with maximums each year and some ability to roll over unused portions from previous years. So if we look out into 2024, the maximum amount of GCI for 2023 was 250 that we talked about in our comments. But then going, looking at 2024 that maximum decreases to $225 million with rollover up to $250 million. But there'll only be about $5 million of rollover that could apply to next year. So at max next year would be $225 million to $230 million. And in terms of the pacing for that for next year, we expect it to be kind of similar I would think to this year. But Windstream has to make those investments and complete those construction projects and submit them for reimbursement. So it really depends on the pace of their construction and the pace of resubmitting those expenses for reimbursement.
Alana Papa: Great. Thank you.
Operator: Thank you. I'm showing no additional questions in the queue at this time. I would like to turn the conference back over to Mr. Gunderman for any closing remarks.
Kenny Gunderman: Thank you. We appreciate your interest in Uniti Group and look forward to updating you further on future calls. Thank you for joining us today.
Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.
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