Uniti Group Inc. Q3 FY2020 Earnings Call

Welcome to Uniti Group's Third Quarter 2020 Conference Call. My name is Sonia, and I'll be your operator for today. A webcast of this call will be available on the company's website, www.uniti.com, beginning November 9, 2020, 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 afternoon will 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.

Thank you. Good afternoon, everyone, and thank you for joining. Please turn to Slide 4 in our presentation. We have another successful quarter at Uniti with our fiber and leasing businesses both performing well. We continue to see strong demand for our wireless and non-wireless service offerings at Uniti Fiber while focusing on meaningful lease-up of our major wireless anchor builds. At Uniti Leasing, we're also driving incremental lease-up on our national fiber network of 124,000 route miles. This is underscored by the strategic OpCo transaction that we are announcing today with Everstream. I'll have more comments later in my prepared remarks regarding this transaction. But this deal reinforces the substantial value of our national network, including the fiber required in our settlement with Windstream. With 124,000 route miles of fiber, Uniti is one of the largest independent fiber providers in the country, with a national network spanning across 42 states. As it relates to COVID-19, we continue to see minimal disruption within our businesses. The majority of our employees continue to work from home while our remaining employee base is actively working in the field with first responder designation. Although there was a decrease in IP traffic on our network early on during the pandemic and then leveled off, we saw traffic levels return to pre-COVID levels during September. Our installation activity in the third quarter remained robust, and we've not seen any orders nor service cancellations from customers as a result of COVID-19, with only marginal delays relating to new sales and install activity. As a reminder, less than 5% of our revenues come from enterprise customers and 75% of those enterprises provide essential services. Thus, we expect any future impact from COVID to continue to be minimal. Demand from critical industries such as healthcare, education, and government remains strong as the need for high-bandwidth usage technologies continues to grow. In fact, September was a record month for enterprise bookings at Uniti Fiber driven in part by the demand from these critical industries. Demand in install activity from our wireless customers remains robust, driven by the broader rollout of 5G services in our markets. As I mentioned earlier, we continue to focus on leasing up our existing fiber network, both at fiber and leasing with high-margin, highly accretive opportunities. Over 90% of our new sales at Uniti Fiber during the quarter were to non-anchor customers. At Uniti Leasing, including the upfront proceeds from the Everstream transaction we're announcing today, we've generated total proceeds of approximately $225 million from OpCo-PropCo and IRU transactions in the past two years. In the fiber we're acquiring as part of the settlement will increase our leasable capacity by 90%. Our highly proprietary funnel is healthy, and we're currently evaluating numerous opportunities, including additional OpCo and sale-leaseback transactions. Finally, the quality of our portfolio of 124,000 route miles and 6.7 million strand miles of owned fiber in 2,400 small cell locations, either in-service or in backlog remains highly underappreciated. We're one of the select few providers of these critical components that are enabling new technologies such as 5G. As a result, the opportunities set us tremendous for sustainable growth for many years to come. Our infrastructure provides highly predictable revenue and cash flow with material lease-up potential at attractive margins. Turning to an operational update for the quarter. As I discussed last quarter, the focus at Uniti Fiber continues to be leasing up our wireless anchor builds, including additional wireless customers and non-wireless customers. As Slide 5 illustrates over the past four years, we've sold incremental lease-up MRR of $5.2 million, almost three times the recurring revenue on the major wireless anchor builds that have either been completed or will be later this year. We continue to see significant lease-up progress this year, having sold $10 million of annualized lease-up revenue that is expected to generate incremental cash flow yields of approximately 50% by leveraging our existing network. Including the lease-up to date, we've sold since we began construction on our major wireless builds. We expect to generate a cumulative cash yield of 14% on these projects, doubling the initial anchor yield within a four-year timeframe. These relatively new networks are still highly underutilized, and we expect to yield additional lease-up in the coming years. We'll continue to pursue select anchored greenfield builds and lease-up those networks with a mix of additional wireless and non-wireless customers as well. Uniti Fiber sales bookings in the quarter were approximately $0.4 million of MRR, and approximately 93% of our sales bookings came from non-wireless customers. Enterprise bookings during the quarter increased over 15% from the second quarter, reflecting our continued focus to drive incremental lease-up in our Southeast markets. Uniti Fiber installed $0.7 million of MRR during the third quarter, with 76% of gross installs related to non-wireless opportunities, 22% related to wireless, and 2% related to upgrades. The continued solid performance at Uniti Fiber not only validates our strategy of focusing on less competitive tier-two and tier-three markets but also highlights the mission-critical nature of our fiber network. Turning to Slide 6. Through the lease-up of our fiber infrastructure at Uniti Leasing, including the upfront proceeds from the Everstream transaction, we've generated an additional $225 million of proceeds through OpCo and IRU transactions over the past two years. We continue to expect similar activities in the coming 12 to 24 months could generate meaningful proceeds. Now that our settlement with Windstream is effective, we've begun actively marketing the fiber we acquire as part of that settlement. As a result, we continue to see significant interest from our wholesale customers. Our sales pipeline represents over $1 billion of total contract value, $358 million of upfront IRU payments, and $57 million of annual recurring revenue reflecting the significant opportunities that are expected to be realized over several years and the strategic value of these additional fiber strands provide Uniti. The opportunities we're currently pursuing utilize 500,000 strand miles of fiber, and approximately 75% of the deals utilize fiber we're acquiring as part of the settlement. Turning to Slide 7. When combining the lease-up we've sold to date on the major wireless anchor projects with the lease-up we've generated at Uniti Leasing, Uniti has sold approximately $67 million of annualized lease-up revenue resulting in more than doubling the initial anchor cash yield from approximately 7% to a cumulative yield of 16%. This does not include potential lease-up from the fiber we acquired as part of the settlement, which we expect will provide significant additional upside. We recently realigned our sales teams to ensure we're targeting the right mix of customers while ensuring we address the needs of our customers effectively. Our national strategic accounts team is led by Greg Ortyl and will focus on large wireless and other national accounts such as cable and content providers, domestic and international carriers, and data centers. Our regional wholesale and enterprise sales efforts are being led by Joe McCourt and our strategy continues to deploy local salespeople into several of our major wireless anchor markets to further drive incremental lease-up through wholesale, enterprise, healthcare, and government. Our first investments were made during the quarter under the GCI program as part of our settlement with Windstream. As a result, we're now generating incremental revenue from that program. As a reminder, the investments Uniti is committed to making must meet certain underwriting criteria, including being long-term value accretive fiber and generating minimal threshold returns for our tenant. So definitely the program is designed to not only ensure investments are being made to help our tenant now but also future-proofing Uniti's network for future renewals. The majority of investments are likely to be fiber to the home and markets with favorable demographics, capitalizing on the demand for broadband, as first movers in many of these markets. Our network will be defensible for many years to come. The investments that qualify under the program will be added to the master leases at an 8% initial yield at the one-year anniversary of Uniti making such investments, subject to a 0.5% annual escalator, and result in near 100% margin revenue. With that, I'll turn the call over to Mark.

Thanks, Kenny. Good afternoon, everyone. Our settlement agreement with Windstream became effective this quarter. Consequently, our financial results and revised outlook incorporate the effects of various elements of the settlement agreement. Our guidance has been updated from the estimates shared in our last earnings call. I'll begin with a summary of the key components and their potential impact on our financial statements. Windstream exited Chapter 11 on September 21, simultaneously with the effectiveness of our settlement agreement. The bifurcated ILEC and CLEC leases, which are interconnected through cross-defaults and cross-guarantees, are now in place with a current aggregate annual cash rent of about $665 million. At closing, we acquired rights to 2.2 million fiber strand miles and dark fiber IRU contracts, which generate annualized revenues of approximately $29 million. We issued 38.6 million shares of common stock, resulting in $244.5 million in proceeds transferred to Windstream. Additionally, we made cash payments totaling $40 million for the purchase of fiber assets and IRU contracts. For financial accounting, we must generally combine the consideration provided to Windstream and allocate it to identifiable components of the settlement at their estimated fair values. In the third quarter, we recorded assets of $73 million, mainly representing the 400,000 strand miles of fiber and dark fiber IRU contracts Uniti acquired from Windstream. Our balance sheet at quarter-end shows a settlement obligation valued at $438 million, reflecting the discounted value of the $490 million in settlement payments we must make to Windstream over the next five years, subject to certain prepayment options. The settlement liability will be accreted over the term of the obligation, and we expect accretion of $18 million in interest expense over the next year. Our first quarterly settlement payment of $24.5 million was made on October 7. Now that Windstream has emerged from bankruptcy, we anticipate recognizing approximately $25 million in incremental straight-line non-cash revenue over the next 12 months related to the new Windstream MLA's and GCI investments. Although we will receive no incremental cash rent on the GCI investments until their one-year anniversary, we will record the straight-line revenue impact from the time of the GCI investment under GAAP. Moving on to Bluebird, as I mentioned during our last call, we completed the sale of an ownership stake in the entity controlling Bluebird PropCo, generating $168 million in proceeds. The book gain of $23 million from this transaction is excluded from both adjusted EBITDA and AFFO. Lastly, as Kenny noted, we announced a strategic OpCo-PropCo transaction with Everstream, expected to yield $135 million in upfront proceeds and $3 million in annual recurring revenue upon closing, anticipated in the second quarter of 2021. These transactions further bolster our balance sheet and strategically position us for future growth. Please refer to Slide 8 for a review of our third-quarter results. We reported consolidated revenues of $259 million, consolidated adjusted EBITDA of $199 million, and AFFO attributable to common shares of $93 million, equating to $0.42 per diluted common share. The net income attributable to common shares for the quarter was $7 million, or $0.04 per diluted common share, which includes a $23 million gain from the sale of our ownership stake in Uniti’s Midwest fiber network and $21 million in transaction-related and other costs. In our Uniti Leasing segment, we reported revenues of $182 million and adjusted EBITDA of $181 million. During the quarter, we deployed $31 million in capital, including $29 million on investments related to the Windstream GCI program. These investments added approximately 35,000 strand miles of fiber to Uniti's network, primarily across 13 ILEC markets. These investments are added to the rent payments or master leases at an 8% initial yield, subject to a 0.5% annual escalator on the one-year anniversary of the investment. The third-quarter investments are projected to generate $2.3 million in annualized revenue. At Uniti Fiber, we turned over 180 dark fiber and small cell sites for wireless carriers in our Southeast footprint, adding annualized revenues of $1.1 million. Year-to-date, we've turned over around 680 dark fiber and small cells, totaling about $5 million in annualized revenue. We have 750 remaining dark fiber and small cell sites in our backlog, expected to generate an incremental $4 million in annualized revenue over the next two years. Uniti Fiber's core revenues met our expectations, while adjusted EBITDA margins were slightly lower due to restoration costs tied to Hurricane Sally and Laura, alongside higher employee costs. Without these factors, core margins would have been around 38%, aligning with our expectations. It's important to note that our third-quarter results from 2020 did not include revenue or adjusted EBITDA associated with Uniti Fiber's Midwest operations, sold to Macquarie as part of the Bluebird transaction on August 30, 2019. Uniti Fiber net success-based CapEx was $35 million in the third quarter, about $10 million higher than anticipated due to accelerated capital deployments for several fiber build-outs originally planned for 2021. We also incurred $1 million in integration CapEx and $2 million in maintenance CapEx, accounting for roughly 2% of revenues. We are nearing completion of our major dark fiber and small cell builds, with two projects remaining, expected to finish in the fourth quarter of this year. Please refer to Slide 9 for our updated 2020 guidance. We are revising our previous outlook mainly due to the revised impact of the settlement agreement with Windstream, transaction-related costs reported in this quarter, and a few modest adjustments at the business unit level. Our current outlook excludes future acquisitions, capital market transactions, and related costs not previously mentioned. Actual results may differ significantly from these forward-looking statements. A reconciliation of our prior 2020 outlook to the current one is included in the presentation materials on our website. Our full-year outlook for 2020 by segment is as follows. Regarding Uniti Leasing, we have updated our guidance based on the timing of our settlement with Windstream, which became effective on September 21, rather than the previously assumed fourth-quarter effectiveness. We will recognize cash rental revenues on the bifurcated ILEC and CLEC master leases, maintaining an aggregate annual rent of $665 million. We anticipate revenue and adjusted EBITDA of $6 million related to the straight-line rent associated with master leases and GCI investments post-Windstream's bankruptcy emergence. Revenue and adjusted EBITDA related to assets and dark fiber IRU contracts are still expected to be $8 million and $6 million, respectively, for 2020, reflecting the period since our settlement took effect. On an annual basis, excluding dark fiber contracts sold as part of the Everstream transaction, we expect revenue and adjusted EBITDA of approximately $26 million and $19 million. After accounting for all these elements, we now expect Uniti Leasing revenues and adjusted EBITDA to be $746 million and $736 million, respectively, at the midpoint, representing adjusted EBITDA margins of about 99%. Our current guidance indicates net success-based CapEx for Uniti Leasing at $104 million, with an estimated $90 million tied to GCI investments related to the Windstream settlement. On Slide 10, we are maintaining our full-year revenue guidance for Uniti Fiber at $306 million. We now expect adjusted EBITDA of $114 million at the midpoint, slightly reduced due to lower margins in our non-core construction business. Please remember that our non-core construction business is anticipated to be phased out by the end of this year, and the expected $30 million in annual revenue will not recur in 2021. Excluding our construction segment, margins would align with previous guidance. There has been an acceleration in project build-outs that were originally scheduled for early next year. Uniti Fiber's net success-based CapEx for this year is expected to be around $120 million at the midpoint, up $20 million from previous guidance. Uniti Fiber's net success-based capital intensity is expected to be about 40% this year, with capital intensity averaging approximately 33% for the latter half of 2020. We anticipate integrating CapEx of about $5 million to $7 million. We do not foresee additional integration CapEx after 2020. We've accelerated capital deployment on some projects while focusing on reducing Uniti Fiber’s capital intensity. We continue to expect Uniti Fiber’s net success-based capital intensity to remain within the 30% to 35% range or lower going forward, as we pursue select greenfield dark fiber and small cell builds, leveraging existing anchor fiber networks for more capital-efficient lease-up opportunities. Moving to Slide 11, for 2020, we still anticipate full-year AFFO to be between $1.69 and $1.73 per diluted common share, with a midpoint of $1.71. We expect consolidated revenues of $1.1 billion and adjusted EBITDA of $817 million at the midpoint. Our guidance now considers a consolidated interest expense for the year of approximately $424 million, excluding any deferred financing cost write-offs. The reported interest expense for 2020 includes an additional $73 million write-off of deferred financing costs incurred in the first quarter, associated with payoff of term loans and interest accretion on a $500 million settlement obligation. Corporate SG&A expenses, including allocations to our business segments, should be around $41 million, consisting of $9 million in stock-based compensation expense. We now project weighted average diluted common shares outstanding for 2020 to be roughly 230 million shares, down from 232 million shares in prior guidance, reflecting the timing of additional shares issued to certain Windstream creditors as part of the settlement. For the fourth quarter, we expect weighted average diluted common shares outstanding to be about 261 million shares. Guidance ranges for key components of our outlook are included in the appendix of our presentation. On Slide 12, we provide a table reconciling our prior guidance with our current outlook, summarizing my comments today. Turning to capital markets, on November 5, the Board declared a dividend of $0.15 per share for stockholders on record as of December 15, payable January 4. At quarter-end, we had approximately $484 million in combined unrestricted cash and cash equivalents, along with available revolver capacity. Our leverage ratio at the end of the third quarter stood at 6.1 times, based on net debt to annualized adjusted EBITDA. Following Windstream's emergence, all three rating agencies have maintained ratings. We are focused on refinancing our revolver and expect to initiate this process this quarter. We continuously monitor capital markets and look to seize attractive opportunities. With that, I will turn the call back over to Kenny.

Thanks, Mark. Please turn to Slide 13. We've entered into a strategic OpCo-PropCo agreement with Everstream for total upfront consideration to Uniti of $135 million. In addition to the upfront proceeds, Uniti will receive annual fees of approximately $3 million from Everstream over the initial 20-year term of the IRU lease agreements, subject to an annual escalator of 2%. As far as the transaction, Uniti will enter into two 20-year IRU agreements to lease Everstream 220,000 strand miles of Uniti-owned fiber across 10,000 route miles in eight states within the Northeast and Midwest, including 165,000 strand miles of fiber Uniti acquired as part of the settlement. Also, Uniti is agreed to sell Everstream a portion of Uniti Fiber’s Northeast operations, and certain dark fiber IRU contracts Uniti acquired as part of the settlement, that on a combined basis currently generate approximately $24 million of annual revenue and $17 million of annual adjusted EBITDA. With this transaction, there are several key things to highlight on Slide 14. First, the transaction increases the total contract value to Uniti by approximately $107 million. Secondly, we’re replacing actively managed lit services revenue with passively managed dark fiber revenue. This not only extends the average contract term from approximately four years to twenty years, but also improves the average margins from 73% to 100% and virtually eliminates any churn risk. Lastly, this is a material lease-up transaction on the recently acquired settlement fiber and highlights the strategic value of this network to Uniti. We continue to have substantial fiber available for further lease-up, including in these northeastern markets. In closing, we continue to focus on driving high margin, low churn recurring revenue in all of our businesses. We’ve deemphasized or sold non-core operations that do not fit this profile, such as our non-strategic construction business, which we expect to be mostly wound down by the end of this year. We also fully wound down our residential CLEC business, Talk America, last quarter. As a result of our actions, 97% of our revenue is now recurring with an average term of approximately nine years, while company-wide churn also remains low and for the quarter was 0.3%. With the addition of the Everstream deal and our expectation to pursue similar transactions in the future, we are actively working to improve and build upon each of these key metrics. With that operator, we're now ready to take questions.

Thank you. Our first question comes from Frank Louthan with Raymond James.

Great. Thank you. So Mark you mentioned refinancing the revolver. Is that – I assume that would include a path to getting out of the current covenant restrictions you have with your current revolver. And just to be clear, does the guidance all include sort of the puts and takes for all these different transactions that you've talked about and they closed in the quarter and so forth as well? Thanks.

Yes. So the guidance does include all the transactions absent Everstream, which obviously as I mentioned, is scheduled to close next year. In terms of the revolver, yes, I would expect that any revolver refinancing would eliminate the covenant restrictions that are currently in the revolver. Now, keep in mind that those similar restrictions are also in the last series of notes that we issued. And those will be in effect until we meet the criteria in those notes which primarily would be we need to get leverage to 5.75 on a net debt basis. So they won't be in the – I wouldn't expect them to continue in the revolver, but they will remain in the bond until we meet those criteria.

What do you – what is your outlook for getting there? Does this Everstream transaction help a bit? I mean, how should we think about that?

Yes, so I don't want to give a specific timeframe. There's different ways that we can get there. We can get there partly by doing additional transactions that bring in upfront proceeds like the Everstream transaction or over IRU sales. We can get there just by growing EBITDA and cash flows over time. And we can also get there by doing transactions to the capital market. So I would expect us to get there sometime in 2021. But when we get there and how to get there would just depend on a little bit – partly opportunistic and partly when transactions get closed.

All right, great. Thank you.

Thank you. And our next question comes from Brett Feldman of Goldman Sachs. Your line is now open.

Thanks for taking the question. You sort of reiterated during your remarks that you're going to be increasingly focusing on winning business where you can lease up the existing fiber assets you have to have a positive impact on your capital intensity. So I have two follow-up questions to that. First, it would seem like if that's really the way you are operating the business organically other than maybe looking to accelerate delevering, it seems like you could probably fund your business with cash that you generate and maybe incremental debt means you can do off the balance sheet without equity. And I'm curious if that’s the fair way of thinking about it? We've kind of thought that equity might be predominantly used for M&A, but if you have a different view on how equity fits into the cap structure, that would be helpful. And then second, putting aside some of the near-term puts and takes in terms of just kind of completing the process and getting out of all the residual elements of the Windstream deal, including some of the covenants, why not look to deploy more capital? I mean, you can make the case that you've never had a more attractive access to the capital markets in light of all of the deals you've done to resolve the Windstream situation. So why ratchet down CapEx now?

Yes, Brett, this is Kenny. I'll take those and Mark may want to add. But first on your first question, I think your instincts are correct. I mean, when you look at our pivot away from being largely construction and greenfield to now being increasingly, and eventually, predominantly lease-up, you are going to see lower capital intensity and better margins in the business. You are starting to see early signs of that now, but you'll certainly see that going into 2021. And as a result, you are going to have an organic – effectively an organic deleveraging by EBITDA growing. So funding the business through cash flow and new debt is certainly a possibility and strong possibility. Using equity for M&A is something we've done in the past. It's something we're doing as part of the settlement, which I consider essentially M&A. And so I think your instincts are all right there. Personally, equity is not even on my radar screen for raising capital right now. We've got plenty of other alternatives and attractive opportunities. With respect to your second question, I think you are right, that there's a terrific opportunity to put capital to work today in our business, both organically and through M&A. And that opportunity has probably never been better. And when we look at organically greenfield builds or just carrier projects, they are not all greenfield builds, but the non-greenfield builds require capital. There's just really strong tailwinds in the business, a strong pipeline of opportunities. For example, today, we have within our grasp, $7 million to $10 million to $12 million of recurring revenue for wireless projects that we could easily, I think, relatively easily take on that add capital next year and the year after that would certainly increase our capital intensity and lower our margins. But are really attractive projects that could add to growth. So it's really just a balance between how much we want our capital – what level we want our capital intensity to be, what we want our margins to be. And but the opportunity is there. There's no demand problem. There's no shortage of demand. There's no shortage of opportunities. And particularly with the success that we're showing on leasing up these markets and leasing up these anchor awards, I feel a great deal of confidence. And I think our Board feels a great deal of confidence in pursuing more anchor builds and more greenfield builds, because we've proven that we can drive those yields to 14% and 16% like we talked about in our prepared remarks. But with all that said, it's a balance of capital efficiency and balancing that with the balance sheet and with cash flow.

Great. Thanks for the color.

Thank you. And our next question comes from David Barden of Bank of America Merrill Lynch. Your line is now open.

Hi guys, thanks so much. So Kenny, maybe the first question for me is as a function of the settlement with Windstream, you've got a new cohort of equity holders. I'm wondering if you have any sense? And specifically with respect to the Elliott cohort kind of what their intentions are with respect to those shares are they working with you, are they looking to just monetize in the short term, are they looking to see the long term and hold? If you had any color, that'd be super helpful. I guess the second question is for Mark on Slide 6 if I do the math on contract value minus upfront IRU payments; and annual revenue minus the $18 million of IRU memorization, it implies about 4.7% yield. And I'm wondering if I'm doing that math right and if I am, how are you getting there from a cost of capital perspective in terms of explaining those opportunities? And then I guess the last question, if I could, would be there's so many moving parts now in the fiber business, because you're doing all these transactions, and you're selling this piece and you're buying that piece. And I know that there has been a slowdown with respect to permitting COVID and all these things, but what do you guys think we should all assume as the underlying core growth rate for Uniti’s fiber services business right now? Thank you.

So David it's Kenny. On your first question, we have a regular dialogue with our shareholders some more, some less but certainly don't want to give any color on what shareholders share with us. With respect to the new shareholders who got equity as part of the settlement, we have a very good dialogue there and have preceding the bankruptcy. So we think that will continue. The one tangible thing I can tell you is with respect to Elliott, there is a one-year lockup on their shares. And Mark, keep me honest on that, but I think it's one-year lockup on their shares. And I'll come back to – let Mark come back to the second question. On the third question, David you're right. There's a lot of moving pieces. And some of these are as a part of businesses winding down and part of this is because of lease-up, and part of this was because of M&A. And part of this is because of just the pivot from construction, more of a construction mode to lease-up mode. I think when we get to 2021, a lot of these moving pieces will be in our rearview mirror. So when it comes time to give guidance for 2021, we intentionally planned a lot of the changes that have been in process to coincide with Windstream's exit from bankruptcy and coincide with being able to give a much clearer picture for 2021. Ultimately the end result will be nice growth in the fiber business. And we'll be able to give a more clear picture of that. Mark, do you want to take the second question?

Yes, Dave, I think about follow what you're saying on the math, right. I think your math was assuming that the total contract value to $1.2 billion is capital deployed. I mean, the total contract value, if you look at the definition that we have total contract value is just the annual recurring payments times with links with the contracts. So realistically here there's almost – there's very little capital that has to be deployed because this is lease-up on existing network. So I don't think your math is exactly right, but if you want to call back when we get off the call, I have to kind of work through the numbers with you. But the total contract value is not capital deployed. There's virtually no capital deployed in incremental lease-up.

Perfect. That's helpful color. Thank you so much both.

Thank you. And our next question comes from Simon Flannery of Morgan Stanley. Your line is now open.

Great. Thank you very much. Good evening. Mark, on Windstream, I noticed in the queue that you didn't attach financials but you are monitoring their performance. Where do you stand in how much information we will get over time in terms of the 10-Ks or whatever? And anything you can tell us about how Windstream's Q3 was, would be great. And I wonder if you could just also help us with the Everstream accounting a little bit. How do we think about next year you got a $73 million IRU or upfront from the IRU? So, I’ll call that $4 million a year of straight line, and then another $3 million in payments. So you're recognizing maybe $7 million a year. Is that right on? And then on the other side you're losing at least for the first four years, the EBITDA from the Northeast ops, which is, I think, you said it was $17 million something like that in EBITDA. Is that the right way to think about the near-term impact of those transactions? Thanks.

Yes, so I'll start with Windstream. So in connection with filing our 10-Q we do expect to attach their annual financial statements, as part of our annual filing. And then I would expect when the quarterly files...}

10-K not the 10-Q right?

I'm sorry. Yes, sorry. I said the wrong thing. So on the 10-K as far as our annual 10-K filing I do expect that we'll be including annual financial statements as part of the 10-K. And then on the quarters, we will continue to give quarterly updates as part of our quarterly 10-Q filings. I can't tell you exactly what the format of that will be, but we'll continue to give updates. We don't have the third quarter information for Windstream quite yet. So I can't wait to tell you about how those about – how all that looks yet, but we will be getting – you will be getting updates in connection with that.

So you might do an amended 10-Q, you might share with those filings?

We can do it that way, depending on what information is available at the time of the Q filing. And same thing with the 10-K. The 10-K information may be attached with the 10-K or maybe done separately with a separate 10-K/A or an 8-K subsequent to year-end.

Right.

Okay. And then all your question about the Everstream accounting. So just in terms of the way it would affect 2021, and keep in mind that we expect closing probably in the second quarter of next year. So what you would have is you'd have – so I'll kind of give you this one as EBITDA by – let me get it to you on a revenue basis, maybe we can kind of work through it. So on the operations that are being served on an annual basis, you would be subtracting about $20 million of the dark fiber contracts that we get from Windstream that are being served as part of that transaction, that would be a negative about $3.5 million. And then on the Everstream, IRU on the deferred – on the upfront payments, there will be an amortization component to that of about $3.6 million. And then on the annual payments that we mentioned, that would be about $3 million a year as well. So those would be the primary revenue components that would affect 2021. Now, keep in mind, again, those are full year numbers, so really we have to take a pro-rated amount to reflect the transaction expecting to close in April.

Great. Thank you. And then any update on the thoughts on dividends it sounds like you're obviously a part of the revolver where negotiation will be part of that conversation with anything new to add there?

I don't think the dividend is so much tied into the revolver discussions. It's really just a Board decision that we'll make and would expect to communicate when we give guidance on the next call.

Thank you.

Thank you. And the next question comes from Tim Long of Barclays. Your line is now open.

Thank you. Yes, just two questions if I could. First, I did want to follow up on the slide with the leasing sales pipeline. Could you just give us a little color on what you think timing could look like for that? And any of those buckets mentioned from a customer side that might be a little bit more upfront loaded in that opportunity set. And then secondly, if we just get back to the wireless customer base, and you talked about 5G service rollout, are you starting to see uptick of activity there with new spectrum coming, et cetera? And any impact on what we would expect to see from small cells over the next year or two? Thank you.

Hey Tim it’s Kenny. On your first question on timing, it's hard to predict specifically because the sales cycle on many of these transactions are longer because they are generally larger transactions, negotiated transactions, as opposed to cookie-cutter because your – these are really network solutions and you're piecing together in many cases numerous routes. So in the past we've not given specific guidance on our national infrastructure lease-up. What I would point you to, however, is the cadence of activity that you saw after we did the CenturyLink National Network acquisition. And what you saw were you generally saw one or two larger deals initially, and then you saw sort of a steady drip of smaller deals and then occasionally a larger deal. And so it was a little bit steady drip, and then mid-size to larger transactions. And I think that's probably the cadence you'll see here based upon the funnel and the timing that I see in the funnel based on conversations. But with all that said, in general it's a very, very healthy funnel, very good conversations with a good cross-section of customers and carriers, which we show you graphically. So feel very good about it. With respect to wireless activity in our markets continue to see very strong activity. And as I was suggesting earlier, we're actually at a point where we're deciding how many new opportunities we want to take on, is sort of a luxury position to be in versus spending our capital on lease-up. So it's a nice place to be, plenty of activity on both traditional backhaul, fiber-to-the-tower, in addition to an increasing amount of small cells. And to your point there, small cells have never been a huge part of the opportunity set in our markets generally because we're in the Tier 2-ish and Tier 3-ish markets. But we have always said that they are coming eventually, NFL cities first and then our markets second. And we are starting to see more activity. And we're starting to see that activity across all of our customers, as opposed to just one or maybe two. So still too early to say it's like the dam bursting. But perhaps, later in 2021, maybe into 2022, we'll see a substantial pickup. But for now we're just seeing the early stages of it on small cells in particular.

Okay. Thank you very much.

Thank you. And our next question comes from Phil Cusick of JPMorgan. Your line is now open.

Hi guys. Thanks. I saw that Windstream took some of the GCI funding down. How do you think about that both for the fourth quarter and for 2021 at this point?

Mark, you want to take that?

So for this year we forecast $90 million GCI investments. I don’t really have a forecast to give yet for 2021 hopefully will be in a position to do that on the next call. But I don’t have a forecast next year to give you.

Can you share with us some of where that money is being used so far?

Phil, it's Kenny, I can start, and then Mark can add a little more color because there was – he gave some color in his prepared remarks. Just as a reminder, the program is designed to have underwriting standards. And those underwriting standards are fairly well laid out in the lease agreements, which are public, but the upshot is the investments are – they have to be in largely in long-term value accretive fiber. And they also have to come with a minimum return threshold for our tenant. So there has to be basically a business case for the investments in long-term value accretive fiber. And there's some other criteria, but those are the sort of the headline criteria. What we have seen so far and what we expect is that the vast majority of this is going to be built is going to be fiber-to-the-home, which we’ll be extending our current network into the home. And then tying back into the metro and long-haul aspects of our fiber business. But we think a lot of it's going to be spent in the ILEC upgrading copper-to-fiber. And there will be some of it spent in the CLEC, either building new routes where we have the ability to joint build, cost-efficiently for both us and Windstream and potentially overbuilding some routes in the CLEC. But we're very happy with the investment program as we've seen it and as we understand it. And obviously, we're going to have a proactive hand in that plan as part of our underwriting standards. But Mark, do you want to comment on where some of the current investments have been made over the past quarter?

Kenny, I think you covered it well, I mean I said in my prepared remarks, it was 35,000 fiber strand miles that were in 13 different ILEC markets. But I think – other than that, I think Kenny covered everything.

Okay, that's helpful. And last one from me, the Everstream deal wasn't that, I guess, predicated on the Windstream close, or was that sort of waiting on that Windstream close? And if so, are there other substantial deals that we're waiting on that Windstream close that can now sort of fall in line? Thank you.

Phil, we definitely started negotiating with engaging with Everstream well in advance of the settlement closing. But after knowing that we had a deal on the settlement. So with that said, I don't think the deal would have happened, could have happened without the settlement. So discussion started well in advance, but in anticipation of a settlement closing. So, the point being the settlement was a critically important part of bringing that deal together for us. There have certainly been other conversations that have started and are progressing through the sales funnel. And so in terms of timing and just general cadence, I don't want to give any specific guidance there, but these are long sales cycles, many of them have started months in advance and they are progressing very well through the sales model.

Great. Thanks, Kenny.

Thank you. And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Kenny Gunderman for any closing remarks.

Thank you. We appreciate your interest in Uniti Group and look forward to updating you further on future calls. Thank you all for joining us today.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.