Uniti Group Inc. (UNIT) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights strong growth in fiber revenue, a strategic focus on expanding fiber infrastructure, and a favorable market position. The Q&A session supports this with management's confidence in capitalizing on fiber demand and strategic hires. While some uncertainties exist, such as financing details and ARPU targets, the overall sentiment remains positive due to growth trends and strategic initiatives.

Key Financial Performance

Fiber revenue growth 13% year-over-year growth. This increase is attributed to the highest number of fiber gross adds ever and the highest net adds in 2 years at Kinetic.

Homes passed and fiber subscribers 11% and 17% year-over-year growth, respectively. This growth is part of the company's path to reach 3.5 million homes and 1.25 million fiber subscribers by 2029.

Kinetic Consumer fiber revenue 26% year-over-year growth. This growth is driven by strong adoption of the fiber-to-the-home product and effective marketing initiatives.

Fiber ARPU (Average Revenue Per User) 10% year-over-year increase. The slight sequential decrease in ARPU during the quarter was due to one-time price adjustments and the acceleration of new fiber subscriber net adds.

Consolidated pro forma revenue Down approximately 6% year-over-year. This decline is primarily driven by the continued decline in legacy TDM services and Uniti Solutions.

Fiber Infrastructure revenue 3% year-over-year growth. This growth is attributed to the superior nature of fiber as a product and the company's fiber overbuild plan.

Kinetic Fiber-based revenue 17% year-over-year growth. This growth is consistent with the company's strategy to accelerate fiber services.

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Operating Highlights

Merger with Windstream: Uniti closed its merger with Windstream, positioning itself as a premier insurgent fiber provider with a scaled national wholesale fiber footprint.

Fiber Build Strategy: Uniti is ramping up its fiber build strategy with 115 active third-party crews, expected to increase to 400 by Q2 2026.

Fiber Revenue Growth: Fiber revenue grew 13% in the quarter, with the highest fiber gross adds and net adds in two years.

Multi-Gig Capabilities: 85% of the fiber footprint was upgraded to multi-gig capabilities, enhancing upsell opportunities.

Hyperscaler Market: Uniti's hyperscaler funnel grew 13% since Q2, with hyperscaler activity now accounting for 30% of MRR. The total addressable market for AI and hyperscalers is estimated to be 50% higher than earlier projections.

Wholesale Fiber Opportunity: Uniti sees a generational opportunity in wholesale fiber, with strong bookings and a blended cash yield of 34%.

Customer Experience Improvements: Kinetic achieved record improvements in first call resolution, transfer rates, dispatch rates, and repeat trouble tickets.

Operational Integration: Integration with Windstream is progressing smoothly, with no system or customer disruptions.

Revenue Shift to Fiber: By the end of 2026, fiber revenue is expected to exceed legacy services revenue, driving growth in total revenue and adjusted EBITDA.

Managed Services Growth: Uniti plans to cross-sell managed services into its enterprise base, with potential for significant growth in attachment rates.

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Risk or Challenges

Merger Integration Challenges: Integration of Uniti and Windstream is ongoing, with a target of full integration and synergy achievement within 36 months. There is a risk of delays or disruptions in achieving these synergies, which could impact operational efficiency and financial performance.

Legacy Services Decline: The continued decline in legacy TDM services and Uniti Solutions revenue is creating headwinds for consolidated revenue and EBITDA, which could weigh on overall financial performance until fiber revenue becomes the majority.

Fiber Build-Out Delays: The company reduced its 2025 target for homes passed with fiber from 2 million to 1.9 million, citing delays. This could impact revenue growth and customer acquisition targets.

Capital Expenditure Intensity: High capital expenditure requirements for fiber build-out, with costs per passing ranging from $850 to $950, could strain financial resources and impact profitability.

Debt and Leverage Risks: Despite improvements, the company’s pro forma combined net leverage remains high at 5.55x, and it faces near-term debt maturities that require refinancing. Rising interest rates could also increase borrowing costs.

Competitive Pressures: The fiber market is highly competitive, and the company’s ability to maintain its position as a share taker depends on execution and customer satisfaction. Failure to do so could impact revenue and market share.

Operational Execution Risks: The company’s ability to scale operations, including ramping up third-party crews and maintaining customer satisfaction, is critical. Any missteps could delay growth and impact financial performance.

Regulatory and Market Uncertainties: The company operates in a regulated industry, and changes in regulations or market conditions could adversely impact its operations and strategic plans.

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Guidance & Outlook

Fiber Build and Expansion: Uniti plans to increase third-party crews to 400 by Q2 2026 to accelerate fiber build and go-to-market strategy. The company aims to pass 3.5 million homes and achieve 1.25 million fiber subscribers by 2029.

Revenue and EBITDA Growth: Uniti expects consolidated fiber revenue to exceed 50% of total revenue by the end of 2026. Total revenue and adjusted EBITDA growth for core fiber businesses are projected to begin in 2026, with company-wide growth starting in 2027.

Hyperscaler Market Opportunity: The total addressable market for AI and hyperscalers for fiber providers is estimated to be 50% higher than previously thought. Uniti anticipates strong value-accretive deal flow for at least the next three years.

Kinetic Fiber Revenue: Kinetic consumer fiber revenue is expected to reach $500 million in 2025, a 25% increase from the prior year. Fiber revenue at Kinetic is projected to surpass DSL revenue by Q2 2026.

Capital Expenditures: Uniti plans to deploy $805 million in net CapEx in 2025, with $450 million allocated to Kinetic and $310 million to Fiber Infrastructure.

Debt and Financial Strategy: Uniti has improved its cost of capital, reducing debt yields to around 8%. The company plans to maintain a balanced mix of ABS and non-ABS debt while exploring refinancing opportunities.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What changes are expected in deal mechanics for fiber in the next three years?

A:Kenneth Gunderman explained that the demand for fiber is outpacing supply, and the company is well-positioned to benefit from this trend. He noted that deal mechanics are evolving, with a shift from upfront NRC revenues to more lit services and lower CapEx, high-margin structures. He also highlighted the increasing importance of AI infrastructure and the potential for multiple rounds of fiber builds to support training data centers.

Q:What is the plan for Kinetic ABS and its funding?

A:Paul Bullington stated that while specific guidance for 2026 capital and financing is not provided, the company expects to raise additional capital for Kinetic's fiber build plan over the next four years. He emphasized the role of ABS in financing, citing $3-4 billion of ABS capacity at Kinetic, and noted the importance of maintaining a balanced capital structure.

Q:What is Uniti's strategy to take more share in the wavelength market?

A:Kenneth Gunderman explained that Uniti is targeting unique routes in Tier 2 and Tier 3 markets, leveraging its expanded network and expertise from the merger. The company aims to compete based on route diversity, reliability, and customer service rather than price. He also mentioned the potential for growth in wave traffic in less trafficked markets.

Q:What is the status of key hires at Kinetic?

A:John Harrobin highlighted recent key hires, including a growth leader and an ongoing search for a construction lead. He emphasized the importance of aligning the team with the company's strategy and operating plan, with a goal to have a fully capable team in place by February 1.

Q:What are the growth trends and operating leverage for Fiber Infrastructure and Kinetic?

A:Kenneth Gunderman noted that Fiber Infrastructure is expected to return to mid-single-digit growth, with opportunities from revenue synergies and cost savings. Kinetic is focused on transitioning from copper to fiber, with predictable growth expected in the fiber business. He also mentioned headwinds from legacy services but emphasized the long-term value of the fiber business.

Q:What is the timing and outlook for hyperscale deals?

A:Kenneth Gunderman stated that hyperscale deals have been signed over the past 18 months, with more expected in the coming quarters. He noted that these deals are increasingly significant and will start showing up in revenue and EBITDA. The company plans to provide more visibility into these deals in the future.

Q:What is the plan to reduce churn for Kinetic's fiber residential customers?

A:John Harrobin outlined a five-pronged strategy to reduce churn, including clearing the decks of non-paying customers, being more surgical with price increases, redesigning the value proposition, improving call center practices, and fixing broken customer experiences. He emphasized the importance of aligning value with price and addressing root causes of churn.

Q:What is the strategy for building fiber in-house versus outsourcing?

A:John Harrobin explained that Kinetic is moving from predominantly internal construction teams to a mix of internal and external teams. This approach allows for faster scaling and cost efficiency while maintaining flexibility with internal teams for specific builds. He emphasized the benefits of leveraging both internal and external resources.

Q:Why is MDU (Multiple Dwelling Units) now a focus for Kinetic?

A:Kenneth Gunderman and John Harrobin explained that MDU was not previously a priority due to other focuses, but it is now being targeted as a significant growth opportunity. They highlighted the high IRRs and the potential for strong customer growth in this segment, with plans to build the necessary capabilities and leadership.

Q:What caused the sequential decline in consumer fiber ARPU, and what is the plan for ARPU growth?

A:John Harrobin attributed the decline to price adjustments and new customer promotions. He outlined a strategy to grow ARPU through speed ladder upgrades, value-added services, inflationary price increases, and better use of credits. He emphasized the potential for durable ARPU growth despite the recent decline.

Q:Review of Unclear Management Responses

A:Management avoided providing specific guidance on 2026 capital and financing for Kinetic's fiber build plan, as well as details on the size and share of the wavelength market opportunity. Additionally, they did not provide a clear timeline for hyperscale deal revenue realization or specific ARPU growth targets.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call highlights strong financial performance, particularly in fiber revenue growth and improved debt yield. Despite a revenue decline, EBITDA and AFFO exceeded expectations, indicating operational efficiency. The Q&A reveals optimism about future deals and strategic growth, with high win rates in the hyperscaler funnel and strong ARPU growth. Although there are concerns about capital intensity and competition, the overall sentiment is positive, supported by strategic initiatives and financial health improvements.

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