Uniti Group Inc. (UNIT) Earnings Call Transcript & Summary

All right. Great. Good morning, everybody. Thank you, and welcome to day 2 of our Cowen TMT Conference. For those of you who don't know me, my name is Greg Williams. I cover the cable satellite and telco space as well as communication infrastructure such as Uniti here at Cowen. I'm joined today by Uniti's Joe McCourt, he's the Senior Vice President in Enterprise Sales and Operations; and Bill DiTullio, Vice President, Head of IR and FP&A. Today's format will be a 30-minute fireside chat. I do have a Q&A system here if you have any questions, in which case I can relay any questions that you may have that I can also forward to Uniti. So without further ado, Joe, Bill, thank you very much for participating. Appreciate it.

Yes. Thanks, Greg. Thanks for having us again this year.

Sure. And maybe we'll start with Joe. I think many folks in the investor community may not have met you or have been familiar with your role. Maybe you can provide what your roles and responsibilities are at Uniti, and where are you spending most of your time.

Sure. Well, thanks a lot, Greg, and good morning to everybody here. I appreciate being here. I thought I'd give just a quick background about myself. I've been in the telecom space for 34 years, 26 of them managing teams in the competitive fiber environment. And I spent 5 years actually as a customer as well. So I have a fairly decent understanding of how customers think. At Uniti, my responsibilities include oversight and strategic direction to our enterprise sales team, our government E-Rate, our voice operations, managed services, and I have marketing, as of a few months ago, for all of Uniti as well. I really spent a lot of my time providing support to the teams by really helping set the strategy and, honestly, removing obstacles for the groups as they come up. Pre-pandemic, I was on the road approximately 3 weeks a month visiting our teams, collaborating in person, meeting with our customers and spending a fair amount in Mobile with our service delivery operations and finance groups. However, since the pandemic, like everyone else, I've had to shift to Webex meetings in this world we're in. Hopefully getting out of it again soon.

Got it. That's quite a bit. Maybe we can start with the sales realignment. In late 2020, Uniti had a major sales realignment. You took over as regional wholesale and enterprise sales. Help us understand the sales structure at Uniti. Is it by region? Is it by market? By vertical? How does it work? Is it subject matter experts that come in? Maybe you can just go over the sales process and how it's designed, that would be really helpful.

Sure. So Greg, we actually did another shift and moved our wholesale -- regional wholesale into the Uniti Leasing Group under Greg Ortyl. The real reason for that is that you had multiple teams calling on similar customers or the same customers. And we thought for the long game here, it would make sense to have all of our Uniti Leasing and our Uniti Fiber carrier wholesale team together as one. So they're calling on customers in a more concentrated manner that way. So I have everything focused on -- I have everything in the E-Rate and enterprise space. We're broken up into geographic regions where we have leadership and then sales reps and sales engineers that roll up into that group. We have some subject matter experts in sales that -- or people that have gravitated to doing really well, and health care has been a huge vertical for us. Regional banking has been another one. We've got some retail. We've got some of the large automotive groups, just to name a few of the different sectors. But we've had a lot of really good success when you think about that as the backdrop. But again, the catalyst for changing everything up was acquiring the Windstream fiber. That really was a big strategic move for us as a company. So my peer, Greg Ortyl, runs strategic accounts under Uniti Leasing. So again, we have that one face to our customers representing all of our products within the geography. Our focus in the enterprise and E-Rate is really in the Southeast footprint where we have density and operate with our teams today. Greg's team kind of overlays and sells a lot of the Uniti Fiber but also a lot of the Windstream assets that came in. So right now, we focus on training up the sales force on all of the Uniti Leasing new assets that we have. In December, we had a really nice jump in adding more MSAs, or master service agreements, with an additional set of customers. When you think about 31,000 you were out fiber miles there, there's a lot to really be going after. Just to put it in context, Greg has 12 quota-bearing heads split evenly across the national footprint with his wholesale team. The quota split, 70% Uniti Fiber and 30% Uniti Leasing right now. My task is to grow our sales teams on the enterprise side. We currently have 41 enterprise quota-bearing heads across our 5 markets. This is growth over the last couple of years. We've been systematically building up and growing in that area. We are developing a nice platform to study our market opportunity using some third-party tools and then integrating some of our own efforts that helps us prospect to our on-net and near-net locations. We want to understand what kind of market share we have out there with respect to the market opportunity and how much we've already got, so how much headroom do we have. And that gives us a lot more intelligence on where we want to put more salespeople to work in that area.

Got it. I definitely want to talk about the market share and total addressable market opportunity. But before I get there, I just want to talk a little bit about the products themselves. What percentage of your bookings in the enterprise space, for example, is dark versus lit services today? And are you -- it seems like Uniti prefers dark. Or said another way, whenever you get lit services, you tend to spin them off and opco/propcos like in Bluebird and Everstream. So how should I think about the product set? I mean how much of it is going towards the dark fiber and other dark services?

Bill, do you want to take that?

Yes. Let me start with the second part of your question there, Greg, maybe I'll let Joe to come back and talk about the types of services he's selling enterprise. But just when you look at Uniti Fiber as a whole, right, we are selling lit services still today. And we still want to sell lit services. It's just -- there is a benefit of having those dark fiber contracts, especially with the wireless carriers because they're longer-term contracts. They provide greater revenue visibility. So when you saw us building out more on the wireless side, right, these dark fiber to the tower and small cell contracts, they're 10-, 20-year contracts. And so they're longer term, provide greater visibility to secure customer. And then hence -- and also it relates to lower churn over time, right? But we still have wireless -- outside of Joe's area, when you look at the wireless side, we still have customers that want to take a lit solution today. And we're happy to provide that. I mean we can provide -- we're a whole -- we can provide all sorts of different types of services, both lit versus dark. And so really on Uniti Fiber, on wireless, we're still doing a good amount of lit versus dark. Now when you look at our bookings over the last several quarters, a lot of that has been nonwireless, which is in Joe's space. And before I turn it back over to Joe to talk about the types of services and mix he's seeing there in that nonwireless piece, to address your question about selling off lit services, the lit services -- the operations that you saw us sell off were in the Midwest and Northeast. And we've been saying for some time that we really have been focused -- our focus is homed in on the Southeast footprint because that's where we have the most owned dense fiber. The Midwest and the Northeast markets were markets that came part of our prior acquisitions, predominantly Peg Bandwidth. And so although those have been good markets, because it doesn't really fit into our strategy of focusing on the Southeast, again, where we have the most owned dense fiber and we've been building up these larger projects, it made sense for us to kind of monetize those assets and sell them off. And so we sold off those operations in the Midwest and the Northeast for the most part. And we still have some operations in the Northeast today. We still own the fiber, again, in the Northeast. We're leasing it to Everstream as part of that deal, but we still own the Northeast fiber. And we want to continue to be owners of those fiber assets. But from operational standpoint, Uniti Fiber, we're really focused on the Southeast and have been for some time on the lease-up. And so that's -- I don't want to give the impression that we're looking just to sell lit services going forward. Again, lit services -- and sell those assets off or those operations off. They -- we want to continue to do those types of builds and sell those types of services, but it's really going to be in our Southeast footprint. And then Joe, maybe you can talk about some of the different products that you're selling.

Sure. So Greg, we do sell dark fiber to enterprise. We're predominantly lit services for the enterprise space. We've been going through a transformation for the last couple of years of moving away from small customers. If you think about bandwidth, I cut off all sales under 25 meg as an example because I really want the team focused on going upmarket. If you think about Fortune 500 in our footprint that are enterprise, those are typically going to be consumers of dark fiber. And we do have multiple customers that have, in some cases, multiple contracts of dark fiber to a number of different locations. But predominantly, it's really about a solution and not trying to just sell a circuit. And that's been a lot of the sea change that we've had in the way of thinking for our teams. Wireless demand and install activity is always going to remain, I think, robust. That trend, we expect to really continue. But if you think about the verticals I talked about earlier and you think about being in the Tier 2, Tier 3 markets, it's a lot less competitive than the Tier 1s, not to say we don't have competition. But when you're able to be nimble and really sit down and talk about a solution to a customer in a Tier 2 and Tier 3 market, you're setting yourself apart from a lot of the other carriers that are just kind of putting people in place. We develop a teaming approach and sometimes we even tie in operations to go meet with customers. And it's that kind of attention to detail that has proved positive for us. When you think about products we sell, of course, a lot of Ethernet services, a lot of Internet access. We've got some really good headroom to deploy voice and our unified communications to our data-only customers today, and we're mining all that information, looking for more opportunities, and that's proven well. We also purchased a managed services company, which is part of -- under my team. And that's given us the opportunity to have a lot different discussion than we were 2 years ago, when we can actually sit down and talk about managed route or managed firewall, the security, what kind of things are you thinking about longer term instead of just trying to say what kind of circuit you need today. So all of that has really lended itself to us really growing strength in our enterprise business.

Got it. That's helpful. And you mentioned the nonwireless aspect. I think the last few quarters, Uniti's made a very, very strong point to go nonwireless and sort of diversify your customer base. And my question was about how do you incentivize your sales teams to go towards nonwireless? I think you mentioned some of it by offering additional products like managed WiFi, managed router, et cetera. But are you incentivizing the sales teams to go after nonwireless? And then the second question is, if you don't go after a wireless customer, will somebody else swoop in and take that wireless customer, especially now with the proliferation of 5G?

So let me talk about the enterprise space, and then I'll flip it to Bill to talk about the wireless space. So yes, we absolutely incent our sales teams to go out for the nonwireless business. The comp plan that we've developed is robust and rewards people who are doing the right things and the right behavior, which is not only selling new accounts but also managing their current account base. And we pay them well for that. So yes, there's absolutely incentives for that. We also have some incentives that we do for selling on-net, where we have very, very high-margin type sales for that second, third or fourth tenant. Very similar to what you find in a macro tower, right, where that's where you really start to get your returns. So we share some of that with our sales team. So they're incented to sell the network versus trying to sell 5 miles off the network where it's -- it could be cost prohibitive to bring somebody on. And that's a lot of the work we've been doing on developing this market opportunity platform to really show customers where to go and then another layer of who's in these buildings once you know the proximity. So what kind of products and services and solutions can we start to talk about? Where do we see commonality with health care, regional banking, all the things I talked about in the other sectors? Very similar to our government E-rate business, too, where we can go in and sit down and solve problems through municipalities. They're all focused on security for their little towns and cities to the large ones. And they want to have fiber. They understand the power of having fiber. They're very good consumers of dark fiber also. So there's a good strong mix there, and we incent our teams for the right behavior to help drive the nonwireless sales. I'll let Bill address the 5G.

Yes. And similar to like how Joe's team incentivizes to sell to enterprise and other businesses within the markets, our national strategic accounts team is incentivized to sell to the national accounts, albeit on the Uniti Leasing fiber or the wireless side, start fiber small cell lit solutions there within our Southeast footprint. And so we continue to -- we do continue to go after new RFP activity on the wireless side, Greg. When -- if you step back to 2 years ago, when we were -- had 15 projects that are so underway, these dark fiber small cell projects. We had a lot of them underway. And so when you looked at our capital intensity back then, it was pretty high, it was worth 50%, approaching 60%, I think, at the peak as a percentage of Uniti Fiber's revenue. But these were all projects that were ongoing that some of that we had taken on after we did the acquisitions of PEG, Tower Cloud and Southern Light, a lot of them came with those acquisitions. So fast forward to the end of 2020, we completed all those legacy projects, right? But we still have some large ones going on. I think it was about -- over about a year ago, we announced that we had gotten a sizable, I think it was 800 sites, macro sites, small cell, combined macro small cell sites from a wireless carrier in the Southeast. And so that project is still ongoing. We continue to see new RFP activity for other dark fiber small cell and lit solutions within our Southeast footprint that we're actively working. And in fact, a lot of these RFPs, we're seeing no densities, 6 to 7x, especially on small cell size -- 6 to 7x what we saw 3, 4, 5 years ago. And so you're seeing larger deals, right? But they're lumpy. They don't happen every month. They don't happen every quarter. They're more lumpy and they take sales cycles longer on that, right? So in the meantime, we've been spending capital to build out these assets and create this dense fiber network in the Southeast, and now our primary attention is turned to leasing that up. And so you've seen our capital intensity come down, right? We expect it to be around 40% at the end of this year, and we said it should trend towards the mid-30% going forward. And so that's a function of not only focusing on the lease up of what Joe is focused on there, but also, it's pursuing a handful of these greenfield dark fiber or small cell lit builds. It's just we're not going to probably do 15 at a time. We're going to do a handful a time, set the cadence, and we're going to be very particular about the ones that we go after to make sure they have the attractive 7% initial yields and we can grow that to double digits over time through lease up and it has a lease-up potential. And so we're very well still engaged in pursuing additional RFPs on the wireless side and building out those networks. We're just not going to do it to the levels that you maybe saw us do 2 years ago. So that bookings number, although it's been predominantly nonwireless, depending on the types of RFPs we get, you can see some fluctuation there quarter-to-quarter if we do get a large build award.

Got it. So my next question is on cadence. So it's a good segue. I mean you're booking about 500,000 MRR per quarter. You seem unfazed from COVID and the pandemic. When I speak to other telco companies, they're seeing a delay in decision-making by enterprises. It seems that for Uniti, your customers bounced right back even quicker than this time last year. What's different about Uniti than the rest of the telco space that I'm seeing where your bookings remain solid? And I guess the second question is, is this 500,000 MMR bookings a good cadence to see going forward as we reopen? Since you weren't really that much fazed by COVID, how do you think the reopening will impact your bookings going forward in the next few quarters?

Yes. I'll take that one. So first off, Greg, we expect to increase our bookings over time. I don't have an exact figure we're going to share publicly today on what kind of numbers we think that's going to be. I can tell you that when the pandemic hit, we had a very robust funnel of opportunities that we've been building, even going after the mid- and large-type enterprise customers that are significant. And we were able to book a lot of that revenue, as COVID was hitting or pre COVID. We've got a very robust and diversified account base. I also feel very strongly about the team we have. We've got some really good leaders out there, managing some really good folks on our team that work with our customers. As I mentioned earlier, we have customers that might have 1 or 2 products but don't have more. So we use the opportunity in the pandemic where it made sense to help beef up on security that they needed or increase some bandwidth. Our unified communications helped out when people were starting to move to remote workers. Our funnel -- I'll tell you, honestly, our funnel took a pretty good hit for a few months. It's coming back now and come back to the right kind of levels pre-COVID. With more reps in the field now that we had, we're starting to see that kind of slowly. I don't want to get too ahead of myself, but I am seeing signs of acceleration of that now that things are starting to open up, which is something we really feel good about. If you think about overall bookings, as Bill talked about, wireless RFPs are lumpy. They come in at chunks and they're not really predictable. The enterprise business, to me, is more predictable because it's really based on the activity and making sure we got people out in front of customers. When I spent a number of years in New York as a customer in a consumer communication services, one of the things that always impressed me about a company was who could respond very quickly to my initial requests, who came back with some thought around it. Because that, to me, said that if a company is willing to show me on the front end that they can be responsive, then I'm going to feel comfortable that if there's an outage or there's something that I need down the road, they're going to be equally as responsive. In some cases, I had signed contracts while still waiting for pricing on other customers because I just knew it was going to take forever. We employ that same mindset of how I looked at life as a customer into our sales team. So I can't speak to the other carriers and how they're doing, but I can tell you I have a lot of confidence in the way that our team is running things and doing well and executing.