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

Well, good afternoon, and welcome to our final fireside chat of the day. My name is Greg Williams, TD Cowen. I cover telco, towers, wireless and cable. Joined on this last session by Kenny Gunderman, President and CEO of Uniti. So Kenny, thank you for joining us.

It's pleasure to be here, Greg, and I know I'm standing between you and a cocktail. So hope this will be painless.

No. It will be nice and thorough. I'm not going to compromise. So we've got a lot to talk about, including what are your primary priorities for the remainder of the year, what's keeping you busy these days?

Yes, they don't change. It's really execution on the core plan and M&A in that order. We've had a really strong first half of the year, really executing on that mid-single-digit top line and EBITDA growth on our core business. So I feel great about that. In the first quarter, we were well ahead of analyst expectations primarily because of onetime sales. The second quarter, we were soft on analyst expectations because of onetime sales, but year...

ETF and equipment.

Sprint, ETLs and equipment sales. But year-to-date, we're right on plan. And when we look out to second half of the year, I feel really good about that mid-single-digit growth. I think we're going to continue to execute on that. And onetime sales are going to continue to be lumpy, but third quarter looks lower than analyst estimates and the fourth quarter looks higher. So we'll have a little bit of that schizophrenic view, but the core mid-single-digit business is performing very well.

In the third quarter, lower fourth quarter, that's really due to the Sprint early terminations?

Onetime ETL and equipment, timing of equipment sales.

Got it. Otherwise, the core leasing is pretty steady?

Yes, Steady Eddie.

Okay. I want to talk about stock, as we've typically been talking about it, it's trading around a 7.5x multiple, 12% dividend yield, and obviously, the stock, in my view, is not getting the full credit it deserves. What do you believe the reasons are for the valuation disconnect? I think you mentioned the conglomerate discount and the Windstream lease tying it down. So where do you see the valuation unlock from here? What triggers it?

Yes. I think the discount, which we've talked about ad nauseam is really related to just a lack of understanding of the Windstream MLA and that overshadows the core performance of our fiber business. And when I come to conferences like this, and interact with people in the industry who really know the fiber business, we hear it in space. Your fiber business is performing well. We really like it, but there's just confusion about the Windstream MLA. We've tried to educate the market. But at the end of the day, it's sort of a -- it's a one-off deal. There aren't very many like it in the market. And so it's harder to understand. So I think the other thing challenging us is just the market backdrop. Yield stocks and REITs in particular have been under pressure because of the elevated REIT environment. But we've been very clear from our perspective that we think the way to mitigate those issues is two things, really. One, the passage of time, just continue executing on that core business, continue putting up those predictable returns, and at some point, we've started to bring more and more people into the tent and understanding that core business is going to perform and perform. And eventually, we're going to be really cash flow positive in a big way. And I think that's going to help mitigate this market backdrop concern, especially hopefully as rates come down. And when it comes to the Windstream MLA, we're constantly looking at ways to mitigate that, largely through M&A and other things, but I think that will take care of itself as well.

Right. And you briefly mentioned M&A to help mitigate it. And you mentioned in the first quarter call that you're back out there in the M&A environment, but it still does appear rather quiet. But you know that you're active in the background. It's -- we might not be seeing it. Could deals get done in the current capital markets? Or are we going to have to wait for rates to roll over at this point?

I think deals can definitely get done. I mean the credit markets are clearly important. And when the credit markets are yielding 0% debt, deals are easy and sometimes too easy. And right now, that's not the case. And so there is certainly a speed bump. But I also think in markets like this, there's a premium on quality assets and there's a premium on creativity. And we've had a volatile cost of capital in our entire history, and we still managed to execute on M&A. And so I don't view the credit markets as an impediment. I actually kind of view them as an opportunity because there's a lot of capital out there, both private and public, that's willing to go to work in the right opportunity. And Greg, you know this, but we think about M&A, both on a micro level and macro. And on a micro level, we've monetized close to $1 billion worth of assets in the past, whether it's selling our Latin American tower business to Blackstone or our U.S. tower business to Palace Star or our ground lease business to Melody and we've done some creative sale leasebacks in the Northeast with AMP and then in the Midwest with Macquarie, among other things. But those types of M&A are creative, generally, and there are a way to not only crystallize value for shareholders but also bring capital into the business to help fund the business. And we consistently try to keep a pipeline of those opportunities on our dashboard. And so today, as we sit here, we've got roughly another billion of those type of opportunities on our dashboard. And so that sort of creativity, I think, helps crystallize value and fund the business, but then you also have the backdrop of transformative M&A. And that's the kind of stuff that we're really leaning into now more than we were 9 months ago.

Got it. So $1 billion in the pipeline of micro ideas, but the micro ones you mentioned were a sale of Palace Star for U.S. towers and the ground lease to Melody and selling LatAm. Those are sales of things. And so you think about divestitures in the pipeline?

Yes. I mean divestitures, JVs, where you bring capital in, we've got other sale leasebacks besides just the really large one. We've got opportunities to sell portions of those for those networks entirely. We've got a lot of fiber around the country that's not being used. We've talked about this all the time. I think we have one of the most robust networks in the country and it's dark. Roughly depending on how you measure it, and everybody in this room knows you can measure it in a lot of ways, but anywhere from 10% to 20% of it is lit. And a lot of that fiber is in metros, 300 metros around the country, very valuable fiber, especially when people are trying to get middle mile, they're trying to start up backhaul businesses or small sale businesses. That's the kind of fiber that's a kickstart for a lot of those businesses. So all that to say, there's also opportunities to monetize fiber in a way that could be value accretive, especially if we're not going to be lighting it any time soon.

But you don't want to enable competition by doing so, right?

No, no. But there's this debate in the industry, has been forever, about selling dark fiber can enable a competitor, which is true. But our view is if they really want that route, they're going to get it some other way. And so we're -- as you know, we're all about being a wholesale provider, that's 90% of our business. And so we're not afraid of competition and happy to monetize dark fiber. I think that's a big part of our business and will be going forward.

Right. And how about any -- the macro ideas you mentioned, maybe put a finer point on that. What are you thinking about in terms of conversations you're having?

Yes, we get that question, and I never answer it because, especially now, because we're -- I think we're engaged in some real-time conversations. And so I don't want to elaborate on that too much. But that's our view of how we can really help unlock this conglomerate discount that we think we have. And there's some industrial logic to opco/propco and there's sometimes an industrial logic to recombining those. And I think we've taken both sides of that argument in the past in different situations. And so we're evaluating those types of options.

Right. And if you were to like bring the Windstream back together, that's been talked about for quite some time. It seems like you're sort of in the driver seat on that in some sense because you own the plumbing, if you will. And so I mean, what is it that's maybe holding you back, if I made a presumption already that you're in the driver seat.

It takes two to tango. I wouldn't say we're in the driver seat. I think if there's industrial logic for M&A, it tends to happen, but at the same time, M&A is hard. Kiss a lot of frogs and you find that branch out of 20, 25 deals. But also for us, and you know this, Greg, but we've been very vocal that previous to 6 months or so ago, we were very much focused on our balance sheet, getting our near-term maturities pushed out. We raised roughly $3 billion at the end of last year and first part of this year, pushing out maturities, giving ourselves what is now a 3-year -- roughly 3-year, 3.5-year runway to patiently execute on M&A. And we think that's a really critical ingredient to doing M&A.

You want to do M&A when you know you can go do it a lot.

You never want to do M&A when you have to. You never want to do it when you have a gun to your head, you want to do it when you can -- when you've got options and having flexibility on timing is a big part of that.

Right. Great. And speaking of good options, I mean, you posted good bookings in the second quarter. You're showing lower wholesale bookings in the first quarter and you prove out that, that was a matter of timing. How should we think about the cadence of the second half of the year? And then even going into 2024, you noted bookings should be back-end loaded in '23 and is this still the expectation, thinking about '24?

Yes. I think so any given quarter, month, however you look at it, 60%, 70%, 80% of our bookings are wholesale and folks in the room know that those tend to be bigger deals and fewer deals versus enterprise. And so we have a very steady cadence of enterprise bookings, roughly $300,000 per quarter, and that's growing a little bit each quarter. But wholesale is lumpy. And so fourth quarter of last year was the single biggest quarter of bookings we ever had. And we had 1 deal that was $300,000, $400,000. And then our first quarter was viewed as a down quarter, $600,000 of MRR, but you just moved that 1 deal, 1 quarter and suddenly, it doesn't look like a down quarter. So, that sort of the dynamic is normal for us. And it's hard to predict the bigger deals because you're sort of at the whim of the guy on the other side of the table to some extent. But when we look at the second half of the year, yes, I think the second half is going to be back-end loaded.

And you mentioned the sales cycle has been a little bit longer. And you mentioned no particular reason. It's just sort of a bunch of things.

A bunch of different things. Customer-specific things, which is not uncommon. In other words, we don't have customers telling us whether it be wholesale or enterprise. We don't have customers saying, "Hey, we're in this elevated rate environment, so we're going to slow down or we're worried about a recession, so we're going to slow down" nothing like that. It's more customer specific. And even among the wireless carriers, which is a big topic of debate recently, we see each of them slowing in the second half of this year. We've been vocal about that, and it was sort of baked into our cake at the beginning of the year when we gave guidance. But if you went down the list, each of the 4 has different reasons for that happening. So -- and we expect that to pick back up next year. So no sort of systemic issue on slowness, but it's just a fact of life right now.

And does -- we've been talking about elongated sales cycles for a while. And so it's been so long that it doesn't matter, because if you anniversary your longer sales cycle, well, you're just going to get the installs, unless the sales cycle elongates further, right? Is that not happening? If not, it doesn't matter.

No, no, that's -- you're exactly right. I think when we look at our wholesale funnel and our wholesale decision-making, it's no longer fair for us to say those are slow decisions, right? Those are the bigger deals, they move the needle. I think where it's impacted us this year is more on the enterprise side. Last year, we didn't really see that. But on the enterprise side, we're just seeing a little bit more of that than we have in the past.

Okay. And you mentioned the wireless carriers are all delayed for 4 different reasons for different carriers, but you expected to pick up in 2024. Is that a read through in the tower space? We heard a comment for conference, I'm wondering, is that an indication if they're coming to you because you have longer lead times, your fiber-to-the-tower. Can I extrapolate you think, me, not you, and say that could be cost of the tower pickup because here it is in the fiber space first.

I would -- I do think we're a bit of a leading indicator. I think we hear about buying patterns probably a little sooner than the tower guys because that fiber is the critical ingredient to either a macro and certainly a small cell. I wouldn't want to go so far as to suggest that's a read-through for our big tower brethren. But at least for us, we do feel like spending is going to pick up in next year. I have a number in terms of what we think the bookings are going to be next year versus this year, which I'd rather not give you.

But it's up.

It's definitely up.

Okay. Well, the fiber has got to go somewhere.

Right. Right.

Other than wireless, I mean, what else in the demand mix picture are you seeing, customer mix and what geographies and what products when you think about where the demand is coming from?

Yes. So enterprise-wise, we're -- we have lit services in about 30 markets in the Southeast. We've picked those markets deliberately. It's where we have the densest metro fiber. It's markets where we think they're terrific demographics, growth demographics, and we've got good competitive dynamics that's just Steady Eddy growth, 10%, 15%, 20% a year is what we've seen over the past 2 or 3 years, and that's what we continue to think we're going to see in the next few years. We're at 1%, 2%, 3% market share in these markets. So we've got a ways to go before we think we level out. So that's just sort of the regular cadence on lease-up. On the wholesale side, again, the part of our business that really moves the needle. We've seen wireless down this year and hyperscalers and traditional carriers like the fiber-to-the-home providers and ISPs, in some cases, international ISPs have really more than filled the gap from the wireless carriers. And there's a lot of talk about AI, for example. You don't have AI unless you have network capacity that was put in place a year ago or 2 years ago or 3 years ago. And so last year, 1.5 years ago, we really started to see a major pickup in hyperscaler buying, whether it be city to city, data center connectivity, et cetera. And so we've seen that really accelerate this year. And I suspect that's going to continue.

Probably AI, you're saying, and maybe that can grow going forward.

It's one of those things that's definitely driving demand.

Okay. And you mentioned the 30 enterprise cities that you only have 1% to 3% market share. So it seems like a huge opportunity. Who's the competition in these markets? How did you choose these markets? I imagine that's because you had a robust network in these 30. And what's your go-to-market and sales approach here?

Well, go-to-market is -- I'll start there. We try to keep it very simple. We don't have a very robust product set by design. We'd like to have a fewer number of products that are scalable that we can deliver on with a lot of conviction. So we're mostly focused on connectivity. So dark fiber, DIA, Ethernet, dedicated waves, and occasionally, if customers ask for it, we'll sell some equipment, and we may do some high-touch managed services if it's -- if we can make money on it. But for the most part, very focused on connectivity. And the reason we focus geographically with our lit services is because we really want to control the brand. I think as an insurgent, if you're trying to be national and all things to all people, you can really diffuse the brand quickly if you're not being effective at providing lit services. And so the Southeast is where we're known. We've got truck rolling down there. We've got people in those cities, whether it be salespeople or boots on the ground from a technician and project management point of view, which by the way, when those are clustered, you get better margins. So go-to-market is with a super regional, highly sophisticated, reliable connectivity provider. And then when you expand that out to the wholesale market and you include carriers and hyperscalers, the go-to-market there is, hey, we have a national network. We're on a scale that only 4 or 5 other carriers in the country can provide, highly reliable network. We're open for business on dark fiber, in particular. We're even open for business on conduit sales, which not a lot of folks do. And we're increasingly getting into the waves market. So that national connectivity, the ability to provide that national connectivity puts you in a different level from a competitive point of view, and there's only 3 or 4 other competitors out there for that.

And back on the enterprise, and we talk about wholesale as well, but on enterprise, you mentioned the 30 markets that you're in, what's the criteria there? And do you -- it doesn't sound like you need to expand to market 31 and beyond. I mean, 30 is enough here, but was it really about -- you had network there. And you said the brand, that does mean -- cause your -- we have to rely on type 2 costs because you don't have network and access to these markets. Is that the right way think about it?

No. Any market where we're launching enterprise services, it's a market that -- where we have our own dense fiber network. So 95-plus percent of our enterprise and E-Rate business is on-net, by design. And we actually wouldn't build network in a market like that unless we knew there would be an enterprise opportunity. So as you know, we're very focused on anchor economics of 6%, 7%, 8% that gets you into a market and then lease up that gets you above 10% and beyond through enterprise and otherwise. So we pick markets where there's not a lot of competition. There's not a second or a third independent fiber provider. There's, in some cases, not even one. We pick markets that we think are going to have growing demographics, markets where we think there's an opportunity for us to get the backhaul business and/or the small cell business from at least one of the wireless carriers and hopefully multiple carriers. We pick markets where it's not too expensive to build fiber because building fiber in certain markets is a heck of a lot cheaper than it is building in others, whether it be because of the geography or permitting environment or otherwise. And we pick markets where we are geographically clustered with the rest of our footprint. And so to that point, yes, we've got a long runway in the existing 30 markets where we are. And we constantly struggle with, okay, should we invest more in market one? Or should we go look at market 31, 32. And the returns always say you should invest in market 1 through 30. But if you want to have a multiyear growth plan, then you got to start playing defense in some of those -- that market 31 through 60. And so we're looking at prioritizing those markets and think that that's what gives us conviction about the runway from a mid-single-digit growth for the long term.

Yes. And that is some concern, as whether you're maybe starving the business for future growth, and how you balance that. And how do you balance that? I mean, how do you think about lease up, a lot easier, a lot more what's the word, lucrative to do is right in front of you. But then you got to build the CapEx and got to build a greenfield expansion, too, as you think about later in this decade.

Yes. Look, I think in the yield environment where the 10 year is at 4%. It's a lot easier to focus on markets 1 through 30, but we balance it. I think we are investing in markets through wholesale to start setting the foundation for future lighting of a market. So for example, we're offering lit services in 30 markets today, but there's about 20 markets on our dashboard that are going to be lit markets to come. And in those markets, we're already identifying and, in some cases, lighting up wholesale or we're selling dark fiber wholesale. So that puts boots on the ground from a support point of view that put salespeople on the ground. So we're already -- we're not putting a lot of CapEx into the enterprise business in those markets, but we are doing the things that precede enterprise CapEx that eventually make those dollars more cost efficient when the time comes.

Right. And then switching back to wholesale question. We already talked about it to a degree, good hyperscale demand, wireless, maybe not so much, but will pick up. Could AI be that inflection where you see 2024 greater than 2023 because you've got wireless you mentioned. And then, of course, hyperscalers are going to be tied to these data centers together. How are you thinking about the next even couple of years?

Yes. Look, I think AI is great. And we talk about all the time how we're demand agnostic. We, being in the wholesale business, allows us to not care whether fixed wireless wins or mobile broadband or fiber-to-the-home or what is the real driver of demand, because it all eventually makes its way to our network in some form. And on AI, it's been around for decades, right? I mean, back to the 60s and 70s. And so I think, our ability to provide broadband connectivity and others in the room ability to provide broadband connectivity is what's driving AI, not the other way around. Because I think that you can want driverless cars all you want, but if you don't have the ability to communicate with those cars, it doesn't work. So anyway, all that to say, I think that we're already starting to see the demand from AI. I think it started a couple of years ago for us. And so I don't necessarily see 2024 or 2025, being a big inflection point up from that. We've already started to see that.

Okay. But how can AI help you guys internally then?

I don't know. We haven't thought too much about that. We're already pretty, I would say, I think our systems are fully integrated. I think our back office is fairly seamless. There's always ways to improve, but we're not looking.

Salespeople can script sales.

We're on Salesforce and I think quote-to-bill we're pretty seamless, but that's not to say there's no ways to improve, but we're not necessarily looking at AI as a way to change that materially.

Sure. And back on wholesale and wireless specifically. I don't want to talk about one of your customers just specifically, but they do have a shot clock. And I'm just wondering in general, when somebody has a milestone that's 22 months away, what's the sort of lead time that you would need to pick up your activity to meet something like that?

Yes. We tend to get -- it differs by carrier and it differs by industries and some -- having customer groups in some cases. But generally, on the wireless carriers, we tend to get a 9-, 12-, 15-month advance read on activity. So bookings will start to pick up, and then you'll start to do all the -- well, you'll start conversations and then that will lead to bookings, which will lead to installs. And so that's kind of the cadence. And so if we're 22, 24 months out, we may not see that activity yet but 12 months from now, maybe we do.

Okay. That's good color. I want to talk about your wage business you're in and Cogent's now entering -- Cogent was on the stage just before you. And the company could be a formidable player in waves if you listen to their price targets or TAM targets. And of course, what they've done before, like in IP transit. So I'd be curious to hear your thoughts on Cogent impacting your business? Or are you more Tier 2, Tier 3?

There's a light there, so I can't see who's sitting over here, but I don't think Dave is still in the room. So -- but yes, we have a lot of respect for Dave and Cogent. They're a good customer of ours, dark fiber and otherwise. And I do think he's going to be a big competitor in the waves market. I also think that, that's a growing market. It's growing at -- we estimate 7%, 10% a year. And so I don't think you're going to see a major effect on the incumbent waves provider. I think he's just going to take some of the growth. And eventually, he's going to get to scale. And I don't know if that's the number that he's -- I don't know what that number is. I know we talked about a big number. I don't know what it will be.

Dave said $500 million out of a $2 billion market today.

So -- but look, I think from our standpoint and back to what I was saying about being sort of agnostic to demand, that's great. I think he could be a good customer of ours, if that happens. And we're not worried about our embedded base of waves being poached. Right now, our waves business is de minimis. We -- I don't know how to estimate it, but it's probably less than 1% at most. And so we view that as an opportunity for ourselves as we start lighting some of these long-haul routes, and I think we're going to grow the waves business. So we'll be hopefully a share taker along with Dave, but I don't ever foresee us being at the same level as what he's currently forecasting.

Okay. Got it. That's helpful. I want to switch gears and talk about your dividend. You're clearly committed to the dividend, and you're even more committed to remaining a REIT. I mean, you dedicated a slide on the earnings deck in the first quarter on being at REIT. But you are distributing roughly $15 million a year in excess of the REIT requirement, at least the way I'm calculating it. And that means you need to have some flexibility. We spoke on this a few times. And we have to continue to ask where the yields are today. You might not be getting the credit for it. So can you share us your latest thoughts on the excess of your dividend paid beyond the requirement?

Yes. Earlier in the year, we got a lot of questions from investors and bondholders about the merits of being a REIT, especially in this elevated REIT environment. So we felt it would be helpful to be soup to nuts, get the pros and cons and our view on the merits of it in our earnings call a couple of quarters ago. So we did that. And the feedback we got on that was universal, that there was a view that, yes, it makes sense for you to be a REIT. We get that. But then it immediately turned to, okay, you're over distributing on the dividend. So do you need to over distribute? And we -- as you said, we were transparent about how much we were over distributing just so people could put bands around it. And ultimately, yes, we're -- over the next couple of years, we're over distributing probably by $100 million, $120 million. And so the debate is, is it worth cutting that down to the minimum banking that cash and preserving a little extra liquidity at the risk of undermining the future confidence in the business and the cash flow of the business. And does that send an adverse message? And the Board -- our Board has decided to not do -- to not cut the dividend to the minimum, so as not to undermine that confidence because we have a lot of conviction in the business that it's going to continue performing in that mid-single-digit range, and we have a very clear line of sight to free cash flow positive in the coming 18, 24 months. And we're going to start generating a substantial amount of cash flow. And so I think that's largely been understood, but we've also caveated that by saying, hey, that could change. That's a nice tool for us to use if we ever needed some additional liquidity. And also, we've also heard in stages from our shareholders that they want us to have a more formal dividend policy because, you know, Greg, in the past, there have been periods of time when we way over distributed by 100% plus. And there were periods where we were paying just a minimum and now we're paying slightly more than the minimum. And so I think it's a very fair question on behalf of our shareholders to have us have a more established dividend policy. And so I think in the coming quarters, you'll see us roll something out. But those are the puts and takes on paying the minimum.

Right. Switching gears again, but sticking in the finance world. We're seeing a lot of fiber-to-the-home ABS fever right now, if you will. Trying to figure out if Windstream can do something in terms of that? Or does your MLA preclude Windstream from transacting on an asset execute that essentially would put them in the senior priority payments beyond MLA. So I'm just curious if that's possible?

We -- yes, our MLA does not prohibit that. And look, if Windstream could raise efficient capital, then we'd be supporters of that even if it did prohibit it. We find ways to try to be constructive. And as you know, Greg, Windstream owns assets in states where we don't own the network. So they have actually stated they could potentially do it on their fiber. I don't know. But I was about to say I don't know the answer for them beyond that. But to your question, yes, our MLA doesn't prohibit it. Although, when we look at an ABS and the opportunity for us, we think it's important that you own the network.

Yes, that makes it more nuanced than, say, frontier, just doing it 2 weeks because you own the fiber pipe. They own the customer and the billing stream that you can maybe securitize and I'm just trying to figure out if it's possible for them?

Yes, I don't know. But for us, I think the opportunity for us is more in our business, our Uniti Fiber business and our non-Windstream Uniti leasing business, where we own the network, outright, and we also control the opco on top of that.

Yes. And I wanted to come up with that conversation now and we're almost saving the best for last, right? I mean, is that what ABS can do for enterprise fiber. It actually seems like that's an easier place to securitize where you've got more investment-grade tenants and more visibility and longer-term contracts secured. I think it's fiber versus fiber-to-the-home. And we have fiber-to-the-home led the way and not the enterprise segment. Could you need fiber look into this in terms of raising debt?

I agree with a lot of what you're saying. I think there are some smaller private enterprise fiber providers who have pursued securitization successfully. So those are out there. And I do agree that as we look at it, we do think our business with the longer-term contracts, the blue-chip customers underlying those contracts, lower churn, very predictable revenue, and you can point directly to network elements that support those customers that, that should seem more securitizable, and that's our view at this point based on the work that we've done, and we're continuing to develop that work. So I do think, from our vantage point, it's a nice opportunity for the industry, whether it's fiber-to-the-home or commercial fiber or both.

And what would you do with that new found access to capital, if you did it? I mean, is it about -- obviously, it's securing the dividend. But grow into those additional markets, pay down the debt in 2027, or how would we think about that if you're -- given this new channel?

Yes, I think it's all of the above, right? I think it could be used for funding, refinancings, it could be used for funding growth or even M&A. I think I see Elliott back there, and he mentioned on one of the earlier panels. But marrying ABS with M&A, I think, is very smart. So there's a lot of options. I think it's just good for the industry. I think it validates what we've been saying. You've been saying the fiber-to-the-home is truly a digital infrastructure asset, and this is sort of a validation of that. It's not a pull on capital.

And just back on Windstream. Is there anything you can talk about your #1 tenant in terms of health, what you've been seeing highly good or bad in the past quarters? And these fears that fiber-to-the-home costs are going up. Are you seeing that with your GCI payments to these homes, et cetera?

Yes. We -- there's only so much specifics that we can share. But I think what we report is notable, which is this year, I think, will be the first year that we and Windstream together fully use the allocated GCI payment. So last year, a year before and half of the year before that, we never fully were able to utilize the amount of those payments, which we both were striving to do. And I think this year, we will. And so to me, that suggests, you just take that as a data point that there's a lot of progress being made. They're not -- certainly not pulling back on spending or the ability to spend in our markets. I can't speak for outside of our markets. So we're pleased about that. And when I look at -- we have a pretty granular look into the returns and the various metrics that the industry looks at. I'd say -- I'll just say that we're very pleased with the progress of that program.

And bringing up the 2030 lease renewal, if we're not kicking a dead horse, maybe is there sort of any updates, any new data points to strengthen your position that there wouldn't be a meaningful cut to occur?

No, I don't think so. I think that's been pretty litigated at this point or debated, as I should say.

Got it. Just last topic is just becoming free cash flow positive in 2025. I mean a big bulk of it is really the Windstream payments, GCI payments go in, settlement sort of paid as well. But there is organic growth in '25, there's margin expansion. There's CapEx efficiencies as you become a bigger scalable company. So maybe talk about that, the long-term organic growth of the fiber business, is that mid- to high single digit.

Yes. I think -- so the bridge to free cash flow positive is a step down, a contractual step down in payments to Windstream, which equates to roughly $200 million a year once we get there. So that is the biggest driver. And when you look at our capital intensity, we've talked about it coming down from 35% to 25% to 20%. And again, the vast majority of that is those contractual step-downs. And when you look at our Uniti Leasing business and Uniti Fiber business, we're actually forecasting to pay roughly the same amount of CapEx in dollars over the coming years. So we're not forecasting some drop in CapEx in the core business. It's really just those contractual payments.

It's the GCI payment.

Correct. Correct. And so that's one big thing. And the second is, we're not forecasting margin improvement. We're actually forecasting that overall margins stay around 80%. And then there's some shifting in there between Uniti Fiber and Uniti Leasing, but that 80% EBITDA margin stays around the same. So really, the assumption that has to be tested is, okay, do you really think you could continue to upgrowing this business at 4% to 5% -- 4%, 5%, 6% mid-single-digit growth? And we think we can. You look at our history. We've been doing this now for 2 years, a little over 2 years, and we don't see any impediments to our ability to continue doing that going forward. So we don't think the assumptions to get to substantial free cash flow positive are dramatic or Herculean.

Got it. And the 80% EBITDA margin, I mean, that brings in the, obviously, the Windstream lease, which is a huge driver. How about the Uniti Fiber business itself for the next couple of years? Can you talk about that expansion? You've got lease ups, but by then, you're probably doing some anchor builds as well.

Yes. I think we've talked about getting to 50% margins in that business. So we're roughly 40% today and essentially over the forecast period, eventually getting up to 50%. But what I always want to remind people of is, you can't just look at Uniti Fiber. You have to look at Uniti Fiber plus the non-Windstream Uniti Leasing because as you know.

Sure.

That's a lot of dark fiber sales, very high-margin business. Low CapEx, high margin. And so even that margin expansion is not Herculean either when you overlay those 2 businesses together.

Great. Well, thanks for your time, Ken. I appreciate it.

It's my pleasure. Thanks for having us. .