Uniti Group Inc. (UNIT) Q3 2017 Earnings Report, Transcript and Summary

Welcome to Uniti Group Third Quarter 2017 Conference Call. My name is Norma, 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 3, 2017, and will remain available for 14 days. [Operator Instructions]. 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. Discussions during the call also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP measures -- financial measures to the most direct 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, sir.

Good afternoon, everyone, and thank you for joining. We continue to see excellent demand for communications infrastructure assets and services [indiscernible] of network densification efforts by the wireless carriers is strong and is expected to accelerate over the current multi-year investment cycle. We believe our strategy of developing a complete portfolio of products positions us well to take advantage of our customers' needs for dark fiber, small cells, macro towers and lit services depending upon market requirements. We delivered another excellent quarter of operating performance with good momentum across all of our business units. Turning to Uniti Fiber. During the third quarter, we closed our acquisitions of Southern Light and Hunt Telecom. We're very excited to now have one of the largest pure-play fiber operating platforms in the country. We now have the ability to deploy small cells, fiber-to-the-macro tower, dark fiber, enterprise services and E-Rate services. All of these lines of business are growing for us, and the secular trends remain very positive for the foreseeable future. We operate in highly attractive Tier 2 and 3 markets, where there's less competition but still insatiable demand for high-bandwidth services and 5G network densification needs among our carrier customers. In addition, our fiber operating business provides an outstanding platform for future accretive M&A. Uniti Fiber's sales bookings and bandwidth upgrades continue to trend at a similar pace as the second quarter. Bandwidth upgrades are being driven by the unlimited data plans of the wireless carriers. 45% of our sales bookings during the third quarter came from the 4 national wireless carriers, 25% from other carriers and 30% from local enterprise and K through 12 schools. Third quarter wireless bookings were boosted by small cells and dark fiber backhaul orders. We have now signed master services agreements for small cells with 3 of the 4 national carriers and have over 2,000 small cell nodes either billing or in our contracted backlog. Our high-count fiber network passes over 100 colleges and universities where millennials' wireless data usage is driving some of the highest wireless network growth rates of our wireless customers and are excellent locations for small cells. Uniti Fiber had several material onetime events during the quarter and still posted solid results. In addition to closing the 2 acquisitions that more than doubled the size of the business, we installed a new leadership team and effected a sizable reduction in force to accelerate our synergy efforts. In addition, our team faced several hurricanes and tropical storms, one of which, Hurricane Irma, was forecasted to bring devastating destruction to Florida. In preparation for the storm, we made a conscious decision to redeploy our personnel away from revenue activation towards hurricane preparation and joint planning with our wireless customers. Although we were prepared for the worst, we were fortunate that the storms did not cause any significant damage. There were some modest direct costs associated with preparation and even greater opportunity costs, but I was very proud of our team's planning and the network restoration efforts that minimized the duration of the relatively small number of network outages. We received many favorable compliments for our preparation and quick response from our customers in these markets. On to integration. Our efforts are ahead of schedule, and we continue to identify new opportunities. We're currently focused on the ability to reduce off-net costs with some modest capital investments that we expect will drive meaningful additional synergies above what was previously forecasted. This work is ongoing, but we hope to provide an update in connection with our next earnings call. On the regulatory front, we continue to actively work with various stakeholders to address the extended time for small cell permitting that continues to adversely impact the industry. We have recently met with all 5 of the FCC commissioners' offices as well as with FCC staff in the Wireline Competition Bureau and Wireless Telecommunications Bureau. We're working on several proceedings aimed at reducing regulatory barriers to the deployment of broadband, which may include the use of the FCC's branching authority, best practices and potentially other measures. We have worked with various industry associations that have promoted state and federal legislation that aim to streamline permitting and other regulatory processes for small cell deployments. The state of Florida passed such a bill on July that we believe may eventually help alleviate many of the local permitting delays we're facing in that state. However, many jurisdictions within Florida have implemented moratoria or abatements on the processing of new small cell applications pending the development of local ordinances consistent with the state law. We have worked collaboratively with many of these localities in Florida on the development of these ordinances to try to limit the financial and technical impediments that they might seek to impose on companies like ours and to reduce the amount of time that such moratoria are in place. On October 26, Tampa released an ordinance establishing their local registration and permitting requirements for small cells and related deployments and simultaneously lifted its abatement that had previously been in place. We continue to work with other -- with numerous other jurisdictions in Florida and elsewhere on similar matters. Turning to Towers. We continue to see excellent lease-up activity on our network in Mexico. We've executed lease orders for 39 co-locations or approximately 15% lease-up rate of our tower portfolio, and we expect to see more orders in the coming quarters. We continue to believe mission-critical communications infrastructure is increasingly important in Mexico especially with AT&T's recent launch in that market. We are well positioned to benefit. We also continue to see benefits to having towers as part of our integrated infrastructure portfolio, particularly as fiber, small cells and macro towers all converge in a 5G world. We have strong momentum in the tower segment and expect Uniti Towers will be a component of our revenue growth and diversification in future years. Turning to our M&A pipeline. Our growth strategy remains on track with diversification through organic and M&A opportunities remaining our top priority to deploy capital. During the quarter, given the extreme volatility in our securities, we were more cautious than normal on executing new M&A. However, corporate development activity levels remain high, and counterparties are actively engaged. As a reminder, our pipeline remains over 90% proprietary, so our cautious approach did not cause us to lose any opportunities during the quarter. We remain focused on both adjacent fiber businesses and sale-leaseback transactions on fiber network assets. Valuation multiples for assets in Tier 2 and Tier 3 markets are relatively unchanged from our last call. You should expect us to be disciplined in both our underwriting of transactions and structure of capital deployed consistent with our past practices. Our goal continues to be to achieve 50% revenue diversification over the next 20 months, which we remain highly confident of achieving. Before I turn it over to Mark, let me make a few comments about Windstream. Unfortunately, we will not be able to respond to questions regarding Windstream's current litigation with Aurelius and U.S. Bank. As you know, we are not a party to that litigation, and Windstream has their earnings call scheduled for November 9, 2017, at which time I expect they will address the litigation as appropriate. I would remind everyone that Windstream have very competent counsel and advisers involved in the initial spin-off and additional well-respected law firms [indiscernible] Windstream to ultimately have a favorable outcome, and we anticipate Windstream will continue to comply with the master lease as they have stated publicly they're intent to do so. We are following events very closely and are prepared to act if necessary to protect our shareholders' interest. With that, I will turn the call over to Mark.

Thanks, Kenny, and good afternoon, everyone. We reported solid third quarter results today that were in line with our expectations. Consolidated revenues were $245.2 million with consolidated adjusted EBITDA of $194.9 million. AFFO for the quarter was $0.63 per diluted common share. Net income attributable to common shares for the quarter after transaction-related cost was $2.9 million. Net income for the quarter includes $3.9 million of non-cash income for the change in fair value of contingent consideration agreements and an $8 million release of a deferred tax valuation allowance. The change in the tax valuation allowance resulted principally from the Southern Light acquisition that increased the likelihood of NOL utilization, sufficiently for GAAP purposes, for the previously established deferred tax valuation allowance to be reduced. Neither of these items had any effect on AFFO for the quarter as both are excluded. Uniti Fiber reported revenues of $66.4 million and adjusted EBITDA margins of 42.7% or $28.3 million. Sequentially, adjusted EBITDA margins improved from 36.1% in the prior quarter, principally as a result of acquiring Hunt and Southern Light with a richer mix of enterprise, wholesale and E-Rate customers. As you will recall, an important component of our strategy at Uniti Fiber has been to develop a customer mix that allows us to maximize the lease-up potential of our network assets. We believe the Hunt and Southern Light acquisitions vastly improve these capabilities, and our combined sales team is now focused on select markets and products, particularly in the Southeast as a result of our integration efforts. Maintenance CapEx at Uniti Fiber for the quarter was $1.5 million or 2.2% of revenues. Net success-based CapEx at Uniti Fiber was $50 million this quarter, including $16 million deployed towards dark fiber builds. Uniti Fiber now has over $1.3 billion of revenues under contract, including nearly $500 million of backlog that is expected to be activated over the next 3 years. Notably, over 40% of total revenues in our contract and over 80% of backlog are for future dark fiber and small cell deployments. Uniti Towers reported revenues of $2.8 million this quarter with near break-even adjusted EBITDA for the third quarter and 652 completed towers. Uniti Towers completed and closed on the acquisition of 3 NMS development towers during the third quarter, bringing the total year-to-date completions to 43 development towers. The balance should be completed this year or early in 2018. We expect Uniti Towers to turn positive on an adjusted EBITDA basis in the fourth quarter of this year, an important milestone since we started this business unit less than 1 year ago. Uniti Towers now has over 40 employees, a tenancy ratio of 1.3x in Latin America and great prospects for growth going forward. Uniti Leasing segment revenues were $171.7 million with adjusted EBITDA of $171.2 million for the third quarter. Our Leasing segment benefited this quarter from nearly $53 million of improvements to our network made by Windstream with our capital. On a cumulative basis since our spinoff, we have benefited from $392 million of tenant capital improvements completed by Windstream. Turning now to our capital markets. Our balance sheet remains in great shape with ample liquidity. At quarter-end, we had $50 million of unrestricted cash and only $160 million outstanding borrowings under our $750 million revolving credit facility. At quarter-end, net debt to annualized adjusted EBITDA was 5.8x, and our secured leverage ratio was 3.7x. Our regular quarterly cash dividend of $0.60 per share was declared earlier this week, representing an annual dividend rate of $2.46 -- $2.40 per share. Turning now to our guidance. As a reminder, our outlook for 2017 incorporates our acquisitions of Hunt and Southern Light as of the closing date on July 3. On a consolidated basis, we expect reported revenues this year to range between $913 million and $918 million and adjusted EBITDA to range between $748 million and $753 million. Our consolidated guidance is similar to last quarter, but let me break down our outlook by business unit. Revenues from our Leasing segment will be approximately $685 million, including $32 million of non-cash revenues, slightly higher than our prior guidance, reflecting higher amortization of tenant capital improvements made by Windstream. Uniti Leasing adjusted EBITDA will be approximately $684 million for the year. Uniti Fiber is expected to report consolidated revenues between $202 million and $205 million this year or about $203 million at the midpoint and adjusted EBITDA margin of 41% or $84 million at the midpoint, both of which are down about $2 million from our prior guidance, which reflects two factors, first, the recent hurricane-related delays in dark fiber construction projects; and second, the small cell moratorium constraints Kenny mentioned earlier that are slowing our expected deployment schedules from 3 to 6 months. Our guidance implies fourth quarter revenues and adjusted EBITDA for Uniti Fiber of approximately $67 million and $31.5 million, respectively, reflecting an adjusted EBITDA margin of 47%. We continue to expect Southern Light and Hunt to provide at least $12.5 million of run rate cost savings within 12 months from close, and our outlook includes realized cost savings in the fourth quarter of $2.5 million. We are optimistic that there are additional off-net cost savings that can be realized with modest capital investment. We are currently evaluating those opportunities, and we'll update you on our next call. Net success-based CapEx for Uniti Fiber is expected to be between $105 million and $115 million this year. Uniti Towers revenue for 2017 is expected to be $9 million to $10 million with adjusted EBITDA slightly below breakeven. CapEx for Uniti Towers is expected to be $40 million to $45 million, including approximately $20 million for ground lease investments this year with the balance towards tower development. Our Consumer CLEC segment is expected to report revenues this year of about $18 million with adjusted EBITDA of about $4 million or 22% adjusted EBITDA margins. Moving to corporate items. We expect interest expense this year to be approximately $306 million, including $23 million related to the amortization of debt, discount and financing cost amortization. Corporate G&A expense should be approximately $28 million, including $6 million of corporate stock-based compensation. Our guidance also includes $2 million of cash taxes related to Uniti Fiber, which should be sheltered in the future by existing NOLs when we complete a reorganization of our TRS entities later this year or early next. We expect weighted average common shares outstanding for the fourth quarter to be approximately 175 million and weighted average common shares outstanding for the full year 2017 to be approximately 169 million. Accordingly, we expect full year reported AFFO to range between $2.49 and $2.52 per diluted common share with a midpoint of $2.51. The impact of prefunding the Hunt and Southern Light acquisitions was approximately $0.07 on AFFO per diluted share. Excluding the prefunding impact, our midpoint AFFO guidance would have been $2.58. As a reminder, our outlook is subject to change based on finalization of purchase price allocation adjustments. The full range of components of our guidance is included in our press release issued this afternoon. Last, I'll note that subsequent to quarter-end, we transferred about $60 million of dark fiber-related assets from our TRS to our QRS. I had mentioned on prior calls and conferences that we intended to do so and wanted to confirm that such -- that the first such transfer has been made. We intend to continue to do further transfers in the future. And with that, operator, we're now ready to take questions.

[Operator Instructions]. Our first question comes from Frank Louthan from Raymond James.

So with the storm delays, any chance that some of that gets picked up in the quarter? Or is it just kind of pushed out? If you can give us some color on that. And how many states are you seeing the issues? You have the municipalities, if there's any legislation in any of those states for the small cell delays that might get some uniform rules in the state that could move that process along faster. Or is it just a matter of negotiating with every small town?

Frank, this is Kenny. Thanks for the question. So with respect to the first part of your question, I think the answer is yes, there is a chance. I think we -- we're -- I think we're being appropriately conservative in our guidance here. So there is a chance, and obviously, we're focused on that. But secondly, to your question, the state where we're seeing the biggest effect on small cells is Florida, largely because that's where most of our deployments are. And there was, as I mentioned in my remarks, a recent positive state-wide bill that was passed to help facilitate movement there. But as you rightly point out, where the real holdup is in many of these markets is at the municipal level, and so that's where we're really spending our time and resources with meetings with state [indiscernible] municipal -- municipalities with the various constituents there. And we're making progress. I think the reality is it's just slower than what we expected. But we're making progress, and we expect to continue to do so.

Will that state bill preempt these -- all these local municipalities? And is there -- do you think that you get signed? Or is it, well, another California?

Hard to say at this point. It's relatively new but doubt that it will preempt the municipalities. It's positive movement, but we doubt that it will ultimately preempt the municipalities.

Our next question comes from David Barden of Bank of America.

I guess, just looking at the Uniti Fiber business kind of EBITDA minus CapEx kind of run rating at about a $25 million a quarter burn and $50 million cash on hand, how do we think about how you think about funding that burn rate, your comfort level that in light of where the cost of funds is that maybe this is the right use of limited available resources relative to, say, looking at maybe downshifting spending on Uniti because of transactions coming that you could use that capacity more efficiently, would be helpful. And then the second question is just, I guess, Kenny, kind of putting your investment banker hat on and kind of looking at the carnage that's out there in the LEC space, if I add up Hawaiian Telcom plus Cincinnati Bell plus Frontier plus Windstream, your market cap is 50% bigger than all of those put together. As you kind of look across the space, is there any part of you that wants to think out of the box and try to maybe do something significant and transformative in the space given kind of that you're the anchor in this group right now? Or is it just batten down the hatches and kind of hope that Windstream kind of repairs and just hope that things get better?

Sure. Mark, you want to take the first part?

Yes. So David, on your question about the cash flow at Uniti Fiber, so one thing I would point out is the $50 million in net success-based CapEx, it was higher this quarter than I expected to be in the fourth quarter, and the reason for that is we received some of the -- in our arrangements as sites are turned over on the dark fiber projects. Because of the delays in those projects that we mentioned, some of those sites did not get turned over, and so I actually expect the capital intensity to go down from $50 million in the third quarter to probably about half that amount in the fourth quarter, so in the current quarter this year. But more broadly, what I'd say is -- what we've continued to say is we think that the capital intensity in Uniti Fiber likely to be around 50% kind of going forward into the future. We're comfortable funding additional dark fiber and small cell projects at that level. As I've mentioned before, we think that those projects have great long-term growth potential, good anchor tenants, and on the ones that we already have are already at double-digit yields on those projects. So we'll continue to do that and -- as we have in the past.

So David, with respect to your second part of your question, we're not interested in rolling up the LEC players out there. That's not interesting to us. I do think it is encouraging that we've seen some M&A in that space. So with Cincinnati Bell acquiring Hawaiian Telcom and Consolidated acquiring FairPoint, I think it demonstrates that there are still buyers out there for those businesses, and there is still a rationale for combining those businesses and to scale parties and taking out cost synergies. That's been a tried and true, for the most part at least, tried-and-true acquisition strategy for LECs over the years. But we're not interested in acquiring those properties. I do think your question about thinking out of the box and thinking about transformative transactions, however, is appropriate because we are thinking about bigger deals. We are thinking about transformative deals and including ones that in one transaction could help us achieve our 50% diversification goal. And it's one of the reasons we remain confident in that goal because in addition to the smaller acquisitions and the mid-sized acquisitions, there are larger transformative things out there for us that we're very excited about and we'll continue to focus on.

Our next question comes from Greg Williams from Cowen and Company.

Your stocks seem to be reflecting a risk to the Windstream lease payments. And whether that happens or not, any sort of renegotiation? I just really want to talk about timing if it ever came to light. Would you prefer any sort of talks before or after Windstream restructuring? I could see both sides of the argument. I would just like to hear your philosophy. And my second question is just around Windstream's fiber assets. They still have quite a bit, and I think they have said up to $750 million to $1 billion in fiber assets. I'm just curious why this fiber was not contemplated in the April 2015 spinoff. I imagine a lot of it was EarthLink, but I would just like to hear your insights if you'd be interested in maybe swapping for that fiber for lower payments or anything else.

Sure, Greg. This is Kenny. So with respect to your first question, we have not had any discussions about any negotiations or discussions with Windstream about changing the lease payment. We're not having any discussions now and we're not going to have either before or after any event. So I think we're not thinking about leverage strategies there at all. It's all pretty clear in our minds that we're not having those discussions. With respect to your question about the asset, you had several questions, so I may miss some. Look, we are pleased that Windstream is pursuing asset sales. We think that there are very valuable assets, and so that range of value that they talked about, we could see that ourselves from the outside looking in. The asset that they're talking about that we understand that they've talked about publicly, as you recall, when the original spin happened, we booked about 80% of their network, and some of that was because there were markets that they chose not to invest from a regulatory perspective. So there are several states that have fiber that they just didn't include because they were concerned about potential regulatory [indiscernible]. And secondly, they acquired some fiber since the original [indiscernible] , including the EarthLink transaction. So I think those are probably the two big drivers. And with -- back to your question about would we be [indiscernible] some of the assets, I think the answer is we could be. Don't want to comment on any of those specifically, but we're obviously in acquisition mode, and if there are assets available, usually we'd be interested in looking at stuff. And [indiscernible] with a follow-up if I missed any.

[Operator Instructions]. Our next question comes from Matthew Niknam from Deutsche Bank.

Just two if I could. One, on the AFFO per share guidance. Can you help us reconcile -- there's about a $0.02 reduction, I think, at the midpoint, yet EBITDA and interest were somewhat unchanged, so I want to just better understand, despite some of the moving parts in Uniti Fiber, what is actually taking down the AFFO per share guide. And then secondly, Kenny, I appreciate your comments on the deal pipeline. Just wondering whether you're seeing any sort of potential deal partners walk away in light of the some of -- in light of some of the more volatility in your securities or what may be taking, I guess, a little bit longer just given what's gone on the last couple of months. Are you losing out on any deals that are in active discussions?

Matt, this is Mark. So I'll start with your first question. So the AFFO reduction is really primarily 2 things. It's the $2 million reduction in Uniti Fiber on the adjusted EBITDA related to the dark fiber and small cell delays that we referred to, so $2 million there. It's also the $2 million of cash taxes that I mentioned that we are -- that I expect to incur in the second half of this year associated with 1 of our acquisitions that we need to get the TRS -- our TRS entities reorganized so that we can utilize our existing NOLs. So it's the cash taxes of $2 million, and it's the $2 million reduction of EBITDA Uniti Fiber. To your point that the ranges on revenue and adjusted EBITDA pretty much stayed the same, and that principally reflects the additional tenant capital improvement amortization that we have on the Leasing segment, which offsets it on the revenue and EBITDA line, but because tenant capital improvement amortization is adjusted out for AFFO, it doesn't help offset the other 2 items on the AFFO line.

And Matt, with respect to your second question, I can't say definitively that we haven't been approached by new counterparties because of what's happening around us, so I could never say that definitively. Although I would say I don't think so, and I can certainly say that we have not had any of the counterparties we're talking with move away from us or show any concern about what's going on. We -- our view is what's happening is temporary, and it's somewhat artificial. And of course, we have those types of conversations and let people know that. So I don't think there has been any pullback. We certainly haven't seen any directly. In fact, what I would tell you is because of what's happening, we've actually seen a very material increase in the amount of inbound calls from sources of private capital looking to help us finance both large and small transactions. And so I probably can't say a whole lot more about it than that, but it is something that has absolutely picked up in velocity over the past 4 or 5 weeks or so.

Our next question comes from Simon Flannery of Morgan Stanley.

Kenny, just staying on the M&A side. You said you're sort of being a little bit quiet during the quarter. Is this some sense that you are -- you're hopeful that things will settle down and that you'll be able to get a higher stock price to either issue stock or do a convert or something like that? Is that the thought here that you just don't want to use capital at this point? Or is there just some concern about just waiting to see how things play out? And then on the tower side, you talked a lot about Mexico. Can you talk about the U.S.? Do you see an opportunity there on the build-to-suit side? What are your latest thoughts about that market?

Sure, Simon. So your first question, we -- obviously, we look at our securities everyday, and that's an important part of our cost of capital. So with what happened and has been happening with stock and the bonds, we need to focus on that. And so that has -- that caused us to be cautious, right, I think rightfully so in a disciplined way. But we also both initially and now view it as a temporary situation, and we believe that there's going to be some positive resolution to what's happening in the near term. And so our view was that by slowing down and being a little cautious, we weren't going to lose any opportunities and in fact, could actually accumulate more opportunities with some of the inbound interest that we've had from private capital sources. So I think it was just a combination of being prudent but also feeling that this was temporary. And I think as things are playing out, we continue to feel like that, that is -- that will be the case. With respect to the second part of your question, oh, U.S. towers, so we continue to view that as an opportunity, but we view it opportunistically. We're a fiber company first, but where we can find those opportunities where we can have proprietary deals directly with the carriers, we think that there's a great opportunity to use that to deepen our relationship with the carriers and to drive more business into our fiber business. We have seen that continue to materialize favorably, and so I think, in 2018, there will probably be more activity there from our side. And I think probably in the relative near future, we'll be able to talk more about that.

Is that build to suit or buying existing portfolios?

We definitely believe, Simon, that our best opportunity in this market is where we're dealing directly with the carrier. And that means build to suit versus buying portfolios of towers, where we're competing against other cash buyers like the big tower companies. That is -- economically speaking, those opportunities do not look appealing to us versus build-to-suit economics where we're dealing directly with the carrier, we think, could be appealing.

Our next question comes from Michael Rollins of Citi.

I was curious if you could just provide maybe a bit more history and context into the amount of the lease with Windstream. And in particular, are you able to share, if you go back to the time of the spinoff or even as of the last reported quarter, about how much revenue Windstream generates that is tied to the assets they lease from you?

So Michael, I'm not sure if I follow the second part of your question, but on the first part, I think what I would say -- rather than getting into a lot of detail there, what I would say is advisers were hired at the time to establish a fair market value for the spin-off business and then to also establish a fair market value lease payment associated with those assets. And there was a fairly exhaustive analysis behind that, and actually, 2 different advisers, 1 of the big 4 accounting firms, sort of led that analysis, and then there was another adviser to supplement that. So that was the process leading up to the spinoff. And I'm sorry, I didn't follow the second part of your question.

So if you look at the totality of Windstream's revenue and you can either describe it at the time you spun off or maybe the last reported quarter, how much of Windstream's revenue is tied to the assets that they lease from you?

Okay. Yes, very hard to answer that question. So what -- we, as I mentioned earlier and we said before, I think we acquired roughly 80% of the hard network assets, and so that would be a good, I guess, proxy starting point. But you also have to remember that the -- Windstream's made a couple of acquisitions. So I'm not sure how that would factor in. But also, the parts of the business that were not included in our asset pool still intertwine with the rest of the network. So for example, if there's a state where we didn't acquire the fiber or the allied properties, traffic from those customers still traverses network segments that we do own. So I'd like to be able to give more clarity on that question, Michael, but I think that's probably about as much as I can give unless you have any thoughts, Mark, to add.

No, not at all.

Our next question comes from Phil Cusick from JPMorgan.

I want to follow up on David and Simon's questions, and I know it's a little bit much. But I just want to understand, so would you use your stock at this price given the high dividend obligation and what would look like a pretty dilutive deal, I would think, to do that sort of transformative deal? Or is this a -- something that's sort of on the burner and if the stock comes back, you would be willing to use the stock then? That's first.

Yes. So Phil, good question. I'm glad you clarified that. So we would not issue our stock at this price, but one of the things to remind folks of is that we've issued structured securities in the past, probably negotiated structured securities in the past when our stock was at depressed levels that had very high strike prices. So for example, the PEG -- when we acquired PEG, we issued a convertible preferred to the selling to the owners, and the strike price was $35 a share. And so those opportunities are out there for us, Phil, and I think that's why I sort of tie that back to the comment I made earlier about inbound interest from sources of private capital. I think those are opportunities.

And then second, as you think about deals for cash, could you -- are you comfortable using your revolver for deals that come with CapEx obligations like the last couple given that your cash flow's already fully committed?

Well, Phil, I'll start, and then Mark can jump in. I think it depends on the deal. In many -- some of the sale-leaseback transactions that we're looking at that could be near-term opportunities don't have CapEx requirements associated with them, so that -- as you know, triple net sale-leasebacks are very high margin and have no CapEx requirements. So that's one. Two, I think, again, we continue to think this situation is temporary, and so we will always think about our liquidity overlaid with how long do we think this situation will continue with the overhang on our cost of capital. But then, three, just to remind people that 95% plus of our CapEx at Uniti Fiber is success based, and it would be very easy for us to ratchet that back if we chose to, and so we have that as a lever as well. Mark, do you want to add to that?

So I agree with all that. I mean, I think your question's very dependent on the facts at the time and both what the size of the transaction is and then also to the extent that we have construction or transaction either with a structured security instrument or do something else transaction wise. I mentioned opco/propco arrangements. They can be attractive as well, but other -- it really depends on what the other transaction structure is that impacts the -- that may impact what our long-term capital structure is associated with that transaction. So kind of fact dependent at the time.

Great. And then last one if I can. Last quarter on the same call when I asked, you said you were not interested in buying additional Windstream assets, but now it sounds like you are. How has that changed?

Yes. Good question. So I think the difference is last quarter, we're talking about a sale-leaseback on assets where Windstream would be our customer. As I understood the question earlier, I thought it was referring to assets that would be sold outright, where we would either have uses -- use of those assets ourselves or there would be a different customer on those assets, not Windstream.

I see. So still not interested in more sale-leasebacks of Windstream, but if they were to sell dark fiber, for example, you'd be interested in that.

Potentially, yes.

And this concludes the Q&A portion of today's conference. I'd like to turn the call back over to Mr. Kenny Gunderman for closing remarks.

Thank you. I'd like to close by first thanking our loyal Uniti Fiber employees, especially our many field technicians who worked tirelessly to provide outstanding customer service during the recent hurricanes. Thank you all again for joining us today, and we appreciate your interest in Uniti Group, and we look forward to updating you on our progress next quarter.

Ladies and gentlemen, thank you for your participation in today's conference. You may disconnect. Have a wonderful day.