Welcome to Uniti Group's Third Quarter 2018 Conference Call. My name is Michelle, and I will be your operator for today. A webcast of this call will be available on the company's website, www.unitigroup.com, beginning November 1, 2018, and will remain available for 14 days. [Operator Instructions] The company would like to remind you that today's remarks will include forward-looking statements, and actual results could differ materially from those projected in these statements. The factors that could cause actual results to differ are discussed in the company's filings with the SEC. The company's remarks this afternoon will reference slides posted on its website, and you're encouraged to refer to those materials during the call. Discussions during the call will also include certain financial measures that were not prepared in accordance with the generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the company's current report on Form 8-K dated today. I would now like to turn the call over to Uniti Group's Chief Executive Officer, Kenneth Gunderman. Please go ahead, Mr. Gunderman.

Thank you. Good afternoon, everyone, and thank you for joining. Today, we're announcing 2 acquisitions within our Uniti Fiber segment. The first acquisition is Information Transport Solutions, a full service provider primarily to educational institutions, many of whom are already utilizing our fiber network. ITS will accelerate Uniti Fiber's product offerings and strengthen our relationship with new and existing E-Rate customers. I'll speak more to the specifics of the ITS transaction later in the call. The second transaction we are announcing today is M2 Communications (sic) [M2 Connections], a local fiber provider located in Eastern Alabama. This is a bolt-on acquisition and is a strong strategic fit with our existing Uniti Fiber network. At closing, we will be paying $6 million at a 12.8x presynergy multiple, which is consistent with our historical value range. We expect that range to continue with similar fiber acquisitions in our core footprint. The transaction is expected to close on the first quarter of 2019 and is subject to customary closing conditions. Both of these acquisitions demonstrate the continued solid momentum we are experiencing within our business as well as a more mature M&A funnel that produces attractive asset and company acquisitions on a regular basis. Also these transactions, like the ones we announced last quarter, were proprietary negotiated transactions, reinforcing one of Uniti's core competitive advantages in our M&A strategy. Lastly, both acquisitions reinforce our commitment to building a very strong operating presence in our Southeast region. Similar to our pattern of acquisitions recently, we have a very robust funnel of additional opportunities, which provide immediate scale and customer synergies. We also continue to see strong interest in additional Uniti leasing transactions, including lease-up of existing fiber, new sale-leasebacks and opco/propco structures, and we are confident we'll see more of these transactions in the…

Thanks, Kenny. Good afternoon, everyone. Turning to Slide 5. We reported consolidated revenues of $252.6 million, consolidated adjusted EBITDA of $199.2 million, AFFO attributable to common shares of $110 million and AFFO per diluted common share of $0.62. Net income attributable to common shares for the quarter after transaction and integration-related costs was $2.1 million or $0.01 per diluted share. Net income for the quarter included $2.3 million of transaction-related costs and a $0.8 million gain on the settlement of escrow balances related to our acquisition of NMS, which are included within our other income on our consolidated statement of operations. Our Uniti Leasing segment had revenues of $174.8 million, with adjusted EBITDA of $174.1 million for the third quarter of 2018. Windstream made nearly $32 million of capital improvements during the quarter to our network with their capital, bringing the cumulative amount since our spin-off to over $577 million of tenant capital improvements. During the quarter, we closed the California tranche of the sale-leaseback and fiber acquisition of TPx on September 19. And these results are included since closing date. As previously announced on October 9, we completed the sale-leaseback and fiber acquisition of CableSouth Media, and the impact of that transaction will be included in our fourth quarter results from the closing date till year-end. Uniti Fiber reported revenues of $70.1 million and adjusted EBITDA of $28.5 million, achieving adjusted EBITDA margins of just under 41% for the quarter. These results include $3.5 million of realized cost savings, representing an annualized run rate of $14 million. Uniti Fiber's third quarter results were adversely impacted by $700,000 of service level credits payable to one of our customers, of which approximately $500,000 of credits related to the first 2 quarters of this year. These credits were owed to the customer…

Thanks, Mark. As I mentioned earlier, Uniti acquired ITS for all-cash consideration of $54 million or 7.7x expected 2018 adjusted EBITDA. ITS is a full service provider of technology solutions, primarily to educational institutions in Alabama and Florida. Over 30% of ITS' total revenue is already on Uniti Fiber's network, and we expect on net to grow substantially under Uniti Fiber's ownership. We're particularly excited about the ITS transaction as we are in the early stages of the 2018, '19 E-Rate season. ITS has a history of excellent customer service in their relationships as evidenced by their 0.3% average monthly churn over the last 3 years. We're pleased and excited to be working together with the ITS team and look forward to having a successful upcoming E-Rate season. We closed the transaction on October 19. And pro forma, this transaction will take our revenue diversification from 67% to approximately 64%. We own a unique portfolio of assets in some of the fastest-growing segments in telecommunications. We have significant leaseback capacity across all of our business units, and because the incremental cost of adding new tenants is relatively small, we can drive attractive incremental yields across all of our asset classes. We expect this strategic asset will position us well for sustained organic growth for many years. In closing, we look forward to providing our 2019 outlook on our next conference call. Our 2019 planning cycle is well underway, and we're currently evaluating multiple strategies to create value for our shareholders. As usual, we'll be reviewing each business unit's performance and operating strategies, our capital structure and capital allocation policies, portfolio composition, M&A opportunities and initiatives to advance our diversification goals. As we stated in the past, the overhang from the Windstream litigation has caused us to be more conservative with opportunities this year. However, we continue to believe that Windstream will receive a favorable ruling and in turn, that should allow us to execute on our strategic options more expeditiously in 2019 and beyond. We look forward to updating you more on our next call. And operator, we will now take questions.

[Operator Instructions] Our first question comes from David Barden of Bank of America.

Guys, Josh in for Dave. Kenny, just following up on the last comment you made on the Windstream ruling. So do you have a backlog of deals you can act on very quickly? And how dependent are these deals on the improvement in your cost of capital? And, I guess, lastly, how many deals do you think you could do if your cost of capital is going up in theory as the stock moves?

Josh, yes. So we definitely have opportunities in our funnel that we have not pushed forward more aggressively or expeditiously in anticipation of the ruling. So yes, I think as we mentioned even last August, September, we foreshadowed that we would probably be focusing on smaller transactions throughout the course of 2018 or until there was some more clarity on the litigation. And that's exactly what we've done really to make sure that we're not overextending ourselves from a balance sheet perspective. So the -- as a result of that, absolutely, there's some opportunities in the funnel that we would be more aggressive on or will be more aggressive on once the ruling is behind us because we still do anticipate a favorable ruling. I'm very confident in that and believe it's coming. Having said that, there are also opportunities in the funnel which are accretive even at our current cost of capital. And so when we look out, looking at a world where the cost of capital stays where it is, we still have opportunities to execute on transactions that are attractive to us. But we look forward to getting all this uncertainty behind us.

Our next question comes from Simon Flannery of Morgan Stanley.

Just a clarification on the hurricane. Is that all related to the fiber business? Or is some of that related to the Windstream side of things? And maybe you could go into a little bit more detail into the SLA credits. And is that something that might recur going forward? And any color you can provide on capital spending for next year, what's committed to satisfy your backlog?

Sure, Simon. I'll take the first 2, and Mark can take the third. But yes, on Hurricane Michael, yes, the impact is almost exclusively Uniti Fiber. We've not identified anything beyond that, so Uniti Towers nor Uniti Leasing at this point. So that's all Uniti Fiber. With respect to your question about the SLA, so there's really 2 things. One, and as a reminder, the companies that we've acquired were all private companies and, in some cases, smaller private companies. And the reporting capability around SLA credits historically was very manual. And these reports are complicated. They require a lot of scrutiny and discretion, particularly when you're interacting with the big wireless carriers. And so historically, we've not been very good at it to be honest. And we've now instituted a much more automated streamlined process, which gives us the ability to produce these reports much more timely and gives us the ability to interact with our customers much more real time and implying -- applying much more discretion. And so from that standpoint alone, I think our capabilities and sophistication around this is going to be much better going forward. Secondly, we have had some issues related to pockets of our network in the Northeast, in particular. And we knew this earlier in the year. And as Mark mentioned in his comments, we already have a plan in place to harden those portions of the network roughly with $5 million, $6 million of capital that was earmarked at the beginning of the year for things like replacing legacy equipment at the core with newer equipment and also there are numerous rings where we had multiple towers on the rings, and we're reducing the number of towers on the rings to a much more manageable number. So I think all that to imply that going forward, we don't see this as nearly the same level of issue that we've experienced.

Yes. And then on your last question, in terms of CapEx spending for 2019, we're obviously not done with our planning cycle, but on the tower business, I'd say it's going to be in the range for this year to maybe plus $10 million. So probably $75 million to $85 million next year depending on obviously how much -- how many awards we'll win. And I think on the fiber business, likely to be kind of in the 130 to 140 range next year on a net basis, net CapEx.

Our next question comes from Matthew Niknam of Deutsche Bank.

Just two if I could. One, on the tower business, if you can maybe shed some more light on -- you mentioned I think there was a pull back from your largest customer. If you can clarify, are they going elsewhere for new sites? Or is this capital just being redeployed elsewhere? And then secondly, on the equity issuance during the quarter, can you talk about the decision to issue equity through reduced borrowings under the credit facility? And, I guess, maybe more broadly, how should we think about the appetite for additional equity issuance? Is that just a function largely ex M&A of wanting to keep leverage at or below 6x?

Yes, so Matt, I'll go first on the ATM program. So the ATM program is just that we put it in back in late 2016. It's an effective way to access the equity capital markets when you only need modest amounts of capital, and just we have been reluctant to access our equity markets in size until the Windstream litigation we get a ruling and a decision in that. And so we wanted to access it in order to manage our leverage levels as you alluded to, but we also wanted to access the markets in a relatively modest size. So that was the decision.

And Matt, on your towers question, we definitely do not see those towers going to other providers, to other developers. It's really a capital allocation decision from our customers' perspective. And so as a result, we just see the backlog growing. So the opportunity is still there. It's just a question of timing from our perspective.

Our next question comes from Frank Louthan of Raymond James.

Can you quantify the hurricane impact in Q4 a little bit more, exactly how much of that is factored into your revised guidance? And then what is the -- what will the exposure of Windstream be once the deals that you just announced, once they finish?

Yes. So Frank, I'll take the one on the hurricane. So I think the revenue impact, we try to incorporate the revenue impact of the hurricane into our fourth quarter results. I would say the thing that's really uncertain right now and that we have not incorporated into the fourth quarter guidance is the cost impact, and there's a couple of reasons for that is one, we simply don't know yet. So we're still in the restoration phase from the hurricane, we'll be for several more weeks. And then some of the costs that we're incurring, we don't know exactly how much of the costs will be expensed versus capitalized, and we have another work stream ongoing to determine how much will be recoverable through our insurance coverage as well. And so that's -- so on the cost side, I don't know what the net cost impact will be quite yet. But I will say that as we acquire companies, we do enroll them into our insurance programs. I would say our insurance programs are as good as any in terms of what they cover.

And Frank, on your question about Windstream exposure, I think pro forma for the transactions that have been announced and closed, we think the revenue diversification is roughly 64%.

Okay, great. And then just one quick follow-up. You mentioned 100 towers that your largest customer didn't quite get to you. Are those being pushed out into next year? Or is that turning into doing more incrementally small cells or rooftops, things like that? Or how should we think about that trend?

Yes, Frank. So good question. And as you can imagine, we don't have perfect visibility into our customers' thinking. But we do have what I'd characterize as pretty good visibility given that we do both small cells and macro towers and backhaul for the customer, and our best view is that they're really just getting pushed out. So not replaced with other things but pushed out. And so with respect to when those specific sites might come back, if it's 2019 or maybe 2020, we're not sure. But we do think it's probably near term.

There are no further questions. I'd like to turn the call back over to Kenny Gunderman for any closing remarks.

Thank you. I'd like to finish by again thanking our loyal employees who have been working tirelessly to restore our mission-critical infrastructure in the wake of Hurricane Michael. In addition to advancing our customer relationships in the market, you've positioned us for many years of future success with the region's best fiber network. Thank you all 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 participating in today's conference. This does conclude the program, and you may all disconnect everyone.+