Welcome to the Uniti Group's Third Quarter 2019 Conference Call. My name is Patty and I will be your conference operator for today. A webcast of this call will be available at the company's website www.uniti.com beginning November 7, 2019 and will remain available for 14 days. At this time, all participants are in a listen-only mode. Participants on the call will have the opportunity to ask questions following the company's prepared comments. 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. The company's remarks this afternoon will reference slides posted on its website and you're encouraged to refer to those materials during this 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, Kenny Gunderman. Please go ahead Mr. Gunderman.

Thank you. Good afternoon, everyone, and thank you for joining. Before I review Uniti's operational results for the third quarter, I'd like to reiterate some of Uniti's priorities during this volatile period relating to Windstream bankruptcy. We've been scrutinizing our portfolio of assets and operations with an eye towards selling or deemphasizing businesses that we believe are an impediment to achieving a full communications infrastructure valuation. We believe the true value of our core operations, strategy and assets have been underappreciated and our efforts at optimization will help highlight this value as we move into 2020. Slide 4 of our investor presentation highlights these priorities. First, our main initiative is to drive high margin, low churn, recurring revenue in all of our business units. We've sold numerous assets at attractive valuations, including the Latin American tower business and our U.S. Ground Lease business. Today, we're also highlighting that we are deemphasizing some existing operations that do not fit our core strategy, such as hardware sales, non-strategic construction and our residential CLEC business called Talk America, all of which are low margin, volatile and largely nonrecurring businesses. Further, lit ethernet services continue to transition to longer-term dark fiber and small cell contracts, leading to much more predictable revenue. Second, we continue to secure attractive long-term anchor builds or orders with high-quality customers such as national wireless providers, data and content providers and multinational carriers that facilitate building mission-critical communications infrastructure. Many of our existing major dark fiber and small cell builds are nearing completions, and we have begun to selectively add new anchor orders, which I will discuss later. Importantly, we're continuing to accelerate the lease-up of that infrastructure with enterprise, wholesale, E-Rate and government customers at attractive cash flow yields and substantially less CapEx. The similarities between anchor and lease-up…

Thanks, Kenny. Good afternoon, everyone. We reported another solid quarter as we continue to execute well at our priorities for this year. We have made good progress towards the completion of our major dark fiber and small cell projects at Uniti Fiber with most scheduled to be delivered near the end of this year and 3 scheduled to finish in early 2020. We are increasingly turning our attention to leasing up those anchor builds with both wireless and nonwireless customers. Second, we closed on the sale lease back and fiber acquisition with Bluebird through an opco/propco partnership with Macquarie Infrastructure Partners during the quarter. As part of that transaction, we completed the sale of Uniti Fiber's Midwest operations, while retaining ownership of the existing fiber network. This transaction should serve as a construct for future opco/propco transactions. It also demonstrates along with the recent sale of our Latin America tower assets and our U.S. Ground Lease business, another instances where we've been able to recycle capital at attractive valuations. And last, as Kenny mentioned, we continue to work through the Windstream bankruptcy in mediation process. Turning to Slide 6. We reported consolidated revenues of $264 million, which is up 4% from the same quarter in 2018. We achieved consolidated adjusted EBITDA of $203 million, up 2% from the same period in the prior year. AFFO attributable to common shares was $99 million and AFFO per diluted common share was $0.47. Net loss attributable to common shares for the quarter was $19 million or $0.10 per diluted share and included just over $15 million of transaction, integration and Windstream bankruptcy and litigation related costs. With that overview, I'll start with a review of our third quarter -- or I'll start with a review of our third quarter for each business unit…

Thanks, Mark. I'd like to close by reemphasizing some of my opening comments regarding our priorities and the quality of our strategy and portfolio of assets. Slide 13 is an example of how Uniti continues to execute on its proprietary M&A pipeline. [A&S] is a very strategic bolt on acquisition in the heart of our Uniti Fiber footprint as an attractive valuation. During this volatile period, we've intentionally focused on smaller acquisitions as we said before. However, the opportunity set remains robust, including additional bolt-on transactions as well as sale-leaseback opportunities. Turning to Slide 14. The quality of our portfolio of over 6 million strand miles of valuable owned fiber, 1,600 small cell locations, either in service or in our backlog and 628 macro towers is highly underappreciated. We are one of the select few providers of all 3 critical components that are enabling the 5G revolution and as a result, the opportunity set for us is tremendous for sustainable growth for many years to come. Our infrastructure provides substantial, highly predictable revenue and cash flow with material lease-up potential at attractive margins. When compared to other publicly traded communications infrastructure REITs as shown on Slide 15, many of our characteristics compare favorably, and we believe that there is a substantial valuation discount implied for Uniti due largely to the Windstream bankruptcy. The initiatives that I described earlier will only drive further improvement in many of these key metrics. With that, I'd like to open it up for Q&A. Operator, we're now ready to take questions.

[Operator Instructions] Your first question comes from the line of Mr. Frank Louthan from Raymond James.

Just wanted to get a sense for how customers are feeling currently, what are you hearing on the sales front with the -- with everything on Windstream, is that still not really an issue? And then I've got a follow-up.

Sure, Frank. It's Kenny. Yes, look, I think not a huge change from prior quarters. I think there's a -- we were very proactive about being communicative with customers, getting out in front of them, particularly those bigger customers of ours and explaining the situation, and I think that was very helpful. And we've continued to be clear and transparent as we possibly can be along the way. So I think that's all been helpful. The big win that I've mentioned with one of our big wireless carrier customers in October is an example of how there's still a lot of confidence out there among our big customers on our ability to execute. So that's a good indication and just the increasing level of growth in our nonwireless bookings is an indication that there's -- that we'll continue to make progress there. So with all that said, there's obviously our names in the news a lot so there -- I think there is some impact. Hard to quantify but for the most part, I think, we're continuing to power through.

All right. Great. And walk us through the capital intensity decline. What's sort of driving that and then what areas are you going to be focused on with your capital as we look into 2020 and beyond?

Yes. Frank, this is Mark. So the capital intensity decline is really, as I mentioned, it's really the completion of those 14 projects that we've been tracking out for a while. All but -- as I said, all but 3 of the dark fiber, one of the small cell projects will finish by the end of this year and then the balance of those will finish in early 2020. So as we've said before, all of those projects we inherited as we acquired acquisition. So one thing that drives it down is that we'll be able to manage the numbers of those large anchor builds that we're interested in taking on any one period of time and then also after that, then our real key focus that we're turning our attention to now is leasing up both those anchor builds as well as unutilized capacity across the balance of the Uniti Fiber footprint.

Your next question comes from the line of Mr. David Barden from Bank of America.

It's Josh in for Dave. In the past, you've talked about being a part of FirstNet. Can you give us an update there? And how far along do you think that build is in general? And then how much of that do you think could possibly go to the small cell business? And then second question, are you seeing any particular carrier being more aggressive on small cells or is it kind of split across the board?

Josh, it's Kenny. Yes, so on FirstNet, we were very active there, and I wouldn't want to comment too specifically on it because we try not to comment on specific customers. But I'll just say, we're very active there across the board and many of our big wireless customers are customers for whom we're doing all of our infrastructure offerings, including traditional backhaul, small cells and macro towers. So I'll leave it at that. With respect to small cells, it ebbs and flows in terms of which carriers are more active at any given time, in our markets at least. But I would say across the board, we're seeing activity from particularly 3 of the 4, which has been pretty consistent for us over the past 12, 18, 24 months. So pretty steady they're at.

Your next question comes from the line of Mr. Philip Cusick from JPMorgan.

This is Reed for Phil. Two on the small front -- small cell front too, if I may. First, could you break out the amount of small cells that are on average is in the backlog? And then second, could you maybe compare and contrast the level of competition in Tier 2 and 3 markets versus the [NFL] cities, what is Uniti's market share look like there? And to what degree are carriers or other customers you're serving opt into self perform?

So I'll take the first question. This is Mark. On the small cells, there's 1,200 on air and there's 450 in the backlog.

Yes. So I'll take the question on competition. So the vast majority of our markets are Tier 2, 3 or 4 markets, and I would say that one of the principal reasons where we like those markets, we've targeted those markets, continue to target those markets is because the level of competition from scale, national fiber providers is limited. And so, we really do have a competitive advantage in many of those markets. And I think that competitive advantage is only going to grow over time particularly as -- and many of these markets today, you don't see a lot of small cell deployment. But as we've said, we really think the small cell opportunity is coming in those markets in a bigger way as carriers begin to saturate the bigger markets and then eventually move into the Tier 2 and 3 markets. And when that happens, we will be there with networks that are dense and have a big time-to-market advantage over any others. So real big fans of the Tier 2 and 3 markets and really like the competitive dynamics there. And look, with respect to market share, it's hard to gauge market share but I would say in the markets where we have existing network or in markets where we are -- that are in our core operating footprint. We definitely win a disproportionate share of the opportunities and in many cases, if we don't win it, it isn't because we were outbid or for some other -- for some reason like that, it's just not -- it would be more of our own choice frankly on not pursuing it. So I just leave it at that and say it's a disproportionate share of wins in our core markets.

Your next question comes from the line of Mr. Brett Feldman from Goldman Sachs.

I just want to talk a little bit about some of the plans around the nonstrategic operation and I'm looking at Slide 5 where you were kind of showing the current outlook versus the adjusted. I just wanted to clarify, first of all, some of these nonstrategic operations like the equipment sales or the construction, is there a potential to sell any of that? Or is that just you're kind of halt operations? What's the timelines, in other words, at what point would all of these revenues be out of the run rate? And then if we can just think a little more broadly than that, how about other parts of the business? The tower business, the fiber business, I understand that there is some compelling elements to these businesses, but are you open to maybe continuing to refine the portfolio and get to the point where you really are predominantly if not only a leasing or opco/propco type of company?

Yes. All good questions, Brad. So first of all on the nonstrategic operations, these are all essentially businesses that we acquired through M&A. So when you're building a business largely through M&A, you don't always get things that are what you consider core and you pick up other things. So for example, Talk America as you know was the residential CLEC that we took as part of the Windstream spinoff that the other businesses, hardware and the non-core construction were (inaudible) other acquisitions that we made along the way. And these are not bad businesses but they just don't fit what we're really trying to achieve from a readable income and predictable recurring cash flow perspective. So with that said, directly to your question, I think there is an opportunity to sell/monetize some of the assets, and we are as you -- we are actively evaluating that but I wouldn't want to set any high expectations in that regard. So we're evaluating it, but I think more likely you'll see each of these rundown most likely during the course of 2020 for sure. And by the way, on hardware, just to make sure we're clear on that one. We're not going to exit the hardware business entirely. We're just exiting the portion of it that we view as nonstrategic and in some cases, there are customers who are on our fiber network that takes multiple products or services from us, we will continue to offer hardware sales to them as part of a portfolio approach. But as a standalone individual products, it will be substantially [sized]. So I think I got all the questions except the last one in terms of just looking at other assets. Look, I'd say that we have built a very attractive, we think best-in-class fiber business, especially if you combine Uniti Fiber and Uniti Leasing. We think we have a fantastic small cell business. We think we have a fantastic tower business, one of the fastest growing tower companies in the country with the best-in-class team. And they're all core to our business and they're all highly synergistic with each other, and we're seeing that those synergies grow every day. And as a REIT, we're long-term holders of assets. But having said that, we're in the business of trying to create shareholder value and in a world where public market valuations great -- I'm sorry, private market valuations greatly exceeds public market, we are open-minded to opportunities to recycle capital where it fits our strategy, and we've done that in the past with selling Latin American towers and the Ground Lease business and even the Midwest operations of the [community] fibers network there, but retaining the network. So ultimately, Brad, to your last point in terms of focusing more on leasing -- traditional leasing versus operation, that's clearly the direction that we're going in, and we'll continue to focus on that.

No more questions in the queue. Please continue, sir.

Okay. We appreciate your interest in Uniti Group and look forward to updating you further on future calls. Thank you for joining.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may now disconnect.