CS&L to rebrand fiber division as Uniti Fiber, saw nearly $40M in Q2 fiber sales

Communications Sales and Leasing (CS&L) plans to relaunch its fiber infrastructure business under the Uniti Fiber brand, an operation that will integrate the PEG Bandwidth and Tower Cloud’s operations it gained via acquisitions into one unit.

Uniti Fiber will be led by Ron Mudry, the current CEO of Tower Cloud. Mudry will serve as president of Unity Fiber and will be responsible for day-to-day operations and driving new business growth.

Joining Mudry at Uniti Fiber will be Mike Friloux, PEG’s current CEO. Friloux has been named CTO of all of CS&L. Besides looking for ways to future-proof CS&L’s IT systems for future M&A and asset acquisitions, Friloux will help source and conduct due diligence on assets as part of the company’s underwriting efforts.

CS&L has had an active year on the M&A front. Beyond its acquisition of Tower Cloud and PEG Bandwidth, CS&L acquired 32 wireless towers and operating rights for 40 towers from Windstream.

While Tower Cloud has an established footing in supplying dark and lit fiber backhaul services to wireless operators, CS&L foresees potential to pursue opportunities in education and other segments like content owners.

“Tower Cloud is a proven and trusted provider for the national carriers, and as a result, 90 percent plus of its revenue is in the form of long-term contractual arrangements with its creditworthy customers,” said Kenny Gunderman, president and CEO of CS&L during the earnings call, according to a Seeking Alpha transcript. “We think the core potential in the backhaul business is very strong, but there are also numerous opportunities to lease up the Tower Cloud network through wholesale and E-Rate initiatives similar to our PEG acquisition thesis.”

PEG and Tower Cloud certainly tie in with the direction CS&L wants to take its fiber infrastructure group. During the second quarter, the service provider signed multiple wholesale customers as well as a number of near-net backhaul contracts.  

“On the wholesale front, we had notable wins with three large national carriers and one state Department of Transportation,” Gunderman said. “These wins, along with other bookings in the quarter, represent new total contractual revenue of nearly $40 million. In addition, we had numerous near-net backhaul wins with attractive yields and margins, including mostly dark fiber awards.”

Leasing segment revenues were $169.1 million, including $4.3 million of straight-line rental income, with adjusted EBITDA of $164.8 million. CS&L’s infrastructure segment, which represents its PEG Bandwidth business, reported revenues of $13.8 million and adjusted EBITDA of $5.5 million for the period from May 2 – from the period from the May 2 acquisition date to quarter end.

Interestingly, PEG Bandwidth, which CS&L only acquired in January, is already making a revenue contribution. During the quarter, PEG Bandwidth contributed $13.8 million of revenues and $5.5 million of Adjusted EBITDA.

Mark Wallace, CFO of CS&L, said that the company expected “PEG to contribute $55 million of revenue and $21 million in adjusted EBITDA for the eighth months following close.”

While the ink on the PEG Bandwidth and Tower Cloud deals is not completely dry, Gunderman said CS&L will continue to look for new M&A opportunities between today and throughout 2017. CS&L has categorized potential deal targets into three main buckets: The majority, 55 percent, is fiber-related, 35 percent is tower and tower real estate-related, and 10 percent is consumer broadband-related.

“Our capital markets activity in the second quarter has positioned us to now be as aggressive acquirers as ever before by removing the sizable overhang on our stock and reloading our revolver,” Gunderman said. “At the same time that our financing flexibility is primed, our opportunity set in fiber, towers and tower real estate including home company deals and sale leasebacks has never been better.”

Gunderman cautioned that CS&L “cannot predict M&A transactions and we will remain disciplined all signs point towards attractive activity in both the U.S. and Latin American markets.”

CS&L reported $188.6 million in second quarter earnings, while net loss and Adjusted EBITDA was $1.5 million and $171.6 million, respectively.

For more:
- see the earnings release
- read the Seeking Alpha transcript (sub. req.)

Related articles:
Windstream spinoff CS&L makes first REIT strike, acquiring PEG Bandwidth for $409M
Windstream taps Gunderman to lead REIT company
CS&L acquires Tower Cloud for $230M, enhances dark fiber transport portfolio
CS&L's Tower Cloud purchase enhances exposure to Tier 1 wireless operators

This article was updated on Aug. 22 to change name of new fiber company to Uniti Fiber.