Unity (UNIT) Q3 2025: Fiber Revenue Surges 17% as Hyperscaler Pipeline Expands 13%

2025-11-04 | By EarningsIQ Research

Unity’s Q3 marked a decisive shift to fiber-led growth, with a 17% YoY jump in fiber-based revenue and a 13% expansion in its hyperscaler funnel, setting the stage for scaled national share gains. Management’s playbook—accelerated fiber buildout, operational discipline, and wholesale share capture—has started to yield tangible results, while the Windstream merger integration remains on track. Investor focus now turns to execution on fiber penetration, margin leverage, and the translation of a robust pipeline into sustainable EBITDA growth through 2026 and beyond.

Summary

• Fiber Mix Accelerates: Core fiber revenue now approaches 80% of total, driving Unity’s transition from legacy.
• Hyperscaler Demand Outpaces Supply: Pipeline growth and deal visibility extend Unity’s runway for large-scale wins.
• Integration and Execution in Focus: Delivering on build targets and churn reduction will determine margin trajectory into 2026.

Performance Analysis

Unity’s Q3 results highlight the company’s rapid transformation toward a fiber-centric model. The Windstream merger closed during the quarter, vaulting Unity into the top tier of national wholesale fiber providers. Fiber-based revenue at Kinetic, Unity’s consumer and SMB platform, grew 17% year-over-year, while consumer fiber revenue alone climbed 26%. This surge was supported by record gross fiber additions and the highest net adds in two years. The company now passes 1.8 million homes with fiber, up 56,000 in the quarter, with fiber penetration reaching nearly 29%.

Legacy service declines continued to weigh on consolidated results, with pro forma revenue down 6% YoY, but the drag is increasingly offset by robust fiber infrastructure and Kinetic fiber growth. The fiber infrastructure segment, which includes Unity Fiber, Unity Leasing, and Windstream Wholesale, posted 3% YoY growth and saw its bookings MRR (monthly recurring revenue) reach $1.6 million, the second-highest in two years. Notably, the hyperscaler sales funnel grew 13% sequentially, now constituting about 30% of MRR and an even larger share of total contract value, reflecting sustained AI-driven demand.

• Fiber Penetration Gains: Kinetic’s fiber penetration rose 130 basis points YoY, with ARPU up 10% YoY, though a sequential dip was attributed to price adjustments and aggressive net adds.
• Cost Efficiency and Build Acceleration: Cost per passing is expected to average $750-$850 over the build program, as Unity ramps up to 400 third-party crews by Q2 2026.
• Margin Expansion Levers: Blended cash yields on new fiber infrastructure deals hit 34%, driven by high-margin hyperscaler contracts.

Unity’s capital structure continues to improve, with refinancing actions reducing blended debt yields to 8% and unlocking $60 million in annual interest savings. Management expects leverage to remain elevated during the fiber build phase, but views this as a necessary trade-off to secure long-term growth and free cash flow inflection.

Executive Commentary

Strategic Positioning

1. Fiber-Led Revenue Mix Transformation

Unity is aggressively shifting its revenue base from legacy TDM (time-division multiplexing, legacy voice/data) to fiber, with nearly 80% of total revenue now fiber-driven and consolidated fiber revenue expected to surpass 50% by end of 2026. The company’s overbuild strategy—deploying fiber into legacy and underserved markets—positions Unity as a share-taker in Tier 2 and Tier 3 geographies, where competitive intensity is lower and infrastructure is less commoditized.

2. Hyperscaler and AI Infrastructure Opportunity

AI and hyperscaler demand for fiber connectivity is driving a generational opportunity, with Unity’s hyperscaler sales funnel growing 13% since Q2 and now representing a material share of deal flow. Management raised its total addressable market estimate for AI/hyperscaler fiber by 50% versus prior expectations, citing customer feedback that “demand constantly outpaces supply.” The evolving mix of deal structures—from upfront NRC (non-recurring charge, installation) builds to high-margin, low-capex leases—creates a favorable margin and cash flow profile as Unity’s network matures.

3. Kinetic Fiber Penetration and Churn Management

Kinetic’s playbook mirrors successful fiber migrations at peers like Frontier, focusing on rapid penetration in new fiber markets, surgical pricing, and targeted churn reduction. Leadership is clearing legacy “noise” (e.g., non-pay and ACP credits), redesigning value propositions, and leveraging regional pricing and promotions to drive both ARPU and retention. The company has also shifted from internal to external fiber build crews to accelerate pace and scale, while retaining internal teams for flexibility and cost control.

4. Wholesale Share Capture and Product Expansion

The Windstream merger brings scale and expertise in the “waves” market (high-capacity, lit fiber services), where Unity’s market share is under 5% today but poised for growth. The company is targeting less-trafficked, route-diverse markets to avoid price competition and win on reliability, customer service, and unique infrastructure. Cross-selling Unity Solutions into the enterprise base and expanding into multi-dwelling units (MDUs, apartment/condo buildings) represent incremental growth vectors not previously prioritized.

5. Capital Structure and Financing Flexibility

Unity’s cost of capital has improved by 450 basis points in two years, enabled by refinancing and asset-backed securitization (ABS, debt secured by fiber assets) initiatives. Management expects to leverage up during the fiber build phase, but views ABS as a key tool for funding and eventual deleveraging, with $3-4 billion in ABS capacity at Kinetic alone. The company is balancing ABS and non-ABS debt to preserve long-term capital market access.

Key Considerations

This quarter’s results underscore Unity’s pivot from legacy drag to fiber-driven growth, but the transition is not without execution risk. The company’s ability to deliver on fiber build targets, expand into new segments, and manage churn will determine the sustainability of margin and cash flow expansion.

Key Considerations:

• Fiber Penetration Trajectory: Sustained fiber subscriber growth and ARPU expansion are critical as legacy revenue becomes less material.
• Hyperscaler Pipeline Visibility: The timing and mix of large-scale AI deals will impact both top-line growth and margin leverage.
• Operational Execution: Accelerating external construction, resolving permitting bottlenecks, and scaling MDU initiatives will test Unity’s organizational agility.
• Capital Allocation Discipline: Balancing elevated leverage with long-term FCF (free cash flow) targets and maintaining capital market access is a key focus as investment intensity peaks.

Risks

Execution risk remains high as Unity ramps external build crews and integrates Windstream operations, with permitting delays and construction bottlenecks posing near-term headwinds. Legacy service declines will continue to weigh on consolidated results through 2026, and competitive intensity from cable in fiber markets could pressure churn and ARPU. Capital structure remains leveraged during the build phase, and any shortfall in fiber penetration or hyperscaler deal conversion could delay margin and FCF inflection.

Forward Outlook

For Q4 2025, Unity guided to:

• 1.9 million homes passed with fiber at Kinetic
• Approximately 536,000 fiber subscribers by year-end

For full-year 2025, management maintained guidance:

• Consolidated revenue of $2.2 billion and adjusted EBITDA of $1.1 billion
• Net capex of $805 million; leverage to remain between 5.5x and 6x

Management highlighted several factors that shape the outlook:

• “By the end of next year, consolidated fiber revenue will exceed 50% for the entire company.”
• “We have clear visibility into at least three years of strong value-accretive deal flow [in hyperscalers].”

Takeaways

Unity’s Q3 signals a clear inflection to fiber-led growth, but the next 12 months will be critical in proving out margin and cash flow leverage as legacy drag abates and hyperscaler deals convert to revenue.

• Fiber Execution: Sustained penetration gains, ARPU expansion, and churn management will drive the pace of legacy replacement and EBITDA growth.
• Hyperscaler Opportunity: A robust pipeline and improving deal mix offer margin upside, but timing and execution will be closely watched.
• 2026-27 Inflection: Investors should monitor the transition to a majority-fiber revenue base and the realization of operational and financial synergies from the Windstream merger.

Conclusion

Unity’s Q3 2025 marks a critical step in its fiber transformation, with operational momentum, a scaled pipeline, and improving capital structure. The path to sustainable growth is visible, but near-term execution on build, churn, and deal conversion will be decisive for valuation and long-term returns.

Industry Read-Through

Unity’s results reinforce the sector-wide shift from legacy to fiber, with Tier 2 and Tier 3 markets emerging as key battlegrounds for share. The surge in hyperscaler and AI-driven demand for fiber infrastructure signals a multi-year runway for providers with scale and unique routes, while margin and cash flow leverage increasingly depend on deal mix and operational discipline. Competitors in fiber, cable, and wholesale should expect intensified competition for both enterprise and residential customers, with capital allocation and build execution as primary differentiators. The industry’s focus on asset-backed financing and cost management will shape the landscape as fiber penetration deepens and legacy drag recedes.

UNIT Telecommunications Fiber Wholesale AI Infrastructure Hyperscalers Churn Capital Allocation