Q4 2023 Uniti Group Inc Earnings Call

February 29, 2024

Turn to slide eight scale matters, and fiber, especially with a wholesale heavy business like ours.

Having an owned national network as a meaningful competitive advantage for unity and our ability to deploy dark fiber and wave services present unity with a unique low risk growth opportunity with minimal competition.

Slide nine illustrates our continued balanced approach to bookings between anchor and lease up.

We had a healthy level of bookings in 2023 and the interest in our network remains robust as our sales funnel remains very strong underscores the growing demand for fiber.

As a result wholesale bookings can appear lumpy given those deals are largely are typically larger and fewer in quantity.

It is not uncommon for one wholesale deal to materially impact bookings in a single quarter from a timing perspective.

In fact, our funnel suggests we expect to see multiple sizable new contract wins over the coming months, especially from hyperscale or preparing for dinner.

Turning to slide 10, our enterprise strategy is highly disciplined and regional in nature.

As you can see from the map, we are only offering enterprise services and approximately 30 metros concentrated in the southeast which is very favorable demographics.

Our local brand is very strong in this region, helping to contribute to industry, leading enterprise churn of around <unk>, 7%.

Although enterprise sales represent about 5% of our total revenue today and will likely always represent a minority percentage. It remains a critical element of our profitable at lease up strategy.

I'll now turn the call over to Paul.

Paul: Thank you Kenny.

Paul: Everyone.

Paul: I'd like to begin by reviewing our fourth quarter performance, followed by an overview of our 2020 for outlook.

Paul: <unk> had another solid year of performance in 2023, with our core recurring strategic fiber business growing at a healthy 5% while consolidated net success based capital intensity continues to decline ending the year at 34%.

As expected nonrecurring revenue was lower in 2023 versus 2022 due to lower ETF fee activity, primarily primarily related to fewer lit and dark fiber disconnect from the sprint T mobile merger.

Paul: And to a lower one time equipment sales, we mentioned on our last earnings call that the exact timing of nonrecurring revenue and related margins can be difficult to predict and thus can fluctuate from quarter to quarter.

Paul: As Kenny already discussed given the low margin and tough to predict nature of one time equipment sales. We've made the conscious decision not to actively pursue these types of sales going forward. Despite these onetime sales headwinds in the fourth quarter, our full year 2023, adjusted EBITDA and <unk> were essentially in line with our prior.

Paul: Guidance.

Speaker Change: As I will cover in more detail shortly our 2024 outlook reflects the robust trends, we continue to see in our recurring business. The planned exit from most one time equipment sales and the impact from the recently announced ABS bridge financing and asset sales finally, I'll end with additional commentary on our current balance sheet and capital structure.

Speaker Change: Please turn to slide 11, and I'll start with comments on the fourth quarter.

Speaker Change: We reported consolidated revenues of $286 million consolidated adjusted EBITDA of $231 million <unk> attributed to common shareholders of $92 million and <unk> <unk> per diluted common share of <unk> 34.

Speaker Change: Net income attributable to common shareholders for the quarter was approximately $30 million or <unk> 13 per diluted share.

Speaker Change: At Uniti leasing, we reported segment revenues of $215 million and adjusted EBITDA of $209 million representing.

Speaker Change: Representing growth of approximately 3% for each in the fourth quarter of 2023 compared to the prior year period. Accordingly, Uniti leasing achieved an adjusted EBITDA margin of 97% for the quarter.

Speaker Change: Turning to slide 12, our growth capital investment program continues to provide positive results for unity.

Speaker Change: Over the past nine years, our tenant has invested over $1 billion of tenant capital improvements in our network.

Speaker Change: Unity continues to invest its own capital and long term value accretive fiber largely focused on highly valuable last mile fiber collectively. These investments have resulted in 25500 route miles of newly constructed fiber and over 24% of the legacy copper network being overbuilt of fiber.

Speaker Change: Based on the investments made to date and our expectation that Windstream will utilize most if not all of the GCI program. We expect expect that nearly half of the legacy copper network will be overbuilt with fiber by 2030.

Speaker Change: During the fourth quarter Uniti leasing deployed approximately $23 million towards growth capital investment initiatives with the majority of the investments relating to the Windstream GCI program as.

Speaker Change: As expected Windstream did reach the 2023 GCI funding limit of $250 million in October of last year.

Speaker Change: As of December 31, Unity has invested approximately $794 million of capital to date under the GCI program with Windstream, adding around 19500 route miles and $1 1 million strand miles of fiber to our network.

Speaker Change: These investments will be added to the master leases at an 8% initial yield at the one year anniversary of the entity, making such investment they are subject to a 5% annual escalator and result in nearly 100% margin.

Speaker Change: The investments we have made to date will ultimately generate approximately $64 million of annualized cash rent and increase the overall value of our network.

Speaker Change: For full year 2023, we turned over 728 lit backhaul dark fiber and small cell sites for our wireless carriers across the southeast footprint at Uniti fiber.

Speaker Change: These installs at annualized revenues of approximately $7 $4 million. We currently have 725 lit backhaul dark fiber and small cell sites remaining in our backlog that we expect to deploy over the next few years. This wireless backlog represents an incremental $6 million of annualized revenues.

Speaker Change: At Uniti fiber, we reported revenues of $71 million and adjusted EBITDA of $27 million during the fourth quarter achieving margins of 38%.

Speaker Change: Revenue and adjusted EBITDA during the quarter were lower than expected due to the timing of one time equipment sales.

Speaker Change: Slide 13 provides a detailed reconciliate reconciliation of our 2023 prior outlook to 2023 actual results. This reconciliation illustrates the impact of one time equipment sales on our 2023 results and highlights the fact that our core recurring business performed in line with our expectations.

Speaker Change: Uniti fiber net success based Capex was $21 million in the fourth quarter, we also incurred about $2 million of maintenance capex during the quarter.

Speaker Change: Please turn to slide 14, and I'll now cover our 2020 for guidance.

Speaker Change: Our 2024 outlook includes the estimated impact from the recent ABS bridge financing the planned exit of most one time equipment sales. The recently completed asset sales and the upcoming maturity of our 4% exchangeable notes due June 2024.

Speaker Change: Our outlook excludes future acquisitions capital market transactions and future transaction related and other costs, not specifically mentioned here and actual results could differ materially from these forward looking statements. Our full year outlook for 2024 includes the following for each segment beginning with Uniti leasing, we expect revenues and adjusted EBITDA to be eight.

Speaker Change: Third $74 million and.

Speaker Change: $847 million, respectively for the at the midpoint, representing adjusted EBITDA margins of approximately 97% as a result of the recent asset sales, we will no longer recognize revenue and adjusted EBITDA in 2024 related to the cable south sale leaseback and our investment interest in Blue bird exclude.

Speaker Change: The impact of these transactions revenue and adjusted EBITDA would each have been expected to grow 3% from the prior year.

Speaker Change: Revenue and adjusted EBITDA each include $55 million of cash rent associated with the GCI investments and $16 million relating to the straight line rent associated with Windstream master leases and GCI investments.

Speaker Change: We expect to deploy $260 million of success based capex at the midpoint of our guidance of which $230 million relates to Windstream GCI investments that will mostly be weighted in the first half of 2024 versus the second half.

Speaker Change: Turning to slide 15, we expect uniti fiber to contribute $290 million of revenues and adjusted EBITDA of $115 million at the midpoint for full year 2024, representing an EBITDA margin of approximately 40%.

Speaker Change: Our recurring revenue is expected to grow approximately 4% from the prior year. However, nonrecurring revenue is expected to be significantly lower in 2024, when compared to the prior year due to the exit of most one time equipment sales and substantially lower <unk> revenue as a result of working through essentially all of the sprint related churn in 2002.

Speaker Change: Three.

Speaker Change: Net success based Capex for Uniti fiber. This year is expected to be $105 million at the midpoint of our guidance and 11% decrease from levels in 2023 and represents a capital intensity of 36% down from 40% in 2023.

Speaker Change: Turning to slide 16 for 2024, we expect full year <unk> to range between $1 38, and $1 45 per diluted common share with a midpoint of $1 41 per diluted share on a consolidated basis, we expect revenues to be $1 2 billion and adjusted EBITDA to be 900 <unk>.

Speaker Change: $40 million at the midpoint.

Speaker Change: Our guidance contemplates consolidated interest expense for the full year of approximately $500 million Corp.

Speaker Change: Corporate SG&A, excluding amounts allocated to our business segments is expected to be approximately $30 million, including $8 million of stock based compensation expense.

Speaker Change: We expect our weighted average diluted common share outstanding for full year 2024 to be around 284 million shares compared to 290 million shares in 2023, reflecting the diluted share impact related to the upcoming maturity of our existing exchangeable notes due in June of this year.

Speaker Change: As a reminder guidance ranges for key components of our outlook are included in the appendix to our presentation.

Speaker Change: On slide 17, we have provided a tabular reconciliation of our full year 2023 results to our 2020 for outlook.

Speaker Change: That summarizes the organic contribution from our core operations the impact from the exit of most equipment sales lower sprint churn <unk>, the recent asset sales and refinancing activities.

Speaker Change: Turning now to our capital structure, we recently announced that unity entered into an asset backed bridge loan and security agreement for up to $350 million of borrowings pursuant to a multi draw term loan facility.

Speaker Change: Through an indirect bankruptcy remote subsidiary of the company.

Speaker Change: Borrowings under the facility will bear an initial interest rate equal to the terms so for right for the applicable interest period, plus an applicable margin of 375% and may include customary step ups in the applicable margin based on how long the facility remains outstanding.

Speaker Change: The facility will mature 18 months from the initial draw date and are subject to customary covenants. The Avs bridge facility represents an important step for unity as it provides a path to opening up access to a new source of funding with incremental leverage capacity at an attractive cost of capital.

Speaker Change: We intend to refinance the current facility in full with proceeds from a long term ABS facility secured primarily by certain unity fiber network assets.

Speaker Change: At year end, we had approximately $354 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity, our leverage ratio at year end stood at $6 three times based on net debt to last quarter annualized adjusted EBITDA on February 20, <unk>, Our board declared a dividend of <unk> 15.

Speaker Change: <unk> per share to stockholders of record on March 28 payable April 12.

Speaker Change: With that I'll now turn the call back over to Kenny.

Kenny: Thanks, Paul before closing I'd like to make a few comments on M&A.

Kenny: Please keep in mind that we will not be making any specific comment on rumored potential strategic transactions involve immunity that have been circulating in recent press reports.

Kenny: As an asset rich company with one of the largest fiber portfolios in the country Uniti is uniquely positioned to benefit from M&A trends that continue to highlight the value of quality fiber assets, including wholesale and fiber to the home.

Kenny: Over the past five years unit has sold or monetized nearly $1 billion of assets at premium multiples and we expect to continue that disciplined ongoing review of our current asset portfolio.

Kenny: In addition, given our balance sheet and liquidity runway, we expect to be active this year evaluating transformative transactions, including the ongoing review of our current asset portfolio.

Kenny: Despite that however, our primary focus as always will be execution of disciplined growth of our core business operations.

Speaker Change: With that operator, we're now ready to take questions.

Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Our first question comes from the line of Greg Williams from TD Cowen.

Gregory Bradford Williams: Great. Thanks for taking my questions. The first one is on on the demand you are seeing and Gen II.

Gregory Bradford Williams: Seems somewhat bullish but we just came back from Metro connect this weekend and you were there and it seems like a lot of the fiber folks we talk to are seeing unprecedented demand.

Speaker Change: Really bullish and your comments seem a little more gated are measured on the excitement maybe you can help us contextualize, what youre seeing with versus what I've been hearing from other fiber providers.

Speaker Change: And how you're seeing it play out.

Speaker Change: And then just the second question is on the lighter bookings in the fourth quarter, you mentioned that wholesale could be lumpy.

Speaker Change: Is that is that the case here.

Speaker Change: And anything to call out that would be great. Thanks.

Speaker Change: Hey, Greg those two questions are not unrelated on the first.

Speaker Change: Point about regenerative AI in demand, we're seeing from the Hyperscale.

Gregory Bradford Williams: It's hard to not sound hysterical when expressing how excited we are about it. So if our comments in the prepared remarks seems muted that was probably intentional because the demand that we're seeing today, both the both today and in the future are tremendous.

Gregory Bradford Williams: We saw I saw a presentation a couple of weeks ago from one of our important vendors Sienna showed a three five times increase in demand in the next few years.

Gregory Bradford Williams: We're speaking in terms of Zettabyte, which is I think two functions removed from a terabyte.

Gregory Bradford Williams: And that increase in demand was almost <unk>.

Gregory Bradford Williams: Predominantly related to generative AI and so I think the demand is huge it's we're in the midst of it now really the early innings of it especially for unity, because we're still putting in place MLA with a lot of the important hyperscale or <unk>.

Gregory Bradford Williams: But we're starting to see that demand and I think it's not just demand on existing network where these.

Gregory Bradford Williams: Providers are looking to acquire conduits, they're looking to acquire strands that are looking to acquire waves. They're also interested in building a lot of new infrastructure.

Gregory Bradford Williams: Particularly long haul routes connecting new data centers.

Gregory Bradford Williams: And thats exciting on multiple levels, because I think as we all know there is a power issue related to a lot of these new data centers.

Gregory Bradford Williams: And so a lot of these guys are looking in tier two and tier three markets, where the grids are not nearly as trained as they might be in tier one markets and so that's a nice opportunity for us there.

Gregory Bradford Williams: But also the hyper scaler or a different kind of anchor customer.

Gregory Bradford Williams: When the wireless carriers for example, they're not we're not pricing every deal to perfection. If you will and so there is there is there is there is.

Gregory Bradford Williams: Theres a collaborative approach to building the new infrastructure.

Gregory Bradford Williams: That's good for all parties.

Gregory Bradford Williams: And it's not nearly as reliant upon a lease up model. If you will as some of the wireless deals and so theres a lot of excitement there. When we were looking at building new infrastructure with the Hyperscale ours as a as an anchor.

Gregory Bradford Williams: And so when you tie that to our funnel for the year.

Yes bookings look low in the fourth quarter and they are just empirically relative to some of the previous quarters, but I can tell you our funnel for the year is very robust we don't give guidance on bookings, but we're showing a nice uptick in growth for bookings for the year and when you look at our pulse.

Gregory Bradford Williams: They'll have a model yes, there is a handful of deals that are always much bigger and can move the needle and when you look at some of the Hyperscale deals that we have in the funnel there is <unk>.

Gregory Bradford Williams: Three deals alone that represent 20 close to 25% of our total bookings that could be near term deals and so they just really really could move the needle in a big way.

Gregory Bradford Williams: So I'm not at all concerned about the lower bookings number in the fourth quarter given the given the demand that we've got staring us in the Facebook and looking into 2024.

Gregory Bradford Williams: That is coming from the Hyperscale.

Speaker Change: Got it if I may follow up you mentioned that youre not pricing to perfection and I guess, we're also hearing that.

Speaker Change: Let me type of scale providers are providing a large a very large majority of the upfront costs to help build and just curious what you meant by the pricing and can you talk about that upfront costs.

Speaker Change: Our pricing structure. Thanks.

Speaker Change: Yes, I think you touched on it Greg that's generally right.

Speaker Change: We've always talked in the past about the wireless carriers for example, and just in general when we talk about an anchor customer.

Speaker Change: Targeting a 5% to 10% initial yield.

And then getting it getting above that 5% to 10% is.

You are reliant upon a lease up model, which we've been executing on that model, but with with the hyperscale or as anchor customers.

Speaker Change: Youre not those youre not pricing to perfection in that 5% to 10% leased anchor yield youre really.

Speaker Change: Much it's much more collaborative in terms of sharing the cost of initial builds and in some cases. The hyperscale are willing to take the majority of that initial cost and I think that definitely the economics on that are obviously attractive but at the same time the hyperscale undertaken.

Speaker Change: A good majority of.

Speaker Change: The capacity on those initial routes.

Speaker Change: So it's not necessarily a free lunch, but in terms of the economics.

Speaker Change: It is attractive and I think theres going to be a lot more new infrastructure that needs to be built by these carriers.

Speaker Change: So being a scaled fiber provider like unity is with a national reach.

Speaker Change: I think we're one of the go to providers.

Speaker Change: The Hyperscale is on a go forward basis.

Speaker Change: Got it it's helpful. Thank you.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from the line of Frank Louthan from Raymond James.

Frank Garrett Louthan: Great. Thank you.

Frank Garrett Louthan: Just to follow up on that when we look at these hyperscale deal how should we think about them ramping.

And hitting their full top line potential relative to traditional carriers that are generally a little bit slower and then secondly talk to us about the asset sales how competitive were those.

Frank Garrett Louthan: You have a lot a lot of interest I would say, maybe the tower's view, but just curious on that.

Frank Garrett Louthan: On what the market is for that thanks.

Speaker Change: Hey, Frank I think for the.

Speaker Change: For the Hyperscale or they have very different models than the wireless carriers.

Speaker Change: Shouldnt comment on their models, let them do that but at least for us when we look at the ramp in demand from them relative to the carriers I think it's both the topline ramp and a profitability ramp and our capital intensity.

Speaker Change: Declines so if youre comparing us.

Speaker Change: Our hyperscale or is that anchor customer relative to wireless carrier.

Speaker Change: I think youre going to see less capex on a net basis.

Speaker Change: I think youre going to see the same kind of mid single digit growth, but also I think more profitable deals out of the gate. So those deals are less reliant upon upon lease up as of as I said earlier.

Speaker Change: So it's just it's a tremendous amount of demand potential again for unity.

Speaker Change: It will for all carriers in order to do business with with any large customer, including the Hyperscale is you've got to get MLA in place, which takes anywhere from six to 12 months.

Speaker Change: And we're still in the early stages of getting that done and despite that we're still seeing.

Speaker Change: Huge huge demand potential so I think once we get all those agreements in place with the right carriers are the right hyperscale or we're going to see even more even more demand in the coming quarters and years.

Speaker Change: And I don't think this is a one year or two year phenomenon, it's something that's going to be sustained for the foreseeable future.

Speaker Change: With respect to the asset sales.

Speaker Change: As you know Frank we've been selling towers now for some time, we sold the bulk of our towers a couple of years ago actually three years ago that was a very competitive process I think we.

Speaker Change: I think we still have the.

Speaker Change: Distinction of having sold our towers at the highest multiple in the U S for a tower business. So we're very happy about that.

Speaker Change: The remaining towers that we've sold.

Speaker Change: Less competitive just substantially fewer towers and very little revenue in EBITDA associated with them frankly.

Speaker Change: So it was really more of a bespoke transaction and the same for the sale leasebacks.

Speaker Change: That we sold there's really a large infrastructure fund that owns the two are loans either owns either all or a portion of the two op codes that were the acquirers of those sale leasebacks and so it was a package deal with that.

Large infrastructure.

Infrastructure fund.

Speaker Change: And it worked out great for both them and US we think we got a good value and we think we think they also got a good value. So more of a bespoke deal and speaks to just us having good relationships with the infrastructure.

Speaker Change: Infrastructure Investor space as we've had for many years and we were able to put together a nice bespoke transaction that worked for both parties.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from the line of Michael Rollins from Citi.

Michael Ian Rollins: Thanks, and good morning, just wanted to follow up on some of your comments on the strategic front. So.

Michael Ian Rollins: Yes.

Michael Ian Rollins: On your first one your first few slides you described your disciplined approach can you define that for you.

Michael Ian Rollins: Investors in terms of how uniti thinks about discipline in terms of the types of transactions.

Speaker Change: Or transformative actions that can be interesting for unity and then I noticed that you may have pulled the slide on valuation.

Speaker Change: That used to include in the earnings deck and just curious if there's any evolution.

Speaker Change: How you are viewing the value of the franchise as youre thinking about transformative transactions.

Michael Ian Rollins: Hey, Michael.

Speaker Change: With respect to pulling slides im not sure about that one I'll have to defer that to our IR group.

I don't think that was really a conscious decision necessarily but I think more importantly to your first question.

Speaker Change: Question.

Speaker Change: Yes, we've always taken the disciplined approach to M&A, whether it's as a buyer or seller.

Speaker Change: We sold assets.

Speaker Change: At premium multiples, whether it be towers or ground leases or portions of our fiber business and I think on a go forward basis that will continue to be our ammo. If we if we do sell additional assets.

Speaker Change: And when we've been an acquirer.

Speaker Change: We've also been disciplined on acquisitions.

Speaker Change: Paid.

Speaker Change: Generally speaking multiples for fiber businesses that were lower than than the market at the time.

Speaker Change: That's.

Speaker Change: Generally been the case and I think if you look at our portfolio.

Speaker Change: We're very happy with how all of those transactions have have performed on a consolidated basis for us with the benefit of hindsight.

Speaker Change: <unk> you.

Speaker Change: Using using that as as is data.

Speaker Change: To demonstrate our ability to be disciplined.

Speaker Change: When you look at transformative type transactions, when we really the probably the closest thing to a transformative transaction that we've done is when we re cut our MLA with windstream back in during the bankruptcy.

Speaker Change: And we said at the time that that transaction was.

Speaker Change: A good mutually beneficial transaction and it was also a very strategic transaction and the strategic merits of it would probably be more revealed over time as opposed to at that point in time and again with the benefit of hindsight. We think that has proven to be true to we think that's been a good transaction for both both companies.

Speaker Change: So on a go forward basis without talking specifically about specific opportunities or deals I think.

Speaker Change: Going to see is continued to be disciplined we believe in mutually beneficial transactions with our potential partners and I think on a go forward basis that that will continue to be what guides us.

Speaker Change: And has there been any evolution in your thoughts around how to value your D.

Speaker Change: And in that context.

Speaker Change: No I don't think so Michael I mean, we still feel we still feel strongly about the intrinsic value of our of our business all parts of it.

Speaker Change: And so.

Speaker Change: Thank you.

Speaker Change: Public market valuations, certainly ebb and flow private market valuations ebb and flow of the interest rate environment impacts valuations, but when you look at the.

Speaker Change: The value of our assets when you look at our ability to execute on our on our strategy and we think continue to put up industry leading results. Both on mid single mid single mid single digit growth and just continuing to perform through.

Speaker Change: Both.

Speaker Change: Yeah.

Speaker Change: Through all macroeconomic conditions, we think that speaks to the value of our assets. In addition to our ability to execute and so.

Speaker Change: We think we think are our valuation transcends a lot of those macro environment impacts on have been ebbing.

Speaker Change: Having and flowing of public market valuations and private valuations and so net net we don't have a different view on our intrinsic value.

Speaker Change: Thanks very much.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from the line of David Barden from Bank of America Securities Inc.

David William Barden: Hey, guys. Thanks, so much for taking the question.

David William Barden: Two if I could I guess, the first question would be.

David William Barden: Kenny you kind of called out.

David William Barden: The equipment sales.

David William Barden: In 2024 being a big Delta for 2023 is that like a.

David William Barden: Our business strategy change or is that somehow.

Kenny: So I'm sort of customer category, that's changing if you could kind of elaborate a little bit.

David William Barden: On on why we're assuming that that all the equipment sales goes away.

Speaker Change: And then the second question is.

Speaker Change: I don't know exactly how to ask it but theres. So much about this ABS thing that I just don't understand.

Speaker Change: Yes.

Speaker Change: Then if you could really be.

Speaker Change: It's crystal clear as possible about why we have a bridge loan to an ABS deal and then we've got an 18 month ABS deal and then we got a longer term ABS deal and what assets are behind it. So I think that you know for the last couple of quarters <unk> been peppered with questions about frontier did this deal with <unk>.

Speaker Change: It was it was ring fenced it was an eight times multiple.

Speaker Change: It was very crystal clear, what they were doing and what they got out of it.

Speaker Change: And I think that you are trying to get to that place, but I just don't understand what's happened on the ABS deal thus far thank you.

Speaker Change: Hey, David I'll, let Paul.

Paul: To add some clarity to the ABS transaction I think on your first question. So a few years ago. When we acquired one of the maybe one of the acquisitions are the company came with this business that was targeting one time equipment sales. It was part of their business that wasn't the reason we did the acquisition.

But it was part of their business and since then we just continued that that line of line of business, it's something that adds a little bit of profitability each year. So.

Paul: So we kept going with it.

Paul: At the end of last year, we decided to deemphasize it on a go forward basis predominantly because as I said in my prepared remarks, it adds a little bit of profitability, but not enough profitability to outweigh the volatility that we see from that business on a quarter to quarter basis and it really.

Paul:

Paul: Flies in the face of the predictability of our core recurring business and so.

Paul: Removing that volatility in the de Minimis.

Paul: Profitability associated with it on a go forward basis. It seems like the right decision. In addition to the fact that.

Paul: It is a business line that requires some some overhead to administer.

Paul: No.

Paul: We thought the timing was particularly good because the <unk> revenue from sprint and T. Mobile is also in the rearview mirror. So that has also led to some volatility. So those two things together really constitute has constituted the vast majority of any volatility in our earnings on a go forward basis, we think they'll just be a lot less of that and we think that is.

Paul: Ultimately, good and underscores the recurring nature of our business.

Paul: I think.

To be clear, however that doesn't mean, there will be no equipment sales that we do there will be a small amount because we are going to continue to do it for our big important customers it'll just be a substantially lower number than what it has been what it has been in the past. So net net yes, it's a strategic decision and it's the right decision for the business.

Paul: Paul you want comment on ABS, yes happy to.

Paul: Comment on Avs and David certainly I. Appreciate your question there I think the ABS bridge is a little bit is a little bit different.

Speaker Change: Unity is broken some.

Paul: Some new ground with regard to this facility and sort of the concept in some of the mechanics of how this is working so it's a little bit different for folks to.

Paul: To digest, but it's pretty simple.

Paul: When you boil it all down so.

Paul: Unity, we started looking at the ABS market, a little probably about.

Paul: Nine months to a year ago is something that we thought was an attractive long term.

Paul: It could be an attractive long term addition to our capital structure, so access to a different <unk>.

Paul: Market access to investment grade.

Paul: Growing additional leverage capacity attractive cost of capital compared to.

Paul: Some of the other markets like the high yield market that we have traditionally tap so.

Paul: We felt like it could be a really good addition to our overall long term capital structure.

Paul: Going forward and so.

Paul: But one of the things with ABS is it takes a fair amount of effort and time to get that set up you've got to get all of the assets and the customer contracts associated with.

Paul: The fiber network that you want to securitize into bankruptcy remote.

Paul: Special purpose vehicle company and that just takes just takes a fair amount of times and so we spent some time I think we talked about this on a previous call that we spent time with rating agencies getting them familiar with our unity fiber assets in particular.

Paul: Getting our confidence level that those assets and the cash flows from those assets would be well received by.

Paul: The ABS market and we got really good feedback from that so that that basically.

Paul: Solidified our viewpoint that we wanted to add ABS to our to our capital structure on a long term basis.

But when you looked at the time it was going to take to put in the traditional ABS.

Paul: Thought it would probably take maybe up to a year to do all the work to get it there.

Paul: And our funding funding need immediate funding need.

Paul: We're investing in the business GCI and other things was really.

Paul: More <unk>.

Paul: <unk> turned in that so.

Paul: We mentioned in our comments Dci is going to be very heavily weighted to the first half of 2024.

Paul: In previous years, it's been more more spread out through the year and so we.

Paul: We needed to do something.

Paul: Sooner than 12 months too.

Paul: To take care of some of those needs in terms of our capital investments and the ongoing business and so rather than go out and do some other sort of.

Paul: Of arrays, and then an ABS year from now.

Paul: This ABS bridge came up as a concept that was attractive for us and all the ABS bridge really is.

Paul: Lightly securitized ABS facility.

Paul: With.

A few banks and those banks are are basically looking at the confidence level that we have in our plan to get to a full ABS and.

Paul: And lending against that.

Paul: Let me get that lightly collateralized assets are.

Paul: Our road map to get to a full ABS takeout and then the EPS bridge is optimized for an ABS takeout, so rather than doing like a high yield add on to one of our other bond issuances that would come with call protection and make whole and that sort of thing in order to take it out with.

Paul: ABS facility in the future and Avs. This ABS bridge is geared specifically to be taken out by an eventual ABS. So it's really.

Paul: A path.

Paul: Our path to get us.

Paul: From where we stayed stand today to the full types of ABS like Youre, describing with some of the other players that they've put in so little bit of a different approach to get to the same end point really.

Speaker Change: Got it.

Speaker Change: Interim step on the way to kind of getting to where the final.

Speaker Change: Plan would look can you and I apologize could you reiterate what the costs of this bridge are.

Speaker Change: Yes so.

Speaker Change: It comes with a rate of sofa plus 375.

Speaker Change: Percent.

Speaker Change: And so that rate is.

Speaker Change: A bit higher than what we would expect for a full ABS investment grade.

Speaker Change: Transaction, when we get to that point, but again this is a little bit of a bespoke.

Speaker Change: Instrument instead of putting in all the assets, we're putting an eye or use.

Speaker Change: And eventually would move in fiber assets into this facility to do.

Speaker Change: Full ABS takeout at some point, but like I said this is collateralized a little differently.

Speaker Change: <unk>.

Speaker Change: And so we would we would expect that the.

Spreads on a full ABS deal would be would be slightly improved over this but this is.

Speaker Change: This facility is like I said.

Speaker Change: <unk> plus 375, and then it has some step ups.

Speaker Change: At month 12.

Speaker Change: <unk>.

Speaker Change: To incentivize.

Speaker Change: The takeout eventual takeout with a floor ABS facility right. Okay that that helps me a lot. Thank you guys I appreciate it.

Speaker Change: Thank you one moment far next question.

Speaker Change: Our next question comes from the line of Simon Flannery from Morgan Stanley.

Simon William Flannery: Great. Thank you good morning, Kenny just coming back to the Hyperscale comments any differences in terms of the term of these leases versus the wireless deals escalators things like that and to what extent have you put that into guidance. Given you have some stuff in pipeline or is that really more exiting this year and then too.

Simon William Flannery: 25, and then.

Simon William Flannery: One they are Paul if you could just revisit your.

Simon William Flannery: Our near term and medium term leverage targets and.

Simon William Flannery: How youre thinking about the dividend again.

Pay just declared another 15, but what's the latest on that kind of pros and cons. Thank you.

Paul: Simon I think on.

Paul: Impact from hyper scaler in 2020 for I would say, it's still relatively muted versus what we think the opportunity could be because we're still in the ramp so.

Paul: It'll be an increasing percentage of our bookings this year versus last it's been growing and I think it will continue to be a higher percentage this year than previously.

Paul: But bookings as you know precede revenue. So I think the revenue ramp will really youll really start to see it in 2000 22025 and beyond.

Paul: And eventually I think the Hyperscale, there will be a bigger percentage of our business in the wireless carriers.

Paul: When we reached the sort of steady state.

Paul: That's how big the demand is and with respect to contracts I wouldn't call out any material differences between the two other then.

Paul: What we sort of touched on earlier, which is the hyperscale is tend to be willing to pay higher nrc's.

Paul: To help help fund.

Paul: Initial builds.

Paul: But again, it's relative right it depends on whether it's a lit deal versus a dark deal it depends on whether it's a greenfield versus existing network and that's all true of the wireless carriers as well.

Paul: But I think just in general there is more of a willingness to help with.

Paul: With higher Nrc's at the outset so.

Paul: Paul you want to talk about the balance sheet, yes sure Simon.

Simon William Flannery: So yes.

Paul: In terms of in terms of leverage.

Paul: Our target leverage range is still what we've always communicated at five 5% to six times is where we feel like we should be from a from a leverage standpoint, and but we've also said that there are times.

Paul: That we we do go above 6%.

Paul: For periods of times for short periods of time, and we think that thats. The business can handle that but our target is always to be in that five 5% to six times. So we ended.

Paul: 2024, right at that six times.

Paul: Leverage Mark fixed auto three is what I talked about in my remarks are to add slightly slightly above that.

Paul: One of the things I mentioned.

Paul: Earlier is that.

Paul: We expect GCI investments to be heavily weighted in the first half if not completely weighted in the first half of <unk>.

Paul: 2024, so there will be some incremental investments.

Paul: Made in the first half of the year over the second half of the year and so I think that's likely youre likely going to see our leverage tick up a little bit in the first half of the year.

Paul: Maybe.

Paul: Six <unk>.

Paul: <unk> 6.5 to $6 six quarter somewhere in there you could see that as we work through those heightened investments, but then you would see that come back down in the second half of the year. After those GCI commitments have been have been completed and our 2024.

Paul: Exchangeable notes are matured and taken off the balance sheet.

Paul: As well so and then the effort the effort would be to work that back down into our.

Paul: Into our target range over the long term as some of those.

Paul: Windstream, especially the windstream commitments from the settlement start to wind down and ramp down into 2025 and 26.

Paul: And on the dividend.

Paul: Yes, Simon on the dividend.

Paul: The board continues to have confidence in the balance.

Paul: Our balance sheet, our liquidity and importantly in our in our outlook, we have a very predictable business, we have a very predictable.

Paul: Down in capital spending as Paul mentioned in the coming years and so the dividend is as much about the future as it is the here and now and that confidence remains remained strong.

Paul: With that said theyre going to evaluate it each quarter and theyre going to look at other.

Paul: Equally.

Paul: Tractive uses of capital, including investing in the business, including M&A and other things and so but as we sit here today I think the dividend just underscores the board's confidence in the future of the business.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

At this time I would like to turn the conference back over to Kenny Gunderman for closing remarks.

Kenneth A. Gunderman: Thank you. We appreciate your interest in Uniti group and look forward to updating you further on future calls. Thank you for joining us today.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

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Gigi: Welcome to Uniti group's fourth quarter 2023 conference call. My name is Gigi and I'll be your operator for today a webcast of this call will be available on the company's website www dot <unk> dot com beginning today and will remain available for 14 days at this time.

Gigi: All participants are in a listen only mode participants on the call. We will have the opportunity to ask questions. Following the companys 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 and the factors that could cause actual results to differ are discussed in the company's filings with the SEC.

Gigi: The company's remarks. This morning will reference slides posted on its website and you are encouraged to refer to those materials. During this call.

Gigi: Discussions during the call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles.

Gigi: Conciliations of these 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.

Gigi: I would now like to turn the call over to Uniti group's Chief Executive Officer, Kenny Gunderman. Please go ahead Mr. Gunderman.

Kenneth A. Gunderman: Thank you good morning, everyone and thank you for joining.

Starting on slide three I'd like to begin with a review of 2023.

Kenneth A. Gunderman: And particularly some highlights of a very busy fourth quarter.

Kenneth A. Gunderman: During the year, despite a challenging backdrop, we successfully refinanced $3 1 billion of debt, resulting in our current business plan now being fully funded having no significant debt maturities until 2027 and over 95% of our debt being fixed rate.

Kenneth A. Gunderman: We accomplished this while continuing to demonstrate the resiliency of our core recurring fiber business with top line growth of 5% in 2023, including Uniti leasing lease up and unity fiber enterprise and wholesale growth of 20%, 15% and 9% respectively with continued declining capital.

Kenneth A. Gunderman: Intensity.

Kenneth A. Gunderman: Just as importantly by addressing our balance sheet.

Kenneth A. Gunderman: We have afforded ourselves the ability to focus on strategic matters.

Kenneth A. Gunderman: As we foreshadowed during our third quarter call. We recently sold some noncore assets that included our remaining tower portfolio, our remaining investment interest in Bluebird network and our sale leaseback with cable south for total proceeds of $87 million and almost 10 times blended EBITDA multiple.

Kenneth A. Gunderman: Also during the fourth quarter, we decided to largely exit the non core one time equipment sale business.

Kenneth A. Gunderman: As a reminder, this business represents reselling of networking and other equipment.

Kenneth A. Gunderman: Historically that business has generated anywhere between 20 and $30 million of annual revenue with margins of 15% or less thus representing less than 5% of our total adjusted EBITDA.

Kenneth A. Gunderman: Despite the small contribution to profitability the unpredictable nature of the business regularly contributes the majority of volatility we see in our quarterly earnings, including the most recent third and fourth quarters.

Kenneth A. Gunderman: As an example, approximately $6 million of contracted equipment sales that were expected to be realized in the fourth quarter of 2023 have slipped into 2024, largely due to delayed <unk> funding.

Kenneth A. Gunderman: On a go forward basis, one time equipment sales will now be a negligible part of our results.

Kenneth A. Gunderman: We will only pursue those sales that are part of an important fiber network sale and our desired by our important customers.

Kenneth A. Gunderman: Deemphasizing. This business is also coincidental with the one time <unk> related to the T mobile sprint merger being largely completed in 2023 and should also have a minimal impact on earnings on a go forward basis.

Finally, as we also foreshadowed on our third quarter earnings call. We just announced an avs bridge financing that will provide funding of up to $350 million.

Kenneth A. Gunderman: Paul will elaborate further on this but it is an exciting development, which reinforces that fiber truly is a mission critical communication asset.

Kenneth A. Gunderman: We believe that ABS will be an important value accretive financing option going forward.

Turning to slide four with our industry, leading <unk>, 3% churn and no legacy services weighing us down we believe our runway for mid single digit growth continues to be long.

Kenneth A. Gunderman: Our primary focus continues to be executing on our lease up strategy via lit and dark fiber solutions for our wholesale and enterprise customers within our southeast footprint. While also further monetizing our long haul national network through long term <unk> agreements with hyper scaler domestic and international carriers and other large national strategic accounts.

Kenneth A. Gunderman: <unk>.

Kenneth A. Gunderman: Slide five illustrates that we expect our growth will continue to be disciplined and profitable.

Kenneth A. Gunderman: Our substantially underutilized fiber network is helping drive our shared infrastructure economics with continued declining capital intensity.

Kenneth A. Gunderman: Our anchor plus lease up model is working.

Kenneth A. Gunderman: Diving cumulative cash flow yields today of 25% more than three five times increase from the anchor yield of these projects.

Kenneth A. Gunderman: Turning to slide six we continue to grow a 140000 route mile network.

Kenneth A. Gunderman: Less than 25% of our available network is lit today and as we've mentioned before we own dark.

Kenneth A. Gunderman: Metro fiber and about 300 markets nationwide, which represents terrific capital and margin efficient efficient growth potential for enterprise wireless backhaul and small cells.

Kenneth A. Gunderman: We continue to believe that the wireless carriers will eventually need to densify. These non NFL markets and unity is well positioned for that growth in the future.

Kenneth A. Gunderman: Slide seven shows that the majority of our revenue is wholesale in nature, which comes with longer term contracts lower churn and less required overhead for execution.

Kenneth A. Gunderman: As a result, our business and underlying performance are less susceptible to macroeconomic conditions and we're diversified across numerous use cases for fiber and customer segments.

As an example, even though wireless carriers have recently been spending less as a collective group than they have in past years. The decline is offset by other buyers such as Hyperscale is internet providers and fiber to the home providers.

Kenneth A. Gunderman: We continue to see more use cases related to artificial intelligence as well.

Kenneth A. Gunderman: Turning to slide eight scale matters, and fiber, especially with a wholesale heavy business like ours.

Kenneth A. Gunderman: Having an owned national network as a meaningful competitive advantage for unity and our ability to deploy dark fiber and wave services present unity with a unique low risk growth opportunity with minimal competition.

Kenneth A. Gunderman: Slide nine illustrates our continued balanced approach to bookings between anchor and lease up.

Kenneth A. Gunderman: We had a healthy level of bookings in 2023 and the interest in our network remains robust as our sales funnel remains very strong underscores the growing demand for fiber.

Kenneth A. Gunderman: As a result wholesale bookings kind of appear lumpy given those deals are largely are typically larger and fewer in quantity.

Kenneth A. Gunderman: It is not uncommon for one wholesale deal to materially impact bookings in a single quarter from a timing perspective.

Kenneth A. Gunderman: In fact, our funnel suggests we expect to see multiple sizable new contract wins over the coming months.

Kenneth A. Gunderman: Especially from Hyperscale is preparing for <unk>.

Kenneth A. Gunderman: Turning to slide 10, our enterprise strategy is highly disciplined and regional in nature.

Kenneth A. Gunderman: As you can see from the map, we are only offering enterprise services and approximately 30 metros concentrated in the southeast which is very favorable demographics.

Kenneth A. Gunderman: Our local brand is very strong in this region, helping to contribute to industry, leading enterprise churn of around <unk>, 7%.

Kenneth A. Gunderman: Although enterprise sales represent about 5% of our total revenue today and will likely always represent a minority percentage. It remains a critical element of our profitable lease up strategy.

Kenneth A. Gunderman: With that I'll now turn the call over to Paul.

Paul: Thank you Kenny.

Paul: Everyone.

Paul: I'd like to begin by reviewing our fourth quarter performance, followed by an overview of our 2020 for outlook.

Paul: As expected nonrecurring revenue was lower in 2023 versus 2022 due to lower ETF fee activity, primarily primarily related to fewer lit and dark fiber disconnect from the sprint T mobile merger.

Paul: Guidance.

Speaker Change: Okay.

Speaker Change: Please turn to slide 11, and I'll start with comments on the fourth quarter.

Speaker Change: Net income attributable to common shareholders for the quarter was approximately $30 million or <unk> 13 per diluted share.

Speaker Change: At Uniti leasing, we reported segment revenues of $215 million and adjusted EBITDA of $209 million representing.

Turning to slide 12, our growth capital investment program continues to provide positive results for unity.

Speaker Change: Over the past nine years, our tenant has invested over $1 billion of tenant capital improvements in our network.

Based on the investments made to date and our expectation that Windstream will utilize most if not all of the GCI program. We expect we expect that nearly half of the legacy copper network will be overbuilt with fiber by 2030.

Speaker Change: As expected Windstream did reach the 2023 GCI funding limit of $250 million in October of last year.

Speaker Change: The investments we have made to date will ultimately generate approximately $64 million of annualized cash rent and increase the overall value of our network.

Speaker Change: For full year 2023, we turned over 728 lit backhaul dark fiber and small cell sites for our wireless carriers across the southeast footprint at Uniti fiber.

Speaker Change: At Uniti fiber, we reported revenues of $71 million and adjusted EBITDA of $27 million during the fourth quarter achieving margins of 38%.

Speaker Change: Revenue and adjusted EBITDA during the quarter were lower than expected due to the timing of one time equipment sales.

Speaker Change: Slide 13 provides a detailed reconciliation reconciliation of our 2023 prior outlook to 2023 actual results. This reconciliation illustrates the impact of one time equipment sales on our 2023 results and highlights the fact that our core recurring business performed in line with our expectations.

Speaker Change: Uniti fiber net success based Capex was $21 million in the fourth quarter, we also incurred about $2 million of maintenance capex during the quarter.

Speaker Change: Please turn to slide 14, and I'll now cover our 2020 for guidance.

Speaker Change: Third $74 million and $847 million, respectively for the at the midpoint, representing adjusted EBITDA margins of approximately 97% as a result of the recent asset sales, we will no longer recognize revenue and adjusted EBITDA in 2024 related to the cable south sale leaseback and our investment.

Speaker Change: Interest in Bluebird, excluding the impact of these transactions revenue and adjusted EBITDA would each have been expected to grow 3% from the prior year.

Speaker Change: Core recurring revenue is expected to grow approximately 4% from the prior year. However, nonrecurring revenue is expected to be significantly lower in 2024, when compared to the prior year due to the exit of most one time equipment sales and substantially lower <unk> revenue as a result of working through essentially all of the sprint related churn and <unk>.

Speaker Change: 'twenty three.

Turning to slide 16 for 2024, we expect full year <unk> to range between $1 38, and $1 45 per diluted common share with a midpoint of $1 41 per diluted share on a consolidated basis, we expect revenues to be $1 2 billion and adjusted EBITDA to be 900.

Speaker Change: $40 million at the midpoint.

Speaker Change: Our guidance contemplates consolidated interest expense for the full year of approximately $500 million corporate SG&A, excluding amounts allocated to our business segments is expected to be approximately $30 million, including $8 million of stock based compensation expense we.

Speaker Change: As a reminder guidance ranges for key components of our outlook are included in the appendix to our presentation.

Speaker Change: On slide 17, we have provided a tabular reconciliation of our full year 2023 results to our 2020 for outlook.

Speaker Change: We intend to refinance the current facility in full with proceeds from a long term ABS facility secured primarily by certain unity fiber network assets.

At year end, we had approximately $354 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity, our leverage ratio at year end stood at $6 three times based on net debt to last quarter annualized adjusted EBITDA on February 20, <unk>, Our board declared a dividend of <unk> 15.

Speaker Change: <unk> per share to stockholders of record on March 28 payable April 12, with that I'll now turn the call back over to Kenny.

Kenneth A. Gunderman: Thanks, Paul before closing I'd like to make a few comments on M&A.

Kenneth A. Gunderman: Please keep in mind that we will not be making any specific comment on rumored potential strategic transactions involve immunity that have been circulating in recent press reports.

Kenneth A. Gunderman: As an asset rich company with one of the largest fiber portfolios in the country Uniti is uniquely positioned to benefit from M&A trends that continue to highlight the value of quality fiber assets, including wholesale and fiber to the home.

Kenneth A. Gunderman: Over the past five years unit has sold or monetized nearly $1 billion of assets at premium multiples and we expect to continue that disciplined ongoing review of our current asset portfolio.

Kenneth A. Gunderman: In addition, given our balance sheet and liquidity runway, we expect to be active this year evaluating transformative transactions, including the ongoing review of our current asset portfolio.

Kenneth A. Gunderman: Despite that however, our primary focus as always will be execution of disciplined growth of our core business operations.

Speaker Change: With that operator, we're now ready to take questions.

Speaker Change: Please stand by while we compile the Q&A roster.

Speaker Change: Our first question comes from the line of Greg Williams from TD Cowen.

Gregory Bradford Williams: Great. Thanks for taking my questions. The first one is on on the demand you are seeing on Nat Gen III.

Speaker Change: And how you're seeing it play out.

Speaker Change: And then just the second question is on the lighter bookings in the fourth quarter, you mentioned that wholesale could be lumpy.

Speaker Change: Is that is that the case here.

Speaker Change: Anything to call out that would be great. Thanks.

Speaker Change: Hey, Greg those two questions are not unrelated on the first.

Speaker Change: Point about regenerative AI in demand, we're seeing from the Hyperscale or <unk>.

Gregory Bradford Williams: We saw I saw a presentation a couple of weeks ago from one of our important vendors Sienna that showed a three five times increase in demand in the next few years.

Gregory Bradford Williams: We're speaking in terms of Zettabyte, which is I think two functions removed from a terabyte.

Gregory Bradford Williams: And that increase in demand was almost <unk>.

Gregory Bradford Williams: But we're starting to see that demand and I think it's not just demand on existing network where these.

<unk> are looking to acquire conduits. They are looking to acquire strands that are looking to acquire waves. They're also interested in building a lot of new infrastructure.

Gregory Bradford Williams: Particularly long haul routes connecting new data centers.

Gregory Bradford Williams: And thats exciting on multiple levels, because I think as we all know there is a power issue related to a lot of these new data centers.

Gregory Bradford Williams: So a lot of these guys are looking in tier two and tier three markets, where the grids are not nearly as trained as they might be in tier one markets and so that's a nice opportunity for us there.

Gregory Bradford Williams: But also the hyper scaler or a different kind of anchor customer.

Gregory Bradford Williams: And then the wireless carriers for example.

Gregory Bradford Williams: They're not we're not pricing every deal to perfection. If you will and so there is a there is there is there is.

Gregory Bradford Williams: There is a collaborative approach to building the new infrastructure.

Gregory Bradford Williams: That's good for all parties.

Gregory Bradford Williams: And it's not nearly as reliant upon a lease up model. If you will as some of the wireless deals and so theres a lot of excitement there when we're looking at building new infrastructure with the Hyperscale as a as an anchor.

Gregory Bradford Williams: And so when you tie that to our funnel for the year.

Gregory Bradford Williams: Yes bookings look.

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