Q1 2025 Uniti Group Inc Earnings Call
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Good morning to discuss Uniti's first quarter, 2020- . .
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Speaker Change: It is now my pleasure to introduce Bill DiTullio, Uniti's Senior Vice President of Investor Relations and Treasury. Please begin.
Speaker Change: Good morning, everyone, and thank you for joining today's conference call to discuss Uniti's first quarter 2025 results
Speaker Change: Speaking on the call today, we'll be Kenny Gunderman, our CEO , and Paul Bullington Uniti's CFO . Before we get started, I would like to quickly cover our safe harbor statement.
Please note that today's remarks may contain forward-looking statements.
Speaker Change: These statements include, but are not limited to, statements about or 2025 outlook.
Speaker Change: Expectations regarding lease up of our network, demand trends, business strategies, growth prospects, the benefits of the proposed transactions between unity and wind stream, including future financial and operating results of either company or the combined company.
Speaker Change: Statements related to the expected time and of the completion of the transaction and combined company plans and other statements that are not historical facts.
Speaker Change: Rumors factors could cause actual results to differ materially from those described in the forward-looking statements.
Speaker Change: For more information on those factors, please see the section titled Forward Looking Statements in the Accompanying Presentation and the Risk Factor Section and our filings with the United States Securities and Exchange Commission.
Speaker Change: With that, I would now like to turn the call over to Kenny. Thanks, Bill. Good morning everyone and thank you for joining.
Kenny Gunderman: Uniti had a no strong quarter performance and we're executing well on the goals we
Kenny Gunderman: We remain focused on best-in-class execution and discipline top-line growth of mid-single digits and high-single digit adjusted EBITDA growth, and as a result, we're reiterating our full-year revenue adjusted EBITDA and AFFO guidance.
Kenny Gunderman: Our current business plan is fully funded, and we've made great progress towards our plan to fully fund a new unity. Despite recent broad capital markets volatility, the ABS market has remained resilient and will be a key tool for us going forward.
Kenny Gunderman: Lastly, we continue to focus on building new fiber, especially within the kinetic footprint.
Kenny Gunderman: We announced last quarter that Connecticut expects to roughly double the number of targeted homes passed with Fiber for 2025 over 2024
Kenny Gunderman: By the end of this year, Kinetic should have reached 2 million homes, a full two years earlier than expected when we announced our merger. As I'll talk about later, we expect our cadence will only accelerate from there.
Kenny Gunderman: Before turning to the court of results, I'd like to briefly address some topical macroeconomic and unity specific topics.
Kenny Gunderman: First, while we continue to evaluate the impact of proposed tariff changes, we currently anticipate little to no effect on our business today.
including pro forma for our merger with Winstering.
Kenny Gunderman: We are not meaningful direct importers of materials and therefore we expect any impact of tire tariffs to represent no more than 1% of our total combined capex.
Kenny Gunderman: The risk of higher tariffs over a sustained period has created greater volatility in the capital markets and increased the risk of a recession. While we acknowledge these risks, we remain confident in the highly defensible mission-critical nature of our fiber infrastructure.
Kenny Gunderman: During recent, protracted economic downturns, including the COVID pandemic, we witnessed little to no impact to our business performance.
Kenny Gunderman: Further, while across the Capitol has recently been volatile, it continues to be substantially better than when compared to the levels prior to the announcement of our merger with
Kenny Gunderman: The ABS market has proven particularly resilient given the investment grade structure of the securities and the underlying mission-critical infrastructure.
Kenny Gunderman: As a result, our plan to continue investing heavily in new fiber has not changed
Kenny Gunderman: Next, we're very pleased with recent changes we're seeing at the FCC and the NTIA and the potential impact on our business.
Kenny Gunderman: Specifically, we're encouraged by the increased leniency towards retirement of aging copper networks and associated regulatory obligations.
Kenny Gunderman: We also believe the dialogue regarding use of government subsidies such as bead and others to economically deploy fiber and alternative technologies is generally in line with our expectations.
Kenny Gunderman: Finally, we welcome the renewed focus on streamlining permitting across the industry.
Kenny Gunderman: Taking together these regulatory trends and other initiatives provided improved backdrop and incremental tailwinds for the substantial ramp of our business model.
Kenny Gunderman: Turning to our pending merger, we recently received shareholder approval to complete the transaction and we're very pleased by the overwhelming support with approximately 97% of all voting shareholders approving the transaction.
Kenny Gunderman: We ever received PUC approvals from 16 of the 18 jurisdictions requiring them, including Washington, DC.
Kenny Gunderman: As a result, remain on track to close the transaction in the second half of this year, and remain optimistic that it could be as early as July or August [inaudible]
Kenny Gunderman: Finally, I'm very pleased to welcome two new members to the Unity team.
Kenny Gunderman: John Herobin was recently appointed to President of Connecticut, and Harold Zeitz was nominated as a new board member of Uniti
Kenny Gunderman: Both John and Harold, our industry veterans, who bring proven fiber to the home experience be a frontier and zippily, respectively, further positioning as for success.
Kenny Gunderman: John , in particular, will be a critical leader in helping accelerate our insurgent, fiber mentality at Connecticut, and we look forward to introducing him to analysts and investors in the near future.
Kenny Gunderman: Moving to slides 4 through 7, I continue to be pleased with our growth trajectory and strategy of being an insurgent pure play fiber provider in tier 2 and 3 markets. We continue to show solid bookings with the right mix of anchor and lease up customers, industry leading churn and declining capital intensity.
As a result, our cumulative cash yields are approaching 30%.
Industry and demand for our services also continues to be strong [inaudible]
Kenny Gunderman: As predicted, we're starting to see increased activity from wireless carriers this year, with bookings in the quarter almost double those from the same quarter last year. And despite much debate about a hyperscale of spend in the industry during the quarter, our confidence in the opportunity ahead has only been reinforced as we saw very strong activity.
Kenny Gunderman: In short, unity is executing well on our core strategy of providing mission critical fiber and we're well positioned for the future. With that, I'll turn the call over to Paul.
Thank you, Kenny.
Paul Bullington: I'd like to begin by reviewing our first quarter performance, followed by an overview of our current 2025 outlook.
Paul Bullington: We once again delivered solid results during the quarter, with our core recurring strategic revenue growing approximately 4% and the capital intensity of our fiber business, excluding the impact of GCI declining over 50% year over year.
Paul Bullington: We continue to see strong tailwinds in our recurring business and are executing well in our release-up strategy at both Uniti Leasing and Uniti Fiber.
Paul Bullington: As I'll cover in more detail in just a bit, our 2025 Outlook for Consolidated Revenue, Adjusted Ibidah, and AFFO remains unchanged as we expect to end the year within the previous guidance ranges provided.
Paul Bullington: Finally, I'll end with some commentary on our current balance sheet and capital structure. We also recently provided Winstream's first quarter financial information and an 8K file with the SEC on May 1st.
Paul Bullington: Please turn to slide 8, and I'll start with comments on our first quarter. We reported consolidated revenues of $294 million, consolidated Adjustity of $238 million, AFFO attributed to common shareholders of $92 million, and AFFO per deluded common share of $35 cents.
Paul Bullington: A unity leasing, we reported segment revenues of $222 million and adjusted EBITDA of $215 million representing an adjusted EBITDA margin of 97% for the quarter. Both revenue and adjusted EBITDA were in line with our expectations for the quarter.
Paul Bullington: During the first quarter, Uniti leasing net success-based CAPEX was approximately $170 million, including $175 million of investment relating to the one-stream GCI program.
Paul Bullington: taking into account this funding amount during the quarter. Winstream has reached its GCI funding limit for 2025 and there will be no further GCI payments for the remainder of the year.
Paul Bullington: At Unity Fiber we reported revenues of $72 million and adjusted EBITDA of $29 million during the first quarter, resulting in an adjusted EBITDA margin of 40%.
Paul Bullington: Non-recurring revenue during the quarter was lower than expected, primarily due to the timing of delivery on a $4 million dollar, one time sale of fiber to a government customer that was originally expected to be realized in the first quarter and is now expected later this month. [inaudible]
Paul Bullington: The delay was requested by the customer to allow for the completion of an unrelated customer project prior to the completion of our work.
Paul Bullington: Unity Fiber Net Success Base CAPEX was $18 million in the first quarter, which represents an approximate 25% decline from prior years levels. We also incurred about $1.5 million of maintenance CAPEX during the quarter.
Paul Bullington: As I've mentioned previously, there continued to be a number of encouraging trends in bookings that are driving this capital efficiency, including our continued focus on lease-up and a higher mix of dark fiber deals, primarily from hyperscalers, that generally come with higher NRCs.
Paul Bullington: Please turn to slide 9 and I'll now cover our updated 2025 guidance.
Paul Bullington: We are revising our 2025 outlook for business unit level revisions, the impact from the partial redemption of the 10.5% senior secured notes due to 2028, and the impact of transaction related in other costs incurred the date.
Paul Bullington: Our outlook excludes any impact from the expected merger with Winstream, future acquisitions, capital market transactions, and future transaction related to other costs not mentioned herein. Actual results could differ materially from these forward-looking statements.
Paul Bullington: Beginning with Unity Leasing, we continue to expect revenues and adjusted EBITDA to be $902 million and $872 million respectively at the midpoint.
Paul Bullington: We still expect to deploy $185 million of success-based cat-backs at the midpoint of our guidance, of which $175 million relates to Winstream GCI investments.
Paul Bullington: At Unity Fiber, we expect revenues and adjust EBITDA to be $304 million and $125 million respectively at the midpoint for full year 2025, representing an EBITDA margin of approximately 41%.
Paul Bullington: Our outlook for net success-based CAPEX at Uniti Fiber this year remains $85 million at the midpoint of our guidance and represents the capital intensity of 28 percent.
Paul Bullington: As a reminder, given this strong financial performance and declining capital intensity, standalone unity is expected to be free cash flow positive on a consolidated basis in 2025.
Paul Bullington: We continue to expect full-year AFFO to range between $1.40 and $1.47 per diluted common share with a midpoint of $1.43 per diluted share representing a 6% increase from the prior year.
Paul Bullington: As a reminder, guidance ranges for key components of our outlook are included in the appendix to our earnings presentation At quarter end, we had $592 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity
Paul Bullington: Our leveraged ratio was 6.09 times based on net debt to first quarter 2025 annualized adjusted EBITDA, excluding the debt and net contributions from the ABS loan facility. Slide 10 illustrates how Unity's cost of capital has improved significantly over the past two years.
Paul Bullington: If you go back to this time two years ago when we launched our 10.5% secured notes offering, our secured and unsecured debt was yielding over 12%. Fast forward to today, and our debt is currently yielding around 7.5% on a blended basis, a 500 basis point improvement in just two years.
Paul Bullington: As a result, we have taken an opportunistic approach to strengthening our combined balance sheet and will continue to look for opportunities across all of the debt markets to which we have access.
Paul Bullington: In regard to ABS specifically, we continue to view that market as an attractive source of financing that complements our existing capital structure well by providing an investment-grade financing tool. And we will continue to evaluate further opportunities to expand our current program.
Paul Bullington: To that end, we believe that the combined potential for incremental ABS capacity on our commercial fiber assets at Unity and fiber of the home assets at Kinetic represents a $1 billion plus near-term opportunity with considerable upside to that over time.
Paul Bullington: On Slide 11, we've provided a 2025 performance of you of Revenue and Adjusted Epidaw for new unity by each segment we expect a report on post-close.
Paul Bullington: Both kinetic and fiber infrastructure consists of a highly predictable core recurring revenue base that continues to grow and yield attractive margins.
Paul Bullington: As a reminder, our fiber-to-the-home platform will continue to be branded as kinetic.
Paul Bullington: Fiber infrastructure will include our current Uniti Fiber and Uniti leasing segments
along with the Winstream Pull Cell segment.
Paul Bullington: All of which are highly complimentary and will combine to create a premier fiber infrastructure company with both national and deep regional capabilities as well as a fiber network that has predominantly owned and operated.
Paul Bullington: Going forward, as we continue to transition away from legacy services such as Winstream TDM services, we continue to expect the kinetic and fiber infrastructure segments to realize low to mid-single digit top-line growth with an improving margin profile.
Paul Bullington: With that, I'll now turn the call back over to Kenny. Thanks, Paul. Slide 13 showcases the reach of new Unities and Surgeon Fiber Network, extending our successful strategy of targeting less competitive markets for wholesale and enterprise, now into residential Fiber to the
Paul Bullington: Our true north is building fiber first and less competitive markets, giving us the right to win for many years into the future [inaudible]
Speaker Change: Slide 14 highlights some of the benefits of bringing unity and wind stream together.
Speaker Change: At Unity, we have been able to drive attractive financial results in large part because of our fully-owned fiber network and associated owners' economics.
Speaker Change: Our combination with Winstream not only extends our fiber network materially, but will bring large parts of Winstream's business on net immediately, with a 4-year plan to achieve virtually 100% on net.
Speaker Change: As such, with owners' economics on our same discipline growth strategy, we will eventually see similar economic trends in Western's business, including mid-single-digit revenue growth at growing EBITDA at declining capital intensity.
Speaker Change: A big part of moving wind stream on that is transitioning kinetic off of legacy-based copper systems and onto fiber As mentioned earlier, by the end of 2025 we expect to have converted about 2 million of kinetics 4.4 million homes to fiber and by 2029 we expect to have built fiber to approximately 3.5 million homes
Speaker Change: I'm excited to share more details on the coming months when we have the plan fully locked now.
Speaker Change: Lastly, we've aggressively managed out-of-legacy services at Unity, a plan to continue that strategy at the Commandor Unity.
Speaker Change: Turning slide 15, our ability to address the burgeoning hyperscaler opportunity is going to be enhanced as well.
Speaker Change: Winstream Social Network is highly complimentary to hours on key routes, and Winstream's largely lit, waves, product capabilities are added to our strong, dark, fiber portfolio.
Speaker Change: On a combined basis, we'll be able to sell a full product suite and immediately begin selling into an expanded customer base, given that Wenshroom has an incremental 40 different MLA's with hyperscalers to complement Uniti's current count of only four.
Speaker Change: Finally, as we mentioned previously, we believe the real opportunity with gendered AI is when the Empress phase begins an artist.
Speaker Change: With a dramatic increase of distributed endpoints coming with our winching combination, our ability to provide enhanced broadband connectivity with low latency increases materially.
Speaker Change: Moving to slide 16, we remain committed to making progress on numerous key issues between the signing and closing of our transaction.
Speaker Change: First, both companies continue to execute well operationally, and we continue to provide a unified investor relations outreach to help investors understand the new company.
Speaker Change: Next, we're very excited to have completed the simplification of our new performance balance sheet of closing.
Speaker Change: Thus, paving the way to roll out, arc-celerate it and expand it to cover the home plant.
Speaker Change: We're also actively working with Connecticut on an integration plan to achieve our
Speaker Change: In the coming months, we plan to provide more details on our longer term goals for the combined company, with a primary focus on the holistic, kinetic, build plan, and other key strategic initiatives.
Speaker Change: Let me close our restating hacks, sadly we are for our pending merger with Winstream.
Speaker Change: The new unit is at the epicenter of the growing convergence trend, highlighting substantial strategic value on kinetic and at scale of fiber to the home platform.
Speaker Change: Our fiber infrastructure business is uniquely positioned to benefit from the explosion and broadband demand in general, including the demand being fueled by hyperscalers.
With that, we'd be happy to take your questions. Operator?
Speaker Change: As a reminder, to ask a question, you will need to press star 11 on your telephone.
Speaker Change: To remove yourself from the cue, you may press star 1-1 again. Please stand by while we compile the Q&A roster.
Our first question.
Speaker Change: comes from the line of Greg Williams of TD Cohen. Please go ahead, Greg.
Greg Williams: Great. Thanks for taking my questions. Kenny, I appreciate the color on the tariffs and recessionary insulation, but I had that sort of same concern around the M&A environment. Are we pencils down at the moment or are deals moving forward in this environment? The second question is just on the...
Greg Williams: High mix of lease-ups, 72 percent. I think that's Adder near a company record. I understand it's lumpy with that mix but you know are we seeing a shift away from the new builds towards training data centers and and maybe eventually towards inference. You know any insights there would be great. Thanks.
. . . .
Greg Williams: Good morning, Greg. Good questions. Yeah, I'll eliminate the short answers. No, definitely don't see any.
Greg Williams: to slow down an activity there, at all. In fact, that's probably the opposite. Or at the very least, no speed bumps related to the conversations that we're aware of and the progress that people are making on.
Greg Williams: various strategic fronts. And look from our perspective, we're very focused on integration, putting an integration plan in place and getting our transaction.
Greg Williams: Clothes and hitting the ground, running on legal day one without any disruption of service, but also accelerating our
Greg Williams: Insurgent Fiber, go-to-market strategy and really accelerating the kinetic build but always have M&A in the back of our minds, right? That's a gene that we've had at Unity for many many years and that's never going to change.
Greg Williams: So we're staying very engaged with the strategic market, both strategic and financial parties and
Greg Williams: I just think there's a lot of interest in the fiber space. I think it's fueled by both the convergence themes that we're seeing across the industry and it's also, of course, fueled by the hyper-scaler activity.
Greg Williams: and we happen to have a set of assets, certainly on a combined basis with kinetic that are right down the fairway on both of those and so we're in the middle of a lot of interesting conversations and I look forward to, we look forward to continuing that on a go forward
Greg Williams: Look on Lisa. Yeah, I think you nailed it, Greg. I think it ebbs and flows when you just have the quarterly check-in, but from a standpoint of hyperscalers.
Greg Williams: We're definitely not seeing any slowdown in the investment required for the large language models.
Greg Williams: And I think, you know, that's not going to change anytime soon. I think we're in a one or two or three year investment cycle year for that for those models.
Greg Williams: I think you're going to see some large, probably some large Greenfield type opportunities coming down the pike for us later this year, especially on a combined basis with Winstream wholesale. We've got some opportunities in the funnel that we're very, very excited about and can't wait to talk to you about.
Greg Williams: So you're still going to see those large greenfield opportunities, but I do think the inference phase is going to be upon us a lot sooner than expected, or at least sooner than we originally expected Greg and...
Greg Williams: I think you're going to see the real ramp in recurring revenue for fiber businesses as these large language models start to fuel people's usage of AI across all the different endpoints that we have. And, you know, when you listen to what the hyperscalers say, probably.
Greg Williams: which I think is an early indication that inference is already here, and at some point we're not going to be able to distinguish what say a verse is not, and I think that's very exciting. So, and we certainly haven't seen any slowdown in hyperscaler activity.
Kenny Gunderman: Ridley, bringing that back to your question about Lisa, a large portion of the Lisa that we saw this quarter actually was from hyperscalers, and another theme that we've mentioned previously was that
Kenny Gunderman: Some of these really high strand count transactions that we've seen in the past, you know, 12, 18 months we're now seeing hyperscalers come back to us and double down on those high strand count requests.
Kenny Gunderman: which again is an exciting trend because it validates their infrastructure investments from a couple years ago, a year ago, and they're now seeing that capacity be consumed and needing more, even when they're initially a BBB.
Kenny Gunderman: asking for 400 strands or 1,800 strands and coming back for more. So exciting times.
Kenny Gunderman: I think you're gonna always see a good healthy mix of Lisa up in our model though. That's a conscious effort on our part.
Good call out Greg, but good things behind all of that [inaudible]
Great. Thank you.
Speaker Change: Thank you, as a reminder to ask a question, you will need to press star 11 on your telephone.
Speaker Change: Our next question comes from the line of Frank Louthan, of Raymond James and Associates. Please go ahead, Frank.
Hey Rob, good morning. On the bookings [inaudible]
Speaker Change: So directly to your question, the percentage related to hyperscalers is probably around 20% depending on how you measure it. So somewhere in the 15 to 20% range, which by the way has been pretty consistent over the past 12, 18 months.
Speaker Change: It's been a growing percentage but it's been relatively consistent in that range over the past couple of three quarters [inaudible]
Speaker Change: which is great. And we always talk about one of the benefits of the wholesale fiber business is that we're agnostic as to
Speaker Change: All of the different use cases of fiber for us are accelerating. Last year and continuing into this year, our biggest customer segment is actually the fiber of the hope providers.
Speaker Change: across the country, procuring back all to support the fiber of the home buildout. And we're seeing that again this year.
Speaker Change: Very excited about that. We're excited about the AI theme. I mentioned in my prepared remarks that the wireless carriers are starting to spin again. Bookings for wireless was double the first quarter what it was the first quarter last year.
Speaker Change: Which again, we sort of foreshadowed that at the end of last year that wireless was picking up so
Speaker Change: So all that to say AI bookings are growing, it's just the rest of our bookings are growing as well and so it's continuing to be in that 15-20% range.
Speaker Change: And we've mentioned this before, but because we're still in this large investment period for the learning models
Speaker Change: Many of those deals don't get reflected in bookings in the traditional way because these are greenfield builds that have very high, or high in RCs and get treated as either IRUs or strategic fiber sales.
Speaker Change: And so the activity with the Hiberscalers is a little bit understated by the bookings number when in reality I think it's a lot greater. And back to my point about inference, I think that's going to change once we really get into the reference ramp later on.
Speaker Change: with respect to the returns on these deals. Look, I think that...
Speaker Change: We treat them in the same way that we treat all other anchor Lisa models that we look at and for the most part the hyper-skiller deals are generally anchor deals for us.
Speaker Change: And so, as a reminder, our strategy is to target 5 to 10% yields for the anchor with a really clear path to lease up a beyond 10% after the anchor deal.
Speaker Change: And that's why we track and report each quarter to show that across the portfolio we're nearing 30% blended yields on our initial anchor deals.
Speaker Change: When you put the hyperscaler opportunities and you look at it through that lens,
Speaker Change: Over the past couple years, we're already approaching 20% yields. So we don't like to talk about specific customers and specific customer deals, but on a blended basis, our hyper-scaler deals are tracking frankly ahead of our traditional anchor Lisa model.
Great. Thank you.
Speaker Change: Thank you. That ends the Q&A session and concludes today's conference call. Thank you for participating. You may now disconnect.