Uniti Group Inc.

Welcome to Unity Group's fourth quarter 2020 conference call. My name is Andrew and I'll be your operator for today. A webcast of this call will be available on the company's website, www.unity.com, beginning March 1st, 2021, and will remain available for 14 days. At this time, all participants are in a listen-only mode. Participants on the call will have the opportunity to ask questions following the company's prepared remarks. The company would like to remind you that today's remarks include forward-looking statements, and actual results could differ materially from those projected in these statements. The factors that could cause actual results to differ are discussed in the company's filings with the SEC. The company's remarks this afternoon will reference slides posted on its website, and you are encouraged to refer to those materials during this call. All financial results as of and for the three and 12 months ended December 31, 2020, are preliminary and reflect the company's best estimates based on information available as of the date hereof. Results are subject to change as the company works to complete its financial results and its auditors work to complete their audit work. In addition, discussions during the call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the company's current report on Form 8K, dated today. I would now like to turn the call over to Unity Group's Chief Executive Officer, Kenny Gunderman. Please go ahead, Mr. Gunderman.

Thanks, Andrew. Good afternoon, everyone, and thank you for joining. Before I review Unity's operational performance, I'd first like to recap 2020 and refresh on our go-forward strategy. 2020 was a transformational year for Unity that saw tremendous volatility to our stock and belied our true value accretive accomplishments that set up Unity for future success. First, we successfully participated in a $4 billion deleveraging of our largest customer while simultaneously entering a value-enhancing settlement, which revalidated and strengthened our lease agreements. Secondly, we grew our national network by 90%, and within a few months have already demonstrated lease-up success of those assets by increasing our sales funnel by half a billion dollars and executing on $150 million of new revenues under contract. Next, we extended our debt maturities and significantly improved our liquidity profile. Lastly, we completed the divestiture of non-core operations from our real estate portfolio and that now position us with 95 percent recurring high-margin revenue with industry-leading 0.2 percent monthly churn and a focus on fiber. In short, we had a terrific year operationally. Turning to slide four of our presentation, fiber is the mission-critical connective tissue for virtually all current and future broadband delivery. As one of the largest independent wholesale providers in the country, we are agnostic to the on-ramps that feed traffic onto our network and are enabling a virtualization of our culture. 5G mobile broadband, fiber to the home, fixed wireless, satellite, and other technologies are all enabling greater usage of video conferencing, e-learning, telemedicine, and remote work environments, as well as a general continued explosion of broadband traffic. In the past four years, our network has seen a roughly 10 times increase in peak daily traffic from roughly 16 gigs to 160 gigs, and we expect that trajectory to only continue. As further proof of the durability of our model, the COVID-19 pandemic not only brought little disruption to our business, but has actually accelerated many of the virtualization trends that have been critical to staying connected. Demand from industries such as healthcare, education, government, and wireless customers have been particularly elevated. Turning to slide five, Unity is addressing these tremendous industry tailwinds with the eighth largest fiber network in the country and a growing portfolio of small cells, connected buildings, and homes. We've amassed this valuable and hard-to-replicate portfolio in only five years through our proprietary M&A efforts and unique sales strategy that provide us with anchor customer relationships to build new fiber economically. In the past three years alone, we have built 6,600 route miles and 674,000 strand miles of new fiber with stable, long-term anchor economics and shared infrastructure lease-up possibilities. We're seeing tremendous demand for access to our network and success of our strategy. Turning to slide six, at Unity Leasing, as a national wholesale provider across 42 states, we're driving highly profitable, passively managed lease-up revenue on our long-haul and metro routes and opportunistically growing our portfolio through proprietary M&A. At Unity Fiber, we're targeting less competitive Tier 2 and 3 markets, largely in the southeastern U.S., and providing actively managed fiber solutions, including to wireless customers and enterprise, schools, and government customers. Our strategy of targeting these underserved markets along with our national scale and customer relationships is driving unique demand. As an example, in our recently announced agreement with DISH, we were named as one of the four national fiber providers to provide solutions to DISH in its efforts to build out its 5G network across the United States. Within a few months of making this announcement, we've already begun leveraging our existing dense fiber infrastructure for DISH in our southeastern markets, which has given us a speed to market and a cost advantage over our competitors. With the restructuring volatility now behind us, our portfolio more targeted, and our strategy reaffirmed, Unity is now positioned for tremendous success in 2021. Turning to slide seven. Our priorities for this year will be a continued focus on driving high-margin recurring revenue through lease-up while selectively expanding our network with attractive anchor economic-driven new builds. We will also continue to opportunistically look to expand our network reach and passive revenue base by executing on our proprietary M&A funnel. Lastly, we are committed to operating and growing our business in an environmentally and socially responsible manner. In the next few months, Unity will be publishing its first ESG report that summarizes these efforts, including the true mission-critical nature of our network, our unrivaled ability to respond to natural disasters such as COVID-19 and hurricanes, and the essential nature of our world-class workforce. Turning now to our operational results. Slide 8 demonstrates the successful year we had in leasing up our Southeast Fiber Network in 2020. To date, we've sold incremental lease-up MRR of $5.5 million, which is three times the recurring revenue on the major wireless anchor bills that have been completed. In 2020 alone, we sold $1.2 million of lease-up MRR, or $14 million on an annualized basis, that is expected to generate incremental cash flow yields of approximately 50%. Including the lease-up to date we've sold since we began construction on our major wireless builds, we expect to generate a cumulative cash yield of 14% on these projects, doubling the initial anchor yield within a four-year time frame. These relatively new networks remain highly underutilized, and the expected additional lease-up in the coming years will continue to increase our cumulative cash yields. The competitive dynamics and resulting growth trajectory in our Tier 2 and 3 markets is very strong. In fact, dark fiber and small cell revenue in the fourth quarter grew over 65% from the prior year, while enterprise revenue grew 10%. These results reinforce that our strategy is working and demonstrates that we are choosing good anchor markets to expand our network in a disciplined manner and that we are executing effectively on follow-on lease-ups. UnityFiber sales bookings in the fourth quarter were approximately 0.5 million of MRR and approximately 80% of our sales bookings came from non-wireless customers. For the full year, bookings totaled over 2 million of MRR with non-wireless bookings increasing 14% from the prior year. UnityFiber installed 0.6 million of MRR during the fourth quarter with 61% of gross installs related to non-wireless opportunities 33% related to wireless, and 6% related to bandwidth upgrades. For the full year, we installed 2.7 million of MRR, with non-wireless installs MRR up 30% from the prior year. Turning to slide 9, at Unity Leasing, we continue to actively market over 3 million strand miles of fiber that is available to lease to third parties, making us one of the largest players in the wholesale fiber market. Our sales pipeline today represents approximately $1 billion of total contract value reflecting the continued significant interest from our wholesale customers, as well as the strategic value of these fiber strands. Approximately 75% of the opportunities utilize fiber we acquire as part of our settlement with Windstream. We continue to be successful in monetizing our portfolio of assets. and to date have executed on opportunities that represent total remaining revenues under contract of $740 million, with an average contract term remaining of 15 years. Given the proprietary nature of our offerings at Unity Leasing, we thought slide 10 would be helpful to compare and contrast the different types of opportunities we've executed and are continuing to pursue. Traditional dark fiber IRUs and dark fiber leases have driven $60 million of up-funding proceeds and $340 million of remaining revenues under contract, primarily on the fiber we have acquired from Lumen and Windstream. These opportunities generate margins of 90 percent plus with minimal to no capex required. So leasebacks are structures where we acquire new fiber to expand our network reach and then immediately enter a long-term lease with a tenant to provide anchor return economics. Our transactions with TPX, CableSouth, and others over the years are examples. Opco-Propco are transactions where we sell our existing actively managed lit services revenue at double-digit transaction multiples to an operating partner and then immediately lease access to the underlying fiber network, which we retain and in the form of a 10- or 20-year IRU. These transactions generate upfront proceeds, grow net contractual revenue, and extend the average term of revenue substantially. For example, we sold our Midwest Fiber operations as part of our Bluebird transaction, and we recently sold our Northeast operations as part of our Everstream transaction, and simultaneously entered into long-term lease agreements with both operators. Lastly, we provide growth CapEx programs whereby we immediately acquire newly built fiber from anchor customers and then lease back access to that fiber at attractive yields to anchor customers who are typically pre-existing sale leaseback partners. Over the past two years, we've generated total upfront proceeds of approximately $400 million from these various transaction structures. As I mentioned earlier, we currently have $740 million of remaining revenues under contract related to these transactions, which generate attractive initial yields of 8% to 10%, with fiber capacity available for substantial additional lease-up. Turning to slide 11, we invested approximately $85 million of capital in 2020 under the GCI program with Windstream. These investments will be added to the master leases at an 8% initial yield, subject to a 0.5% annual escalator, and results in near 100% margin revenue. In 2021, we expect to deploy $200 million of capital relating to the GCI program, primarily within Windstream's ILAC markets. Most of these markets are similar to our Tier 2 and 3 markets, with little competition, providing Windstream with substantial growth opportunities over time. As a reminder, the investments Unity has committed to making must meet certain underwriting criteria, including being long-term value-accretive fiber, and have minimal return thresholds for our tenant. Each request made is thoroughly reviewed by Unity to ensure it meets these criteria. On slide 12, when combining the lease-up we've sold to date on the major wireless anchor projects with the lease-up we've generated at Unity Leasing, Unity has sold approximately $72 million of annualized lease-up revenue, resulting in more than doubling the initial anchor cash yield from approximately 7% to a cumulative yield of over 16%. With that, I will turn the call over to Mark.

Thanks, and good afternoon, everyone. The quarterly and full-year information I'll review this afternoon reflects the company's preliminary estimates and is based on information available as of today. We are working to fully complete our financial results and form 10-K filing, and our independent auditors are working to complete their audit work. We believe both will be completed shortly and expect to file our 10-K no later than March 8th. Actual results may differ from these estimates. With that, I'll now give a brief review of our fourth quarter and four-year 2020 performance, but I want to focus my comments primarily on our 2021 outlook. number of actions that position Unity to execute well this year from both a commercial and operational standpoint as we continue to benefit from the long-term investment cycle in communication infrastructure. I'll wrap up today with thoughts on our balance sheet, dividend, and capital structure. Please turn to slide 13. I will start my comments on our fourth quarter results. We expect to report consolidated revenues of $275 million, consolidated adjusted EBITDA of $216 million, AFFO attributable to common shares of $106 million, and AFFO per diluted common share of $0.42. Net loss attributable to common shares for the quarter is expected to be $47 million or $0.20 per diluted share, which includes an expected $71 million goodwill impairment charge related to our UnityFiber segment and $9 million of transaction-related and other costs. The goodwill impairment charge is a result of the annual assessment we're required to perform under generally accepted accounting principles. At Unity Leasing, we expect to report segment revenues of $194 million and adjusted EBITDA of $192 million, up approximately 5% each respectively from the prior year, while achieving an expected adjusted EBITDA margin of 99%. The year-over-year growth reflects straight-line rent recognition under the Windstream MLAs and GCI investments subsequent to our settlement agreement, the dark fiber IRU contracts we acquired from Windstream, as well as annual lease escalators. During the quarter, Unity Leasing deployed approximately $56 million towards growth capital investment initiatives, bringing full-year 2020 investments to $96 million. About $85 million of the full-year investments were related to the Windstream GCI program. These GCI investments were mostly ILEC-related and added approximately 2,575 route miles and 84,150 strand miles of valuable fiber to Unity's owned network across 12 different ILEC states. As you'll recall, these investments are added to the cash rent payments under the master leases at 8% initial yield on the one-year anniversary of Unity making the investments, subject to a half percent annual escalator. The investments made during 2020 will ultimately generate $6.8 billion of annualized cash rent. At Unity Fiber, we turned over 170 dark fiber and small cell sites for wireless carriers across our southeast footprint during the fourth quarter, adding annualized revenues of $1.3 million. For the full year, we turned over 850 dark fiber and small cell sites, representing about $6 million of annualized revenue. We currently have approximately 620 dark fiber and small cell sites remaining in our backlog that we expect to deploy within the next two years, representing an incremental $3.5 million of annualized revenue. Unity Fiber revenues are estimated to be higher than expected for the quarter due to increased non-core recurring revenue. While adjusted EBITDA is expected to be slightly below expectations as a result of higher than expected losses within our non-core construction business, That business was substantially wound down by year-end. Excluding non-core construction, adjusted EBITDA should be in line at a margin of 40 percent. Unity Fiber Net Success-Based CapEx was $41 million in the fourth quarter, or approximately $26 million higher than expected, attributable to accelerated deployment of capital in support of key fiber build-outs that were previously planned to occur in 2021. and the timing of upfront NRC payments. We also incurred $2 million of maintenance capex or about 3% of revenues. We completed the remaining deployment of our legacy major dark fiber and small cell builds during the quarter, achieving an aggregate initial anchor yield of 7%. As Kenny mentioned earlier, including Lisa, we have so to date on these projects, we have generated an aggregate cash yield of 14% and continued lease-up will drive these yields even higher over time. Please turn to slide 14, and I'll now cover our 2021 guidance. Our 2021 outlook includes the previously announced OPCO-PROPCO transaction with EverStream, which is expected to close early in the second quarter of this year, and the impact of our 6.5% unsecured notes offering and related tender. Upon closing of the EverStream transaction, we expect to record a pre-tax book gain of approximately $25 million on the partial sale of our UnityFiber Northeast operations in sale of certain dark fiber IRU contracts that were acquired as part of the settlement with Windstream. These gains will be excluded from both adjusted EBITDA and AFFO. Our current outlook excludes future acquisitions, capital market transactions, and future transaction related and other costs not specifically mentioned herein. Actual results could differ materially from these four looking statements. A reconciliation of our 2021 outlook to preliminary full year 2020 results is included in the presentation materials we posted on our websites today. Our full year outlook for 2021 includes the following for each segment. Beginning with Unity Leasing, we expect revenues and adjusted EBITDA to be $784 million and $766 million respectively at the midpoint, representing adjusted EBITDA margins of 98 percent. The expected 5 percent year-over-year increase in revenues primarily reflects the full-year impact of straight-line rent recognition under the Windstream MLAs and GCI investments, the full-year impact of the IRU contracts we acquired from Windstream and Master Lease escalators. Revenue and adjusted EBITDA each include $26 million related to the straight-line LINT associated with the Windstream master leases and GCI investments. Our outlook reflects $210 million of net success-based CapEx at yearly leasing, of which $200 million relates to estimated Windstream GCI investments. We expect most of these investments will support the rollout of Windstream's kinetic high-speed Internet offerings across multiple ILEC markets. As slide 15 highlights, mine Windstream revenues and adjusted EBITDA continue to grow at a healthy pace and are expected to be $55 million and $42 million, respectively, up 27% and 17% from 2020 levels. This includes the assets and dark fiber IRU contracts we acquired from Windstream, where the revenue is diversified across multiple third parties and the dark fiber IRU leases that are part of the EverStream transaction. We are specifically targeting this area for significant growth over the next several years, given the strength of Unity Leasing sales pipeline and available fiber inventory. For full year 2021, our guidance includes lease up of our national fiber network with several opportunities that are expected to generate $5.5 million of annualized revenues when fully deployed, with approximately 40% of the annualized revenue coming from opportunities that utilize fiber we acquired from Windstream. The bookings associated with this lease up are expected to be more heavily weighted towards the back half of this year, given the typical sell cycle. Therefore, the full year revenue run rate impact is not expected to be realized until next year. While we continue to pursue sell lease back and opco-proco transaction opportunities, We have not included any of these in our guidance for 2021 other than the wind stream transaction. Sorry, excuse me, average stream transaction. Turning to slide 16, we expect Unity Fiber to contribute $305 million of revenues and $118 million of adjusted EBITDA, reflecting margin expansion from 36% last year to 39% this year at the midpoint of our guidance. UnityFiber's outlook is impacted by the sale of our Northeast operations as part of the EverStream transaction and the winding down of our nine core construction business I noted earlier. Adjusting for the impact of these two items, revenue and adjusted EBITDA for 2021 at UnityFiber are expected to increase by 6% and 10% respectively from the prior year. Net success-based CapEx for Unity Fiber this year is expected to decline $22 million year-over-year to $125 million. We expect to deploy capital in support of lease-up in those markets where we have recently completed anchor builds, as well as continue to pursue a handful of additional greenfield wireless builds. Capital intensity this year is expected to be about 41% down from 27% in 2020. We expect to continue to manage down our capital intensity over time to be within the mid-30% range. We expect maintenance capex for 21 of approximately $6 million. Turning to slide 17 for 2021, we expect full-year AFFO to range between $1.61 and $1.65 per diluted common share with a midpoint of $1.63 per diluted share. On a consolidated basis, we expect revenues to be $1.1 billion and adjusted EBITDA to be $852 million at the midpoint. Our guidance contemplates consolidated interest expense for the full year of approximately $400 million, excluding deferred financing cost write-offs and early tender premium payments. Reported interest expense in 2021 will include an additional $20 million write-off of deferred financing cost and $19 million of early tender premium payment in the first quarter of this year were related to the tender of our eight and a quarter senior unsecured notes due 2023. Corporate SG&A, excluding amounts allocated to our business segments, should be approximately $42 million, including $10 million of stock-based compensation expense. We expect weighted average diluted common shares outstanding for the full year 2021 to be approximately 263 million shares compared to 234 million shares in 2020, reflecting the full year impact of the 38.6 million shares we issued to certain creditors of Windstream as part of the settlement agreement. As a reminder, guidance ranges for key components of our outlook are included in the appendix to our presentation. On slide 18, we have provided a tabular reconciliation of full year 2020 preliminary results to our 2021 outlook, which summarizes some of my comments this afternoon. Turning now to our capital structure, we continue to work to improve our financial flexibility and lower our borrowing cost. In December, we successfully entered into an amendment to our credit agreement that upsides commitments from new and existing lenders from 20% by 20 percent to $500 million. It significantly improves our pricing and extends the maturity date to December 2024, subject to routine regulatory approvals. Certain limitations were also modified or removed, including restrictions related to debt incurrence, restricted payments, and permitted investments, providing Unity greater flexibility in pursuing its strategic initiatives. On February 2nd, we closed an offering of $1.1 billion of 6.5% senior insecure notes due 2029. The net proceeds from the offering, together with cash on hand, were used to purchase approximately $1 billion, or 95% of the outstanding 8.25% senior insecure notes due 2023. On February 16th, Unity issued a notice that will redeem all remaining outstanding notes due 2023 at par, plus accrued and unpaid interest on April 15th. Through the successful refinancing of our unsecured notes, we expect to realize general interest cost savings of approximately $19 million and have exceeded the debt maturity by six years. At year end, we had approximately $528 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity. Our leverage ratio at year end stood at 5.72 times based on net debt to annualized adjusted EBITDA. Regarding our dividend outlook for tax year 2021 under our debt agreements, dividends attributable to our capital stock are allowed to be approximately $144 million, including the dividend declared on February 25th, 2021. This represents our estimate of 90% of taxable income this year, excluding capital gains. Accordingly, the Board has decided to maintain the dividend at recent levels, and on February 25th, declared a dividend of 15 cents per share to stockholders of record on April 1st, April 16th. At these levels, the annualized dividend represents a yield of about 5% based on recent trading levels with a strong payout ratio of just under 40% based on the midpoint of our 2021 outlook. Both of these metrics compare favorably to REIT peers today and provide the Board flexibility to grow the dividend in the future should they decide that that is the appropriate capital allocation decision. As a reminder, we constantly monitor capital markets closely and may take advantage of attractive opportunities to continue to improve our cost of capital. Slide 19 highlights many of the appointments I've made earlier, including that Unity has a set of unique and valuable assets that generate contractual, high margin recurring revenue through our own through our ongoing lease-up efforts at both Unity Leasing and Unity Fiber. Last, we expect to file our annual report on 10-K by March 8th. We are filing an extension to give the company and our auditors more time to fully complete all of their work on the financial statements and internal controls. Furthermore, several investors have asked about providing financial information regarding Windstream. Our annual report on 10-K When filed, we'll include preliminary unaudited fourth quarter and full year 2020 financial information on Windstream in the MD&A section of that report. We expect to file Windstream's final audited financial statements for last year and a supplemental filing following its completion and receipt by Unity of those audited statements. I'll now turn the call back over to Kenny.