Uniti Group Inc.

quarter 2021 conference call. My name is Cynthia and I will be your operator for today's call. The webcast of this call will be available on the website www.unity.com beginning May 6, 2021 and we will remain available for 14 days. At this time, all participants will be in listening-only mode. Participants on the call will have the opportunity to ask questions and follow the company's 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. The factors that could cause actual results to differ are discussed in the competent 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. Discussions during the call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Recommendation of those non-GAAP financial measures to the most directly comparable AAP financial measures can be found in the company's current report and form 8K dated today. I would now like to turn this all over to Unity Group's Chief Executive Officer, Kenny Gunderman. Please go ahead, Mr. Gunderman.

Thank you, Cynthia. Good afternoon, everyone. Joining me on the call today is our Chief Revenue Officer, Ron Mudry. In lieu of Mark, given our strong momentum at Unity Leasing, we thought it would be appropriate to make Ron available for this call. Before I review Unity's operational performance for the first quarter, I'd first like to highlight some trends we're seeing in the communications infrastructure space. As slide four of our presentation illustrates, fiber is the mission critical connective tissue for virtually all current and future broadband delivery. We're seeing an acceleration of the virtualization of our culture with 5G mobile broadband, fiber to the home, fixed wireless, over-the-top video, and other technologies enabling greater usage of video conferencing, e-learning, telemedicine, remote work environment, and an overall continued surge in broadband traffic. Unity is one of the largest independent wholesale fiber providers in the country and provides fiber to a full range of communication service providers. As such, we're agnostic to competing edge technologies as we eventually benefit from virtually all of these broadband trends that feed traffic to our fiber network. In the past four years, for example, our southeast fiber network has seen a roughly 10 times increase in peak daily traffic from 16 gigs to 160 gigs, and we expect that trajectory to continue. Our wireless carrier customers are particularly active in an effort to keep their underlying infrastructure ahead of the explosive growth in mobile broadband. These carriers are increasingly looking for 10 gig upgrades on our macro tower backhaul circuits, while simultaneously continuing to push for C-RAN small cell deployments in our metro markets and accelerating their 5G network densification. As a result, our dark fiber and small cell revenue grew 30% from the prior year during the quarter, We expect those trends to continue, especially with DISH now becoming a more active customer. Our non-wireless carrier customers, such as the FANG Group and National MSOs, are also active as they expand their cloud-based services. Their insatiable demand for high-capacity, long-haul routes, in particular, continues to accelerate. For example, we saw a 30% increase in the monthly MRR being quoted to FANG customers in March alone versus the end of last year. Our residential and enterprise-focused carrier customers are equally active during driving broadband to more and more consumers. Our dense metro networks today pass 185,000 buildings, and we're aggressively building deeper into commercial parks and neighborhoods through fiber to the home and fixed wireless fields. Over the past three years, we've built over 7,000 route miles of new fiber, and we expect that number to potentially triple over the next three years. Turning to slide five. Unity continues to address these significant industry tailwinds with the eighth largest fiber network in the country and a growing portfolio of small cells, connected buildings, macro towers, and homes past. We've amassed this valuable and hard-to-replicate portfolio in only six years through our proprietary M&A efforts and organic sales strategy, and our portfolio is growing every day. As you know, we're very engaged with the M&A market, and we know that private and strategic capital are valuing similar portfolios at 15 to 25 times cash multiples. So we're confident that we're creating shareholder value every day. As evidenced on slide six, fiber provides an attractive shared infrastructure model that can drive meaningful returns. Unity acquires or builds new fiber with attractive long-term anchor cash flow economics in the mid to high single digits. We then add additional tenants with very high margin and minimal capex, resulting in combined cash flow yields of approximately 17%. We believe our past success is indicative of our future potential, as we continue to see tremendous demand for new anchor customers, as well as realize lease-up success. Turning to slide seven, 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 to wireless customers, as well as enterprise, schools, and government entities. Our strategy of targeting these underserved markets along with our national scale and customer relationships is driving unique demand. Slide 8 highlights the success we've had in leasing up our southeast fiber network where we have substantial dense metro fiber. To date, we've sold over three times the recurring revenue on the major wireless anchor builds that have been completed. Over the past five quarters, we've sold approximately $17 million of annualized lease-up MRR that is expected to generate incremental cash yields of over 50%. Including the lease-up to date we've sold since we began construction on our major wireless bills, we expect to generate a cumulative cash yield of 14% on these projects, doubling the initial anchor yield. 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. In addition to focusing on leasing up our existing network, we'll continue to pursue select attractive anchor greenfield builds and lease up those networks with a mix of additional wireless and non-wireless customers. During the quarter, as I mentioned earlier, dark fiber and small cell revenue grew 30% from the prior year, while enterprise revenue grew 17%, demonstrating that we're choosing good anchor markets to expand our network in a disciplined manner and that we're executing well on follow-on lease-ups. Unity Fiber sales bookings in the first quarter were approximately 0.5 million of MRR, and 90% of our sales bookings came from non-wireless customers. Unity Fiber installed 0.5 million of MRR during the first quarter, with 68% of gross installs related to non-wireless, 24% related to wireless, and 8% related to bandwidth upgrades. I'll now turn the call over to Ron, who will provide an update on Unity Leasing.

Thanks, Kenny, and good afternoon, everyone. Turning to slide 9, at Unileasing, 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 stands at approximately $1 billion of total contract value, which translates to approximately $60 million of potential annual recurring revenue. This reflects the continued significant interest from our wholesale customers as well as the strategic value of these fiber strands. Approximately 75% of the deals utilize fiber we acquired as part of the settlement with Windstream, and our success is the result of less than one year of actively marketing this new fiber. 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 $765 million, with an average contract term remaining of 14 1⁄2 years and incremental cash flow yields of approximately 12%. As slide 10 illustrates, we have executed and continue to pursue several different types of opportunities within our Unity leasing segment. Traditional dark fiber IRUs and dark fiber leases have driven over $60 million of upfront proceeds and $345 million of remaining revenues under contract, primarily on the fiber we acquired from Lumen and Windstream. These opportunities generate margins of 90% plus with minimal to no CapEx required. Sale leasebacks are structures where we acquire new fiber to expand our network reach and then immediately enter into a long-term lease with a tenant to provide anchor return economics. Our transactions with TPX, CableSouth, and others over the past years are examples of these. 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 in the form of a 10- or 20-year IRU or lease. These transactions generate upfront proceeds, grow net contractual revenue, and extend the average term of revenue substantially. For example, we sold our Midwest fiber operation as part of the Bluebird transaction, and we recently added into a transaction to sell our Northeast operations as part of our Everstream transaction. Over the past two years, we have generated total upfront proceeds of approximately $400 million from these various transaction structures. Turning to slide 11, during the first quarter, Unity Leasing deployed approximately $43 million towards growth capital investment initiatives with almost all of these investments related to the Windstream GCI program. These GCI investments were mostly ILEC-related and added approximately 800 route miles and 38,000 strand miles of valuable fiber to Unity's own network across 13 different ILEC states. As of March 31st, Unity has invested approximately $127 million of capital to date under the GCI program with Windstream, adding approximately 3,375 route miles and 122,000 fiber strand miles. These investments will be added to the master lease at an 8% initial yield at the one-year anniversary of Unity making the investment, subject to a 0.5 annual escalator, and results in near 100% margin revenue. The investments we have made to date will ultimately generate approximately $10 million of annual cash rent. In 2021, we continue to expect to deploy $200 million of capital related to the GCI program, primarily within Windstream's ILAC markets. Most of these markets are similar to our own Tier 2, Tier 3 markets, providing Windstream with substantial growth opportunities over time. As a reminder, the investments Unity is committed to making must meet certain underwriting criteria, including being long-term value of creative fiber and meeting minimum threshold returns for our tenants. Each request made by Windstream is reviewed by Unity to ensure it meets the criteria. Said differently, The program is designed to not only ensure investments are being made to help our tenant now, but also facilitate future proofing Unity's network for future renewals. With that, I'll turn the call back over to Ken.