Uniti Group Inc.

Welcome to Unity Group's fourth quarter 2021 conference call. My name is Kevin, and I'll be your operator for today. A webcast of this call will be available on the company's website at www.unity.com, beginning February 25, 2022, 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 a question 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 morning will reference slides posted on its website, and you are encouraged to refer to those materials during this call. Discussions during this call on financial measures that were not prepared in accordance with the generally accepted accounting principles. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial 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.

Thank you. Good morning, everyone, and thank you for joining. Starting on slide three, 2021 was a terrific year for Unity. At a time when fiber has never been more valuable, our national fiber network of 128,000 route miles is one of the largest and most robust networks in the country today. We added nearly 6,000 route miles of new fiber in 2021 and our networks are intentionally constructed with high strand fiber in order to capitalize on highly accretive lease up opportunities. As proof, we just completed our third consecutive quarter of a million dollars in MRR of new consolidated bookings. Consolidated bookings of 3.5 million for full year 2021 represent a 40% increase year over year. In 2021, the lease-up opportunities sold within UnityFiber alone are expected to generate $20 million of annual revenue when fully installed, an almost 50% increase from the prior year. We've achieved this growth all while our capital intensity continues to decline and our net leverage at year-end was at its lowest level since mid-2017. The trends going into 2022 are equally exciting. We're the third largest independent fiber operator in the country with an intentional focus on wholesale. Approximately 90% of all business generated today, including lease up, is wholesale in nature. The demand for our portfolio of small cells, connected buildings, macro towers, and homes past is driven by the need for more investment by our customers in 5G networks, 10 gig upgrades, fiber to the home, fiber backhaul, and small cells. These investments provide Unity with the unique opportunity to expand our networks with anchor economics, setting the foundation for even more future lease-up. As evidenced on slide four, Unity is tracking well on these shared infrastructure economics. As a reminder, we believe that a healthy mix of anchor and lease-up bookings represents the most effective way to drive profitable economics. Unity acquires or builds new fiber largely for our wireless customers with long-term anchor cash flow yields in the mid to high single digits. We're then successfully adding additional tenants with very high margins and minimal capex, resulting in a cumulative cash flow yield today of approximately 19%, an almost three-fold increase from the anchor yield, and all within the past five years. Slide 5 illustrates an important part of our healthy business mix. As I mentioned earlier, we had our third consecutive quarter of consolidated bookings of approximately $1 million, an 80% increase from the fourth quarter of 2020. The amount of new bookings itself, however, is only part of our positive story. We continue to show a gradually growing mix of new bookings that are lease-up in nature. This focus on a good balance of wholesale, non-wholesale, and anchor lease-up is intentional on our part and has resulted in outsized margin enhancement and AFFO growth. We expect this focus to continue. This business mix results in predictable cash flow with 0.2% monthly churn, an average remaining contract term of nine years, and a business which is relatively immune to swings in the economy, which was evidenced by our largely uninterrupted progress during the height of the COVID-19 pandemic. Turning to UnityFiber. Sales bookings in the fourth quarter were 0.8 million of MRR, an increase of over 50% from the fourth quarter of 2020, and our third consecutive quarter of bookings at this level. In fact, wireless bookings alone in 2021 increased over three-fold from the prior year, driven by the strong demand we continue to see from carriers. In terms of mix, 60% of our bookings during the quarter came from lease-up of major wireless anchor bills. December was a record-setting month for enterprise bookings and one of the highest months on record for consolidated new bookings, all while offering lit services in only approximately 20 metro markets. However, we own and have access to metro fiber in nearly 300 markets, which represents terrific capital and margin-efficient growth potential. Given the proven success of our anchor lease-up strategy, we're actively prioritizing these metro markets for expansion in both 2022 and beyond. We view these not only as organic growth opportunities, but also markets that could facilitate acquisitions outside our traditional southeast footprint to accelerate growth in these fallow metro markets. Turning to slide six, at Unity Leasing, we continue to actively market over 3 million strand miles of fiber, making us one of the largest players in the wholesale fiber market. Our non-wireless carrier customers, such as the FANG Group and national MSOs, continue to be active as they expand their cloud-based services. For example, we recently announced two sizable long-term dark fiber IRU agreements with an international carrier and leading infrastructure provider. These two deals alone utilize almost 3,500 route miles of our existing metro and long-haul fiber network. have a total contract value of over $60 million and represent approximately $3 million of annualized revenue. As I mentioned last quarter, although we report Unity Fiber and leasing separately, both businesses are marketed to our customers as one consolidated fiber business. An increasing number of customers and network solutions are a mix of Unity Leasing and Unity Fiber networks, and we fully expect and encourage that trend to continue. With that, I'll now turn the call over to Paul.

Thank you, Kenny. Good morning, everyone. I'd like to begin this morning by providing a review of our fourth quarter and full year 2021 performance, followed by an overview of our 2022 outlook for each of our business units and on a consolidated basis. As Kenny mentioned, 2021 was a very strong year for Unity. The trends within our industry have never been better, and we continue to successfully execute on our strategy of leasing up our existing fiber network with high margin recurring revenue opportunities, while at the same time pursuing attractive new greenfield builds. All of this is reflected in our 2022 guidance that I will cover in more detail in just a bit. Finally, I will provide commentary on our current balance sheet and capital structure. Please turn to slide seven, and I'll start with comments on our fourth quarter. We reported consolidated revenues of $293 million, consolidated adjusted EBITDA of $231 million, AFFO attributed to common shares of $114 million, and AFFO per diluted common share of 44 cents. Net income attributable to common shares for the fourth quarter was approximately $36 million, or 15 cents per diluted share. At Unity Leasing, we reported segment revenues of $211 million and adjusted EBITDA of $206 million, up 9% and 8%, respectively, from the prior year. Accordingly, Unity Leasing achieved an adjusted EBITDA margin of 98% for the quarter. The year-over-year growth reflects the dark fiber IRU contracts we acquired from Windstream, the straight-line rent recognition under the Windstream MLAs, and GCI investments subsequent to our settlement agreement. The impact of the EverStream transaction, annual lease escalators, and a one-time non-cash adjustment in the amount of $8 million during the quarter related to the straight line revenue associated with the dark fiber IRU contracts and other assets we acquired from Windstream as part of our settlement agreement. Excluding the impact of the straight line revenue adjustment, revenue and adjusted EBITDA grew approximately 5% and 4% respectively for the period. Turning to slide eight, our growth capital investment program continues to perform within our expectations and yield positive results for Unity. As a reminder, our tenant has invested approximately $1 billion of tenant capital improvements in our network over the past six years. Unity continues to invest its own capital in long-term value accretive fiber, largely focused on highly valuable last mile fiber, including fiber in commercial parks and fiber to the home. Collectively, these investments have resulted in 12,500 route miles of newly constructed fiber and 21% of the legacy copper network being overbuilt with fiber. Both of these numbers continue to gradually increase each quarter, and we expect they will increase materially over the coming years. During the fourth quarter, Unity Leasing deployed approximately $71 million towards growth capital investment initiatives. with almost all of the investments relating to the Windstream GCI program. These GCI investments added around 1,900 route miles of fiber to Unity's own network across several different markets. As of December 31st, Unity has invested over $300 million of capital to date under the GCI program with Windstream, adding around 8,100 route miles and 308,000 strand miles of fiber to our network. As a reminder, these investments will be added to the master leases at an 8% initial yield at the one-year anniversary of Unity making such investment. They are subject to a 0.5% annual escalator and result in nearly 100% margin. The investments we have made to date will ultimately generate approximately $25 million of annualized cash rent. At Unity Fiber, We turned over 185 lit backhaul, dark fiber, and small cell sites for our wireless carriers across our southeast footprint during the fourth quarter. These installs added annualized revenues of approximately $1.6 million. For the full year 2021, we installed 830 lit backhaul, dark fiber, and small cell sites, adding over $5 million of annualized revenue. We currently have around 1,600 lit backhaul, dark fiber, and small cell sites remaining in our backlog that we expect to deploy within the next few years. This wireless backlog represents an incremental $13.5 million of annualized revenue. At Unity Fiber, we reported revenues of $82 million during the quarter. While core recurring revenues were once again in line with our expectations, Core non-recurring revenue was slightly below expectations due to the timing of early termination fees. Adjusted EBITDA for the fourth quarter was $32 million, representing margin of 39%. For the full year 2021, adjusted EBITDA margin was 40%, a 390 basis point improvement from 2020. Unity Fiber net success base capex was $34 million in the fourth quarter. We also incurred $2 million of maintenance capex, or about 2% of revenues. Please turn to slide 9, and I will now cover our 2022 guidance. Our 2022 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 forward-looking statements. Our full-year outlook for 2022 includes the following for each segment. Beginning with Unity Leasing, we expect revenues and adjusted EBITDA to be $819 million and $797 million respectively at the midpoint, representing adjusted EBITDA margins of approximately 97%. Revenue and adjusted EBITDA each include $14 million of cash rent associated with the GCI investments and $26 million related to the straight line rent associated with the Windstream Master Lease and GCI investments. We expect to deploy $275 million of success-based CapEx at the midpoint of our guidance, of which $250 million relates to estimated Windstream GCI investments. Most of the markets where we are making GCI investments are similar to our own Tier 2, Tier 3 markets, providing Windstream with substantial growth opportunities over time. Turning to slide 10, we expect Unity Fiber to contribute $308 million of revenues at the midpoint and adjusted EBITDA of $118 million for full year 2022. When adjusting for the EverStream transaction that occurred in May 2021, the year-over-year revenue and adjusted EBITDA growth is 6% and 5% respectively. This strong growth reflects our continued efforts to pursue and execute on lease-up that leverages our existing dense Southeast Fiber footprint. Although the majority of our revenue at Unity Fiber is recurring and fairly predictable in nature, I do want to call out that our non-recurring revenues, such as equipment sales and installs, one-time fiber sales, and ETLs, can be lumpy due to the mix of our bookings activity and the timing of delivery. Net success-based CapEx for Unity Fiber this year is expected to be $120 million at the midpoint of our guidance, a 12% decrease from levels in 2021. Turning to slide 11. For 2022, we expect full-year AFFO to range between $1.71 and $1.78 per diluted common share, with a midpoint of $1.75 per diluted share, a 4% increase from 2021. On a consolidated basis, we expect revenues to be $1.1 billion and adjusted EBITDA to be $890 million at the midpoint. Our guidance contemplates consolidated interest expense for the full year of approximately $388 million. Corporate SG&A excluding amounts allocated to our business segments is expected to be approximately $33 million, including $8 million of stock-based compensation expense. We expect weighted average diluted common shares outstanding for full year 2022 to be around 265 million shares. As a reminder, guidance ranges for key components of our outlook are included in the appendix to our presentation. Turning now to our capital structure. Through the successful debt refinancing we executed in 2021, we have significantly improved our financial flexibility, lowered our borrowing costs substantially with over $25 million in expected annual interest cost savings, and extended our debt maturities by several years. We continue to monitor the capital markets and expect to be opportunistic as it relates to taking advantage of attractive opportunities to further improve our cost of capital. At year end, we had approximately $420 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity. Our leverage ratio stood at 5.55 times based on net debt to last quarter annualized EBITDA, which as Kenny mentioned earlier, is the lowest it has been since mid-2017. Yesterday, our board declared a dividend of 15 cents per share to stockholders of record on April 1st, payable April 15th. We expect dividends attributable to our capital stock for the 2022 tax year to be approximately $178 million, including the dividend paid in January and the one declared yesterday. This represents our estimate of 90% of our taxable income this year, excluding capital gains, and is currently the maximum amount we can distribute under our debt agreements. With that, I'll now turn the call back over to Kenny.