Uniti Group Inc.

Welcome to Unity Group's first quarter 2022 conference call. My name is Jonathan and I will be your operator for today. A webcast of this call will be available on the company's website www.unity.com beginning May 5th, 2022 and will remain available for 14 days. at this time all participants are in listen only mode participants on this call will have the opportunity to ask questions following the company 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 company's filings with the SEC. The company's remarks this morning will reference slides posted on the website and you are encouraged to refer to these materials during the call. Discussions during this call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles, reconciliation 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 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, and good morning. Starting on slide 3, We continue to see robust demand for our portfolio of mission critical communications infrastructure. Our strong first quarter results exceeded our expectations, and we're enthusiastic about the prospects for the balance of the year. In fact, we announced today we're raising our full year outlook, which Paul will cover shortly. Consolidated new sales bookings during the quarter were again a highlight, representing a 58% increase over the first quarter of 2021 and our fourth consecutive quarter of elevated bookings. These results also further demonstrate that the shared infrastructure benefits of fiber result in healthy, adjusted EBITDA and AFFO growth. Fiber has never been more valuable, and the insatiable demand that we're seeing for these assets shows no signs of slowing. As the second largest independent fiber operator in the country, Unity is uniquely positioned to benefit from these trends. Turning to slide four, Unity continues to track well in these shared infrastructure economics. As a reminder, we believe that a healthy mix of anchor and lease-up bookings and installs represents the most effective way to drive profitable growth. Unity acquires or builds new fiber largely for our wireless customers with attractive long-term anchor cash flow yield 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 20% and almost three-fold increase from the anchor yields. Slide 5 illustrates an important part of our healthy mix. We continue to show that the majority of new bookings are lease-up in nature, and the business mix results in predictable cash flow with 0.2% monthly churn, an average remaining contract term of almost nine years. Our continued intentional focus of balancing wholesale, non-wholesale, and anchor lease-up opportunities has resulted in outsized margin enhancement and AFFO growth. in a business that's relatively immune to swings in the economy. Turning to slide six, I'd like to dwell a bit on our national wholesale business, also known as Unity Leasing. As I've previously stated, although we report Unity Fiber and Unity 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. High-capacity long-haul routes are needed by all of our customers, including wireless carriers, hyperscalers, international carriers, MSOs, and large enterprises to connect their disparate markets, data centers, and POPs. Today, dark fiber alone in North America is an approximately $1.5 billion annual market opportunity and is expected to grow about 10% annually over the next several years, reaching approximately $4 billion by 2030. with long-haul fiber contributing to the majority of these revenues. The continued broadband explosion fueled by 5G, metro fiber, small cells, fiber to the tower, fiber to the home, and even fixed wireless and satellite broadband all provide on-ramps of demand into the long-haul market. A critical ingredient to being a successful provider for these customers is having a robust national fiber network, as most large customers require multi-route solutions. Having an owned network is a meaningful barrier to entry for competitors to Unity, especially given that it would take billions of dollars and several years to build a new network. We estimate that there are only five truly owned national networks and two independent fiber providers with national networks in the US today, with Unity being one of them. Thus, we have a unique opportunity to capitalize on this growing demand in this segment of the fiber market with minimal competition. We've created our 129,000 route mile fiber network through proprietary acquisitions at Attractive Economics, including our acquisition of 30 national fiber routes from Lumen in 2018 and the fiber rights we acquired from Windstream as part of our settlement in 2020. We continue to grow that network and have built over 14,000 route miles of new fiber in the past four years, and our networks are intentionally constructed with high strand fiber in order to capitalize on highly accretive lease up opportunities. As a reminder, the economics of long-haul fiber are very attractive with high margin, passively managed revenue, little to no churn, long-term contracts that routinely have escalators built into them, and minimal capex spend requirements. Since most of our network is dark today with approximately 3 million strand miles of fiber available to third parties, we also have a great opportunity to grow our business by lighting more of our network in a disciplined manner. We're beginning to do that when we find appropriate anchor customers. For example, we recently announced that our first private wave channel product went live in Florida and that we delivered 3.6 terabits of bandwidth to a large national residential provider, our first customer on this wave channel system. This opportunity represents approximately a million dollars in MRR with very high margins. But just as important, the wave product brings substantially more lease-up potential on these routes with little to no additional investment. We'll also launch wave capabilities on two new routes by the end of this year that will connect several key markets in the southeast. Demand for these routes from our customers has been strong and we expect future wave product demand to grow. Our national wholesale network has the added benefit of providing terrific growth potential for UnityFiber. As we expand our national LIT network into new regions, the economics of adding LIT local services, enterprise lease up in particular, become more attractive. As I mentioned before, we're only offering lit services in approximately 20 metro markets today. However, we own and have access to metro fiber in nearly 300 markets nationwide, which represents terrific capital and margin-efficient growth potential. Given the proven success of our anchor lease-up strategy, we continue to actively prioritize these markets for expansion in 2020 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. Our level of enterprise bookings remains strong, up over 30% during the quarter as compared to the prior year period. With that, I'll now turn the call over to Paul.

Thank you, Kenny, and good morning, everyone. The communications infrastructure sector continues to undergo a robust growth cycle, primarily driven by the trends Kenny mentioned earlier. Our operational performance in the first quarter was strong, and we continued 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. As a result, we are increasing the midpoint of our 2022 outlook for revenue, adjusted EBITDA, and AFFO. Please turn to slide seven and I'll start with comments on our first quarter. We reported consolidated revenues of $278 million, consolidated adjusted EBITDA of $225 million, AFFO attributed to common shares of $112 million, and AFFO per diluted common share of 43 cents. Net income attributable to common shares for the quarter was approximately $52 million, or 21 cents per diluted share. At Unity Leasing, we reported segment revenues of $205 million and adjusted EBITDA of $199 million, up 5% and 4%, respectively, from the prior year. Accordingly, Unity Leasing achieved an adjusted EBITDA margin of 97% for the quarter. Turning to slide eight, our growth capital investment program continues to perform well and provide positive results for Unity. Over the past six years, our tenant has invested approximately $1 billion of tenant capital improvements in our network. 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 14,400 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 first quarter, Unity Leasing deployed approximately $53 million towards growth capital investment initiatives, with almost all of the investments relating to the Windstream GCI program. These GCI investments added around 1,500 route miles of fiber to Unity's own network across several different markets. As of March 31st, Unity has invested over $350 million of capital to date under the GCI program with Windstream, adding around 9,500 route miles and 354,000 strand miles of fiber to our network. 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 $29 million of annualized cash rent. At Unity Fiber, we turned over 140 lit backhaul, dark fiber, and small cell sites for our wireless carriers across our southeast footprint during the first quarter. These installs add annualized revenues of approximately $1.4 million. We currently have around 1,700 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 $15 million of annualized revenues. At Unity Fiber, we reported revenues of $73 million and adjusted EBITDA of $31 million during the first quarter. Both revenues and adjusted EBITDA were higher than expected due to the timing of early termination fees and lower costs. We achieved an adjusted EBITDA margin of 43% for the quarter, a 459 basis point improvement from the prior year period. Unity Fiber net success base CapEx was $37 million in the first quarter. We also incurred $2 million of maintenance CapEx, or about 3% of revenues. Please turn to Slide 9, and I will now cover our updated 2022 guidance. We are revising our guidance for business unit level revisions, the impact of transaction-related and other costs incurred to date, and changes in the estimates of interest expense, depreciation and amortization, and weighted average diluted common shares outstanding. Our 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 current full-year outlook for 2022 includes the following for each segment. Beginning with Unity Leasing, we still expect revenues in 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 relating to the straight line rent associated with the Windstream master leases and GCI investments. We expected 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 these 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, given the strength we saw in the first quarter, we now expect Unity Fiber to contribute $309 million of revenues at the midpoint and adjusted EBITDA of $121 million for full year 2022. When adjusting for the EverStream transaction that occurred in May of 2021, the year-over-year revenue and adjusted EBITDA growth is 6% and 8% respectively. The strong revenue growth reflects our continued efforts to pursue and execute on lease-up that leverages our existing dense southeast fiber footprint. Further, it demonstrates our success in continuing to manage our cost structure and improve margins. Net success-based CapEx for UnityFiber this year is still 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 $1.70 and $1.77 per diluted common share, with a midpoint of $1.74 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 $893 million at the midpoint. Our guidance contemplates consolidated interest expense for the full year of approximately $390 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 are revising our weighted average diluted common shares outstanding for full year 2022 to be around 267 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. On April 24th, certain lender commitments under our senior revolving credit facility matured. These commitments totaled $60.5 million and were not extended as a part of our amended credit agreement dated December 10th, 2020. The aggregate size of our current senior revolving credit facility is $500 million and will mature on December 10, 2024. 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 quarter end, we had approximately $387 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity. Our leverage ratio stood at 5.74 times based on net debt to last quarter annualized adjusted EBITDA. On May 3rd, our board declared a dividend of 15 cents per share to stockholders of record on June 17th, payable July 1st. With that, I'll now turn the call back over to Kenny.