Uniti Group Inc.

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Welcome to Unity Group's fourth 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 today 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 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 its website, and you are encouraged to refer to those materials during this call. Discussions during this call will also include certain financial measures that were not prepared in accordance with general 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 8-K. 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, I wanted to briefly cover our key accomplishments in 2022 and our priorities for 2023. I'm very pleased with how we executed on our discipline growth plan throughout 2022. The growth of broadband continues to accelerate and is being fueled by fiber. Unity's core IP backbone peaked at around 30 gigs in 2017 and grew to approximately 100 gigs just before the pandemic. As of last week, our IP backbone peaked at 300 gigs, a 10 times increase from just six years ago. We expect this acceleration to continue across both our IP and transport networks, especially given that three out of our four wireless carriers where some of our largest consumers of capacity are just beginning to upgrade towers from 1 gig to 10 gig. As I said many times before, we do not have a lack of demand in our industry. However, profitable demand is key. In 2022, we had record levels of consolidated new bookings and gross installs. But as importantly, the bookings and installs were balanced between anchor and lease up and wholesale and non-wholesale. Along with sub-100-day mean time to deliver on our installs and our industry-leading monthly churn of 0.2%, Unity is demonstrating the outstanding economics of shared fiber infrastructure. Wholesale and enterprise recurring revenue were up 10% and 13% respectively in 2022 from the prior year, while dark fiber lease up at Unity Leasing was up over 50% from the prior year. On an overall basis, we continue to target and deliver mid single digit top line growth, increasing adjusted EBITDA and declining capital intensity. 2022 was also an important year with respect to positioning Unity to control its own destiny. We recently completed two successful financings that pushed out our most meaningful debt maturities while also providing additional liquidity to an increasingly positive free cash flow trajectory. Combined with our organic growth runway and our steady performance, we now have a growth plan that is virtually fully funded, aside from potential future refinancings. As we turn to our priorities for 2023, many remain the same as they were in 2022. We're still focused on driving high-margin recurring revenue through lease-up on both our metro, fiber, and on our long-haul routes to span the country. We'll selectively light more and more fiber with anchor economics with a clear path to lease-up. We'll closely monitor and adapt to macroeconomic conditions and potential supply chain and labor challenges. And we remain confident we're in a good position to withstand any disruptions that may occur. As it relates to M&A, we'll continue to take a disciplined approach and do not expect any transactions in the immediate future given the current interest rate and macroeconomic environment. In the meantime, we're focused on delivering strong organic growth and operating results while creating value for our stakeholders. Turning to slide four, our strategy continues to focus on buying and building mission-critical fiber infrastructure and in turn leasing that infrastructure to anchor customers as well as to additional lease-up customers while driving cumulative cash yields well above anchor yields. This strategy has resulted in Unity becoming the second largest independent fiber operator in the country. We're often asked what distinguishes Unity from other facilities-based fiber operators, so I'd like to highlight a few. Many other sizable fiber companies were built through dozens of company acquisitions that come with integration challenges and some percentage of legacy revenue. This often leads to years of challenges on growth, elevated churn, and profitability. Conversely, Unity has only acquired three meaningful operating companies in its history, which are now fully integrated and brought over no legacy services. However, through additional sale, leaseback, and other asset acquisitions, we've acquired over 100,000 fiber route miles that come with one or two anchor customers. Said differently, 75% of our network was acquired with no legacy services, no integration challenges, and substantial amounts of unused fiber for lease up. As slide five demonstrates, this substantially underutilized fiber network is helping drive our shared infrastructure economics. We're driving cumulative cash flow yields today of 23%, a more than three-fold increase from the anchor yields on these projects. Slide 6 demonstrates a second distinguishing characteristic. The majority of our revenue is wholesale in nature, which comes with longer-term contracts, lower churn, and less required overhead. As a result, our business and underlying performance are less susceptible to macroeconomic conditions. The vast majority of these wholesale customers are the large wireless providers, hyperscalers, and international and domestic carriers. These carriers are purchasing large pipes from Unity to connect towers, small cells, data centers, fiber to the home, and inner city POPs, which further highlights that our business is diversified across numerous fiber use cases. These use cases are all on ramps that are driving traffic into our core network. Turning to slide seven, scale matters in fiber. especially with a wholesale heavy business like ours. Having an owned national network is a meaningful competitive advantage for Unity, especially given that it would take billions of dollars and many years to build a new national network. We estimate there are only five truly owned national networks and two independent fiber providers with national networks in the U.S. today, with Unity being one of them. Thus, our ability to deploy dark fiber and wave services present Unity with the unique growth opportunity with minimal competition. Today, dark fiber 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. A growing component of our wholesale strategy are wavelength services, which represent a $2 billion annual revenue opportunity today and are expected to grow 7% over the next several years. We're selectively lighting more and more long-haul routes to provide wave services and capitalize on growing demand, while maintaining the same discipline on anchor and lease-up economics. For example, we recently signed a long-term contract with a large global internet provider, offering long-haul dark fiber connectivity over 3,100 route miles to premier data centers located in 12 cities within the central and southeastern U.S. The total contract value of this deal was approximately $65 million, making it one of the largest customer contracts in Unity's history. We expect these routes to be delivered throughout this year and next. As I mentioned earlier, a wholesale-heavy model produces economics that are very attractive with high margin, passively managed revenue, virtually no churn, long-term contracts that routinely have escalators, and minimal capex requirements. Slide 8 demonstrates a third distinguishing characteristic of Unity's, which is our balanced approach to bookings. Although the wholesale business will always be our focus, a disciplined and controlled enterprise strategy can drive enhanced profitability with minimal capex and low churn, especially if there are no legacy services. While Greenfield bookings drive growth with anchor customers and expand the network in a cost-effective manner for new lease-up opportunities, the majority of new bookings continue to be lease-up in nature and are substantially less capital-intensive. Turning to Slide 9, our fourth distinguishing characteristic is that our enterprise strategy is highly disciplined and regional in nature. As you can see from the map, we're only offering enterprise services in approximately 30 metros concentrated in the southeast. Our product set is simple. All cells are on our owned and controlled dense metro fiber network, and we have no legacy services such as legacy voice or TDM. The majority of operational expenses within fiber businesses are employees and off-net fiber purchases. Because we are selling largely on-net products and services, and the majority of our employees, including sales, field techs, site acquisition, construction, maintenance, and others, are concentrated in a certain geographic area, we're able to maximize efficiency and therefore drive 50% plus cash yields on our enterprise lease-up sales. In addition, our local brand is substantially enhanced in this region, and our enterprise monthly churn is industry-leading at around 0.7%. As a result of our consistent, strong bookings activity, enterprise recurring revenue was up 15% during the quarter, while gross install MRR was up 30% from the prior year. Equally exciting, and as we mentioned before, we own Dark Metro Fiber in about 300 markets nationwide, which represents terrific capital and margin-efficient growth potential for enterprise, wireless backhaul, and even small sales. With that, I'll now turn the call over to Paul.