425: Uniti Group Inc. Announces Third Quarter 2024 Results; Updates 2024 Outlook Amidst Windstream Merger Progress

Uniti Group Inc. reports solid demand for fiber infrastructure with $0.9 million in monthly recurring revenue bookings and provides updates on its merger with Windstream, expected to close in the second half of 2025.

Summary

• Uniti Group Inc. announced its third quarter 2024 results, reporting consolidated revenues of $292.2 million.
• Net income was $12.2 million, with an Adjusted EBITDA of $235.3 million, representing an Adjusted EBITDA margin of approximately 81%.
• AFFO attributable to common shareholders was $87.1 million, or $0.33 per diluted common share.
• Uniti Fiber contributed $69.3 million in revenues and $25.6 million in Adjusted EBITDA, while Uniti Leasing contributed $222.9 million in revenues and $215.2 million in Adjusted EBITDA.
• The company had approximately $529.1 million of unrestricted cash and cash equivalents at quarter-end, with a leverage ratio of 6.05x.
• Uniti is updating its full-year 2024 outlook, excluding any impact from the expected merger with Windstream.
• The updated outlook includes revenue between $1,157 to $1,177 million, net income attributable to common shareholders between $88 to $108 million, and Adjusted EBITDA between $930 to $950 million.
• The company expects FFO to be between $290 to $310 million and AFFO to be between $351 to $371 million.
• The merger with Windstream is expected to close by the second half of 2025.
• The company also announced that the audit committee concluded that an error was material to the 2023 Interim Financial Statements and should have been reflected as a restatement of 2023 Interim Financial Statements and, accordingly, the 2023 Interim Financial Statements included in the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2023 should no longer be relied upon.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to solid financial results, progress on the Windstream merger, and strong demand for fiber infrastructure. However, the restatement of previous financial statements and the risks associated with the merger temper the overall sentiment.

Positives

• Uniti saw solid demand for its fiber infrastructure, with consolidated bookings of nearly $1 million in monthly recurring revenue.
• The company is making significant progress on its transformational merger with Windstream, remaining on track to close by the second half of 2025.
• Windstream's successful refinancing activity provides a clear path to collapsing the dual debt silos of Uniti and Windstream upon closing of the merger.
• Windstream has the capital to accelerate Kinetics fiber-to-the-home buildout.
• The company had approximately $529.1 million of unrestricted cash and cash equivalents at quarter-end.

Negatives

• The audit committee of the board of directors concluded that the error was material to the 2023 Interim Financial Statements and should have been reflected as a restatement of 2023 Interim Financial Statements and, accordingly, the 2023 Interim Financial Statements included in the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2023 should no longer be relied upon.

Risks

• The company's future prospects are tied to Windstream, its largest customer.
• The company faces risks related to customer lease renewals and repositioning properties if leases are not renewed.
• The company's ability to generate sufficient cash flows to service its debt and fund capital commitments is a risk.
• The company is exposed to risks related to equipment failures, natural disasters, cyber-attacks, and terrorist attacks.
• The satisfaction of the conditions precedent to the consummation of the Merger, including, without limitation, the receipt of shareholder and regulatory approvals on the terms desired or anticipated is a risk.
• Unanticipated difficulties or expenditures relating to the Merger, including, without limitation, difficulties that result in the failure to realize expected synergies, efficiencies and cost savings from the Merger within the expected time period (if at all) is a risk.
• Potential difficulties in Unitis and Windstreams ability to retain employees as a result of the announcement and pendency of the Merger is a risk.
• Risks relating to the value of New Unitis securities to be issued in connection with the Merger is a risk.
• Disruptions of Unitis and Windstreams current plans, operations and relationships with customers caused by the announcement and pendency of the Merger is a risk.
• Legal proceedings that may be instituted against Uniti or Windstream following announcement of the Merger is a risk.

Future Outlook

The company is updating its 2024 outlook, excluding any impact from the expected merger with Windstream, future acquisitions, capital market transactions, and future transaction-related and other costs. The company expects revenue between $1,157 to $1,177 million, net income attributable to common shareholders between $88 to $108 million, and Adjusted EBITDA between $930 to $950 million. The company expects FFO to be between $290 to $310 million and AFFO to be between $351 to $371 million.

Management Comments

• We continue to see solid demand for our mission critical fiber infrastructure at Uniti with consolidated bookings of nearly $1 million in monthly recurring revenue during the quarter, commented President and Chief Executive Officer, Kenny Gunderman.
• Turning to our transformational merger with Windstream that we announced earlier this year, we continue to make significant progress and remain on track to close the merger by the second half of 2025, commented President and Chief Executive Officer, Kenny Gunderman.
• Through the recent credit agreement amendments and successful refinancing activity at Windstream, we now have a clear path to collapsing the dual debt silos of Uniti and Windstream upon closing of the merger, thus greatly simplifying the capital structure of the combined company, commented President and Chief Executive Officer, Kenny Gunderman.
• Finally, Windstream now has the capital on-hand to accelerate Kinetics fiber-to-the-home buildout, further strengthening its position within the residential fiber market, commented President and Chief Executive Officer, Kenny Gunderman.

Industry Context

The announcement highlights the ongoing demand for fiber infrastructure, driven by hyperscaler customers and the increasing need for high-speed connectivity. The merger with Windstream reflects a trend towards consolidation in the telecommunications industry, aiming to create synergies and simplify capital structures.

Comparison to Industry Standards

• Comparing Uniti's performance to other REITs in the communications infrastructure sector, such as American Tower (AMT) and Crown Castle (CCI), Uniti's Adjusted EBITDA margins of approximately 81% are relatively high, reflecting its focus on leasing and fiber infrastructure.
• However, Uniti's leverage ratio of 6.05x is also higher than some of its peers, indicating a greater reliance on debt financing.
• The planned merger with Windstream is similar to other strategic moves in the industry, such as Zayo Group's acquisition by Digital Colony Partners and EQT Infrastructure, which aim to create larger, more competitive entities.

Stakeholder Impact

• Shareholders can expect potential benefits from the merger with Windstream, including synergies and a simplified capital structure.
• Employees may experience uncertainty due to the merger, but also potential opportunities for growth within the combined company.
• Customers can expect improved services and expanded fiber infrastructure as a result of the merger and Windstream's accelerated fiber-to-the-home buildout.
• Suppliers and creditors may be affected by the merger, but the company's strong balance sheet and refinancing activities suggest a stable financial position.

Next Steps

• The company will hold a conference call to discuss the earnings release.
• The company will mail the proxy statement/prospectus contained in the Form S-4 to its stockholders.
• The company will include restated 2023 Interim Financial Statements in its quarterly report on Form 10-Q for the quarter ended September 30, 2024.

Key Dates