Uniti Group Inc (Delaware) (UNIT) 2022 Q1 法說會逐字稿

(technical difficulty) and you are encouraged to refer to the -- refer to these materials during the call. Discussions during this also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of these measures to the most directly comparable GAAP financial measures can be found in the company's current report on Form 8-K dated today.

I would now like to turn the call over Uniti 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 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 over the of 2021 and our fourth consecutive quarter of elevated that the shared infrastructure benefits of fiber result in healthy adjusted EBITDA and AFFO growth. seeing for these assets shows no signs of slowing. As the second largest independent fiber operator in the country, Uniti is

Turning to Slide 4. Uniti continues to track well on these shared infrastructure economics. As a reminder, we believe of anchor and lease-up bookings and anchor cash flow yield in the mid- to high-single digits. 20%, an almost

Slide 5 illustrates an important part of our healthy mix. We continue to show that the majority of new bookings are predictable cash flow with 0.2% years. Our continued of balancing wholesale, nonwholesale and AFFO growth in a business that's relatively immune to swings in the economy.

Turning to Slide 6. I'd like to dwell wholesale business, also known as Uniti Leasing. As I customers as one consolidated fiber business. An increasing encourage that trend to continue.

High-capacity long-haul routes are our international carriers, MSOs and large enterprises to their disparate markets, data centers and America is an approximately $1.5 billion annual market opportunity and is grow about 10% annually over the next several of these revenues. The continued broadband explosion fueled by 5G, provide on-ramps of national fiber network as most large customers require multi-route solutions. Having an owned network is competitors to Uniti, especially given that it would take billions of dollars and several years network. networks in the U.S. today Thus, we have a network through proprietary acquisitions at attractive economics. Including our acquisition of 30 national fiber fiber rights we We continue to grow that network and have built over 14,000 opportunities. As a reminder, the economics managed today with approximately 3 million strand

For example, we recently announced that our first private channel system. This opportunity represents approximately $1 important, the wave product brings substantially more lease-up potential on these routes with little on 2 new routes by the end of this year that will connect several key markets in the Southeast. Demand for these we expect future wave product demand to grow.

Our national wholesale network has the added benefit of providing terrific growth expand our national network into new regions, the economics of adding lit local services, enterprise lease-up in particular, become more attractive. approximately 20 metro markets today. However, have access to metro fiber in nearly 300 markets nationwide, which

Given the proven success of our anchor lease-up strategy, these markets for expansion in 2020 and beyond. We view that could facilitate of enterprise bookings remained strong. up over 30% 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 cycle, primarily driven by the trends, Kenny mentioned earlier. Our operational continue to successfully execute on our strategy of leasing up our existing fiber network with attributed to common shares of $112 million was approximately $52 million or $0.21 per diluted share. At Uniti Leasing, we reported segment revenues of $205 million and adjusted EBITDA of $199 5% and 4%, respectively, from the year. Accordingly, Uniti Leasing achieved an adjusted EBITDA margin of 97% for continues to perform well and provide positive results for Uniti. Over the past to invest its own capital and long-term value-accretive fiber largely focused on highly valuable last-mile fiber, including fiber and commercial parks and fiber-to-the-home. Collectively, these investments newly constructed fiber and 21% of the legacy copper network being overbuilt 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 across several different markets.

As of March 31, Uniti has invested over $350 million of fiber to our network. These investments will be added to the anniversary of Uniti making such investment.

They are subject to a 0.5% annual nearly 100% margin. will ultimately generate approximately $29 million of annualized cash rent. At Uniti Fiber, we turned over 140 lit backhaul, dark fiber and small cell sites for our wireless quarter. million. We currently have around 1, 700 lit backhaul, fiber and small cell expect to deploy within the next few years. backlog represents an incremental $15 million of revenues. At Uniti million during the first quarter.

Both revenues and adjusted EBITDA were higher than early termination fees and lower costs. We achieved an adjusted EBITDA margin of 43% basis point improvement from the prior period -- prior year period. Uniti Fiber net success-based CapEx in the first quarter. We also incurred $2

Please turn to Slide 9, and I will now cover our updated 2022 guidance. We are revising our guidance for business changes in the estimates of interest expense, depreciation and amortization and weighted outstanding.

Our outlook excludes future acquisitions, capital market and future transaction-related and other costs, differ materially from these forward-looking statements.

Our current full year outlook still expect revenues and and $797 million, respectively, at the midpoint,

The revenue and adjusted EBITDA each include $14 million of cash rent associated with the million to the straight-line rent associated with the Windstream master leases and GCI investments. We expect to deploy $275 million of success-based CapEx at the estimated Windstream GCI investments. Most where we are making GCI investments are similar to our own Tier 2, Tier 3 quarter, we now expect Uniti Fiber to contribute $309 million of revenues at the midpoint and adjusted EBITDA of Everstream transaction that occurred in May of 2021, the year-over-year revenue and adjusted EBITDA revenue growth reflects our continued efforts to pursue and execute on Further, it demonstrates our to manage our cost structure and improved margins. expected to be $120 million at the midpoint 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 $1.74 per 1 the full year of approximately $390 million. Corporate SG&A, expected to be approximately $33 million shares shares. As a reminder, guidance ranges for key components of the appendix to our

Turning now to our capital structure. On April 24, certain lender commitments under our senior revolving credit $60.5 million and were not extended as a part of our amended credit aggregate size of further improve our cost of capital. $387 million of revolver capacity. Our leverage ratio stood at 5.74x based net debt to last quarter annualized adjusted EBITDA. to stockholders of record on June 17, payable July 1. With that, I'll now turn the call back over to Kenny.

Thanks, Paul. Let me finish with a few comments messaging our belief that a conglomerate discount is being applied to Uniti's share price. We've demonstrated a framework for valuing our 15 to range of values for our fiber business is supported applied to other fiber businesses, and we believe commanding a premium value. The range comps. . instance, we confirmed our high

Lastly, we've transformative transactions at this time in lieu typical sale leaseback and bolt-on M&A strategy. These combined efforts have resulted in continued productive conversations with various strategic and financial parties.

To be clear, our priorities in these conversations are to maximize value for our shareholders through customer diversification and growth of our fiber business with a past comments, very strategic set of assets, and through patients, we're confident that the

In the meantime, we remain focused on executing our strategy strong performance and favorable industry

With that, operator, take questions. answered and you'd

First 1 is just on the M& you just talk about where multiples are public and private given the rising rates we've seen. Second question is just on bookings. Again, you've got another strong quarter, like about the enterprise environment coming out of course, facing this challenging macro environment.

questions. I'm writing and make sure we hit them. the environment is such that we think buyers are being more discerning about asset quality. So good assets with owned networks and performing -- high-performing businesses are still commanding premium multiples. And we haven't seen any issues there, but I think more and more of the funds 2 or 3 years ago were new funds to the space, they're now more knowledgeable of the space. And so they're smarter on their diligence. And so I think they're being smarter about placing premium multiples on premium assets. .

So as that relates to Unity, I think with the assets we own, we feel very confident about the premium multiples that should be applied to those. But as a buyer, it places a greater importance upon the proprietary nature of our M&A funnel. We've always talked about our ability to execute on buying assets at really below intrinsic value prices. And I think we've repeatedly executed on that historically. -- where multiples have been elevated. So it

With respect to bookings, I'll make a few comments and then type of activity and frankly, don't see that changing just based upon the funnel and based upon the level of activity. I think it's not an accident or that, that elevated level of bookings happened about 6 to 9 months after the settlement with Windstream because we really then got access to substantially more fiber, especially the national business, in particular, in terms of new bookings. And so -- and as we always said, the sales cycle on those types of deals is kind of 6 to 9 months, 12 months. So think we're sort of in a new norm. That mix of bookings is about right. We really like to keep a good healthy mix of anchor and lease-up anchor deals tend to drive more revenue, but the we think that mix is right. And we environment, broadly are continuing, and we expect those to continue. taker enterprise space. That business is growing with an owned fiber network with substantial lease-up potential. So I think the for us to be very strong. And Paul, jump in.

echo those comments, Kenny. I think that this new you see that we've been producing is a very intentional effort on both the enterprise side and the leasing wholesale side, where we've built the teams around the fiber network that we have, particularly around the Windstream settlement fibers that we we now have access to, to take advantage of building those teams, building the leadership up to take advantage of consistent set of enterprise products across all of our networks, our enterprise network. And so I think this is the new normal that And the mix on enterprise, I think, it's probably steadier. It's made up of a lot of smaller orders, the mix on the wholesale can be up and down a little bit because those tend to be larger orders that can be a little lumpier. But I think the mix that you're seeing now is about what I would continue to expect going as well. . the line of Frank Louthan from Raymond James.

verticals in Uniti Fiber. And are you seeing any or helping fiber today.

Frank, I'll start on that, and Paul, you can jump in. But we are seeing some traction, Frank, with the overbuilders and some of the upstarts who are getting the broadband stimulus money. And we sort of foreshadowed this, but we've kind of been conservative about it, and I still don't want to put numbers around it, but our network tends to reach out into the Netherlands in terms of Tier 2, 3-ish type markets. And so that's where a lot of this broadband stimulus is being deployed right underserved markets. And so that last mile build is new fiber, but in order to connect those markets back to the core, you need metro and long-haul transport and support, and that's where the opportunity is for us. And so we're getting what we call new logos. We're getting new calls from an increasing number of those parties, which is exciting for us. And it's sort of indicative of just the overall environment. I mean we're seeing demand from pockets of providers that we haven't seen for greenfield build opportunities are absolutely out there, and we continue to take on some of those opportunities, but we're very disciplined about it. .

As I've said many times, there is no shortage of demand in our industry. It's really a question of taking on profitable demand, and that's our focus. So thus, the focus on the right mix of bookings between wholesale and enterprise and anchor and lease-up, but no shortage of demand from really any of those pockets.

All right. Great. And speaking of shortages, can you address kind of what you've done to stay ahead of supply chain challenges on getting network equipment and so forth for the builds?

Yes. Sure, Frank. Our team has been really successful over the last year in managing a pretty difficult supply chain environment that continues, I think, to get increasingly difficult. And we've done that through just the standard blocking and tackling and staying ahead of that demand. deep supplier relationships, diversified supplier relationships, staying ahead of the curve, making sure we've got orders in place to get materials and equipment on time to deliver on time for our customers. So I think our teams have done a really good job of managing that. But it continues to be a difficult environment, and we continue to have to very actively manage that going forward. So we've been doing things pulling forward orders for materials for equipment, given the elongating lead times for that sort of thing in order to manage that well.

So we think we've got a good handle on that. We think we're well positioned to continue to deliver for our customers and have the supplies on hand that we need to do that, but it's a challenging environment, and we've got to continue to manage it well and stay ahead of the curve.

Our next question comes from the line of Simon Flannery from Morgan Stanley. .

This is Alexis on for Simon. Can you hear me okay? .

Yes, we can.

Okay. Could you talk a little bit about the trends in the fiber business, 1 impacted 1Q from like a year-over-year and quarter-over-quarter perspective. And when do you think we get back to kind of those mid-single-digit growth rates you talked about for the business? And then on the dividend, are there any updates around that look for that? I saw leverage a little bit in the quarter. .

Yes. I'll take a stab at the the trend sort of year-over-year. When you look at our numbers year-over-year, I mean, we're experiencing really solid growth. 5% to 6% for the leasing business. And we talked about 6% to 8% growth in revenue and EBITDA, respectively year-over-year as well in our comments and remarks. To get there, though, you've got to remember, you've got to adjust for the Everstream transaction that we had in May of 2021, where we sold a portion of our Northeast network. So you need to adjust the numbers to reflect for that transaction in order to kind of really see the real trend underlying it. And I think those trends are just what we've already sort of alluded to solid bookings, leading to solid revenue growth.

And that revenue growth is coming from all sectors, really it's pretty evenly spread across wholesale and nonwholesale business. And then from a cost standpoint, we've done, I think, a really solid job of continuing to get more efficient from a cost standpoint. And part of that is our intentional strategy of doing more and more lease-up business and that lease-up business is a higher margin business for us going forward. So I think we expect to continue to see that level of growth and improving margins as we go forward into the future.

And was there anything on the dividend outlook for that? .

The outlook for the dividend. Currently, we are still restricting dividend to the 90% of retaxable income, the statutory minimum for a REIT, and we're restricted to that by our .

Old doggies Come a Daddy. Come on (inaudible). .

Frank, I think you may want to go back on mute. Sorry about that. So from a dividend standpoint, we're -- our hands are a bit tied by that reversion covenant that we've got from our debt covenants, but as you can see from the leverage that we reported leverage ratio we reported we're edging closer and closer to that 5. 75x on a trailing 12-month basis leverage ratio that would allow us to to have that covenant -- that restrictive covenant removed from us going forward.

So once we get there and get through that covenant reversion level, in the future, then we'll have a little bit more flexibility with regard to our dividend going forward. But that remains a Board decision, something our Board is going to have to look at with regard to our other capital allocation priorities and we'll make that decision going forward when they've got that ability to do so.

Our next question comes from the line of David Barden from Bank of America.

I guess the first question, Kenny, would be in the current rate environment where the Fed we're expecting somewhere, depending on who you are 3 to 5 incremental hikes this year. your weighted average cost of capital is going to get mark-to-market every day. And I'm wondering how that affects your thinking about that 7% initial build yield because I imagine the customers that you're asking to pay that 7%, if that 7% becomes an 8% or 9% are going to maybe block at that at least in the short run?

And how that -- is that risk lagging some of these conversations? And how do you think about matching that yield ask for day 1 versus the mark-to-market of your weighted average cost of capital.

Second Paul, I think I heard you say in passing that the fiber business this quarter was impacted by some better-than-expected termination fees and things and some lower-than-expected costs. If you could kind of review that for us? And then I guess, I'm sorry, my last question, I guess, going back to you, Kenny, obviously, we've been talking about this for months. I mean, in December, there was a bid out there reportedly at $15 a share. you and other parties went back and forth about maybe whether that was right or wrong. And I guess my question right now is, is that bid still out there? Or did that just come and go now and we're back to being patient.

David, great question on the rate environment and that the impact of that on our pricing models and our dialogue with customers. We have not -- and there's multiple elements to that. There's not just the rate environment, but there's also the supply chain implications to potentially higher costs that get reflected through CapEx or OpEx for us.

And I think that's definitely factored into our modeling. We have not had any need to change our focus on those starting yields with -- in customer conversations, as you can imagine. We're not sharing our models and talking about specific yields with customers. It's really just more a pricing conversation on a per site basis. And so it all kind of factors into an overall model for us that we're looking at that includes our cost of capital and includes our threshold expected returns.

I think where the real focus for us is, is not on those initial yields because we haven't seen that any sort of softening in that, and we don't think we will just based on the demand we're seeing, but it puts a real focus on the lease-up opportunity after that because we're not content to get a 6% or 7% or 8% yield. What we really want is 10% plus getting up to 20%, which we show you in our slide shows. And so in order to get to that level, you've got to be confident that the lease-up potential is there. Because as I said earlier, the revenue tends to come from the anchor awards, but the return and the profitability comes from lease-up.

And so with that and the strength that we're seeing in our enterprise business and just lease up in general, we feel confident that we're going to continue to be able to hit those returns including through this rate environment. Paul, do you want to take the second one?

Yes, I can take that question, David, on ETLs and costs. So the ETL revenue that we've been talking about for several quarters is that's the early termination liability, revenues associated with contracts that disconnect early. The large majority of that activity is connected to the Sprint T-Mobile consolidation and that activity to consolidate that network. And we've talked about that before in terms of its impact on our business. going forward. So as that happens, we'll see those ETL revenues come in. And the timing of those revenues is a little hard to predict because it's dependent on the actual disconnect of of those circuits, but we've got those ETLs as a part of our plan going forward. And so you see that activity was strong in the first quarter. In terms of overall costs, I think it's not attributable to really any one area specifically.

I think it's coming from a number of expense categories across the business, both direct expense categories and operating expense categories as we continue to just become more efficient and drive more towards lease-up types of revenues. So we're seeing cost efficiency and things like third-party off-net costs as we drive more towards on-net and near-net lease-up activity, things like that, but it's pretty broad-based in terms of expense containment across the business.

And David, on M& A, I'm going to let our scripted remarks, stand for our answer there and just generally say we continue to make very good progress on our priorities. So feel very good about that. .

All right. I'll

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Kenny Gunderman for any further remarks.

Thank you. We appreciate your interest in Uniti Group and look forward to updating you further on future calls. Thank you for joining us today. .

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude