Welcome to the Uniti Group's Second Quarter 2019 Conference Call. My name is Alexander, and I will be your operator for today. A webcast of this call will be available on the company's website www.uniti.com beginning August 8, 2019 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 afternoon will reference slides posted on its website and you're encouraged to refer to those materials during this call. Discussions during the call will also include certain financial measures that were not prepared in accordance with the Generally Accepted Accounting Principles. Reconciliation of those 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 dated today. I would now like to turn the call over to Uniti Group's, Chief Executive Officer, Kenny Gunderman. Please go ahead Mr. Gunderman.

Thank you. Good afternoon, everyone and thank you for joining. Despite the expected volatility of the Windstream bankruptcy proceedings all of our business segments continue to execute well on our operating priorities for the year, which is reflected in our solid results for the second quarter. We also continue to invest in our premier infrastructure assets, primarily through the build-out of fiber networks from macro backhaul towers and small cells as well as new tower builds as our wireless carriers are moving towards a broader rollout of 5G wireless services. With this expected closing of the Bluebird transaction later this year Uniti will have nearly six million strand miles of valuable owned fiber. A significant portion of that fiber uniquely positions both Uniti Fiber and Uniti Leasing to capture the increasing demand for wireless and non-wireless services. At Uniti Fiber, we continue to execute on our strategy of replacing shorter-term lit wireless backhaul with longer-term contractual dark fiber and small cell revenue, as well as leasing up our anchor wireless builds, primarily through non-wireless services such as enterprise E-Rate and government. This is reflected in our strong levels of bookings and installs in the second quarter, which I'll detail shortly. As a reminder, these lease-up opportunities drive attractive incremental cash flow yields at substantially less CapEx than our anchor wireless builds. We're also announcing today the sale of our U.S. ground lease business, which I will cover in more detail later in the call. Similar to the recent sale of our Latin American tower portfolio, the sale of our U.S. ground lease business recycles capital at attractive returns while also allowing Uniti to primarily focus on a strategy of building towers within U.S. We currently have consolidated revenue remaining under contract of nearly $10 billion and excluding revenue relating to…

Thanks Kenny. Good afternoon, everyone. It was a busy second quarter for Uniti and I expect the pace of activity to accelerate for the balance of the year. During the quarter, we accomplished a number of key objectives. First, we strengthened our balance sheet with the exchangeable note offering, and improved our debt maturity profile with a 2-year extension of our revolver. Second, we closed in the sale of our Latin America tower business. And our U.S. ground lease portfolio, adding $130 million to over liquidity. Third, we settled our Hurricane Michael insurance claim to Uniti Fiber, for over $12 million. And last, we continue to work through the Windstream bankruptcy process, with our stakeholder interest being our top priority. As importantly, our business units continue to perform well. And industry dynamics continued to be favorable. With that backdrop, I'll start with a review of our second quarter. And then discuss our updated guidance. Turning to slide 5, we reported consolidated revenues of $264 million which was up 7% from the same quarter in 2018. We achieved consolidated adjusted EBITDA, of $270 million -- I'm sorry $207 million, up 5% from the same period in the prior year. AFFO attributable to the common shares was $105 million. And AFFO per diluted common share was $0.55. Net income attributable to common shares for the quarter was $38 million or $0.20 per diluted share. Net income was impacted by a handful of items that did not affect AFFO, including one, $28.8 million of pre-tax gains on the sale of our Latin America tower portfolio and U.S. ground lease business. Two, a $22.3 million gain on changes in fair value of contingent consideration and three transaction and integration-related costs of $7 million that partially offset these gains. Our diluted share calculations were also…

Thanks, Mark. Turning to slide 12. We sold our ground lease business to wireless infrastructure fund for approximately $34 million or 18 times annualized run rate cash flow. The portfolio consists of 64 ground leases located across the U.S. Not only did this transaction realize value for our stockholders, it also allows Uniti to focus solely on the development of our U.S. tower portfolio, which continues to be a significant part of our overall strategy to provide a full suite of solutions to our wireless and non-wireless customers. I'm also pleased that this is the third example of Uniti recycling capital and locking in attractive returns for our stockholders including the sale of our Latin American tower portfolio and the sale of Uniti Fiber's Midwest operations as part of the Bluebird opco/propco transaction. Before turning the call over to Q&A, I'd like to provide a brief update on Windstream. We are encouraged by the continued efforts by both parties to reach a mutually beneficial outcome regarding the master lease. In fact, we've agreed with -- we've agreed to mediation with Windstream and in order to further facilitate productive discussions among all parties, we've also agreed to an extension of the assumption deadline for the master lease through December 6, 2019. Windstream has in exchange provided certain assurances regarding the continued payment of rent pursuant to the master lease during the extension period and beyond. To be clear, we did not agree to mediation nor the extension because our view of Windstream's and its creditor's claims has changed. In fact, we continue to believe those claims are not meritorious and encourage interested parties to review our filings with the bankruptcy code to understand the strength of our position. If we're unable to reach a mutually beneficial outcome in mediation, we are prepared to vigorously defend our network and our rights. With that said, during the extension period both Uniti and Windstream have agreed to make -- have agreed not to make any further public comments regarding the mediation process or on any motions that have been brought forth in the bankruptcy proceeding so far except were required by law. Therefore, we will be limited in answering any questions on the call today relating to Windstream. Operator, we are now ready to take questions.

[Operator Instructions] Your first question comes from the line of Frank Louthan from Raymond James. Your line is now open.

Great. Thank you. Can you give us a little more bit color on the ground leases? What was sort of the nature of those leases? And are any of them under -- your towers are still connected with any other assets that you own?

Hey, Frank, it's Kenny. So in reverse order no. None of these ground leases were under our existing towers which is actually part of the rationale for signing to sell them. But secondly, it's really -- it's just leases that we have accumulated back in 2016 and 2017 all over the country. We had a program to go out and accumulate these believing they were good long-term investments. But ultimately, as we got deeper into the tower business and have numerous opportunities to deploy capital there, we just decided to allocate capital more towards towers versus the ground leases, because we believe that's a better long-term investment for the company. So that's why we decided to sell them.

Okay. And any other assets like that that you might consider consolidated solds and telephone poles for a nice price? Do you have any of those assets that you bid is something like that you might be able to monetize as well?

So, Frank we have a tremendous portfolio of assets that I think would garner premium multiples, if we decided to monetize them including poles for example. But at this time we don't have anything to comment on publicly with respect to that.

Okay. And I appreciate you probably can't comment but has a date set for the mediation and what are sort of the steps that need to happen before you get to there?

Frank, I'd love to comment on that but I'll just refer back to our prepared remarks on Windstream-related questions.

You can't blame me for asking. All right. Thanks.

Your next question comes from the line of Philip Cusick from JPMorgan. Your line is now open.

Hey, guys. Thank you. Kenny, your MLA on the tower side does that contain a minimum number of towers? Or is there standard agreement for pricing across your sites?

Hi, Phil, it's Kenny. It's more of the latter. There are no commitments from the customers' perspective, nor from ours in terms of volume. So it's really more pricing related and other important terms.

And do you have any data you can share with us on lease-up at this point?

Not yet on towers. Obviously, we track it very, very closely. It's obviously a critical – critically important part of the returns for that portfolio. But what I can tell you is that, it's tracking in line with what we expected when we underwrote that business. So we're pleased with it. And I think in the near-term we'll be providing more color on lease-up.

Last thing, can you just give us the sort of same-store sales growth averaging only a year ago? What might revenue have grown year-over-year? Thanks again.

So we've added about – probably about $0.5 million of revenue to those towers but as Kenny said we'll try to give you some more metrics on lease-up because we really need to split it out to make a meaningful kind of value vintage here. And so we'll try to do that in future. We're actually working on some of those metrics now.

Thanks, again.

You bet.

Your next question comes from the line of David Barden from Bank of America. Your line is now open.

Hey, guys. Thanks for taking the question. I guess I have kind of three questions. In terms of the mediation like how does that look different than the kind of arm's length negotiation that you are – have engaged in arguably presumably talking about meeting the Windstream for a year or talking about mutually beneficial outcomes in? Is there any color you can give us at all about why mediation looks different than anything that you've done to this point in time? I guess, the second question would be could you elaborate a little bit on any relationship that you've already established with DISH to this point in time and what that could look like? And I guess, the third question would be we saw Crown downgrade their growth expectations because of the municipal approvals process being an impediment to their growth rate. Could you talk about kind of what your experience is or has been or if there is a difference between kind of the second and third tier markets that you're involved in versus the kind of major metros that they been involved in? Thanks.

Sure. David, it's Kenny. I'll try to take each of those and Mark will keep me honest. But first on mediation, yes, unfortunately I can't comment beyond what we've said in our prepared remarks other than to say we're not surprised by this outcome. So it was not something that we hadn't expected with respect to mediation. With respect to DISH, yeah, -- not a lot to say other than we've been working on that relationship. We don't currently do a lot of business with DISH just given the nature of their business. But we have been engaged in conversations for some time and we really believe given what they're trying to do what they talked about publicly and what we know otherwise about what they would like to do. There's a great opportunity for us to really help them with respect to not only backhaul but macro towers and potentially small cells and including potentially some of the potential decommission sites as part of the Sprint and T-Mobile merger. So more to come on that, we prefer not to get deeply into that. With respect to permitting in some of the issues there, what I'd say is – with respect to our tier two and three markets we continue to be very, very pleased with the competitive dynamics in those markets with the growth potential there I think is – you continue to see the growth in bookings. We're very pleased with the continued growth in the non-wireless bookings in particular, which is indicative of the lease-up of our networks. So that's very good. Our churn rates continue to be low if not below market churn. So we're very pleased by that. And all of that to say, the real governor on growth for us is in fact installs and so we're very focused on growing installs and there are portions of installs -- or certain elements of installs like permitting and weather the labor market and other things that are outside of our control that are impacting us. And so long way to answering your question directly David. We do see permitting issues and it's really a market-by-market analysis in markets where we're going in for the first time where small cells may not have been to fully previously, for example, we tend to see longer delays. But if it's in existing market one that we've been in for many years or one that we've been in for even two or three years, we don't see delays at all. So it's hard to generalize other than to say, we do see permitting issues as one of the issues that factor in to our installs going forward.

Thank you for that. And if I can ask one follow-up would be, obviously, the cap two exploration coming up has become a topic all of a sudden in this space. As you look at the NPR and the SEC put out just the other day, do you see opportunities for UNIT in that space? Or is that separately distinct from your goals?

Yeah. David we're actually looking at that closely not only because it impacts our customers, but we're also looking at it. We've had a number of our customers approach us about potentially finding ways to do joint bills using some of their funding. So there are some opportunities. It's too early for me to elaborate on it, because I'm not sure if they'll materialize or not. We're looking at it from both angles.

Okay. Great. Thanks guys.

Your next question comes from the line of Michael Rollins from Citi. Your line is now open.

Thanks for taking the question. Curious if you could help frame within the Fiber business, the revenue growth that you're getting relative to the capital required? In other words, you didn't spend a success-based CapEx on slide 8. What would revenue growth look like in the absence of that? And how do we think about the relationships over the next couple of years between the capital and the revenue growth? Thanks.

Yeah. So Michael let me try to answer your question this way. I probably don't have the exact math that you're asking for here with me. But what we said is that we expect the business to grow in the 8% to 12% range long-term. We've been a little bit below that in the first half of this year, but as Kenny mentioned in his prepared remarks, the install rates which are a big focus of what we're currently -- are big focus right now have -- we had the best install rate in the last six quarters. So we expect that to improve over the balance of the year. We've always said that churn replacement CapEx, there is a component of that that we don't break out, but that's probably somewhat equal to maintenance CapEx so on top of the maintenance CapEx numbers that we report. So -- and then in terms of the cap potentially what we have consistently said is that as you know the dark fiber projects, as I said in my remarks will come on at an anchor yield of about 6%. We expect to continue in -- working out to lease-up and had been working to lease-up those builds as they come on and we'll have more to report on that as we go into next year. But generally those anchor builds, we'll underwrite those to somewhere in the double-digit range in terms of what we expect the yields to be as we add on multiple tenants. So I'm sure that as I said I think you're asking a little bit more quantitative, but qualitatively I think directionally that's the right -- that's the answer to your question.

That's helpful. And are you seeing -- you mentioned a 6% upfront yield. How does yield has been trending? And do you see them at some point turning up where whether because you have fiber that certain companies need or certain routes that are really in demand that you could try to improve the upfront yields on the capital over time?

So in terms of the yields on new projects, I would say that the yields or new projects are really very specific depending on the carrier and the particular project that we're working on. Obviously, the yields are dependent on a lot on both pricing as well as the NRCs that we're able to negotiate as well, and so I'd say that -- but I would say from the ranges that we gave in our presentations, no real change from those yields on new projects. And I think I don't really have anything to add in terms of the lease-up on the existing projects that we're completing or any new projects. I think, again, we always underwrite those to about the double-digit return range that I expressed previously.

Thanks.

Sure.

Your next question comes from the line of Simon Flannery from Morgan Stanley. Your line is now open.

Thanks a lot. Good evening. I've just a couple of housekeeping. If you could just clarify on Hurricane, Michael, I thought one point you said $12 million and then $5.8 million in the number. So is it just the $5.8 million? And does that hit revenues at all or just an EBITDA? And then Kenny I think you said at one point that you would be more focused perhaps on sale and leaseback type transactions more on the leasing area. Is that to say that you probably won't be doing many more fiber deals that you're really going to be growing that business organically and that the kind of acquisition M&As really pivoting? And if that's right, just what's the driving force behind that? Thanks.

Yes. Simon, this is Mark. Thanks for calling in. I'll take your first question on Hurricane Michael I did say both numbers. So the $12 million was the cash settlement that we received from insurance carriers and then the $5.8 million was the gain associated with receiving those proceeds. So it's a gain related to what we have previously booked on the recovery -- has estimated for recovery. And so on the $5.8 million gain that is included in Uniti Fiber adjusted EBITDA and I give you those numbers in the adjusted margins Uniti Fiber both with and without but it is included in adjusted EBITDA the gain is not included in any revenue numbers.

Great. Thanks. That's helpful.

Hey Simon, it's Kenny. So respect to your second question you're right, we are very focused on new sale leasebacks and business in Uniti Leasing. And so that has been the focus will be the focus. So that's really new sale leasebacks that's new opco/propco opportunities are on assets that we currently don't own or just buying assets outright. So there's a lot of opportunities there in addition to of course leasing up our existing portfolio of assets. But within Uniti Fiber we do continue to plan to do acquisitions there. I think it's probably going to be more bolt-on in nature. The first four acquisitions that we have done were all generally larger transactions that were purposely done to build up our portfolio company. So I think in future deals there will probably be smaller bolt-on types but also we might look at opco/propco opportunities using some of the Uniti Fiber assets like we did with the Bluebird transaction. So one of the real advantages of Uniti Fiber is that it brings optionality to us in strategic ways and the Bluebird transaction to [indiscernible] included the operations of our Midwestern assets from Uniti Fiber and I think that made that transaction a much more attractive transaction for both us and our financial partners. So there's a lot of optionality and benefits that Uniti Fiber brings in addition to just acquisitions.

Okay. And on -- do you think that you can do these transactions while the settlement or the resolution with Windstream is pending? Or is this more kind of happiest conversation but the counterparties probably want to see clarity on that?

Yes. It's hard to say. I mean we've done one this year during the filing I think a smaller one earlier this year. We've got others in the funnel that we might execute on. So it's probably a question of liquidity and how sizable the transaction we want to do just given the volatility of the -- in the cost of capital. So that's top of mind. With respect to counterparties and their willingness to transact, we haven't seen any of our opportunities fall out of the funnel. So -- but having said all that Simon with the volatility and some of the -- just rhetoric and uncertainty around the process, I think you'll see a pickup in activity once the bankruptcy is behind us.

Great. Thanks a lot.

I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Gunderman. Please continue.

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.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and have a wonderful day. You may all disconnect.