Welcome to Uniti Group's First Quarter 2020 Conference Call. My name is Ann 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 May 11, 2020 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 are 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 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. Please turn to slide four in our presentation. Before I review our operational performance for the first quarter, I'd like to first discuss how Uniti has been impacted and is responding to the COVID-19 pandemic. First and foremost, Uniti is focused on the health and safety of our employees', customers and vendors and is vigilantly following federal and state suggested guidelines. As a result, approximately 70% of our employees are working from home. Our remaining employee base remains active working in the field with first responder designation, maintaining our network, servicing existing customers and installing services for new customers. We're taking every precaution to keep these employees safe while remaining active especially since our customers are demanding our mission-critical service now more than ever. In fact, our installation activity in the first quarter was quite strong and that momentum has continued into the second quarter. Also, our network continues to perform well. And although we've been -- we've seen a decrease in IP traffic due to stay-at-home, orders wireless carrier traffic has increased by 20% with no degradation in the performance of our network. To date we have not seen any order or service cancellations from customers as a result of COVID-19 and the only discernible negative effects thus far are small and timing-related. For example, approximately [50] [ph] physical locations must remain closed and the timing of installs relating to permitting delays. There's also the potential for another 50,000 to 75,000 of MRR delay related to new bookings from enterprise sales depending on how long businesses and our markets continue to be impacted by COVID-19. Conversely, we have seen a more than offsetting increase in requests from numerous critical industries including health care customers and government entities for communications…

[Technical Difficulty] It proves to be incredibly stable and resilient even in times of crisis and economic downturns, on par with towers and data centers. Accordingly, our operations performed exceedingly well across the board during he quarter and that translated to solid core financial results. Our updated guidance for this year remains largely in line with our previous outlook. We are adjusting our guidance primarily for the timing and change in structure of the sale of our U.S. towers business and slightly higher corporate cost this year, which we expect to decrease to normalized levels in 2021. Please turn to slide five and I'll provide a brief update on our first quarter results. We reported consolidated revenues of $266 million, consolidated adjusted EBITDA of $202 million, AFFO attributable to common shares of $97 million and AFFO per diluted common share of $0.45. Net loss attributable to common shares for the quarter was $79 million, or $0.41 per diluted common share, and included a $73 million write-off of non-cash unamortized debt discount and issuance cost, as a result of the full repayment of our term loans on February 10 and $16 million of transaction-related and other costs. Our Uniti Leasing segment revenues and adjusted EBITDA increased 5% and 4% respectively over the year ago period. During the quarter, Uniti Leasing deployed approximately $5 million of capital, associated with growth capital investment initiatives, principally for Bluebird, at an initial yield of 9.25%. Windstream made $36 million of improvements to our network with their capital during the quarter, bringing the cumulative amount since our spin-off to just over $800 million of tenant capital improvements. Turning to Uniti Fiber. During the quarter, we turned over 300 dark fiber and small cell sites for wireless carriers across multiple markets, adding annualized revenues of $2.5 million.…

Thanks, Mark. Please turn to Slide 11. We've agreed to sell 90% of our U.S. tower business to Melody for approximately $220 million or roughly 34 times annual tower cash flows, a premium of approximately $30 million to the previously disclosed transaction. Uniti will also retain a minority investment interest in the tower business. As part of the transaction, Uniti will receive an incremental earn-out for each additional pipeline tower completed in 2020. We believe this transaction realizes significant value for our stockholders, as it represents an economic gain of approximately $55 million and an unlevered IRR of approximately 20%, which does not factor in potential future upside from our retained investment interest and ongoing strategic partnership. The transaction also allows us to reduce our ongoing CapEx investment while at the same time solidifies a strategic relationship with the new tower company that will enable us to serve wireless carriers with integrated solutions. Turning to Slide 12. Our settlement agreement with Windstream will now become effective at the earlier of Windstream's emergence from bankruptcy and February 28, 2021. The effectiveness of the settlement is still subject to finalizing and executing various definitive documentation, federal and state regulatory approvals and that Uniti received true lease and REIT opinions. We expect that all these conditions will be met. As a reminder, all litigation is stayed during the pendency of the settlement and the master lease remains in full force and effect with Windstream remaining current on its monthly lease payments. On Windstream's emergence from bankruptcy and our agreements becoming effective, we expect to be well positioned for accelerated growth for years to come. Slide 13 illustrates the many long-term benefits our court-approved settlement provides for Uniti including making the master lease stronger, helping Windstream become a healthier tenant and acquiring attractive fiber…

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

Thank you. Walk us through a little bit on the tower business. Can you give us an idea of what the 10% interest that you're going to own is and where that's going to show up? And then, can you comment a little further on what you think the dividend policy might look like when you get all the puts and takes from Windstream? Thank you.

Hi, Frank it's Kenny. I'll start and then Mark can finish up. So as we mentioned on our last call, we were in the midst of a go shop for the tower business. We had a deal in hand, but we were just beginning to engage with other potential parties interested parties. Turns out it was a robust process, good amount of interest. And so as a result, we were able to improve the economics and also just change the terms to make them a little simpler, I would say, where we're effectively monetizing the entire business, including the team, but we're retaining a stake as opposed to having the off-take arrangement as we had it structured previously. So a little simpler, but gives us the same benefits, including improved economics, liquidity, potential future upside in the business, as well as the ability to continue offering holistic solutions to our carrier customers through our strategic partnership with the new business, which again will be the same team that's been operating for Uniti in the past several years. So Mark you want to comment on where that 10% will be accounted?

Yeah, the 10% will be accounted for as an equity and interest. So we'll pick up our share of earnings. That's not in our forecast, because we didn't have a good basis right now to estimate what it was. But it'll be picked up as equity and earnings in our financial results going forward. On your question about the dividend, I don't think there's -- you should really think about the dividend going forward any differently than what I expressed on our call -- on our last quarter's call. So as you know currently, I've given out what we can pay under the restrictions that we're currently under for this year to the extent that we are able to achieve the conditions to hitting the covenant reversion threshold then we would be able to pay out and may consider paying out 100% of taxable income and may also consider paying out any capital gains that we generate this year, and so I think it's, obviously, in order to hit that the two key thresholds are hitting the covered reversion criteria would be Windstream needs to emerge from bankruptcy. And then we need to get leverage to 5.75 on a net leverage basis. And we may very well be able to do that. But in order to do so, we need to execute on some of these things as Kenny mentioned earlier about lease-up of our existing portfolio and then some other asset monetizations as well.

All right, great. And congratulations with the go-shop. I guess, one follow-up there. Longer term, how do you think about the tower business, will it be more of flipping them? And will this partnership part of it? Or will you guys build it up eventually as we go forward?

Yes, Frank, I think this partnership -- one of the reasons this partnership is appealing that I didn't mention is that I think there's a substantial amount of capital that's going to be put behind it by Melody and its LPs. And so I think the -- we think the amount of new towers that are going to be built is probably a lot more than it would have been had it continued to be owned outright by Uniti, 100% by Uniti. So on a go-forward basis I think there's going to be a lot of development activity. We're very excited about that. We're excited to retain an interest in the upside potential. And I think probably for the foreseeable future that will be how we're participating in the macro tower investment cycle.

All right, great. Thank you very much.

Thank you. Our next question comes from the line of Greg Williams. Your line is now open.

Great. Thanks for taking my questions. I just wanted to confirm in your scripted remarks, you said there would be no need to raise additional capital this year. And you did say you would look at recycling capital as you always have. On that question, are you seeing activity in selling possibly your fiber assets? Or are buyers at a pause at the moment? The last question is, from where you sit when do you anticipate Windstream emerges from bankruptcy, what time frame are you planning for internally? Thanks.

Yeah. So on your first question, yes, you heard me correctly that given the tower sale, we have no need to raise additional capital this year. So we have the ability to be patient and raise capital when the time is right as opposed to being required to raise capital this year. I'll let Kenny address your other question.

Yes. So Greg, I think you asked about interest in our fiber asset, Uniti Fiber. The short answer is we get regular inbound interest in that business. So that hasn't changed. In fact maybe the level of interest has probably gone up. It continues to be a very strategic part of our portfolio, has been from the beginning, continues to be. It's a great asset especially now that we've fully integrated the businesses that we've acquired and we're really hitting our stride on the key metrics like bookings, installs, churn, et cetera, really proving out the lease-up of the model. I think that's critically important. And there's tremendous opportunity in that business on a go-forward basis with the tailwinds of 5G especially we think accelerated through this COVID pandemic and just the attractive competitive nature of the Tier 2 markets that we're in. And frankly with this settlement with Windstream, the network has been supercharged with a lot of this fiber that we're getting. And so there's going to be off-net -- on-net savings in areas where we currently have lease network. It will become on-net. And we've got an increase in our leasable capacity by 90%. So the interest has been consistent for good reason and as we've always done, and I think as we've proven we'll continue to consider that interest in a shareholder-friendly fashion while also balancing the fact that we're a REIT and a long-term holders of assets and eventually we think make the right decisions for our shareholders.

And then timing on the Windstream bankruptcy, your best guess -- best estimation on that?

I think Windstream said on the call this morning that they were targeting emergence in the August, September time frame. So we don't have any better information than that. So we're looking forward to them hitting that target.

Great. Thank you.

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

Hi guys. Thanks. It sounds like the timing of the capital raise would come sort of in that September-October timeframe with Windstream. Is that the way to think about it?

Yes. Yes. So, we're not -- if you missed my comments earlier, we're actually not required to raise any capital this year for Windstream or otherwise. So, we don't really have any timing of capital raise in our guidance. And so we'll evaluate capital raises as the opportunity presents itself in the capital markets. But we don't have any requirement to do so.

Okay. Thank you. And then as we think about the potential diversification away from Windstream any movement in terms of potential sellers or partners with the COVID crisis happening out there? Are you seeing a little bit of a shutting down in discussions? Or do people need that capital and pulling forward a little bit?

Hey Phil it's Kenny. So, the interest in infrastructure assets particularly 5G infrastructure assets like fiber small cells towers has not dissipated. I would say it's probably accelerated certainly held steady at the least during this period, especially when you consider that a lot of the interest historically and continuing through today has come from infrastructure funds or private equity or just non-traditional investors and so that interest has not at all dissipated. So, I think we foreshadowed a couple of years ago our likelihood of working with partnering with these types of funds and we've done that now in a number of ways, but monetizing assets whether it be towers or partnering on acquisitions like Bluebird or any Uniti Fiber Midwest operations opco/propco structures and we've done that now three or four different times. And I think there's a likelihood that we'll continue to do that in shareholder friendly value-accretive ways given that interest has not dissipated. So, I think some of the -- probably the public companies where cost of capital are a little bit volatile now there may be some cooling of interest or pause going on. But from our standpoint, both the proprietary M&A discussions and the interest from non-traditional capital sources has not dissipated.

Thanks guys.

Thank you. Our next question comes from the line of David Barden. Your line is now open.

Hey guys. Thanks for taking the question. So, I guess, the first question Kenny for you is Windstream is saying that as a function of this settlement that they arrived at with you they've benefited to the tune of $1.25 billion on an NPV basis. You've historically said that you were willing to talk about the lease if it was kind of value neutral. I was wondering if you could kind of elaborate a little bit on the game theory here and whether this is a one plus one equals three type of situation where them being healthier makes you healthier. If you could kind of walk us through how you thought through this process? And why this settlement is a next good thing for Uniti would be super helpful? And then I think the second thing is you've talked about this pipeline that's been kind of waiting around obviously, the cost of capital that Uniti has been too high to do a lot of deals that would otherwise be doable. At what velocity might we expect things to start to unlock as we get past the August Windstream bankruptcy reemergence, et cetera et cetera? Thank you.

Yes. Good questions David. So, first of all, on the settlement given the public nature of the bankruptcy process it's been somewhat of a challenge for us to comment in a full-throated fashion I would say given how it's been negotiated publicly. And also it's been important for Windstream to be able to articulate to its stakeholders of the value of the settlement in order to get the settlement approved. And so it isn't uncommon to hear those types of comments. But in reality when you mentioned the $1.250 billion of value that this owner brings to Windstream I think the reality is the number is probably higher. And I've said that repeatedly during the mediation that I thought what we were bringing to the table for the Windstream state was higher than that. And I think that doesn't mean that the negotiation was a zero-sum negotiation because it never was and we foreshadowed going into the discussions that it wouldn't be. And what I mean by that is yes, it's valuable to Windstream but it's also materially valuable to Uniti. And when you bifurcate the different parts of the deal and really unpack it and think about it from the standpoint of our historical strategy of investing for our customers, it starts to make more sense. So, for example, the GCI program when we're investing $1.750 billion to upgrade effectively our network. That's in addition to $800 million -- roughly $800 million of investment that Windstream's already made to our benefit. So, effectively $2.5 billion to upgrade our network which substantially derisks our renewal in 10 years. And in the meantime Windstream is paying us an 8% cap rate in order to facilitate those investments which is in line with the 5% to 7% to 8% anchor yields that…

Velocity of transactions and kind of like your capacity to really start executing on the business?

Yes. Good question as well. So we -- look we've never pressed pause on our M&A discussions over the past year 1.5 years, two years. We've continued those -- and in many case, we talk about the proprietary funnel all the time. And if you look back over the past couple of years, we've actually done transactions I think probably the most material one was the Bluebird transaction. And -- but there have been other bolt-ons, smaller bolt-ons both sale-leasebacks and M&A just full on company acquisitions, which we intentionally lowered the size of the deals we were pursuing, because we didn't want to overexpose ourselves to needing to raise capital given all the volatility. So we remain very engaged with counterparties that's one of the reasons it's easy for us to -- or easier for us to monetize assets when we need to. It's also one of the things that causes counterparties to continuously call us expressing interest in assets or interest in deal ideas. We're just -- we're very engaged. And so I think when the moment comes, later this year or early next when there's a stabilization of our cost of capital, I think we'll be well-prepared to reengage and be more acquisitive in terms of assets and companies. So we're looking forward to that.

Good. Great to hear. Thanks, Ken.

Thank you. And our last question comes from the line of Simon Flannery. Your line is now open.

Great. Thank you very much. Good evening. On the Uniti Fiber, what are you seeing in terms of COVID impacts? It sounds like the bookings are generally looking good a couple of delays on E-Rate. But what about permitting and zoning? Any big changes to your construction timing on that? And then on the Windstream GCI program that was kind of designed prior to the COVID crisis. So we have seen some of the wireline peers pulling back on some of their initiatives. How do you think COVID might affect some of the timing of that program or any major changes? And then also, how do you think and how do you work with Windstream around what they might do in the rural digital opportunity fund auction replacing some of the CAF-II. Is that something that you can work with them on? And what are your latest thoughts there? Thanks.

Simon, it's Kenny. I'll try to take all of those and keep me honest, if I miss them. So on Uniti Fiber, yes, we hit this in our prepared remarks. And the short answer is, there's been very little effect from COVID frankly and we had to kind of dig deep to come up with the effects to help put numbers on our script. But essentially about 50,000 of MRR has been delayed from an install perspective, either because customers are not there for us to install or because of permitting delays. And I would say -- And I would tell you that that number has actually come down post the end of the first quarter, because we're starting to now chip away at that basket. We've -- I think conservatively estimated that roughly 50,000 to 75,000 of enterprise bookings may be delayed because of COVID because we don't have salespeople out making physical customer calls. They're doing it virtually and there are certain customers who are just not making purchases today. But even that number I would say is conservative and it's an estimate on our part as opposed to an actual effect to our business. So it's been very minimal. And I think part of that is because when you look at the customer segment across the industry that's been affected the most by COVID it's really the small business area. And small businesses for Uniti represent about 1% of our total revenue. So just that alone causes the effect to be minimal for us. But secondly, I think proven -- the industry largely has proven that fiber infrastructure is truly mission-critical. And this -- I think this healthcare catastrophe and the fact that our services continue to be mission-critical through that has proven that. Now of course…

Great. Thank you.

At this time I would now like to turn the conference back to Mr. Kenny Gunderman for any further comments.

Thank you. I'd like to once again thank all of our employees for their continued dedication during these uncertain times as well as our loyal customers who continue to work hard for us every day. We appreciate your interest in Uniti Group and look forward to updating you further on future calls. Thank you for joining us today and please stay safe.

Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now disconnect.