Welcome to Uniti Group's Third Quarter 2020 Conference Call. My name is Sonia, and I'll be your operator for today. A webcast of this call will be available on the company's website, www.uniti.com, beginning November 9, 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 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 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. Please turn to Slide 4 in our presentation. We have another successful quarter at Uniti with our fiber and leasing businesses, both performing well. We continue to see strong demand for our wireless and non-wireless service offerings at Uniti Fiber, while focusing on meaningful lease up of our major wireless anchor builds. At Uniti Leasing, we're also driving incremental lease-up on our national fiber network of 124,000 route miles. This is underscored by the strategic OpCo transaction that we are announcing today with Everstream. I'll have more comments later in my prepared remarks regarding this transaction. But this deal reinforces the substantial value of our national network, including the fiber required in our settlement with Windstream. , : With 124,000 route miles of fiber, Uniti is one of the largest independent fiber providers in the country with a national network spanning across 42 states. As it relates to COVID-19, we continue to see minimal disruption within our businesses. The majority of our employees continue to work from home, while our remaining employee base is actively working in the field with first responder designation. Although there was a decrease in IP traffic on our network early on during the pandemic and then leveled off, we saw traffic levels returned to pre-COVID levels during September. Our insulation activity in the third quarter remained robust, and we've not seen any orders nor service cancellations from customers as a result of COVID-19 with only marginal delays relating to new sales and install activity. As reminder, less than 5% of our revenues from enterprise customers and 75% of those enterprises provide essential services. Thus, we expect any future impact from COVID to continue to be minimal. Demand from critical industries such as healthcare, education and…

Thanks, Kenny. Good afternoon, everyone. Our settlement agreement with Windstream became effective this quarter. And accordingly, our financial results and our revised outlook reflect the impact of the various elements of the settlement agreement. And our guidance has been updated from the estimates provided on our last earnings call. Therefore, I'll start with a summary of the major components, how each is expected to affect our financial statements. And then I'll refer to certain aspects of the agreements during the balance of my prepared remarks. As you know, Windstream emerged from Chapter 11 on September 21, concurrent with our settlement agreement becoming effective. The bifurcated ILEC and CLEC leases, which are cross-defaulted and cross-guaranteed, are now in effect with current aggregate annual cash rent of approximately $665 million. At closing, we acquired and received rights to $2.2 million fiber strand miles and dark fiber IRU contracts generating annualized revenues of approximately $29 million. We issued 38.6 million shares of common stock, receiving $244.5 million in proceeds that were transferred to Windstream as settlement consideration. We also made cash payments totaling $40 million relating to the purchase of fiber assets and the IRU contracts. Our financial accounting purposes, we are generally required to combine the consideration provided to Windstream and allocate that consideration to the identifiable and separable components of the settlement at their estimated fair values. During the third quarter, we recorded assets of $73 million, principally representing the 400,000 strand miles of fiber and dark Fiber IRU contracts Uniti acquired for Windstream. Our balance sheet at quarter end reflects a settlement obligation payable that is valued at $438 million and represents the discounted value of the $490 million as settlement payments we are required to make to Windstream over the next five years, subject to certain prepayment options at…

Thanks, Mark. Please turn to Slide 13. We've entered into a strategic OpCo-PropCo agreement with Everstream for total upfront consideration to Uniti of $135 million. In addition to the upfront proceeds, Uniti will receive annual fees of approximately $3 million from Everstream over the initial 20-year term of the IRU lease agreements, subject to an annual escalator of 2%. As far as the transaction, Uniti will enter into two 20-year IRU agreements to lease Everstream 220,000 strand miles of Uniti owned fiber across 10,000 route miles in eight states within the Northeast and Midwest, including 165,000 strand miles of fiber, Uniti acquired as part of the settlement. Also Uniti is agreed to sell Everstream a portion of Uniti Fiber’s Northeast operations, and certain dark fiber IRU contracts Uniti acquired as part of the settlement, that on a combined basis, currently generate approximately $24 million of annual revenue and $17 million of annual adjusted EBITDA. With this transaction there are several key things to highlight on Slide 14. First the transaction increases the total contract value to Uniti by approximately $107 million. Secondly, we’re replacing actively managed lit services revenue with passively managed dark fiber revenue. This not only extends the average contract term from approximately four years to twenty years, but also improves the average margins from 73% to a 100% and virtually eliminates any churn risk. Lastly, this is a material lease up transaction on the recently acquired Settlement fiber and highlights the strategic value of this network to Uniti. We continue to have substantial fiber available for further lease up, including in these northeastern markets. In closing, we continue to focus on driving high margin, low churn recurring revenue in all of our businesses. We’ve deemphasized or sold non-core operations that do not fit this profile such as our non-strategic construction business, which we expect to be mostly wound down by the end of this year. We also fully wound down our residential CLEC business, Talk America last quarter. As a result of our actions, 97% of our revenue is now recurring with an average term of approximately nine years, while company-wide churn also remains low and for the quarter was 0.3%. With the addition of the Everstream deal and our expectation to pursue similar transactions in the future, we are actively working to improve and build upon each of these key metrics. With that operator, we're now ready to take questions

Thank you. [Operator Instructions] Our first question comes from Frank Louthan with Raymond James.

Great. Thank you. So Mark you mentioned refinancing the revolver. Is that – I assume that would include a path to getting out of the current covenant restrictions you have with your current revolver. And just to be clear, does the guidance all includes sort of the puts and takes for all these different transactions that you've talked about and they closed in the quarter and so forth as well? Thanks.

Yes. So the guidance does include all the transactions absent Everstream, which obviously as I mentioned, is scheduled to close next year. In terms of the revolves yes, I would expect that any revolver refinancing would eliminate the covenant restrictions that are currently in the revolver. Now, keep in mind that those were similar restrictions are also in the last series of notes that we issued. And those will be in effect until we meet the criteria in those notes which primarily would be we need to get leverage to 5.75 on a net debt basis. So they won't be in the – I wouldn't expect them to continue in the revolver, but they will stay to be in the bond until we meet those criteria.

What do you – what is your outlook for getting there? Does this Everstream transaction help a bit? I mean, how should we think about that?

Yes, so I don't want to give a specific timeframe. There's different ways that we can get there. We can get there partly by doing additional transactions that bring in upfront proceeds like the Everstream transaction or over IRU sales. We can get there just by growing EBITDA and cash flows over time. And we can also get there by doing transactions to the capital market. So I would expect us to get there sometime in 2021. But when we get there and how to get there would just depend on a little bit – partly opportunistic and partly when transactions get closed.

All right, great. Thank you.

Thank you. And our next question comes from Brett Feldman of Goldman Sachs. Your line is now open.

Thanks for taking the question. You sort of reiterated during your remarks that you're going to be increasingly focusing on winning business where you can lease up the existing fiber assets you have to have a positive impact on your capital intensity. So I have two follow-up questions to that. First, it would seem like if that's really the way you are operating the business organically other than maybe looking to accelerate delevering, it seems like you could probably fund your business with cash that you generate and maybe incremental debt means you can do off the balance sheet without equity. And I'm curious if that’s the fair way of thinking about it? We've kind of thought that equity might be predominantly used for M&A, but if you have a different view on how equity fits into the cap structure, that would be helpful. And then second, putting aside some of the near term puts and takes in terms of just kind of completing the process and getting out of all the residual elements of the Windstream deal, including some of the covenants, why not look to deploy more capital? I mean, you can make the case that you've never had a more attractive access to the capital markets in light of all of the deals you've done to resolve the Windstream situation. So why ratchet down CapEx now?

Yes, Brett, this is Kenny. I'll take those and Mark may want to add. But first on your first question, I think, your instincts are correct. I mean, when you look at our pivot away from being largely construction and greenfield to now being increasingly, and eventually, predominantly lease up, you are going to see lower capital intensity and better margins in the business. And you are starting to see early signs of that now, but you'll certainly see that going into 2021. And as a result, you are going to have an organic – effectively an organic de-leveraging by EBITDA growing. And so funding the business through cash flow and a new debt is certainly a possibility and strong possibility. And using equity for M&A is something we've done in the past. It's something we're doing as part of the settlement, which I consider essentially M&A. And so I think your instincts are all right there. Personally, equity is not even on my radar screen for raising capital right now. We've got plenty of other alternatives and attractive opportunities. With respect to your second question, I think, you are right, that there's a terrific opportunity to put capital to work today in our business, both organically and through M&A. And that opportunity has probably never been better. And when we look at organically greenfield builds or just carrier projects, they are not all greenfield builds, but the non-greenfield builds require capital. There's just really strong tailwinds in the business, a strong pipeline of opportunities. For example, today, we have within our grasp, $7 million to $10 million to $12 million of recurring revenue for wireless projects that we could easily, I think, relatively easily take on that add capital next year and the year after that would certainly increase our capital intensity and lower our margins. But are really attractive projects that could add to growth. So it's really just a balance between how much we want our capital – what level we want our capital intensity to be, what we want our margins to be. And but the opportunity is there. There's no demand problem. There's no shortage of demand. There's no shortage of opportunities. And particularly with the success that we're showing on leasing up these markets and leasing up these anchor awards, I feel a great deal of confidence. And I think our Board feels a great deal of confidence in pursuing more anchor builds and more greenfield builds, because we've proven that we can drive those yields to 14% and 16% like we talked about in our prepared remarks. But with all that said, it's a balance with capital efficiency and balancing that with the balance sheet and with cash flow.

Great. Thanks for the color.

Thank you. And our next question comes from David Barden of Bank of America Merrill Lynch. Your line is now open. Okay.

Hi guys, thanks so much. So Kenny, maybe the first question for me is as a function of the settlement with Windstream, you've got a new cohort of equity holders. I'm wondering if you have any sense? And specifically with respect to the Elliott cohort kind of what their intentions are with respect to those shares are they working with you, are they looking to just monetize in the short term, are they looking to see the long term and hold? If you had any color, that'd be super helpful. I guess the second question is for Mark on Slide 6 if I do the math on contract value minus upfront, IRU payments; and annual revenue minus the $18 million of IRU memorization, it implies about 4.7% yield. And I'm wondering if I'm doing that math right and if I am, how are you getting there from a cost of capital perspective in terms of explaining those opportunities? And then I guess the last question, if I could, would be there's so many moving parts now in the fiber business, because you're doing all these transactions, and you're selling this piece and you're buying that piece. And I know that there has been a slowdown with respect to permitting COVID and all these things, but what do you guys think we should all assume as the underlying core growth rate for Uniti’s fiber services business right now? Thank you.

So David it's Kenny. On your first question we have a regular dialogue with our shareholders some more, some less but certainly don't want to give any color on what shareholders share with us. With respect to the new shareholders who got equity as part of the settlement, we have a very good dialogue there and have preceding the bankruptcy. So we think that will continue. The one tangible thing I can tell you is with respect to Elliott there is a one-year lockup on their shares. And Mark, keep me honest on that, but I think it's one year lock up on their shares. And I'll come back to – let Mark come back to the second question. On the third question, David you're right. There's a lot of moving pieces. And some of these are as a part of businesses winding down and part of this is because of lease up, and part of this was because of M&A. And part of this is because of just the pivot from construction, more of a construction mode to lease up mode. I think when we get to 2021, a lot of these moving pieces will be in our rear view mirror. So when it comes time to give guidance for 2021, we intentionally planned a lot of the changes that have been in process to coincide with Windstream's exit from bankruptcy and coincide with being able to give a much clearer picture for 2021. And ultimately the end result will be nice growth in the fiber business. And we'll be able to give a more, clear picture of that. Mark, do you want to take the second question?

Yes, Dave, I think about follow what you're saying on the math, right. I think your math was assuming that the total contract value to $1.2 billion is capital deployed. I mean, the total contract value, if you look at the definition that we have total contract value is just the annual recurring payments times with links with the contracts. So realistically here there's almost – there's a very little capital that has to be deployed because this is lease up on existing network. So I don't think you are math is exactly right, but if you want to call back when we get off the call, I have to kind of work through the numbers with you. But the total contract value is not capital deployed. There's virtually no capital deployed and incremental lease up.

Perfect. That's helpful color. Thank you so much both.

Sure Dave.

Thank you. And our next question comes from Simon Flannery of Morgan Stanley. Your line is now open.

Great. Thank you, very much. Good evening. Mark, on Windstream, I noticed in the queue that you didn't attach financials but you are monitoring their performance. Where do you stand in how much information we will get over time in terms of the 10-Ks, or whatever? And anything you can tell us about how Windstream's Q3 was, would be great. And I wonder if you could just also help us with the Everstream accounting a little bit. How do we think about next year you got a $73 million IRU or upfront from the IRU? So, I’ll call that $4 million a year of straight line, and then another $3 million in payments. So you're recognizing maybe $7 million a year. Is that right on? And then on the other side you're losing at least for the first four years, the EBITDA from the Northeast ops, which is, I think, you said it was $17 million, something like that in EBITDA. Is that the right way to think about the near term impact of those transactions? Thanks.

Yes, so I'll start with Windstream. So in connection with filing our 10-Q we do expect to attach their annual financial statements, as part of our annual filing. And then I would expect when the quarterly files…

10-K not the 10-Q right?

I'm sorry. Yes, sorry. I said the wrong thing. So on the 10-K as far as our annual 10-K filing I do expect that we'll be including annual financial statements as part of the 10-K. And then on the quarters, we will continue to give quarterly updates as part of our quarterly 10-Q filings. I can't tell you exactly what the format of that will be, but we'll continue to give updates. We don't have the third quarter information for Windstream quite yet. So I can't wait to tell you about how those about – how all that looks yet, but we will be getting – you will be getting updates in connection with that.

So you might do an amended 10-Q, you might share with those filings?

We can do it that way, depending on what information is available at the time of the Q filing. And same thing with the 10-K. The 10 K information may be attached with the 10-K or maybe done separately with a separate 10-K/A or an 8K subsequent to year end.

Right.

Okay. And then all your question about the Everstream accounting. So just in terms of the way it would affect 2021, and keep in mind that we expect closing probably in the second quarter of next year. So what you would have is you'd have – so I'll kind of give you this one as EBITDA by – let me get it to you on a revenue basis, maybe we can kind of work through it. So on the operations that are being served on an annual basis, you would be subtracting at about $20 million of the dark fiber contracts that we get from Windstream that are being served as part of that transaction, that would be a negative about $3.5 million. And then on the Everstream, IRU on the deferred – on the upfront payments, there will being an amortization component to that of about $3.6 million. And then on the annual payments that we mentioned, that would be about $3 million a year as well. So those would be the primary revenue components that would affect 2021. Now, keep in mind, again, those are full year numbers, so really we have to take a pro-rider amount to reflect the transaction expecting to close in April.

Great. Thank you. And then any update on the thoughts on dividends it sounds like you're obviously a part of the revolver where negotiation will be part of that conversation with anything new to add there?

I don't think the dividend is so much tied into the revolver discussions. It's really just a Board decision that we'll make and would expect to communicate when we give guidance on the next call.

Thank you.

Thank you. And the next question comes from Tim Long of Barclays. Your line is now open.

Thank you. Yes, just two questions if I could. First I did want to follow up on the slide with the leasing sales pipeline. Could you just give us a little color on what you think timing could look like for that? And any of those buckets mentioned from a customer side that might be a little bit more upfront loaded in that opportunity set. And then secondly, if we just get back to the wireless customer base, and you talked about 5G service rollout, are you starting to see uptick of activity there with new spectrum coming, et cetera? And any impact on what we would expect to see from small cells over the next a year or two? Thank you.

Hey Tim it’s Kenny. On your first question on timing, it's hard to predict specifically because the sales cycle on many of these transactions are longer because they are generally larger transactions, negotiated transactions, as opposed to cookie-cutter, because your – these are really network solutions and you're piecing together in many cases, numerous routes. So in the past we've not given specific guidance on our national infrastructure lease up. What I would point you to, however, is the cadence activity that you saw after we did the CenturyLink National Network acquisition. And what you saw were you generally saw one or two larger deals initially, and then you saw sort of a steady drip of smaller deals and then occasionally a larger deal. And so it was a little bit steady drip, and then mid-size to larger transactions. And I think that's probably the cadence you'll see here based upon the funnel and the timing that I see in the funnel based on conversations. But with all that said, in general it's a very, very healthy, funny funnel, very good conversations with a good cross section of customers and carriers, which we show you graphically. So feel very good about it. With respect to wireless activity in our markets continue to see very strong activity. And as I was suggesting earlier, we're actually at a point where we're deciding how many new opportunities we want to take on, is sort of a luxury position to be in versus spending our capital on lease up. So it's a nice place to be, plenty of activity on both traditional backhaul, fiber-to-the-tower, in addition to an increasing amount of small cells. And to your point there, small cells have never been a huge part of the opportunity set in our markets generally because we're in the Tier 2-ish and Tier 3-ish markets. But we have always said that they are coming eventually, NFL cities first and then our markets second. And we are starting to see more activity. And we're starting to see that activity across all of our customers, as opposed to just one or maybe two. So still too early to say it's like the dam bursting. But perhaps, later in 2021, maybe into 2022, we'll see a substantial pickup. But for now we're just seeing the early stages of it on small cells in particular.

Okay. Thank you very much.

Sure.

And our next question comes from Phil Cusick of JPMorgan. Your line is now open.

Hi guys. Thanks. I saw that Windstream took some of the GCI funding down. How do you think about that both for the fourth quarter and for 2021 at this point?

Mark, you want to take that?

So for this year we forecast $90 million GCI investments. I don’t really have a forecast to give yet for 2021 hopefully will be in a position to do that on the next call. But I don’t have a forecast next year to give you.

Can you share with us some of where that money is being used so far?

Phil it's Kenny, I can start and then Mark can add a little more color because there was – he gave some color in his prepared remarks. Just as a reminder, the program is designed to have underwriting standards. And those underwriting standards are fairly well laid out in the lease agreements, which are public, but the upshot is the investments are – they have to be in largely in long-term value accretive fiber. And they also have to come with a minimum return threshold for our tenant. So there has to be a basically a business case for the investments in long-term value accretive fiber. And there's some other criteria, but those are the sort of the headline criteria. What we have seen so far and what we expect is that the vast majority of this is going to be built is going to be fiber-to-the-home, which we’ll be extending our current network into the home. And then tying back into the metro and long-haul aspects of our fiber business. But we think a lot of it's going to be spent in the ILEC upgrading copper-to-fiber. And there will be some of it spent on in the CLEC, either building new routes where we have the ability to joint build, cost efficiently for both us and Windstream and potentially overbuilding some routes in the CLEC. But we're very happy with the investment program as we've seen it and as we understand it. And obviously we're going to have a proactive hand in that plan as part of our underwriting standards. But Mark, do you want to comment on where some of the current investments have been made over the past quarter?

Kenny, I think you covered it well, I mean, I said in my prepared remarks, it was 35,000 fiber strand miles that were in 13 different ILEC markets. But I think – I mean, the markets generally we're in kind of Alabama, Arkansas, Florida, Georgia, Iowa, a vast number of markets in ILEC territories. But I think – other than that, I think, Kenny covered everything.

Okay, that's helpful. And last one from me, the Everstream deal wasn't that, I guess, predicated on the Windstream close, or was that sort of waiting on that Windstream close? And if so, are there other substantial deals that we're waiting on that Windstream close that can now sort of fall in line? Thank you.

Phil we definitely started negotiating with engaging with Everstream well in advance of the settlement closing. But after knowing that we had a deal on the settlement. So with that said, I don't think the deal would have happened, could have happened without the settlement. So discussion started well in advance, but in anticipation of a settlement closing. So, the point being the settlement was a critically important part of bringing that deal together for us. There have certainly been other conversations that have started and are progressing through the sales funnel. And so in terms of timing and just general cadence, I don't want to give any specific guidance there, but these are long sales cycles, many of them have started months in advance and they are progressing very well through the sales model.

Great. Thanks Kenny.

Thank you.

Thank you. And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Kenny Gunderman for any closing remarks.

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

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