Welcome to Uniti Group's Fourth Quarter 2023 Conference Call. My name is Gigi, 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 today 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 morning 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 morning, everyone, and thank you for joining. Starting on slide three, I'd like to begin with a review of 2023, and particularly some highlights of a very busy fourth quarter. During the year, despite a challenging backdrop, we successfully refinanced $3.1 billion of debt, resulting in our current business plan now being fully funded having no significant debt maturities until 2027, and over 95% of our debt being fixed rate. We accomplished this while continuing to demonstrate the resiliency of our core recurring Fiber business, with top line growth of 5% in 2023, including Uniti Leasing lease up, and Uniti Fiber enterprise and wholesale growth of 20%, 15%, and 9%, respectively, with continued declining capital intensity. Just as importantly, by addressing our balance sheet, we afforded ourselves the ability to focus on strategic matters. As we foreshadowed during our third quarter call, we recently sold some non-core assets that included our remaining tower portfolio, our remaining investment interest in Bluebird Network, and our sale leaseback with CableSouth, for total proceeds of $87 million, and almost 10 times blended EBITDA multiple. Also, during the fourth quarter, we decided to largely exit the non-core one-time equipment sale business. As a reminder, this business represents reselling of networking and other IT equipment. Historically, that business has generated anywhere between $20 million and $30 million of annual revenue, with margins of 15% or less, thus representing less than 5% of our total adjusted EBITDA. Despite the small contribution to profitability, the unpredictable nature of the business regularly contributes the majority of volatility we see in our quarterly earnings, including the most recent third and fourth quarters. As an example, approximately 6 million of contracted equipment sales that were expected to be realized in the fourth quarter of 2023 have slipped into…

Thank you, Kenny. Good morning, everyone. I'd like to begin by reviewing our fourth quarter performance, followed by an overview of our 2024 outlook. Uniti had another solid year of performance in 2023, with our core recurring strategic fiber business growing at a healthy 5%, while consolidated net success-based capital intensity continues to decline, ending the year at 34%. As expected, non-recurring revenue was lower in 2023 versus 2022 due to lower ETL fee activity primarily related to fewer lit and dark fiber disconnects from the Sprint T-Mobile merger, and to lower one-time equipment sales. We mentioned on our last earnings call that the exact timing of non-recurring revenue and related margins can be difficult to predict, and thus can fluctuate from quarter-to-quarter. As Kenny already discussed, given the low margin and tough-to-predict nature of one-time equipment sales, we have made the conscious decision not to actively pursue these types of sales going forward. Despite these one-time sales headwinds in the fourth quarter, our full-year 2023 adjusted EBITDA and AFFO were essentially in line with our prior guidance. As I will cover in more detail shortly, our 2024 outlook reflects the robust trends we continue to see in our recurring business, the planned exit from most one-time equipment sales, and the impact from the recently announced ABS bridge financing and asset sales. Finally, I'll end with additional commentary on our current balance sheet and capital structure. Please turn to slide 11, and I'll start with comments on the fourth quarter. We reported consolidated revenues of $286 million, consolidated adjusted EBITDA of $231 million, AFFO attributed to common shareholders of $92 million, and AFFO per diluted common share of $0.34. Net income attributable to common shareholders for the quarter was approximately $30 million or $0.13 per diluted share. At Uniti Leasing,…

Thanks, Paul. Before closing, I'd like to make a few comments on M&A. Please keep in mind that we will not be making any specific comments on rumored potential strategic transactions involving Uniti that have been circulating in recent press reports. As an asset-rich company with one of the largest fiber portfolios in the country, Uniti is uniquely positioned to benefit from M&A trends that continue to highlight the value of quality fiber assets, including wholesale and fiber-to-the-home. Over the past five years, Uniti has sold or monetized nearly a billion dollars of assets at premium multiples, and we expect to continue that disciplined, ongoing review of our current asset portfolio. In addition, given our balance sheet and liquidity runway, we expect to be active this year evaluating transformative transactions including the ongoing review of our current asset portfolio. Despite that, however, our primary focus, as always, will be execution of disciplined growth of our core business operations. With that, Operator, we're now ready to take questions.

Thank you. [Operator Instructions] Our first question comes from the line of Greg Williams from TD Cowen.

Great. Thanks for taking my questions. The first one is on the demand you are seeing in Gen AI. You seemed somewhat bullish, but we just came back from MetroConnect this week and you were there, and it seems like a lot of the fiber folks we talked to are seeing unprecedented demand, really bullish. And your comments seem a little more gated or measured on the excitement. Maybe you can help us contextualize what you're seeing versus what I've been hearing from other fiber providers, and how you're seeing it playing out. And then, just the second question is on the lighter bookings in the fourth quarter. You mentioned that wholesale could be lumpy. Is that the case here? And anything to call out would be great? Thanks.

Hey, Greg. Those two questions are not unrelated. On the first point about generative AI and demand we're seeing from the hyperscalers, it's hard to not sound hysterical when expressing how excited we are about it. So, if our comments and the prepared remarks seems muted, that was probably intentional because the demand that we're seeing today, both today and in the future, are tremendous. I saw a presentation couple weeks ago from one of our important vendors, [Sienna] (ph), that showed a 3.5 times increase in demand in the next few years. And they were speaking in terms of zettabytes, which is, I think, two functions removed from the terabyte. And that increase in demand was almost -- was predominantly related to generative AI. And so, I think the demand is huge, it's -- we're in the midst of it now, really the early innings of it, especially for Uniti because we're still putting in place MLAs with a lot of the important hyperscalers. But we're starting to see that demand. And I think it's not just demand on existing network where these providers are looking to acquire conduits, they're looking to acquire strands, they're looking to acquire waves. They're also interested in building a lot of new infrastructure, particularly long-haul routes connecting new data centers. And that's exciting on multiple levels because I think, as we all know, there's a power issue related to a lot of these new data centers. And so, a lot of these guys are looking in tier 2 and tier 3 markets, where the grids are not nearly as strained as they might be in tier 1 markets. And so, that's a nice opportunity for us there. But also, the hyperscalers are a different kind of anchor customer than the wireless carriers, for…

Got it. If I may follow up, you mentioned that you're not pricing to perfection. And I guess we're also hearing that some of these hyperscale providers are providing a very large majority of the upfront costs to help build. And just curious what you meant by the pricing, and if you can talk about that upfront costs or pricing structure? Thanks.

Yes, I think you touched on it, Greg, that's generally right. And we've always talked in the past about the wireless carriers, for example. And just in general, when we talk about anchored customer, we're targeting a 5% to 10% initial yield, and then beyond -- getting above that 5% to 10% is -- you're reliant upon a lease-up model, which we've been executing on that model. But with the hyperscalers as anchored customers, you're not pricing to perfection in that 5% to 10% lease -- anchor yield, you're really -- it's much more collaborative in terms of sharing the cost of initial builds. And in some cases, the hyperscalers are willing to take the majority of that initial cost. And I think that definitely -- the economics on that are obviously attractive. But at the same time, the hyperscalers are taking a good majority of the capacity on those initial routes. So, it's not necessarily a free lunch, but in terms of the economics it is attractive. And I think there's going to be a lot more new infrastructure that needs to be built by these carriers. And so, being a scaled fiber provider, like Uniti is, with a national reach, I think we're one of the go-to providers for the hyperscalers on a go-forward basis.

Got it, it's helpful. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Frank Louthan from Raymond James.

Great. Thank you. And Kenny, just a follow-up on that, when we look at these hyperscale deals, how should we think about them ramping and hitting their full top line potential relative to traditional carriers that are generally a little bit slower? And then, secondly, talk to us about the asset sales. How competitive were those? Did you have a lot of interest? I would assume maybe the towers do, but just curious on what the market is for that? Thanks.

Hey, Frank. I think for the hyperscalers, they have very different models than the wireless carriers. I shouldn't comment on their models. I'll let them do that. But at least for us when we look at the ramp and demand from them relative to the carriers, I think it's both a top line ramp and a profitability ramp and a capital intensity decline. So, if you're comparing us hyperscalers and anchor customer relative to wireless carrier, I think you're going to see less CapEx on a net basis. And I think you're going to see the same kind of mid-single-digit growth, but also I think more profitable deals out of the gate, so that those deals are less reliant upon lease up as I said earlier. So, it's a tremendous amount of demand potential. Again for Uniti, it's well for all carriers in order to do business with any large customer including the hyperscalers you've got to get MLAs in place which takes anywhere from six to 12 months. And we're still in the early stages of getting that done. And despite that, we're still seeing a huge demand potential. So, I think once we get all those agreements in place with the right carriers or the right hyperscalers, we're going to see even more demand in the coming quarters and years. And I don't think this is a one year or two year phenomenon. It's something that's going to be sustained for the foreseeable future. With respect to the asset sales, as you know, Frank, we've been selling towers now for some time. We sold the bulk of our towers a couple of years ago, actually three years ago. That was a very competitive process. I think we still have the distinction of having sold our towers at the highest multiple in the U.S. for a tower business. So, we were very happy about that. The remaining towers that we've sold less competitive, just substantially fewer towers and very little revenue and EBITDA associated with them, frankly. So, it was really more of a bespoke transaction, and the same for the sale leasebacks that we sold. There's really a large infrastructure fund that owns the two loans either -- owns either all or a portion of the two OpCos that were the acquirers of those sale leasebacks. And so, it was a package deal with that large infrastructure fund, and it worked out great for both them and us. We think we got a good value, and we think they also got a good value. So, more of a bespoke deal and speaks to just us having good relationships with the infrastructure investor space as we've had for many years and we were able to put together a nice bespoke transaction that worked for both parties.

Okay, great. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Michael Rollins from Citi.

Thanks, and good morning. Just wanted to follow-up on some of your comments on the strategic front, so, on your first one of your first few slides, you described a disciplined approach. Can you define that for investors in terms of how Uniti thinks about discipline in terms of the types of transactions or transformative actions that can be interesting for Uniti? And then, I noticed that you may have pulled the slide on valuation that you used to include in the earnings deck. I'm just curious, if there's an evolution in how you're viewing the value of the Uniti franchise as you're thinking about transformative transactions? Thanks.

Hey, Michael. With respect to pulling slides, I'm not sure about that one. I'll have to defer that to our IR Group. So, I don't think that was really a conscious decision necessarily. But I think more importantly to your first question, yes, we've always taken the disciplined approach to M&A whether it's as a buyer or a seller. We've sold assets at premium multiples, whether it be towers or ground leases or portions of our fiber business. And I think on a go forward basis that will continue to be our MO if we do sell additional assets. And when we've been an acquirer, we've also been disciplined on acquisitions. We've paid, generally speaking, multiples for fiber businesses that were lower than the market at the time. And I think that's generally been the case. And I think if you look at our portfolio, we're very happy with how all of those transactions have performed on a consolidated basis for us with the benefit of hindsight. So, using that as data to demonstrate our ability to be disciplined, when you look at transformative type transactions, when we really the probably the closest thing to a transformative transaction that we've done is when we re-cut our MLAs with Windstream back in during the bankruptcy. And we said at the time that that transaction was a good mutually beneficial transaction and it was also a very strategic transaction and the strategic merits of it would probably be more revealed over time as opposed to at that point in time. And again, with the benefit of hindsight, we think that has proven to be true too. We think that's been a good transaction for both companies. And so, on a go forward basis, without talking specifically about specific opportunities or deals, I think you're going to see us continue to be disciplined. We believe in mutually beneficial transactions with our potential partners. And I think on a go forward basis that will continue to be what guides us.

And has there been an evolution in your thoughts around how to value Uniti in that context?

No, I don't think so, Michael. I mean, we still feel strongly about the intrinsic value of our business all parts of it. And so, I think public market valuations certainly ebb and flow, private market valuations ebb and flow, the interest rate environment impacts valuations. But when you look at the value of our assets, when you look at our ability to execute on our strategy and we think continue to put up industry leading results both on mid-single-digit growth and just continuing to perform through both through all macroeconomic conditions. We think that speaks to the value of our assets in addition to our ability to execute. And so, we think our valuation transcends a lot of those macro environment impacts on ebbing and flowing of public market valuations and private valuations. And so, net-net, we don't have a different view on our intrinsic value.

Thanks very much.

Thank you. One moment for our next question. Our next question comes from the line of David Barden from Bank of America Securities, Inc.

Hey, guys. Thanks so much for taking the question. Two, if I could. I guess the first question would be, Kenny, you kind of called out the equipment sales in 2024 being a big delta for 2023. Is that like a business strategy change or is that some sort of customer category that's changing? If you could kind of elaborate a little bit on why we're assuming that all the equipment sales goes away? And then, the second question is, and I don't know really exactly how to ask it, but there's so much about this ABS thing that I just don't understand, that if you could really be as crystal clear as possible about why we have a bridge loan to an ABS deal and then we've got an 18 month ABS deal and we've got a longer-term ABS deal and what assets are behind it. So, I think that you know for the last couple of quarters, you've been peppered with questions about Frontier did this deal, it was Dallas, it was a ring fenced, it was an 8x multiple. It was very crystal clear what they were doing and what they got out of it. And I think that you're trying to get to that place, but I just don't understand what's happened on the ABS deal thus far. Thank you.

Hi, David, I'll let Paul add some clarity to the ABS transaction. I think on your first question, so a few years ago when we acquired one of the -- made one of the acquisitions, the company came with this business that was targeting one-time equipment sales. It was part of their business. That wasn't the reason we did the acquisition, but it was part of their business. And since then we just continued that line of business. It's something that adds a little bit of profitability each year, so we kept going with it. But at the end of last year, we decided to deemphasize it on a go forward basis predominantly because as I said in my prepared remarks, it adds a little bit of profitability, but not enough profitability to outweigh the volatility that we see from that business on a quarter-to-quarter basis. And it really flies in the face of the predictability of our core recurring business. And so, just removing that volatility and the de minimis profitability associated with it on a go forward basis seems like the right decision in addition to the fact that it is a business line that requires some overhead to administer. So, we thought the timing was particularly good because the ETL revenue from Sprint and T-Mobile is also in the rearview mirror. So, that has also led to some volatility. So, those two things together really constitute -- has constituted the vast majority of any volatility in our earnings. And on a go forward basis, we think there'll just be a lot less of that. And we think that's ultimately good and underscores the recurring nature of our business. I think to be clear, however that doesn't mean there will be no equipment sales. We do there will be a small amount because we are going to continue to do it for our big important customers. It'll just be a substantially lower number than what it has been in the past. So, net-net, yes, it's a strategic decision and it's the right decision for the business. Paul, do you want to comment on ABS?

Yes, happy to comment on ABS. And David, certainly appreciate your question there. I think the ABS bridge is a little bit different. I think Uniti has broken some new ground with regard to this facility and sort of the concept and some of the mechanics of how this is working. So, it's a little bit different for I think folks to digest. But it's pretty simple, when you boil it all down. So, at Uniti, we started looking at the ABS market a little probably about nine months to a year ago. It's something that we thought was an attractive long-term, could be an attractive long-term addition to our capital structure. So, access to different capital market, access to investment grade, borrowings, additional leverage capacity, attractive cost of capital compared to some of the other markets like the high yield market that we have traditionally tapped. So, we felt like it could be a really good addition to our overall long-term capital structure going forward. And so, one of the things with ABS is it takes a fair amount of effort and time to get that set up. You've got to get all of the assets and the customer contracts associated with the fiber network that you want to securitize into a bankruptcy remote, special purpose vehicle company. And that just takes a fair amount of time. And so, we spent some time, I think we talked about this on previous call, but we spent time with rating agencies, getting them familiar with our Uniti Fiber assets in particular and getting a confidence level that those assets and the cash flows from those assets would be well received by the ABS market. And we got really good feedback from that. So, that basically solidified our viewpoint that we wanted…

Got it. So, it's like an interim step on the way to kind of getting to where the final plan would look. Can you -- and I apologize, could you reiterate what the costs of this bridge are?

Yes. So, it comes with a rate of SOFR plus 3.75%. And so, that rate is a bit higher than what we would expect for a full ABS investment-grade transaction when we get to that point, but again, this is a little bit of a bespoke instrument, instead of putting in all the assets, we're putting in IRUs and eventually would move in fiber assets into this facility to do a full ABS takeout at some point. But like I said, this is collateralized a little differently. And so, we would expect that the spreads on a full ABS deal would be slightly improved over this. But this facility is, like I said, SOFR plus 3.75, and then it has some step-ups at month 12 and I think 15 to incentivize the takeout -- eventual takeout with a full ABS facility.

Right, okay. That helps me a lot. Thank you, guys. I appreciate it.

Thank you. One moment for our next question. Our next question comes from the line of Simon Flannery from Morgan Stanley.

Great, thank you. Good morning. Kenny, just coming back to the hyperscale comments, any differences in terms of the term of these leases versus the wireless deals, escalators, things like that? And to what extent have you put that into guidance given you have some stuff in pipeline or is that really more exiting this year and into 2025? And then I wonder, Paul, if you could just revisit your near-term and medium-term leverage targets and how you're thinking about the dividend. Again, you -- we paid just declared another $0.15, but what's the latest on that kind of pros and cons? Thank you.

Simon, I think on impact from hyperscalers in 2024, I would say it's still relatively muted versus what we think the opportunity could be because we're still in the ramp. So, I think it'll be an increasing percentage of our bookings this year versus last. It's been growing, and I think it'll continue to be a higher percentage this year than previously. But bookings, as you know, precede revenue. So, I think the revenue ramp, you'll really start to see it in 2025 and beyond. And eventually, I think the hyperscalers will be a bigger percentage of our business than the wireless carriers when we reach the sort of steady state. That's how big the demand is. And with respect to contracts, I wouldn't call out any material differences between the two other than what we sort of touched on earlier, which is the hyperscalers tend to be willing to pay higher NRCs just to help fund initial builds. But again, it's relative, right? It depends on whether it's a lit deal versus a dark deal. It depends on whether it's a greenfield versus existing network. And that's all true of the wireless carriers as well. But I think just in general, there's more of a willingness to help with higher NRCs at the outset. So, Paul, you want to talk about the balance sheet?

Yes, sure, Simon. So, yes, in terms of leverage, our target leverage range is still what we've always communicated as 5.5 to 6 times is where we feel like we should be from a leverage standpoint. But we've also said that there are times that we do go above 6% for periods of time -- for short periods of time, and we think that the business can totally handle that. But our target is always to be in that 5.5 to 6 times. So, we ended 2024 right at that 6 times. Leverage mark 6.03 is what I talked about in my remarks. So, AFFOis slightly above that. One of the things I mentioned earlier is that we expect GCI investments to be heavily weighted in the first-half, if not completely weighted in the first-half of 2024. So, there will be some incremental investments made in the first-half of the year over the second-half of the year. And so, I think that's likely -- you're likely going to see our leverage tick up a little bit in the first-half of the year, maybe 6.15 to 6.25, somewhere in there you could see that as we work through those heightened investments, but then you would see that come back down in the second-half of the year after those GCI commitments have been completed and our 2024 exchangeable notes are matured and taken off the balance sheet as well. And then, the effort would be to work that back down into our target range over the long term as some of those wind stream, especially the wind stream commitments from the settlement start to wind down and ramp down into 2025 and 2026.

And on the dividend?

Yes, yes, Simon, on the dividend, the board continues to have confidence in our balance sheet, our liquidity, and importantly, in our outlook. We have a very predictable business. We have a very predictable step down in capital spending, as Paul mentioned, in the coming years, and so the dividend is as much about the future as it is the here and now, and that confidence remains strong. With that said, they're going to evaluate it each quarter, and they're going to look at other equally attractive uses of capital, including investing in the business, including M&A and other things. And so, but as we sit here today, I think the dividend just underscores the board's confidence in the future of the business.

Great. Thank you.

Thank you. At this time, I would like to turn the conference back over to Kenny Gunderman for closing 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.

This concludes today's conference call. Thank you for participating. You may now disconnect.