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Uniti Group Inc. (NASDAQ:UNIT): A Fiber Powerhouse Poised for Transformative Growth
Published on September 24, 2024 | Ticker: UNIT

Uniti Group Inc. (NASDAQ:UNIT) is an internally managed real estate investment trust (REIT) that is engaged in the acquisition and construction of mission-critical communications infrastructure. The company is a leading provider of fiber and other wireless solutions for the communications industry. As of June 30, 2024, Uniti owns approximately 142,000 fiber route miles, 8.6 million fiber strand miles, and other communications real estate throughout the United States.

Business Overview

Uniti operates through two primary business segments:

Uniti Leasing

: This segment is engaged in the acquisition and construction of mission-critical communications assets and leasing them to anchor customers on either an exclusive or shared-tenant basis.

Uniti Fiber

: This segment is a leading provider of infrastructure solutions, including cell site backhaul and dark fiber, to the telecommunications industry.

Financials

In the second quarter of 2024, Uniti reported consolidated revenues of $294.9 million, a 3.9% increase from the prior-year period. The company's net income for the quarter was $18.3 million, while its annual net income for 2024 is expected to be -$82.92 million. Uniti's annual revenue for 2024 is forecasted to be $1.15 billion, and its annual operating cash flow and free cash flow are expected to be $353.1 million and -$63.9 million, respectively.

Uniti's Leasing segment contributed $218.3 million in revenues and $210.9 million in Adjusted EBITDA during the second quarter, representing a segment margin of 97%. The company's Fiber segment generated $76.7 million in revenues and $31.1 million in Adjusted EBITDA, achieving a segment margin of approximately 40%.

Recent Developments

One of the key drivers of Uniti's growth has been the strong demand for its mission-critical fiber infrastructure, particularly from hyperscalers and generative AI companies. During the second quarter, approximately 40% of the company's consolidated bookings were driven by this demand, which the company expects to continue. Uniti's core recurring strategic fiber business grew 3% in the second quarter of 2024 compared to the same period in the prior year, fueled by exceptional growth in enterprise, wholesale, and dark fiber revenue.

Uniti's net success-based capital intensity during the quarter was 31%, down from 44% in the same prior-year period, reflecting the company's focus on lease-up deals and a higher mix of hyperscaler transactions, which generally come with higher non-recurring charges and better-than-typical anchor yields.

In addition to its organic growth initiatives, Uniti has also been actively pursuing strategic opportunities. In May 2024, the company completed a private offering of $300 million of additional senior secured notes due 2028, with the proceeds expected to be used for general corporate purposes, including funding a portion of the cash consideration payable in connection with Uniti's previously announced merger with Windstream.

Merger with Windstream

The proposed merger with Windstream is a transformative event for Uniti, as it will create a national fiber powerhouse with a scaled platform for growth and a differentiated position in Tier 2 and 3 markets. The combined company, which will be named New Uniti, is expected to have the potential to reach over 5 million connected on-ramps, including connected buildings, fiber-to-the-tower and small cell connections, and the 4.3 million total homes within Kinetic's (Windstream's fiber-to-the-home business) current footprint.

Kinetic, Windstream's fiber-to-the-home platform, is a unique asset that Uniti believes will be a key driver of the combined company's growth. Kinetic's fiber-to-the-home offering is competitively advantaged, with an industry-leading cost of $650 per home passing and a dearth of true overbuilders in its markets. The platform has also demonstrated strong initial penetration rates, averaging 15-18% in the first year and reaching around 25% by the second year.

On a pro forma basis, the combined New Uniti is expected to generate steady, predictable top-line and EBITDA growth, with the business projected to be free cash flow positive in 2026. The company's fully funded plan, steady and predictable results, and unique fiber assets suggest substantial intrinsic value, which is supported by recent industry valuation multiples.

Liquidity

Uniti's liquidity position remains strong, with approximately $619 million of combined unrestricted cash and cash equivalents, and undrawn borrowing availability under its revolving credit agreement, as of the end of the second quarter. The company's leverage ratio at quarter-end was 5.97x based on net debt to second quarter 2024 annualized Adjusted EBITDA, excluding the debt and Adjusted EBITDA impact from the ABS loan facility.

Outlook

Looking ahead, Uniti is well-positioned to capitalize on the growing demand for fiber infrastructure, both organically and through the transformative merger with Windstream. The company's enhanced scale, diversified revenue streams, and strong financial profile position it for continued success in the years to come.

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