Uniti(UNIT) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited Q1 2023 financial statements show increased assets and liabilities, a $19.2 million net loss due to higher interest expense, and significant debt refinancing Condensed Consolidated Balance Sheets Total assets rose to $5.0 billion and liabilities to $7.3 billion by March 31, 2023, increasing the shareholders' deficit to $2.32 billion | Balance Sheet Item | March 31, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :--- | :--- | :--- | | Total Assets | $4,988,199 | $4,851,229 | | Property, plant and equipment, net | $3,855,189 | $3,754,547 | | Cash and cash equivalents | $70,346 | $43,803 | | Total Liabilities | $7,312,374 | $7,122,435 | | Notes and other debt, net | $5,377,313 | $5,188,815 | | Total Shareholders' Deficit | ($2,324,175) | ($2,271,206) | Condensed Consolidated Statements of Income (Loss) For Q1 2023, Uniti reported a net loss, a significant shift from prior-year net income, primarily due to a substantial increase in interest expense | Income Statement Item | Q1 2023 ($ thousands) | Q1 2022 ($ thousands) | | :--- | :--- | :--- | | Total Revenues | $289,822 | $278,034 | | Interest Expense, net | $148,863 | $96,172 | | Net (Loss) Income | ($19,211) | $52,858 | | Diluted (Loss) Income per Share | ($0.08) | $0.21 | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased in Q1 2023, while investing activities increased, and financing activities provided significant cash due to debt refinancing | Cash Flow Activity | Q1 2023 ($ thousands) | Q1 2022 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $14,562 | $63,221 | | Net cash used in investing activities | ($114,374) | ($94,349) | | Net cash provided by financing activities | $126,355 | $23,354 | | Net increase (decrease) in cash | $26,543 | ($7,774) | Notes to Condensed Consolidated Financial Statements The notes detail business structure, accounting policies, and financial components, highlighting revenue concentration from Windstream, major debt refinancing, and segment performance - Uniti is a REIT operating through two primary business lines: Uniti Fiber and Uniti Leasing[28] - A substantial portion of revenue (66.0% for Q1 2023) is derived from leases with Windstream, representing a significant concentration of credit risk[34] - In February 2023, the company issued $2.6 billion of 10.50% Senior Secured Notes due 2028 to redeem its 7.875% notes due 2025, resulting in a $32.3 million loss on extinguishment of debt[76] - The company has a commitment to reimburse Windstream for up to $1.75 billion in Growth Capital Improvements through 2029, with $67.5 million reimbursed in Q1 2023[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights revenue growth, a net loss driven by increased interest expense from debt refinancing, and maintained liquidity for operations and capital expenditures 1.Overview Uniti operates as a REIT with Leasing and Fiber Infrastructure segments, with significant Windstream revenue, and completed a major debt refinancing and credit agreement amendment - Uniti operates as a REIT with two main segments: Leasing (acquiring and leasing assets) and Fiber Infrastructure (providing infrastructure solutions like backhaul and dark fiber)[115][116] - In February 2023, the company issued $2.6 billion of 10.50% Senior Secured Notes due 2028 to redeem its 7.875% notes due 2025 and repay borrowings under its revolving credit facility[120] - In March 2023, the company amended its credit agreement, extending the maturity of its $500 million revolving credit facility to September 2027 and transitioning from LIBOR to Term SOFR[72][129] 2.Results of Operations Q1 2023 saw total revenues increase, but the company reported a net loss primarily due to a significant rise in net interest expense, including a loss on debt extinguishment | Metric | Q1 2023 ($ thousands) | Q1 2022 ($ thousands) | | :--- | :--- | :--- | | Total Revenues | $289,822 | $278,034 | | Interest Expense, net | $148,863 | $96,172 | | Net (Loss) Income | ($19,211) | $52,858 | - Leasing revenues increased to $210.8 million in Q1 2023 from $204.6 million in Q1 2022, primarily due to higher cash revenue from Growth Capital Improvement (GCI) reimbursements and non-cash revenue from Tenant Funded Capital Improvements (TCIs)[135][140] - Fiber Infrastructure revenues increased by $5.6 million year-over-year, driven by growth in dark fiber, small cells, and enterprise/wholesale services[147] - The increase in interest expense was primarily due to a $32.3 million loss on the extinguishment of the 2025 Secured Notes and higher cash interest payments[149] 3.Non-GAAP Financial Measures The company uses non-GAAP measures like Adjusted EBITDA, FFO, and AFFO, with Adjusted EBITDA increasing in Q1 2023 while FFO and AFFO decreased due to higher interest expense | Non-GAAP Metric | Q1 2023 ($ thousands) | Q1 2022 ($ thousands) | | :--- | :--- | :--- | | Adjusted EBITDA | $231,201 | $224,789 | | FFO attributable to common shareholders | $35,472 | $104,521 | | AFFO attributable to common shareholders | $107,393 | $112,342 | 4.Liquidity and Capital Resources As of March 31, 2023, Uniti maintained liquidity through cash and a revolving credit facility, funding debt service, operations, capital expenditures, and dividends, including commitments to Windstream - As of March 31, 2023, the company had $70.3 million in cash and cash equivalents and $425.0 million of borrowing availability under its Revolving Credit Facility[171] - The company is obligated to make cash payments to Windstream and reimburse up to $1.75 billion for Growth Capital Improvements (GCIs) through 2029, with annual reimbursement caps (e.g., $225 million for 2023)[169] Capital Expenditures (Q1 2023) | Capital Expenditures (Q1 2023) | Amount ($ thousands) | | :--- | :--- | | Success Based (Leasing & Fiber) | $45,240 | | Growth Capital Improvements (GCIs) | $67,511 | | Maintenance & Non-Network | $2,230 | | Total Capital Expenditures | $114,981 | - A cash dividend of $0.15 per share for the first quarter of 2023 was paid on April 14, 2023[188] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures were reported from the Annual Report on Form 10-K - There have been no material changes from the market risk information reported in the company's Annual Report[193] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of March 31, 2023[195] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[196] PART II. OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings are detailed by reference in Note 13 of the Condensed Consolidated Financial Statements - Details regarding legal proceedings are provided in Note 13 - Commitments and Contingencies to the financial statements[199] Item 1A. Risk Factors No material changes to the company's risk factors were reported from its Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the company's Annual Report[200] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, 218,673 common shares were withheld from employees at an average price of $5.42 per share for tax withholding on vested restricted stock Shares Withheld for Tax Obligations | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Feb 2023 | 124,702 | $5.68 | | Mar 2023 | 93,971 | $5.07 | | Total | 218,673 | $5.42 | - These share purchases represent shares withheld from employees to satisfy tax withholding obligations on vested restricted stock and are not part of a publicly announced buyback program[201] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[203] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not Applicable[203] Item 5. Other Information No other information required under this item was reported by the company - None[203] Item 6. Exhibits Exhibits filed with Form 10-Q include the indenture for new secured notes, a credit agreement amendment, and officer certifications - Exhibits filed include the indenture for the 10.50% Senior Secured Notes due 2028 and Amendment No. 8 to the Credit Agreement[204]