Uniti(UNIT) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section covers unaudited financial statements, management's operational analysis, market risk, and internal controls Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Uniti Group Inc. for the quarterly period ended June 30, 2023 Condensed Consolidated Balance Sheets Total assets increased to $5.03 billion and total liabilities to $7.37 billion by June 30, 2023, widening the shareholders' deficit to $2.33 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $5,034,570 | $4,851,229 | | Property, plant and equipment, net | $3,895,206 | $3,754,547 | | Cash and cash equivalents | $38,145 | $43,803 | | Total Liabilities | $7,365,814 | $7,122,435 | | Notes and other debt, net | $5,392,536 | $5,188,815 | | Total Shareholders' Deficit | ($2,331,244) | ($2,271,206) | Condensed Consolidated Statements of Income Q2 2023 revenues remained flat at $283.7 million, while net income attributable to common shareholders significantly decreased to $25.3 million due to higher interest expense Income Statement Summary (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $283,698 | $283,975 | $573,520 | $562,009 | | Interest Expense, net | $119,689 | $96,377 | $268,552 | $192,549 | | Net Income | $25,638 | $53,774 | $6,427 | $106,632 | | Net Income Attributable to Common Shareholders | $25,299 | $53,352 | $5,845 | $105,746 | | Diluted EPS | $0.11 | $0.21 | $0.02 | $0.42 | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased to $199.8 million, while cash used in investing increased to $246.1 million, and financing activities shifted to $40.6 million provided for the six months ended June 30, 2023 Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $199,831 | $234,608 | | Net cash used in investing activities | ($246,100) | ($150,756) | | Net cash provided by (used in) financing activities | $40,611 | ($81,350) | | Net (decrease) increase in cash | ($5,658) | $2,502 | Notes to Condensed Consolidated Financial Statements This section details accounting policies, including business organization, revenue recognition, lease accounting, debt structure, segment information, and commitments - Uniti is an internally managed REIT focused on acquiring and constructing mission-critical communications infrastructure, operating through two primary business lines: Uniti Fiber and Uniti Leasing[31] - The company has a significant concentration of credit risk with Windstream, which accounted for 66.9% of revenue for the six months ended June 30, 2023[37] - As of June 30, 2023, the company has future revenue (transaction price related to remaining performance obligations under ASC 606) of $534.5 million[48] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operational results, analyzing segment performance, income statement items, non-GAAP measures, liquidity, and capital expenditures Results of Operations Q2 2023 consolidated revenues were flat, with Uniti Leasing growth offset by a 9.1% decline in Uniti Fiber revenue, leading to a 52% drop in net income due to higher interest expense Uniti Leasing Revenue Breakdown - Q2 (in thousands) | Revenue Source | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Total Windstream Revenue | $192,746 | $186,915 | | Other Services | $19,707 | $18,699 | | Total Uniti Leasing Revenues | $212,453 | $205,614 | Uniti Fiber Revenue Breakdown - Q2 (in thousands) | Revenue Source | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Lit backhaul services | $19,453 | $19,937 | | Enterprise and wholesale | $23,410 | $21,001 | | E-Rate and government | $14,145 | $18,505 | | Dark fiber and small cells | $13,507 | $18,206 | | Total Uniti Fiber Revenues | $71,245 | $78,361 | - Interest expense for Q2 2023 increased by $23.3 million year-over-year, primarily due to higher cash interest on secured and unsecured notes[137] Non-GAAP Financial Measures Non-GAAP measures show Q2 2023 Adjusted EBITDA at $228.2 million (slight increase) and AFFO attributable to common shareholders at $91.0 million (decrease) Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $25,638 | $53,774 | $6,427 | $106,632 | | EBITDA | $218,237 | $227,398 | $422,252 | $445,814 | | Adjusted EBITDA | $228,167 | $227,164 | $459,368 | $451,953 | Reconciliation to FFO and AFFO (in thousands) | Metric | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income attributable to common shareholders | $25,299 | $53,352 | $5,845 | $105,746 | | FFO attributable to common shareholders | $80,363 | $105,686 | $115,835 | $210,207 | | AFFO attributable to common shareholders | $90,958 | $114,897 | $198,351 | $227,239 | Liquidity and Capital Resources Liquidity includes $38.1 million cash and $414.0 million credit facility availability, with significant commitments to Windstream and $247.3 million in capital expenditures - Primary sources of liquidity are cash from operations, borrowings under the credit facility, and proceeds from debt and equity issuances[179] - The company is obligated to make cash payments to Windstream as part of a settlement, with $264.4 million paid to date out of a total $490.1 million, and is committed to reimburse Windstream for up to $1.75 billion in Growth Capital Improvements (GCIs) through 2029[178] Capital Expenditures for Six Months Ended June 30, 2023 (in thousands) | Category | Amount | | :--- | :--- | | Success Based (excluding GCIs) | $84,367 | | Growth Capital Improvements (GCIs) | $158,756 | | Maintenance | $3,744 | | Non-Network | $402 | | Total Capital Expenditures | $247,269 | Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes from the market risk information reported in the company's Annual Report on Form 10-K - There have been no material changes to the company's market risk disclosures since the last Annual Report[202] Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[204] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[205] PART II. OTHER INFORMATION This section details legal proceedings, risk factors, equity sales, other disclosures, and filed exhibits Legal Proceedings This section refers to Note 13 of the Condensed Consolidated Financial Statements for a description of the company's legal proceedings - Details regarding legal proceedings are incorporated by reference from Note 13 - Commitments and Contingencies in the financial statements[207] Risk Factors This section indicates that there have been no material changes to the risk factors affecting the business since those disclosed in the company's Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the Annual Report[208] Unregistered Sales of Equity Securities and Use of Proceeds Information on shares withheld from employees for tax obligations related to restricted stock vesting, totaling 1,831 shares at $3.73 average price Issuer Purchases of Equity Securities (Q2 2023) | Period | Total Shares Purchased (shares) | Average Price Paid per Share ($) | | :--- | :--- | :--- | | April 2023 | 75 | $3.24 | | May 2023 | 1,756 | $3.75 | | June 2023 | 0 | N/A | | Total | 1,831 | $3.73 | Other Information This section reports that during the three months ended June 30, 2023, none of the company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the second quarter of 2023[211] Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - Exhibits filed include Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Act Sections 302 and 906, and Inline XBRL documents[212]