Hello, and welcome to Uniti Group's Second Quarter 2023 Conference Call. My name is [indiscernible], 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. [Operator Instructions]. At this time, all participants are in a listen-only mode. Participants on the call we 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 and difference are discussed in the company's filings with the SEC. The company's remarks this morning were 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, sir.

Thank you. Good morning, everyone, and thank you for joining. Starting on Slide 3, Uniti posted another quarter of solid operating performance. And as a result, we're reiterating our consolidated full year 2023 revenue adjusted EBITDA and AFFO outlook. Our consolidated core recurring revenue grew 4% during the second quarter from the prior year, while our Uniti Fiber core recurring revenue grew 5%. Our lease-up revenue categories continue to reap terrific results with non-wireless wholesale, enterprise and dark fiber lease-up revenue growing at 7%, 15% and 25%, respectively, during the quarter. We also signed a new 10-gig upgrade agreement with one of our major wireless carriers during the quarter. The agreement covers approximately 1,100 lit backhaul sites and extends the contract term from a blended term remaining of less than a year to now 7 years. As you will recall, we signed a similar agreement with another of our major wireless carriers in the third quarter of 2022, which also covered approximately 1,100 sites and locked in 10-gig pricing for 8 years. On a combined basis, these 2 agreements have resulted in a slight overall net price increase. Including the returns I just mentioned, the approximate average remaining term of our entire lit backhaul portfolio is an impressive approximately 5 years. Our scaled national network and exceptional network performance allows us to negotiate bespoke agreements with our wireless carriers, providing steady returns and minimizing churn. With our industry-leading 0.2% churn and no legacy services weighing us down, we believe our runway for mid-single-digit growth is long. Slide 4 demonstrates this growth will be disciplined, and we believe profitable. Our substantially underutilized fiber network acquired largely through sale leasebacks versus complicated company acquisitions is helping drive our shared infrastructure economics. Our anchors lease-up model is working driving cumulative cash flow yields…

Thank you, Kenny. Good morning, everyone. I'd like to begin by reviewing our second quarter performance, followed by an overview of our current 2023 outlook. We had another solid quarter at both Uniti Fiber and Uniti Leasing, highlighted by 4% consolidated recurring revenue growth during the quarter when compared to the prior year. As I'll cover in more detail in just a bit, our 2023 outlook for consolidated revenue, adjusted EBITDA and AFFO remains unchanged as we expect to end the year within the previous guidance ranges provided. Finally, I'll conclude with additional commentary on our current balance sheet and capital structure. Please turn to Slide 10, and I'll start with comments on our second quarter. We reported consolidated revenues of $284 million, consolidated adjusted EBITDA of $228 million, AFFO attributed to common shareholders of $91 million and AFFO per diluted common share of $0.34. Net income attributable to common shareholders for the quarter was approximately $25 million or $0.11 per diluted share. At Uniti Leasing, we reported segment revenues of $212 million and adjusted EBITDA of $207 million representing growth of 3% for each in the second quarter of 2023 compared to the prior year period. Accordingly, Uniti Leasing achieved an adjusted EBITDA margin of 97% for the quarter. Turning to Slide 11. Our growth capital investment program continues to provide positive results for Uniti. Over the past 8.5 years, our tenant has invested over $1 billion of tenant capital improvements in our network. Unity continues to invest its own capital and long-term value-accretive fiber largely focused on highly valuable last-mile fiber. Collectively, these investments have resulted in 24,000 route miles of newly constructed fiber and 24% of the legacy copper network being overbuilt with fiber. Based on the investments made to date, and our expectation that Windstream will…

Thanks, Paul. As I mentioned earlier, we continue to focus on driving high-margin recurring revenue while targeting disciplined mid-single-digit top line growth. Slide 15 demonstrates the investments we are making in our fiber network will lead to a more sizable and valuable fiber business over the next several years. We also expect the end of 2025 to be the inflection point where we become free cash flow positive after dividends, and we expect to generate cumulative free cash flow of over $1 billion during the 5-year period ending in 2030 if we maintain our current dividend and approximate level of annual capital spending. This trajectory, along with our predictable organic growth outlook would lead to a substantial deleveraging, resulting in net leverage between 4 to 5x and roughly doubling the size of our fiber business by 2030. Before turning it over to Q&A, I'd like to briefly comment on the recent press reports about [indiscernible] cable within the telecom industry. Similar to the rest of the industry, Uniti is taking this issue very seriously. Based upon what we have learned thus far, there appears to be no reason to believe that these cables pose a health or safety risk to employees on the broader public. For Uniti specifically, the networks that we operate actively are all fiber-based, and therefore, our employees are not in contact with lag cabling. In coordination with our sale-leaseback tenants, including Windstream, we're currently estimating the amount of lead sheeting cable being used today in our copper networks represents less than 1% of the total copper route miles that we own. Based on what we know today, we believe any cost of remediation would be de minimis. We will continue to investigate and monitor this issue very closely along with our industry partners and will report any material Uniti specific developments as they arise. With that, operator, we're now ready to take questions.

[Operator Instructions]. Our first question comes from the line of Gregory Williams with TD Cowen.

Thanks for the insight on some of the toxic lead cables, that's helpful. My first question is on the M&A landscape. Kenny, if you can describe what you're seeing and hearing. It doesn't sound like there's a lot of deal flow here, but are conversations picking up or staying the same as other buyer or seller. And then just looking at the lease-ups, it looks like the mix came a little bit lower at 64%. Is that just the variance as usual? Is there anything here to call out was there a pickup in greenfields on purpose?

Greg, yes, on M&A, we're big believers in it. As you know, we've done a lot of M&A over the past number of years. I think, successfully we continue to think that there's a conglomerate discount in our stock. If you look at how we think the market is valuing the Windstream MLAs, for example, they're putting a 15% to 20% yield on that income, and we think it should be yielding inside of where secured debt is trading for the ILEC community. And so we think there's a big discount there, [indiscernible] share of value right there alone that's not being reflected. And so we're looking at M&A and as I mentioned last quarter, getting our financings done behind us was an important ingredient for helping us have a runway to really focus on it in a patient manner, either as a buyer or a seller. And so to that end, I think there's good conditions and there's bad conditions. Good conditions, meaning we've got a nice runway to be patient. Our business is performing very well, and there's a clear line of sight to go-it-alone strategy with the business performing and capital spending falling off in the next few years. So there's a substantial amount of free cash flow coming into the system. So having that ability to be patient is critically important to executing on good M&A. But with that said, the credit markets continue to be challenging, and I think that's pretty obvious. And so that's one of the things dampening M&A at this point. I think you see it industry-wide and certainly within the telecom industry, and it's no different for us from our vantage point. But that can change overnight, frankly. And so we continue to be very engaged with both strategic and financial parties within the industry, and that's not going to change in the coming quarters. And Paul, do you want to comment on the lease up.

Yes. On the lease-up percentage, I think, Greg, I would just characterize that as normal fluctuations from quarter-to-quarter based on the bookings that we're bringing in. No change in strategy or shift to more anchor deals. We're still very focused on a good mix, but a mix that's dominated by lease-up going forward. So just normal fluctuation. .

Our next question David Barden with Bank of America Merrill Lynch.

So a few, if I could. Kenny, the tower industries, specifically American Tower most recently, talk about abrupt slowdowns in wireless carrier network services related requirements I think you kind of touched on it in your prepared remarks. But if you could elaborate a little bit on how we should think about Uniti's exposure to what might be kind of a material slowdown in wireless carrier activity as it relates to densification and network development. The second question I had was I haven't had a chance to ask this. So I'm interested in your view here because on the lead cable issue, there's really 2 pieces to it, right? There's the cost of the remediation potentially, if it's required. And that's one thing. And then there's the other thing, which is the X factor, the ambulance chasers, the people that come after everybody hoping to make a buck. And I'm interested in kind of how you wrap your arms around that piece of it. And then the third piece is just from a fundamental standpoint, on the book-to-bill, are you seeing any delta as we kind of progress through time on kind of how wholesale and nonwholesale bookings are converting to the retail revenue business.

David, thanks. I'll try to hit all these, but keep me honest. Yes, on carrier spending, I mentioned it in our prepared remarks that we expected spending to be down this year, coming into the year, frankly. I mean, we tend to get a 6-, 9-, 12-month early view into carrier spending, just given our day-to-day interaction with them, it's never perfect, but it can change quickly. But generally, we get that early view and so when we gave guidance at the beginning of the year, we had expected bookings for the wireless carriers to be down 50% compared to 2022. So that was baked into the cake when we gave guidance. And so as a result, we're not changing any outlook for this year, and that's not going to impact guidance. I think that the slowdown is different for the various carriers. We've got some who had a hard push to meet some imposed deadlines. You've got others who are reaching the end of -- almost reaching the end of 10 gig upgrades and you've got others who are changing capital allocation policies. And so it's really not an industry. I wouldn't characterize it from our vantage point, is an industry theme, so much is carrier-specific changes, and they all just seem to be happening around the same time. And with that said, we don't think this is a systemic slowdown. It's going to pick back up. There's still a lot of investment that needs to be made in these networks, including just traditional backhaul to towers, fully lighting and deploying spectrum, but then also eventually densifying more of the markets around the country. I think there's a lot of money that's been spent in Tier 1 markets on small cells. But as we've mentioned many times, we think…

All right, I appreciate that [indiscernible] commentary, especially on the lead [indiscernible] the fact that we have the hysteria phase when the learning and education phase on our way to the fixing it phase. I think that that's important to kind of figure out where we are.

Our next question comes from the line of Michael Rollins with Citigroup

Just curious for your latest thoughts on what you think the most optimal corporate structure for Uniti as you look at the assets and performance and the different opportunities and different pieces of your business, and then just one other on the lead question. In terms of the exposure that's identified, do you think that, that could change over time, higher or lower as more work is done and do you have an update on the amount of cable miles relative to the percentage that was disclosed?

Michael. Yes, on the corporate structure, we had a robust discussion about this on our last quarterly call. We continuously look at our corporate structure, our capital allocation policy is something we do every quarter with the board, and we continue to believe that the REIT status is appropriate for Uniti. I think our business model kicks off very predictable, steady growth and cash flow and as a result, returning that dividend to the shareholders is something that we think is important and the Board continues to support and our business model supports it. We've talked about very transparently that we're in a unique period of time right now where we're cash flow negative because we're investing very heavily in the business, especially in the fiber to the home part of our business. But we're also at a point where we're about to inflect to becoming very cash flow positive. And so very logical questions from stakeholders arise, including is it appropriate to be paying a dividend during the [indiscernible] heavy investment period on one end of the spectrum, all the way to the other end of the spectrum of should you be considering raising the dividend or even setting a dividend policy that suggests raising the dividend. And so we think having a good transparent discussion about all those topics is important. And therefore, we put our comments out last quarter. And we've had some very good interaction with stakeholders over the past number of months regarding those comments, but continue to think that, that's the appropriate corporate structure given our mix of assets today. And we also mentioned it in our prepared remarks, it didn't get a lot of attention, but we think there's a lot of strategic value to the REIT status, as we've mentioned we were one of the first fiber companies to become a REIT. Subsequent to that, the rules changed that made becoming a REIT a little bit harder. And so we think there's strategic value to that corporate structure. Michael, on your second question, I wouldn't want to say whether we think the number of lead cable exposure will be higher or lower. But what I would say is that less than 1% that we use, I think it's very -- I think it's a conservative number. I'll put it that way. So we feel like that's a reasonable way to think about it. And I don't see us changing that [indiscernible], if you will, on a go-forward basis. And I think your -- that leads to your last question about the mileage versus the percentage. We do have a mileage number that we've developed on our own and also communicated with Windstream about and it's what leads us to believe that, that less than 1% number is conservative, but we're just not prepared to give that number publicly at this point. .

Our next question comes from the line of Frank Louthan with Raymond James.

On the comments on the delays on the enterprise part of the business, how would you characterize that? Is that just sort of normal things we're seeing everywhere else, where there's an extra couple of levels of approvals? Or do you think there's any risk that some of these projects don't go forward? And any broad themes as to what's sort of driving that?

Yes. Frank, I don't think there's any broad themes. I think it's really customer specific. We asked that question repeatedly of our sales leaders and sales team and get the same response that you go down the list and customer A's -- the delay is for this reason, customer B, the delay may be for that reason. So similar to my comments about carrier spending being down for the year. I think a lot of that is specific to each carrier as opposed to industry-wide. So it's an important question. It's one we consistently ask to make sure that there's not tweets in the business that we need to make or tweaks in our go-to-market approach, but we don't think any of that -- any of the decision-making calls for changes to the business or tweaks, if you will. I really more importantly, to your point, are we seeing things fall out of the funnel in an abnormal way? And the answer is no. In fact, funnels continue to grow, and it's one of the reasons why we feel confident about the second half of the year and again, even potentially trending towards the higher end of -- or I'd say, over the midpoint of guidance on revenue because the demand is there, it's just a question of converting it to sign deals and getting it turned up.

Just a quick follow-up. Where are you on sales hiring this year? Are you finding it easy to find and retain talent or more challenging? Where should we actually think about growing the sales force?

Yes. We've made a lot of progress. I'd say our wholesale team, those are the well hunters or, if you will, I'd say that team is fully staffed on the enterprise side and on the wholesale, if there is an opening in that team, we tend to fill it very quickly. That's just more of a relationship type of sales function, and we've got a lot of industry veterans with a lot of relationships. And so filling that team tends to happen very quickly from our standpoint. On the enterprise side, I think as I mentioned, before we churn people out of that team pretty deliberately. If they're not performing, we turn them out in a disciplined way. And so replacing churn plus adding to the team is a constant focus of ours and we've got people entirely dedicated to that. And over the past, I'd say, quarter or so, we've made a tremendous amount of progress and we're adding to that team in a very disciplined, but steady way, and that's what's contributing to that 15% a year-over-year enterprise growth. And the bookings are equally strong and the funnel is strong as well. So it's a constant battle to find good talent and to bring them on and train them and get them up to being productive. But I think we're very good at it, Frank, and excited about continuing to push that forward. .

Our next question comes from the line of Simon Flannery with Morgan Stanley.

This is [indiscernible] Simon today. Can you remind us whether 2025 is still where you expect free cash flow to inflect? And then secondly, can you speak to anything you're seeing with DISH? I know last quarter, you mentioned they remained active, but are you seeing any changes there?

Alan, this is Paul. I can take the first question and maybe, Kenny can take the second question on DISH. But yes, the quick answer to your question is, yes, 2025, we still see that as an inflection point for free cash flow. And part of that is just continuing to execute on our growth plan, mid-single-digit growth. As Kenny talked about in his comments, that's very predictable given and our visibility to that is very good given our funnel and our sales force and the demand for our products and services and the breadth of use cases for our products and services, as Kenny said, but the bigger part of that journey to free cash flow positive here over the next year to 2 years into 2025 is just the mechanics of our commitments to Windstream with regard to the settlement expenses that fall off the middle of that year in 2025 and GCI commitments start to ratchet down in terms of the total annual capital commitment over time and the revenue from those GCI investments steps up over time so that is positive for our cash flow and helps us to get to that inflection point. So that's still our plan.

Yes, a lot on DISH, we don't like to comment too much on specific customers with much detail. But on -- but I would say and I mentioned earlier that we expected wireless bookings to be down 50% this year versus 2022. A big part of that is 2022 was a tough comp because bookings from DISH were so elevated in 2022, just getting ahead of the network spend that they needed to make. And so as a result, bookings there are lower this year. But with that said, that's I think that's expected based upon the deadlines and time lines that they had in order to -- that they had to meet. So with that said, I think activity with them is remains very robust and really as expected as predicted. .

Maybe one more quick one. Have you made any traction or any updated thoughts on your diversification maybe away from one stream or anything else we should be thinking about there? Or .

Yes. I would just refer back to my comments at the beginning regarding M&A. I think we continue to focus on it. It's a core competency of ours, and we've had periods of time when we've been very active in periods of time when we've been very patient. And right now, we're in the latter category with respect to what the market perceives anyway, but behind the scenes, we're very active, and that's always going to be the case for us. So it's a core competency and it's something we're going to continue to focus on. .

I'm showing no further questions in the queue. I would now like to turn the call back to Kenny 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. .

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