Uniti Group Inc. [UNIT] Filings

10-Q 1 unit-20240630.htm 10-Q unit-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________________________________

FORM 10-Q

_______________________________________________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number: 001-36708

_______________________________________________________________

Uniti Group Inc.

(Exact name of registrant as specified in its charter)

_______________________________________________________________


Maryland			46-5230630
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

2101 Riverfront Drive, Suite A Little Rock, Arkansas			72202
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (501) 850-0820

_______________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	UNIT	The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of July 24, 2024, the registrant had 244,150,946 shares of common stock, $0.0001 par value per share, outstanding.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements as defined under U.S. federal securities law. Forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements regarding: our expectations regarding the settlement we have entered into with Windstream Holdings, Inc. (together with Windstream Holdings II, LLC, its successor in interest, and its subsidiaries, “Windstream”); expectations regarding our potential Merger (as defined herein) with Windstream; the future prospects and financial health of Windstream; our expectations about our ability to maintain our status as a real estate investment trust (a “REIT”); our expectations regarding the refinancing of and interest expense on our new ABS Loan Facility (as defined below); our expectations regarding the effect of tax-related legislation on our tax position; our expectations related to our ability to satisfy the requirements necessary to access the remaining capacity under our ABS Loan Facility; our expectations regarding the future growth and demand of the telecommunication industry, future financing plans, business strategies, growth prospects, operating and financial performance, and our future liquidity needs and access to capital; expectations regarding future deployment of fiber strand miles and small cell networks and recognition of revenue related thereto; expectations regarding levels of capital expenditures; expectations regarding the deductibility of goodwill for tax purposes; expectations regarding reclassification of accumulated other comprehensive income (loss) related to derivatives to interest expense; expectations regarding the amortization of intangible assets; expectations regarding remediation of the material weakness in our internal control over financial reporting as discussed in Part I Item 4 "Controls and Procedures" of this Quarterly Report on Form 10-Q; and expectations regarding the payment of dividends.

Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “believe(s),” “may,” “will,” “would,” “could,” “should,” “seek(s)” and similar expressions, or the negative of these terms, are intended to identify such forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those projected, forecasted or expected. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to:

•our and Windstream’s ability to consummate our Merger with Windstream on the expected terms or according to the anticipated timeline;

•the risk that the Merger Agreement (as defined herein) may be modified or terminated prior to its expiration, that the conditions to our Merger with Windstream may not be satisfied or the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;

•the effect of the announcement of our Merger with Windstream on relationships with our customers, suppliers, vendors, employees and other stakeholders and our operating results and the operating results of Windstream;

•the diversion of our management’s time on issues related to our Merger with Windstream;

•the risk that we fail to fully realize the potential benefits, expected synergies, efficiencies and cost savings from our Merger with Windstream within the expected time period (if at all);

•legal proceedings that may be instituted against us or Windstream following announcement of the Merger;

•the future prospects of our largest customer, Windstream, following its emergence from bankruptcy;

•adverse impacts of inflation and higher interest rates on our employees, our business, the business of our customers and other business partners and the global financial markets;

•the ability and willingness of our customers to meet and/or perform their obligations under any contractual arrangements entered into with us, including master lease arrangements;

•the ability and willingness of our customers to renew their leases with us upon their expiration, our ability to reach agreement on the price of such renewal or ability to obtain a satisfactory renewal rent from an independent appraisal, and the ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event we replace an existing tenant;

•the availability of and our ability to identify suitable acquisition opportunities and our ability to acquire and lease the respective properties on favorable terms or operate and integrate the acquired businesses;

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•our ability to generate sufficient cash flows to service our outstanding indebtedness and fund our capital funding commitments;

•our ability to access debt and equity capital markets;

•the impact on our business or the business of our customers as a result of credit rating downgrades and fluctuating interest rates;

•our ability to retain our key management personnel;

•our ability to maintain our status as a REIT;

•changes in the U.S. tax law and other federal, state or local laws, whether or not specific to REITs;

•covenants in our debt agreements that may limit our operational flexibility;

•the possibility that we may experience equipment failures, natural disasters, cyber-attacks or terrorist attacks for which our insurance may not provide adequate coverage;

•the risk that we fail to fully realize the potential benefits of or have difficulty in integrating the companies we acquire;

•other risks inherent in the communications industry and in the ownership of communications distribution systems, including potential liability relating to environmental matters and illiquidity of real estate investments; and

•additional factors discussed in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q, in Part II, Item 1A "Risk Factors" of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 filed with the SEC on May 3, 2024, and in Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K filed with the SEC on February 29, 2024, as amended by Amendment No. 1 and Amendment No. 2 thereto filed on Form 10-K/A with the SEC on March 26, 2024, and March 27, 2024, respectively as well as those described from time to time in our future reports filed with the U.S. Securities and Exchange Commission (the “SEC”).

Forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except in the normal course of our public disclosure obligations, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based.

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Uniti Group Inc.

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		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	5
	Uniti Group Inc.
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Income	7
	Condensed Consolidated Statements of Comprehensive Income	8
	Condensed Consolidated Statements of Shareholders’ Deficit	9
	Condensed Consolidated Statements of Cash Flows	10
	Notes to Condensed Consolidated Financial Statements	12
	1.Organization and Description of Business	12
	2.Basis of Presentation and Summary of Significant Accounting Policies	13
	3.Revenues	15
	4.Leases	16
	5.Fair Value of Financial Instruments	18
	6.Property Plant and Equipment	20
	7.Derivative Instruments and Hedging Activities	20
	8.Goodwill and Intangible Assets and Liabilities	22
	9.Notes and Other Debt	23
	10.Earnings Per Share	28
	11.Segment Information	30
	12.Commitments and Contingencies	33
	13.Accumulated Other Comprehensive Loss	34
	14.Capital Stock	34

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
	1.Overview	34
	2.Results of Operations	38
	3.Non-GAAP Financial Measures	51
	4.Liquidity and Capital Resources	53
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	58

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	60

Signatures		63

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

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Uniti Group Inc.

Condensed Consolidated Balance Sheets


	(Unaudited)
(Thousands, except par value)	June 30, 2024		December 31, 2023
Assets:
Property, plant and equipment, net	$	4,092,799	$	3,982,069
Cash and cash equivalents	118,763		62,264
Restricted cash and cash equivalents	12,728		—
Accounts receivable, net	56,654		46,358
Goodwill	157,380		157,380
Intangible assets, net	290,264		305,115
Straight-line revenue receivable	101,710		90,988
Operating lease right-of-use assets, net	128,837		125,105
Derivative asset	1,616		—
Other assets	40,699		118,117
Deferred income tax assets, net	117,780		109,128
Assets held for sale	—		28,605
Total Assets	$	5,119,230	$	5,025,129
Liabilities and Shareholders' Deficit:
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	87,105	$	119,340
Settlement payable (Note 12)	118,232		163,583
Intangible liabilities, net	151,050		156,397
Accrued interest payable	142,227		133,683
Deferred revenue	1,242,165		1,273,661
Dividends payable	1,134		36,162
Operating lease liabilities	79,812		84,404
Finance lease obligations	18,110		18,110
Notes and other debt, net	5,771,809		5,523,579
Liabilities held for sale	—		331
Total liabilities	7,611,644		7,509,250

Commitments and contingencies (Note 12)

Shareholders' Deficit:
Preferred stock, $0.0001 par value, 50,000 shares authorized; no shares issued and outstanding	—		—
Common stock, $0.0001 par value, 500,000 shares authorized; issued and outstanding: 237,353 shares at June 30, 2024 and 236,559 at December 31, 2023	24		24
Additional paid-in capital	1,228,527		1,221,824
Accumulated other comprehensive income	136		—
Distributions in excess of accumulated earnings	(3,722,066)		(3,708,240)
Total Uniti shareholders' deficit	(2,493,379)		(2,486,392)
Noncontrolling interests:
Operating partnership units	715		2,021
Cumulative non-voting convertible preferred stock, $0.01 par value, 6 shares authorized, 3 issued and outstanding	250		250
Total shareholders' deficit	(2,492,414)		(2,484,121)
Total Liabilities and Shareholders' Deficit	$	5,119,230	$	5,025,129

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Uniti Group Inc.

Condensed Consolidated Statements of Income

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(Thousands, except per share data)	2024		2023		2024		2023
Revenues:
Revenue from rentals
Uniti Leasing	$	216,640	$	210,345	$	432,633	$	419,987
Uniti Fiber	12,663		13,507		24,826		35,784
Total revenue from rentals	229,303		223,852		457,459		455,771
Service revenues
Uniti Leasing	1,646		2,108		3,274		3,274
Uniti Fiber	63,998		57,738		120,632		114,475
Total service revenues	65,644		59,846		123,906		117,749
Total revenues	294,947		283,698		581,365		573,520

Costs and Expenses:
Interest expense, net	127,475		119,689		250,686		268,552
Depreciation and amortization	78,052		77,267		155,537		154,042
General and administrative expense	25,716		23,417		53,849		51,850
Operating expense (exclusive of depreciation and amortization)	37,036		37,418		72,234		72,486
Transaction related and other costs	10,977		5,576		16,664		8,364
Gain on sale of real estate	—		—		(18,999)		—
Other (income) expense, net	(19)		(291)		(301)		19,888
Total costs and expenses	279,237		263,076		529,670		575,182

Income (loss) before income taxes and equity in earnings from unconsolidated entities	15,710		20,622		51,695		(1,662)
Income tax benefit	(2,571)		(4,357)		(7,934)		(6,769)
Equity in earnings from unconsolidated entities	—		(659)		—		(1,320)
Net income	18,281		25,638		59,629		6,427
Net income attributable to noncontrolling interests	3		12		22		3
Net income attributable to shareholders	18,278		25,626		59,607		6,424
Participating securities' share in earnings	(723)		(322)		(1,159)		(569)
Dividends declared on convertible preferred stock	(5)		(5)		(10)		(10)
Net income attributable to common shareholders	$	17,550	$	25,299	$	58,438	$	5,845

Income per common share:
Basic	$	0.07	$	0.11	0.25		$	0.02
Diluted	$	0.07	$	0.11	0.25		$	0.02

Weighted-average number of common shares outstanding:
Basic	237,347		236,429		237,121		236,260
Diluted	237,347		236,429		237,121		236,260

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Uniti Group Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(Thousands)	2024		2023		2024		2023
Net income	$	18,281	$	25,638	$	59,629	$	6,427
Other comprehensive income:
Unrealized gain on valuation of interest rate cap	529		—		173		—
Reclassification of realized interest on interest rate cap	(226)		—		(37)		—
Other comprehensive income	303		—		136		—
Comprehensive income	18,584		25,638		59,765		6,427
Comprehensive income attributable to noncontrolling interest	3		12		22		3
Comprehensive income attributable to shareholders	$	18,581	$	25,626	$	59,743	$	6,424

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Uniti Group Inc.

Condensed Consolidated Statements of Shareholders’ Deficit

(unaudited)


	For the three months ended June 30,
(Thousands, except share data)	Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Distributions in Excess of Accumulated Earnings		Noncontrolling Interest - OP Units		Noncontrolling Interest - Non- voting Preferred Shares		Total Shareholders' Deficit
	Shares	Amount		Shares	Amount
Balance at March 31, 2023	—	$	—	236,427,250	$	24	$	1,212,137	$	—	$	(3,538,683)	$	2,097	$	250	$	(2,324,175)
Net income	—	—		—	—		—		—		25,626		12		—		25,638
Common stock dividends declared ($0.15 per share)	—	—		—	—		—		—		(35,813)		—		—		(35,813)
Distributions to noncontrolling interest declared	—	—		—	—		—		—		—		(17)		—		(17)
Payments related to tax withholding for stock-based compensation	—	—		—	—		(7)		—		—		—		—		(7)
Stock-based compensation	—	—		3,502	—		3,130		—		—		—		—		3,130
Issuance of common stock - employee stock purchase plan	—	—		—	—		—		—		—		—		—		—
Balance at June 30, 2023	—	$	—	236,430,752	$	24	$	1,215,260	$	—	$	(3,548,870)	$	2,092	$	250	$	(2,331,244)

Balance at March 31, 2024	—	$	—	237,308,699	$	24	$	1,223,983	$	(167)	$	(3,703,597)	$	2,024	$	250	$	(2,477,483)
Net income	—	—		—	—		—		—		18,278		3		—		18,281
Other comprehensive income	—	—		—	—		—		303		—		—		—		303
Common stock dividends declared ($0.15 per share)	—	—		—	—		—		—		(36,747)		—		—		(36,747)
Distributions to noncontrolling interest declared	—	—		—	—		—		—		—		(5)		—		(5)
Exchange of noncontrolling interest	—	—		53,662	—		1,215		—		—		(1,307)		—		(92)
Payments related to tax withholding for stock-based compensation	—	—		—	—		(68)		—		—		—		—		(68)
Stock-based compensation	—	—		(9,251)	—		3,397		—		—		—		—		3,397
Balance at June 30, 2024	—	$	—	237,353,110	$	24	$	1,228,527	$	136	$	(3,722,066)	$	715	$	250	$	(2,492,414)


	For the six months ended June 30,
(Thousands, except share data)	Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Distributions in Excess of Accumulated Earnings		Noncontrolling Interest - OP Units		Noncontrolling Interest - Non- voting Preferred Shares		Total Shareholders' Deficit
	Shares	Amount		Shares	Amount
Balance at December 31, 2022	—	$	—	235,829,485	$	24	$	1,210,033	$	—	$	(3,483,634)	$	2,121	$	250	$	(2,271,206)
Net income	—	—		—	—		—		—		6,424		3		—		6,427
Common stock dividends declared ($0.30 per share)	—	—		—	—		—		—		(71,660)		—		—		(71,660)
Distributions to noncontrolling interest declared	—	—		—	—		—		—		—		(32)		—		(32)
Payments for settlement of common stock warrant	—	—		—	—		(56)		—		—		—		—		(56)
Termination of bond hedge option	—	—		—	—		59		—		—		—		—		59
Payments related to tax withholding for stock-based compensation	—	—		—	—		(1,350)		—		—		—		—		(1,350)
Stock-based compensation	—	—		534,363	—		6,260		—		—		—		—		6,260
Issuance of common stock - employee stock purchase plan	—	—		66,904	—		314		—		—		—		—		314
Balance at June 30, 2023	—	$	—	236,430,752	$	24	$	1,215,260	$	—	$	(3,548,870)	$	2,092	$	250	$	(2,331,244)

Balance at December 31, 2023	—	$	—	236,558,601	$	24	$	1,221,824	$	—	$	(3,708,240)	$	2,021	$	250	$	(2,484,121)
Net income	—	—		—	—		—		—		59,607		22		—		59,629
Other comprehensive income	—	—		—			—		136		—		—		—		136
Common stock dividends declared ($0.30 per share)	—	—		—	—		—		—		(73,433)		—		—		(73,433)
Distributions to noncontrolling interest declared	—	—		—	—		—		—		—		(21)		—		(21)


Exchange of noncontrolling interest	—	—		53,662	—		1,215		—		—		(1,307)		—		(92)
Payments related to tax withholding for stock-based compensation	—	—		—	—		(1,583)		—		—		—		—		(1,583)
Stock-based compensation	—	—		657,800	—		6,745		—		—		—		—		6,745
Issuance of common stock - employee stock purchase plan	—	—		83,047	—		326		—		—		—		—		326
Balance at June 30, 2024	—	$	—	237,353,110	$	24	$	1,228,527	$	136	$	(3,722,066)	$	715	$	250	$	(2,492,414)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Uniti Group Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Six Months Ended June 30,
(Thousands)	2024		2023
Cash flow from operating activities
Net income	$	59,629	$	6,427
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	155,537		154,042
Amortization of deferred financing costs and debt discount	10,950		9,454
Loss on extinguishment of debt, net	—		31,187
Interest rate cap amortization	720		—
Deferred income taxes	(8,652)		(8,046)
Equity in earnings of unconsolidated entities	—		(1,320)
Distributions of cumulative earnings from unconsolidated entities	—		1,969
Cash paid for interest rate cap	(2,200)		—
Straight-line revenues and amortization of below-market lease intangibles	(17,038)		(19,216)
Stock-based compensation	6,745		6,260
Loss (gain) on asset disposals	294		(172)
Gain on sale of real estate	(18,999)		—
Accretion of settlement obligation	3,660		5,776
Other	(48)		—
Changes in assets and liabilities:
Accounts receivable	(10,296)		(391)
Other assets	7,264		967
Accounts payable, accrued expenses and other liabilities	(13,228)		12,894
Net cash provided by operating activities	174,338		199,831
Cash flow from investing activities
Capital expenditures	(262,758)		(247,269)
Proceeds from sale of other equipment	435		1,169
Proceeds from sale of real estate	40,039		—
Proceeds from sale of unconsolidated entity	40,000		—
Net cash used in investing activities	(182,284)		(246,100)
Cash flow from financing activities
Repayment of debt	(122,942)		(2,263,662)
Proceeds from issuance of notes	309,000		2,600,000
Dividends paid	(108,445)		(71,594)
Payments of settlement payable	(49,011)		(49,011)
Borrowings under revolving credit facility	125,000		245,000
Payments under revolving credit facility	(333,000)		(347,000)
Proceeds from ABS Loan Facility	275,000		—
Finance lease payments	(1,265)		(799)
Payments for financing costs	(15,778)		(26,955)
Payment for settlement of common stock warrant	—		(56)
Termination of bond hedge option	—		59
Costs related to the early repayment of debt	—		(44,303)
Distributions paid to noncontrolling interests	(37)		(32)
Payment for noncontrolling interest	(92)		—
Employee stock purchase program	326		314

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Payments related to tax withholding for stock-based compensation	(1,583)		(1,350)
Net cash provided by financing activities	77,173		40,611
Net increase (decrease) in cash, restricted cash and cash equivalents	69,227		(5,658)
Cash, restricted cash and cash equivalents at beginning of period	62,264		43,803
Cash, restricted cash and cash equivalents at end of period	$	131,491	$	38,145

Non-cash investing and financing activities:
Property and equipment acquired but not yet paid	$	7,074	$	14,708
Tenant capital improvements	$	94,049	$	78,473

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Uniti Group Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1. Organization and Description of Business

Uniti Group Inc. (the “Company,” “Uniti,” “we,” “us,” or “our”) was incorporated in the state of Maryland on September 4, 2014. We are an independent internally managed real estate investment trust (“REIT”) engaged in the acquisition, construction and leasing of mission critical infrastructure in the communications industry. We are principally focused on acquiring and constructing fiber optic, copper and coaxial broadband networks and data centers. We manage our operations focused on our two primary lines of business: Uniti Fiber and Uniti Leasing.

The Company operates through a customary “up-REIT” structure, pursuant to which we hold substantially all of our assets through a partnership, Uniti Group LP, a Delaware limited partnership (the “Operating Partnership”) that we control as general partner. The up-REIT structure is intended to facilitate future acquisition opportunities by providing the Company with the ability to use common units of the Operating Partnership as a tax-efficient acquisition currency. As of June 30, 2024, we are the sole general partner of the Operating Partnership and own approximately 99.98% of the partnership interests in the Operating Partnership.

Our Proposed Merger with Windstream

On May 3, 2024, the Company entered into an Agreement and Plan of Merger with Windstream Holdings II, LLC (the “Merger Agreement”) providing for a combination of the Company and Windstream Holdings, Inc. (together with Windstream Holdings II, LLC, its successor in interest, and its subsidiaries, “Windstream”) such that, following a pre-closing reorganization of Windstream and the merger of the Company into an entity formed in such reorganization (the "Merger"), both the Company and Windstream will be indirect wholly owned subsidiaries of a recently formed company that in the reorganization will become the parent company of Windstream (“New Uniti”). Following the Merger, the common stock of New Uniti (“New Uniti Common Stock”) is expected to be listed on the Nasdaq.

The Merger intends to reunite Windstream’s business with the underlying fiber infrastructure owned by the Company to create a premier digital infrastructure company with a strong platform for value creation. Upon consummation of our Merger with Windstream, the board of directors of New Uniti will initially comprise nine members, including five directors to be appointed by Uniti. It is expected that Uniti’s existing officers will serve as initial officers of New Uniti.

At the effective time of the Merger, each share of Uniti’s common stock that is issued and outstanding will automatically be cancelled and retired and converted into the right to a number of shares of New Uniti Common Stock pursuant to an exchange ratio set forth in the Merger Agreement such that the Company's and Windstream's stockholders are expected to hold approximately 62% and 38%, respectively, of the combined company before giving effect to the conversion of any outstanding convertible securities or the issuance of warrants to purchase New Uniti Common Stock referenced below.

In addition, at the closing of the Merger, we will fund an aggregate cash payment of $425 million (less certain transaction expenses) that will be distributed to Windstream equityholders on a pro-rata basis (the “Merger Cash Consideration”). Windstream equityholders will also be entitled to pro rata distributions of (i) new shares of non-voting preferred stock of New Uniti with a dividend rate of 11% per year for the first six years, subject to an additional 0.5% per year during each of the seventh and eighth year after the initial issuance and further increased by an additional 1% per year during each subsequent year, subject to a cap of 16% per year and with an aggregate liquidation preference of $575 million, and (ii) warrants to purchase New Uniti Common Stock, with an exercise price of $0.01 per share, subject to customary adjustments, representing in the aggregate approximately 6.9% of the pro forma share total of New Uniti. We intend to fund the Merger Cash Consideration with cash on hand and borrowings under the Revolving Credit Facility (as defined herein).

Our Merger with Windstream is subject to customary closing conditions, including, among others, approval by our stockholders and receipt of required regulatory approvals, including the expiration or early termination of the waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976 and the receipt of approvals from the Federal Communications Commission and certain state public utility commissions. We currently expect our Merger with Windstream to close in 2025.

The foregoing summary of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the terms and conditions of the Merger Agreement, a copy of which is attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on May 3, 2024.

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Upon consummation of the Merger, New Uniti will become an integrated telecommunications company. Initially, the legacy Uniti and Windstream organizational structures will remain separate, and the existing agreements and arrangements presently in effect between Uniti and Windstream, such as the Windstream Leases and the settlement agreement with Windstream, which requires Uniti to fund periodic settlement payments and reimburse Windstream for certain growth capital improvements, will remain in place. In addition, we have agreed to suspend dividend payments or other distributions until the consummation of the Merger, except for the dividend paid on June 28, 2024 and those dividends reasonably required for us or our subsidiaries to maintain our status as a REIT or to avoid the payment or imposition of income or excise tax, among other customary exceptions. All Windstream debt obligations are expected to remain obligations of Windstream and our debt obligations are expected to remain as ours, with no cross-guarantees or credit support between the Company and Windstream. Finally, it is expected that, following consummation of the Merger, Uniti will cease to be a REIT for U.S. federal income tax purposes.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying Condensed Consolidated Financial Statements include all accounts of the Company and its wholly-owned and/or controlled subsidiaries, including the Operating Partnership. Under the Accounting Standards Codification 810, Consolidation (“ASC 810”), the Operating Partnership is considered a variable interest entity and is consolidated in the Condensed Consolidated Financial Statements of Uniti Group Inc. because the Company is the primary beneficiary. All material intercompany balances and transactions have been eliminated.

ASC 810 provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise, if any, should consolidate the VIEs. Generally, the consideration of whether an entity is a VIE applies when either: (1) the equity investors (if any) lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and substantially all of the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The Company consolidates VIEs in which it is considered to be the primary beneficiary. The primary beneficiary is defined as the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE.

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information set forth in the Accounting Standards Codification (“ASC”), as published by the Financial Accounting Standards Board (“FASB”), and with the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. Operating results from any interim period are not necessarily indicative of the results that may be expected for the full fiscal year. The accompanying Condensed Consolidated Financial Statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K filed with the SEC on February 29, 2024, as amended by Amendment No. 1 and Amendment No. 2 thereto filed on Form 10-K/A with the SEC on March 26, 2024 and March 27, 2024, respectively (the “Annual Report”). Accordingly, significant accounting policies and other disclosures normally provided have been omitted from the accompanying Condensed Consolidated Financial Statements and related notes since such items are disclosed in our Annual Report.

Restricted Cash and Cash Equivalents—Restricted cash and cash equivalents represent funds that are restricted for an obligation under the ABS Loan Facility (as defined in Note 9) to maintain three months of interest and other expenses.

The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents within the Condensed Consolidated Balance Sheets to the total cash and cash equivalents and restricted cash and cash equivalents

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within the Condensed Consolidated Statements of Cash Flows.


(Thousands)	June 30, 2024		December 31, 2023
Cash and cash equivalents	$	118,763	$	62,264
Restricted cash and cash equivalents	12,728		—
Cash, restricted cash and cash equivalents at end of period	$	131,491	$	62,264

Concentration of Credit Risks—Prior to September 2020, we were party to a long-term exclusive triple-net lease (the “Master Lease”) with Windstream pursuant to which a substantial portion of our real property was leased to Windstream and from which a substantial portion of our leasing revenues were derived. On September 18, 2020, Uniti and Windstream bifurcated the Master Lease and entered into two structurally similar master leases (collectively, the “Windstream Leases”), which amended and restated the Master Lease in its entirety. The Windstream Leases consist of (a) a master lease (the "ILEC MLA") that governs Uniti owned assets used for Windstream's incumbent local exchange carrier ("ILEC") operations and (b) a master lease (the "CLEC MLA") that governs Uniti owned assets used for Windstream's consumer competitive local exchange carrier ("CLEC") operations. Revenue under the Windstream Leases provided 68.1% and 66.9% of our revenue for the six months ended June 30, 2024 and 2023, respectively. Because a substantial portion of our revenue and cash flows are derived from lease payments by Windstream pursuant to the Windstream Leases, there could be a material adverse impact on our consolidated results of operations, liquidity, financial condition and/or ability to pay dividends and service debt if Windstream were to default under the Windstream Leases or otherwise experiences operating or liquidity difficulties and becomes unable to generate sufficient cash to make payments to us.

We monitor the credit quality of Windstream through numerous methods, including by (i) reviewing credit ratings of Windstream by nationally recognized credit agencies, (ii) reviewing the financial statements of Windstream that are required to be delivered to us pursuant to the Windstream Leases, (iii) monitoring news reports regarding Windstream and its business, (iv) conducting research to ascertain industry trends potentially affecting Windstream, (v) monitoring Windstream’s compliance with the terms of the Windstream Leases and (vi) monitoring the timeliness of its payments under the Windstream Leases.

As of the date of this Quarterly Report on Form 10-Q, Windstream is current on all lease payments. We note that in August 2020, Moody’s Investor Service assigned a B3 corporate family rating with a stable outlook to Windstream in connection with its post-emergence exit financing. At the same time, S&P Global Ratings assigned Windstream a B- issuer rating with a stable outlook. Both ratings remain current as of the date of this filing. In order to assist us in our continuing assessment of Windstream’s creditworthiness, we periodically receive certain confidential financial information and metrics from Windstream.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which requires incremental disclosures related to reportable segments. Specifically, the ASU requires disclosure of significant segment expense categories and amounts for each reportable segment. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating this guidance to determine the impact it will have on our financial statements.

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Note 3. Revenues

Disaggregation of Revenue

The following table presents our revenues disaggregated by revenue stream.


	Three Months Ended June 30,				Six Months Ended June 30,
(Thousands)	2024		2023		2024		2023
Revenue disaggregated by revenue stream
Revenue from contracts with customers
Uniti Fiber
Lit backhaul	$	22,645	$	19,453	$	40,367	$	38,975
Enterprise and wholesale	24,327		23,410		51,220		45,986
E-Rate and government	16,174		14,145		27,318		28,036
Other	852		730		1,727		1,478
Uniti Fiber	$	63,998	$	57,738	$	120,632	$	114,475
Uniti Leasing	1,646		2,108		3,274		3,274
Total revenue from contracts with customers	65,644		59,846		123,906		117,749
Revenue accounted for under leasing guidance
Uniti Leasing	216,640		210,345		432,633		419,987
Uniti Fiber	12,663		13,507		24,826		35,784
Total revenue accounted for under leasing guidance	229,303		223,852		457,459		455,771
Total revenue	$	294,947	$	283,698	$	581,365	$	573,520

At June 30, 2024 and December 31, 2023, lease receivables were $24.5 million and $22.0 million, respectively, and receivables from contracts with customers were $28.5 million and $18.8 million, respectively.

Contract Assets (Unbilled Revenue) and Liabilities (Deferred Revenue)

Contract assets primarily consist of unbilled construction revenue where we are utilizing our costs incurred as the measure of progress of satisfying our performance obligation. Contract assets are reported within accounts receivable, net on our Condensed Consolidated Balance Sheets. When the contract price is invoiced, the related unbilled receivable is reclassified to trade accounts receivable, where the balance will be settled upon the collection of the invoiced amount. Contract liabilities are generally comprised of upfront fees charged to the customer for the cost of establishing the necessary components of the Company’s network prior to the commencement of use by the customer. Fees charged to customers for the recurring use of the Company’s network are recognized during the related periods of service. Upfront fees that are billed in advance of providing services are deferred until such time the customer accepts the Company’s network and then are recognized as service revenues ratably over a period in which substantive services required under the revenue arrangement are expected to be performed, which is the initial term of the arrangement. During the three and six months ended June 30, 2024, we recognized revenues of $1.3 million and $2.6 million, respectively, which were included in the December 31, 2023 contract liabilities balance.

The following table provides information about contract assets and contract liabilities accounted for under ASC 606.


(Thousands)	Contract Assets		Contract Liabilities
Balance at December 31, 2023	$	26	$	11,109
Balance at June 30, 2024	$	138	$	9,780

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Transaction Price Allocated to Remaining Performance Obligations

Performance obligations within contracts to stand ready to provide services are typically satisfied over time or as those services are provided. Contract liabilities primarily relate to deferred revenue from upfront customer payments. The deferred revenue is recognized, and the liability reduced, over the contract term as the Company completes the performance obligation. As of June 30, 2024, our future revenues (i.e., transaction price related to remaining performance obligations) under contract accounted for under ASC 606 totaled $624.9 million, of which $552.2 million is related to contracts that are currently being invoiced and have an average remaining contract term of 3.2 years, while $72.7 million represents our backlog for sales bookings which have yet to be installed and have an average contract term of 5.3 years. We do not disclose the value of unsatisfied performance obligations for contracts that have an original expected duration of one year or less.

Note 4. Leases

Lessor Accounting

We lease communications towers, ground space, colocation space and dark fiber to tenants under operating leases. Our leases have initial lease terms ranging from less than one year to 35 years, most of which include options to extend or renew the leases for less than one year to 20 years (based on the satisfaction of certain conditions as defined in the lease agreements), and some of which may include options to terminate the leases within one to six months. Certain lease agreements contain provisions for future rent increases. Payments due under the lease contracts include fixed payments plus, for some of our leases, variable payments.

The components of lease income for the three and six months ended June 30, 2024 and 2023 respectively, are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(Thousands)	2024		2023		2024		2023
Lease income - operating leases	$	229,303	$	223,852	$	457,459	$	455,771

Lease payments to be received under non-cancellable operating leases where we are the lessor for the remainder of the lease terms as of June 30, 2024 are as follows:


(Thousands)	June 30, 2024⁽¹⁾
2024	$	404,320
2025	828,753
2026	833,638
2027	834,405
2028	834,714
Thereafter	1,562,050
Total lease receivables	$	5,297,880
(1) Total future minimum lease payments to be received include $4.5 billion relating to the Windstream Leases.

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The underlying assets under operating leases where we are the lessor are summarized as follows:


(Thousands)	June 30, 2024		December 31, 2023
Land	$	26,518	$	26,533
Building and improvements	348,550		347,700
Poles	326,387		314,488
Fiber	4,034,889		3,862,635
Equipment	437		436
Copper	3,973,190		3,974,410
Conduit	90,116		90,087
Tower assets	58		58
Finance lease assets	1,890		1,890
Other assets	10,434		10,434
	8,812,469		8,628,671
Less: accumulated depreciation	(5,770,081)		(5,690,066)
Underlying assets under operating leases, net	$	3,042,388	$	2,938,605

Depreciation expense for the underlying assets under operating leases where we are the lessor for the three and six months ended June 30, 2024 and 2023, respectively, is summarized as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(Thousands)	2024		2023		2024		2023
Depreciation expense for underlying assets under operating leases	$	45,643	$	45,639	$	91,648	$	90,845

Lessee Accounting

We have commitments under operating leases for communications towers, ground space, colocation space, dark fiber and buildings. We also have finance leases for dark fiber and automobiles. Our leases have initial lease terms ranging from less than one year to 30 years, most of which include options to extend or renew the leases for less than one year to 20 years, and some of which may include options to terminate the leases within one to six months. Certain lease agreements contain provisions for future rent increases. Payments due under the lease contracts include fixed payments plus, for some of our leases, variable payments.

As of June 30, 2024, we have short term lease commitments amounting to approximately $4.1 million.

Future lease payments under non-cancellable leases as of June 30, 2024 are as follows:


(Thousands)	Operating Leases		Finance Leases
2024	$	8,502	$	2,002
2025	16,850		4,003
2026	13,406		3,878
2027	10,651		3,171
2028	9,022		2,453
Thereafter	100,231		9,830
Total undiscounted lease payments	$	158,662	$	25,337
Less: imputed interest	(78,850)		(7,227)
Total lease liabilities	$	79,812	$	18,110

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Note 5. Fair Value of Financial Instruments

FASB ASC 820, Fair Value Measurements, establishes a hierarchy of valuation techniques based on the observability of inputs utilized in measuring assets and liabilities at fair values. This hierarchy establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the assessment date;

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3 – Unobservable inputs for the asset or liability.

Our financial instruments consist of cash and cash equivalents, accounts and other receivables, our outstanding notes and other debt, settlement payable, interest and dividends payable.

The following table summarizes the fair value of our financial instruments at June 30, 2024 and December 31, 2023:


(Thousands)	Total		Quoted Prices in Active Markets (Level 1)		Prices with Other Observable Inputs (Level 2)		Prices with Unobservable Inputs (Level 3)
At June 30, 2024
Assets
Derivative asset	$	1,616	$	—	$	1,616	$	—
Total	$	1,616	$	—	$	1,616	$	—

Liabilities
Senior secured notes - 10.50%, due February 15, 2028 (see Note 9)	$	2,809,315	$	—	$	2,809,315	$	—
Senior secured notes - 4.75%, due April 15, 2028	461,636		—		461,636		—
Senior unsecured notes - 6.50%, due February 15, 2029	699,136		—		699,136		—
Senior unsecured notes - 6.00%, due January 15, 2030	414,660		—		414,660		—
Convertible senior notes - 7.50% due December 1, 2027	268,930		—		268,930		—
ABS Loan Facility, variable rate, due September 1, 2025	273,625		—		273,625
Settlement payable	116,475		—		116,475		—
Total	$	5,043,777	$	—	$	5,043,777	$	—

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(Thousands)	Total		Quoted Prices in Active Markets (Level 1)		Prices with Other Observable Inputs (Level 2)		Prices with Unobservable Inputs (Level 3)
At December 31, 2023
Liabilities
Senior secured notes - 10.50%, due February 15, 2028	$	2,624,596	$	—	$	2,624,596	$	—
Senior secured notes - 4.75%, due April 15, 2028	488,205		—		488,205		—
Senior unsecured notes - 6.50% , due February 15, 2029	796,125		—		796,125		—
Senior unsecured notes - 6.00%, due January 15, 2030	486,675		—		486,675		—
Exchangeable senior notes - 4.00%, due June 15, 2024	122,140		—		122,140
Convertible senior notes - 7.50%, due December 1, 2027	301,755		—		301,755		—
Senior secured revolving credit facility, variable rate, due September 24, 2027	207,979		—		207,979		—
Settlement payable	160,550		—		160,550		—
Total	$	5,188,025	$	—	$	5,188,025	$	—

The carrying value of cash and cash equivalents, accounts and other receivables, and accounts, interest and dividends payable approximate fair values due to the short-term nature of these financial instruments.

The total principal balance of our outstanding notes and other debt was $5.86 billion at June 30, 2024, with a fair value of $4.93 billion. The estimated fair value of our outstanding notes and other debt was based on available external pricing data and current market rates for similar debt instruments, among other factors, which are classified as Level 2 inputs within the fair value hierarchy.

Uniti is required to make $490.1 million of cash payments to Windstream in equal installments over 20 consecutive quarters beginning October 2020 (the “Settlement Payable”). See Note 12. The Settlement Payable was initially recorded at fair value, using the present value of future cash flows. The future cash flows are discounted using discount rate input based on observable market data. Accordingly, we classify inputs used as Level 2 in the fair value hierarchy. As of June 30, 2024, the remaining Settlement Payable is $118.2 million. There have been no changes in the valuation methodologies used since the initial recording.

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Note 6. Property, Plant and Equipment

The carrying value of property, plant and equipment is as follows:


(Dollars in Thousands)	Depreciable Lives	June 30, 2024		December 31, 2023
Land	Indefinite	$	30,491	$	30,099
Building and improvements	3 - 40 years	370,191		366,490
Poles	30 years	326,387		314,489
Fiber	30 years	5,040,626		4,835,623
Equipment	5 - 7 years	475,671		460,463
Copper	20 years	3,973,190		3,974,410
Conduit	30 years	90,117		90,087
Tower assets	20 years	1,220		1,221
Finance lease assets	(1)	52,589		52,589
Other assets	15 - 20 years	10,436		10,436
Corporate assets	3 - 7 years	16,215		15,731
Construction in progress	(1)	49,146		49,771
		10,436,279		10,201,409
Less accumulated depreciation		(6,343,480)		(6,219,340)
Net property, plant and equipment		$	4,092,799	$	3,982,069

(1) See our Annual Report for property, plant and equipment accounting policies.

Depreciation expense for the three and six months ended June 30, 2024 was $70.6 million and $140.7 million, respectively. Depreciation expense for the three and six months ended June 30, 2023 was $69.8 million and $139.2 million, respectively.

CableSouth Transaction

In 2018, we acquired certain fiber assets from CableSouth Media, LLC (“CableSouth”) and leased back certain of those acquired assets to CableSouth pursuant to a triple-net lease.

During the fourth quarter of 2023, the Company entered into an agreement with a fund managed by Macquarie Asset Management ("MAM") pursuant to which MAM would make a structured equity investment into CableSouth in order to assist CableSouth in the acquisition of all of our previously acquired CableSouth fiber assets and the buyout of their triple-net lease for cash consideration of $40.0 million (the "CableSouth Transaction"). The Company completed the CableSouth Transaction on January 31, 2024 and recorded a $19.0 million gain on sale of real estate in the Condensed Consolidated Statements of Income (Loss).

The CableSouth Transaction is included in the results of the Uniti Leasing segment, and because the sale does not represent a strategic shift that will have a major effect on operations and financial results, it does not qualify for presentation as a discontinued operation.

Note 7. Derivative Instruments and Hedging Activities

The Company uses derivative instruments to mitigate the effects of interest rate volatility inherent in our variable rate debt, which could unfavorably impact our future earnings and forecasted cash flows. The Company does not use derivative instruments for speculative or trading purposes.

On March 1, 2024, the Company entered into an interest rate cap agreement (the "ABS Loan Interest Rate Cap") related to the ABS Loan Facility (as defined in Note 9). This interest rate cap was designated as a cash flow hedge, has a notional value of $275.0 million, and effectively caps the one-month term secured overnight financing rate ("SOFR ") at 4.50%.

The following table presents the fair value of the Company’s derivatives designated as hedging instruments as of June 30, 2024 and December 31, 2023: </