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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________________________
FORM 10-Q
_______________________________________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
oTRANSITION 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)
_______________________________________________________________
Maryland46-5230630
(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 classTrading Symbol(s)Name of each exchange on which registered
Common StockUNITThe 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 filerxAccelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
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 o No x
As of October 27, 2022, the registrant had 237,200,050 shares of common stock, $0.0001 par value per share, outstanding.


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”); 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 effect of the COVID-19 pandemic on our results of operations and financial condition, including the potential need to perform an interim goodwill analysis and report an impairment charge related thereto; 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; 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:
the future prospects of our largest customer, Windstream, following its emergence from bankruptcy;
adverse impacts of the COVID-19 pandemic, inflation and rising 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;
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;
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
2

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 and in Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K, 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. 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.
3

Uniti Group Inc.
Table of Contents
Page
Uniti Group Inc.
4

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Uniti Group Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(Thousands, except par value)September 30, 2022December 31, 2021
Assets:
Property, plant and equipment, net$3,693,581 $3,508,939 
Cash and cash equivalents43,394 58,903 
Accounts receivable, net41,317 38,455 
Goodwill385,878 601,878 
Intangible assets, net342,291 364,630 
Straight-line revenue receivable62,137 41,323 
Operating lease right-of-use assets, net86,212 80,271 
Other assets83,762 38,900 
Investment in unconsolidated entities38,990 64,223 
Deferred income tax assets, net33,444 11,721 
Total Assets$4,811,006 $4,809,243 
Liabilities and Shareholders' Deficit:  
Liabilities:  
Accounts payable, accrued expenses and other liabilities$137,019 $86,868 
Settlement payable (Note 13)248,117 239,384 
Intangible liabilities, net169,765 177,786 
Accrued interest payable57,848 109,826 
Deferred revenue1,197,375 1,134,236 
Derivative liability, net822 10,413 
Dividends payable658 1,264 
Operating lease liabilities64,681 57,355 
Finance lease obligations15,569 15,348 
Notes and other debt, net5,179,327 5,090,537 
Total liabilities7,071,181 6,923,017 
Commitments and contingencies (Note 13)
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: 235,741 shares at September 30, 2022 and 234,779 at December 31, 2021
24 23 
Additional paid-in capital1,227,905 1,214,830 
Accumulated other comprehensive loss(688)(9,164)
Distributions in excess of accumulated earnings(3,489,718)(3,333,481)
Total Uniti shareholders' deficit(2,262,477)(2,127,792)
Noncontrolling interests:  
Operating partnership units2,052 13,893 
Cumulative non-voting convertible preferred stock, $0.01 par value, 6 shares authorized, 3 issued and outstanding
250 125 
Total shareholders' deficit(2,260,175)(2,113,774)
Total Liabilities and Shareholders' Deficit$4,811,006 $4,809,243 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

Uniti Group Inc.
Condensed Consolidated Statements of Income
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
(Thousands, except per share data)2022202120222021
Revenues:
Leasing$208,623 $199,485 $618,878 $590,478 
Fiber Infrastructure74,480 67,262 226,234 217,035 
Total revenues283,103 266,747 845,112 807,513 
Costs and Expenses:
Interest expense, net97,731 94,793 290,280 341,762 
Depreciation and amortization73,516 70,530 217,276 211,165 
General and administrative expense26,863 25,077 75,818 75,800 
Operating expense (exclusive of depreciation and amortization)36,291 34,167 108,184 105,436 
Goodwill impairment (Note 2)216,000  216,000  
Transaction related and other costs2,375 1,063 7,324 5,624 
Gain on sale of real estate(94) (344)(442)
Gain on sale of operations(176) (176)(28,143)
Other (income) expense, net74 283 (8,254)8,758 
Total costs and expenses452,580 225,913 906,108 719,960 
  
(Loss) income before income taxes and equity in earnings from unconsolidated entities(169,477)40,834 (60,996)87,553 
Income tax (benefit) expense(13,056)(2,244)(10,183)283 
Equity in earnings from unconsolidated entities(672)(604)(1,696)(1,549)
Net (loss) income(155,749)43,682 (49,117)88,819 
Net (loss) income attributable to noncontrolling interests(70)316 135 984 
Net (loss) income attributable to shareholders(155,679)43,366 (49,252)87,835 
Participating securities' share in earnings(226)(283)(897)(864)
Dividends declared on convertible preferred stock(5)(3)(15)(8)
Net (loss) income attributable to common shareholders$(155,910)$43,080 $(50,164)$86,963 
(Loss) income per common share:
Basic$(0.66)$0.18 $(0.21)$0.37 
Diluted$(0.66)$0.17 $(0.21)$0.37 
Weighted-average number of common shares outstanding:
Basic235,739 233,513 235,483 232,269 
Diluted235,739 264,421 235,483 232,540 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

Uniti Group Inc.
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
(Thousands)2022202120222021
Net (loss) income$(155,749)$43,682 $(49,117)$88,819 
Other comprehensive income:
Interest rate swap termination2,829 2,830 8,488 8,488 
Other comprehensive income2,829 2,830 8,488 8,488 
Comprehensive (loss) income(152,920)46,512 (40,629)97,307 
Comprehensive (loss) income attributable to noncontrolling interest(69)338 147 1,089 
Comprehensive (loss) income attributable to shareholders$(152,851)$46,174 $(40,776)$96,218 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7

Uniti Group Inc.
Condensed Consolidated Statements of Shareholders’ Deficit
(unaudited)
 For the Three Months Ended September 30,
(Thousands, except share data)Preferred StockCommon StockAdditional Paid-in
Capital
Accumulated Other
Comprehensive
Loss
Distributions in
Excess of
Accumulated
Earnings
Noncontrolling
Interest - OP Units
Noncontrolling
Interest - Non-
voting Preferred
Shares
Total Shareholders'
Deficit
SharesAmountSharesAmount
Balance at June 30, 2021— $— 231,804,921 $23 $1,153,707 $(14,792)$(3,341,371)$68,868 $125 $(2,133,440)
Net income— — — — — — 43,366 316 — 43,682 
Other comprehensive income— — — — — 2,808 — 22 — 2,830 
Common stock dividends declared ($0.15 per share)
— — — — — — (35,681)— — (35,681)
Distributions to noncontrolling interest declared— — — — — — — (141)— (141)
Exchange of noncontrolling interest— — 2,528,199 — 50,395 — — (50,395)—  
Payments related to tax withholding for stock-based compensation— — — — (10)— — — — (10)
Stock-based compensation— — 123,050 — 4,166 — — — — 4,166 
Issuance of common stock - employee stock purchase plan— — 39,186 — 353 — — — — 353 
Balance at September 30 2021— — 234,495,356 23 1,208,611 (11,984)(3,333,686)18,670 125 (2,118,241)
Balance at June 30, 2022— $— 235,699,513 $24 $1,224,427 $(3,516)$(3,298,455)$2,072 $250 $(2,075,198)
Net loss— — — — — — (155,679)(70)— (155,749)
Other comprehensive income— — — — — 2,828 — 1 — 2,829 
Common stock dividends declared ($0.15 per share)
— — — — — — (35,584)— — (35,584)
Distributions to noncontrolling interest declared— — — — — — — 49 — 49 
Payments related to tax withholding for stock-based compensation— — — — 2 — — — — 2 
Stock-based compensation— — 1,201 — 3,151 — — — — 3,151 
Issuance of common stock - employee stock purchase plan— — 40,530 — 325 — — — — 325 
Balance at September 30, 2022— — 235,741,244 24 1,227,905 (688)(3,489,718)2,052 250 (2,260,175)
For the Nine Months Ended September 30,
(Thousands, except share data)Preferred StockCommon StockAdditional Paid-in
Capital
Accumulated Other
Comprehensive
Loss
Distributions in
Excess of
Accumulated
Earnings
Noncontrolling
Interest - OP Units
Noncontrolling
Interest - Non-
voting Preferred
Shares
Total Shareholders'
Deficit
SharesAmountSharesAmount
Balance at December 31, 2020— $— 231,261,958 $23 $1,209,141 $(20,367)$(3,330,455)$69,157 $125 $(2,072,376)
Cumulative effect adjustment for adoption of new accounting standard— — — — (59,908)— 14,598 — — (45,310)
Net income— — — — — — 87,835 984 — 88,819 
Other comprehensive income— — — — — 8,383 — 105 — 8,488 
Common stock dividends declared ($0.45 per share)
— — — — — — (105,664)— — (105,664)
Distributions to noncontrolling interest declared— — — — — — — (1,181)— (1,181)
Exchange of noncontrolling interest— — 2,528,199 — 50,395 — — (50,395)—  
Payments related to tax withholding for stock-based compensation— — — — (2,652)— — — — (2,652)
Stock-based compensation— — 630,249 — 10,963 — — — — 10,963 
Issuance of common stock - employee stock purchase plan— — 74,950 — 672 — — — — 672 
Balance at September 30 2021— — 234,495,356 23 1,208,611 (11,984)(3,333,686)18,670 125 (2,118,241)
Balance at December 31, 2021— $— 234,779,247 $23 $1,214,830 $(9,164)$(3,333,481)$13,893 $125 $(2,113,774)
Net (loss) income— — — — — — (49,252)135 — (49,117)
Other comprehensive income— — — — — 8,476 — 12 — 8,488 
Common stock dividends declared ($0.45 per share)
— — — — — — (106,860)— — (106,860)
Distributions to noncontrolling interest declared— — — — — — — (111)— (111)
Cumulative non-voting convertible preferred stock— — — — — — (125)— 125  
Exchange of noncontrolling interest— — 244,682 — 7,257 — — (11,877)— (4,620)
Payments related to tax withholding for stock-based compensation— — — — (4,434)— — — — (4,434)
Stock-based compensation— — 647,461 1 9,663 — — — — 9,664 
Issuance of common stock - employee stock purchase plan— — 69,854 — 589 — — — — 589 
Balance at September 30, 2022— — 235,741,244 24 1,227,905 (688)(3,489,718)2,052 250 (2,260,175)
The accompanying notes are an integral part of these condensed consolidated financial statements.
8

Uniti Group Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
 Nine Months Ended September 30,
(Thousands)20222021
Cash flow from operating activities  
Net (loss) income$(49,117)$88,819 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:  
Depreciation and amortization217,276 211,165 
Amortization of deferred financing costs and debt discount13,510 13,723 
Loss on debt extinguishment 43,369 
Interest rate swap termination8,488 8,488 
Deferred income taxes(21,723)(2,270)
Equity in earnings of unconsolidated entities(1,696)(1,549)
Distributions of cumulative earnings from unconsolidated entities2,959 2,933 
Cash paid for interest rate swap settlement(9,591)(9,291)
Straight-line revenues and amortization of below-market lease intangibles(31,066)(22,455)
Stock-based compensation9,664 10,963 
Change in fair value of contingent consideration 21 
Goodwill impairment (see Note 2)216,000  
Gain on sale of unconsolidated entity (see Note 5)(7,923) 
Gain on sale of real estate(344)(442)
Gain on sale of operations(176)(28,143)
Loss (gain) on asset disposals902 (232)
Accretion of settlement obligation8,733 13,006 
Other(126)97 
Changes in assets and liabilities:  
Accounts receivable(2,863)23,938 
Other assets7,756 (150)
Accounts payable, accrued expenses and other liabilities(75,556)1,363 
Net cash provided by operating activities285,107 353,353 
Cash flow from investing activities  
Capital expenditures(292,666)(276,010)
Proceeds from sale of unconsolidated entity (see Note 5)32,527  
Proceeds from sale of real estate, net of cash575 1,034 
Proceeds from sale of operations541 62,113 
Proceeds from sale of other equipment338 1,143 
Net cash used in investing activities(258,685)(211,720)
Cash flow from financing activities  
Repayment of debt (1,660,000)
Proceeds from issuance of notes 1,680,000 
Dividends paid(107,362)(105,941)
Payments of settlement payable (73,516)
Payments of contingent consideration (2,979)
Distributions paid to noncontrolling interest(217)(1,700)
Payment for exchange of noncontrolling interest(4,620) 
Borrowings under revolving credit facility180,000 290,000 
Payments under revolving credit facility(105,000)(220,000)
Finance lease payments(887)(1,745)
Payments for financing costs (25,755)
Payment of tender premium (25,800)
Employee stock purchase program589 672 
Payments related to tax withholding for stock-based compensation(4,434)(2,652)
Net cash used in financing activities(41,931)(149,416)
   
Net increase in cash and cash equivalents(15,509)(7,783)
Cash and cash equivalents at beginning of period58,903 77,534 
Cash and cash equivalents at end of period$43,394 $69,751 
   
Non-cash investing and financing activities:  
Property and equipment acquired but not yet paid$12,751 $22,586 
Tenant capital improvements120,239 140,996 
9

The accompanying notes are an integral part of these condensed consolidated financial statements.
10

Uniti Group Inc.
Notes to the 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 September 30, 2022, we are the sole general partner of the Operating Partnership and own approximately 99.96% of the partnership interests in the Operating Partnership.
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 25, 2022, as amended by Amendment No. 1 thereto filed on Form 10-K/A with the SEC on March 22, 2022 (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.
Concentration of Credit Risks—Prior to September 2020, we were party to a long-term exclusive triple-net lease (the “Master Lease”) with Windstream Holdings, Inc. (together with Windstream Holdings II, LLC, its successor in interest, and its subsidiaries, “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
11

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. Revenue under the Windstream Leases provided 66.4% and 67.6% of our revenue for the nine months ended September 30, 2022 and 2021, 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.
Prior to its emergence from bankruptcy on September 21, 2020, Windstream was a publicly traded company subject to the periodic filing requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Windstream’s historic filings through their quarter ended June 30, 2020 can be found at www.sec.gov. Additionally, the Windstream audited financial statements as of December 31, 2021, and for the year ended December 31, 2021, as of December 31, 2020 and for the period from September 22, 2020 to December 31, 2020 and for the period from January 1, 2020 to September 21, 2020 and for the year ended December 31, 2019 are included as an exhibit to our Annual Report. On September 22, 2020, Windstream filed a Form 15 to terminate all filing obligations under Sections 12(g) and 15(d) under the Exchange Act. Windstream filings are not incorporated by reference in this Quarterly Report on Form 10-Q.
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.

Goodwill—As of September 30, 2022 and December 31, 2021, all of our goodwill is included in our Fiber Infrastructure segment. Goodwill is recognized for the excess of purchase price over the fair value of net assets of businesses acquired. Goodwill is reviewed for impairment on an annual basis during the fourth quarter. Application of the goodwill impairment test requires significant judgment, including: the identification of reporting units; assignment of assets and liabilities to reporting units; and assignment of goodwill to reporting units. In accordance with ASC 350-20, Intangibles-Goodwill and Other, we evaluate goodwill for impairment between annual impairment tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount (a “Triggering Event”). On the occurrence of a Triggering Event, an entity has the option to first assess qualitative factors to determine whether a quantitative impairment test is necessary. If it is more likely than not that goodwill is impaired, the fair value of the reporting unit must be compared with its carrying value.

In performing the quantitative assessment of goodwill, we estimate the fair value of our fiber reporting unit using a combination of an income approach based on the present value of estimated future cash flows and a market approach based on market data of comparable businesses, and acquisition multiples paid in recent transactions. Inherent in our preparation of cash flow projections are significant assumptions and estimates derived from a review of our operating results and business plans, which include expected revenue and expense growth rates, capital expenditure plans and discount rate. In determining these assumptions, we consider our ability to execute on our plans, future economic conditions, interest rates and other market data. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods. Small changes in these assumptions or estimates could materially affect our cash flow projections, and therefore could affect the likelihood and amount of potential impairment in future periods. Potential events that could negatively impact these assumptions or estimates may include customer losses or poor execution of our business plans, which impact revenue growth, cost escalation impacting margin, the level of capital expenditures required to sustain our growth and market factors, including stock price fluctuations and increased interest rates, impacting our discount rate. For example, if we were to experience a significant delay in our permitting process in the construction of our fiber networks, the timing of effected cash flows could impact long term growth rates and negatively impact the income approach, leading to potential impairment. As a result, should our expectations of average projected revenue growth percentage, average projected EBITDA margin percentage and/or average projected capital expenditures as a percentage of revenue change, we may experience future impairment to goodwill (while other assumptions remain constant). Furthermore, a deterioration in market factors such as stock prices or increased interest rates
12

and/or declines in acquisition multiples utilized in the market approach could affect the likelihood and amount of potential impairment. We evaluate the appropriateness of each valuation methodology in determining the weighting applied to each methodology in the determination of the concluded fair value. If the carrying amount of a reporting unit's net assets is less than its fair value, no impairment exists. If the carrying amount of the reporting unit is greater than the fair value of the reporting unit, an impairment loss must be recognized for the excess and recorded in the Consolidated Statements of (Loss) Income not to exceed the carrying amount of goodwill.

In connection with the preparation of the Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2022, the Company identified a Triggering Event and, therefore, performed a qualitative and quantitative goodwill impairment test. The Triggering Event was a result of macroeconomic and financial market factors, specifically increased interest rates, impacting our discount rate. As a result of this interim assessment of goodwill, we concluded that the fair value of the Fiber Infrastructure reporting unit, estimated using a combination of the income approach and market approach, is less than its carrying amount. Accordingly, we recorded a $216.0 million goodwill impairment charge in the Fiber Infrastructure reporting unit during the three months ended September 30, 2022.
Reclassifications—Certain prior year asset and liability categories and related amounts have been reclassified to conform with current year presentation.
Recently Adopted Accounting Pronouncements
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange (“ASU 2021-04”). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted ASU 2021-04 effective January 1, 2022, and there was no impact on our consolidated financial statements.
In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments (“ASU 2021-05”), which requires lessors to classify leases as operating leases if they (1) have variable lease payments that do not depend on a reference index or rate, and (2) would have resulted in the recognition of a selling loss at lease commencement if classified as sales-type or direct financing. ASU 2021-05 is effective for all entities which have previously adopted Topic 842 for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted ASU 2021-05 effective January 1, 2022, and there was no impact on our consolidated financial statements.
13

Note 3. Revenues
Disaggregation of Revenue
The following table presents our revenues disaggregated by revenue stream.
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Thousands)2022202120222021
Revenue disaggregated by revenue stream
Revenue from contracts with customers
Fiber Infrastructure
Lit backhaul$19,969 $19,381 $59,344 $67,404 
Enterprise and wholesale21,423 20,863 63,359 63,190 
E-Rate and government15,245 13,505 48,026 48,795 
Other703 839 2,076 2,479 
Fiber Infrastructure$57,340 $54,588 $172,805 $181,868 
Leasing1,201 1,070 3,553 3,237 
Total revenue from contracts with customers58,541 55,658 176,358 185,105 
Revenue accounted for under leasing guidance  
Leasing207,422 198,415 615,325 587,241 
Fiber Infrastructure17,140 12,674 53,429 35,167 
Total revenue accounted for under leasing guidance224,562 211,089 668,754 622,408 
Total revenue$283,103 $266,747 $845,112 $807,513 
At September 30, 2022 and December 31, 2021, lease receivables were $23.8 million and $19.4 million, respectively, and receivables from contracts with customers were $17.2 million and $14.7 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 nine months ended September 30, 2022, we recognized revenues of $2.6 million and $5.6 million, respectively, which was included in the December 31, 2021 contract liabilities balance.
The following table provides information about contract assets and contract liabilities accounted for under ASC 606.
(Thousands)