本季10-Q表格中包含根據美國聯邦證券法所定義的前瞻性聲明。前瞻性聲明包括所有非事實性歷史聲明及關於我們意圖、信念或期望的聲明，包括但不限於以下聲明：我們對我們與Windstream Holdings, Inc.（與Windstream Holdings II, LLC及其轉讓人Windstream Holdings II, LLC的後續接受方及其子公司合稱為“Windstream”）達成的和解的期望；我們對我們與Windstream的潛在合併（如下所定義）的期望；有關Windstream的未來前景和財務健康的期望；我們對於維持我們作為股權房地產投資信託（“REIT”）資格的期望；我們對我們新資產證券化貸款設施（以下簡稱“ABS貸款設施”）的再融資和利息支出的期望；我們對稅務立法對我們稅務狀況影響的期望；我們對滿足存入我們ABS貸款設施剩餘額度所需條件的期望；我們對電信行業未來增長和需求、未來融資計劃、業務策略、增長前景、公司營運和財務表現以及未來流動性需求和資本準入的期望；我們對未來光纖里程和小基站網路佈署及相關收入認列的期望；我們對資本支出水平的期望；我們對用於稅務目的商譽的可扣除性的期望；我們對應將與利息費用相關的衍生品的其他綜合收益（損失）重新分類的期望；我們對無形資產攤銷的期望；以及我們對支付分紅的期望。」
•legal proceedings that may be instituted against us or Windstream following announcement of the Merger;
•the future prospects of our largest customer, Windstream;
•adverse impacts of inflation and high 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;
•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 quarters ended March 31, 2024 and June 30, 2024 filed with the U.S. Securities and Exchange Commission (the "SEC") on May 3, 2024, and on August 1, 2024, respectively, 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 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.
Accounts payable, accrued expenses and other liabilities
$
95,844
$
119,340
Settlement payable (Note 13)
95,147
163,583
Intangible liabilities, net
148,377
156,397
Accrued interest payable
56,562
133,683
Deferred revenue
1,299,759
1,273,661
Dividends payable
2
36,162
Operating lease liabilities
78,785
84,404
Finance lease obligations
17,869
18,110
Notes and other debt, net
5,782,633
5,523,579
Liabilities held for sale
—
331
Total liabilities
7,574,978
7,509,250
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: 237,488 shares at September 30, 2024 and 236,559 at December 31, 2023
24
24
Additional paid-in capital
1,232,228
1,221,824
Accumulated other comprehensive loss
(820)
—
Distributions in excess of accumulated earnings
(3,708,705)
(3,708,240)
Total Uniti shareholders' deficit
(2,477,273)
(2,486,392)
Noncontrolling interests:
Operating partnership units
716
2,021
Cumulative non-voting convertible preferred stock, $0.01 par value, 6 shares authorized, 3 issued and outstanding
250
250
Total shareholders' deficit
(2,476,307)
(2,484,121)
Total Liabilities and Shareholders' Deficit
$
5,098,671
$
5,025,129
The accompanying notes are an integral part of these condensed consolidated financial statements.
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 September 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 the Merger, 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.
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. All Windstream debt obligations would remain obligations of Windstream and our debt obligations would remain as ours, with no cross-guarantees or credit support between the Company and Windstream. In September and October 2024, Windstream undertook a series of transactions through which it amended the terms of its outstanding debt to, among other things, allow for the consolidation of Uniti's and Windstream's debt following the completion of the Merger into a single silo under a common parent entity (the "Post-Closing Reorganization"). As a result, following the completion of the Merger, Uniti may, but is not required to, consummate the Post-Closing Reorganization. If the Post-Closing Reorganization is completed, certain existing agreements and arrangements presently in effect between Uniti and Windstream, including the Windstream Leases and the settlement agreement described above, could be (but are not required to be) terminated. In addition, if the Post-Closing Reorganization is completed, each obligor under Uniti's outstanding debt (other than the ABS Loan Facility) would become an obligor under Windstream's outstanding debt, and each obligor under Windstream's outstanding debt would become an obligor under Uniti's outstanding debt (other than the ABS Loan Facility).
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. 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. Restatement of Previously Issued Financial Statements
During the third quarter of 2023, the Company recorded a goodwill impairment and related income tax benefits, which it reflected in its unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2023 (the “2023 Interim Financial Statements”) included in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 filed with the SEC on November 2, 2023. As previously disclosed in the Company’s 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”), during the fourth quarter of 2023, the Company identified certain errors with respect to the income tax benefit it recorded associated with the goodwill impairment. As a result, the goodwill impairment and income tax benefit were understated, netting to a $38.0 million increase in the net loss for the three and nine months ended September 30, 2023. As discussed in Note 2 to the Company’s consolidated financial statements included in the Annual Report, the Company had previously concluded that the error was immaterial, and the error was corrected as an immaterial correction to the 2023 Interim Financial Statements.
On October 30, 2024, the audit committee of the board of directors of the Company, in consultation with senior management of the Company, concluded that the error was material to the 2023 Interim Financial Statements and should have been reflected as a restatement of the 2023 Interim Financial Statements.
The impact of the restatement on our prior period unaudited condensed consolidated balance sheet, condensed consolidated statement of loss, condensed consolidated statement of comprehensive loss, and condensed consolidated statement of cash flows is presented below:
Note 3. 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. 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 10) 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 within the Condensed Consolidated Statements of Cash Flows.
(Thousands)
September 30, 2024
December 31, 2023
Cash and cash equivalents
$
34,077
$
62,264
Restricted cash and cash equivalents
19,311
—
Cash, restricted cash and cash equivalents at end of period
$
53,388
$
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 68.2% and 66.9% of our revenue for the nine months ended September 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
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.
Note 4. 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)
2024
2023
2024
2023
Revenue disaggregated by revenue stream
Revenue from contracts with customers
Uniti Fiber
Lit backhaul
$
17,938
$
18,246
$
58,305
$
57,221
Enterprise and wholesale
26,381
24,211
77,601
70,144
E-Rate and government
11,327
15,911
38,645
43,947
Other
917
786
2,644
2,264
Uniti Fiber
56,563
59,154
177,195
173,576
Uniti Leasing
1,799
1,868
5,073
5,142
Total revenue from contracts with customers
58,362
61,022
182,268
178,718
Revenue accounted for under leasing guidance
Uniti Leasing
221,123
212,720
653,756
632,707
Uniti Fiber
12,762
16,913
37,588
52,750
Total revenue accounted for under leasing guidance
233,885
229,633
691,344
685,457
Total revenue
$
292,247
$
290,655
$
873,612
$
864,175
At September 30, 2024 and December 31, 2023, lease receivables were $27.3 million and $22.0 million, respectively, and receivables from contracts with customers were $21.1 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 nine months ended September 30, 2024, we recognized revenues of $0.8 million and $3.4 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 September 30, 2024
$
—
$
10,613
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 September 30, 2024, our future revenues (i.e., transaction price related to remaining performance obligations) under contract accounted for under ASC 606 totaled $624.7 million, of which $552.5 million is related to contracts that are currently being invoiced and have an average remaining contract term of 3.1 years, while $72.2 million represents our backlog for sales bookings which have yet to be installed and have an average contract term of5.3 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 5. 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 nine months ended September 30, 2024 and 2023 respectively, are as follows:
Lease payments to be received under non-cancellable operating leases where we are the lessor for the remainder of the lease terms as of September 30, 2024 are as follows:
(Thousands)
September 30, 2024⁽¹⁾
2024
$
204,518
2025
836,266
2026
842,822
2027
843,315
2028
843,309
Thereafter
1,593,415
Total lease receivables
$
5,163,645
(1) Total future minimum lease payments to be received include $4.3 billion relating to the Windstream Leases.
The underlying assets under operating leases where we are the lessor are summarized as follows:
(Thousands)
September 30, 2024
December 31, 2023
Land
$
26,518
$
26,533
Building and improvements
348,683
347,700
Poles
333,447
314,488
Fiber
4,128,677
3,862,635
Equipment
437
436
Copper
3,973,887
3,974,410
Conduit
90,117
90,087
Tower assets
58
58
Finance lease assets
1,889
1,890
Other assets
10,432
10,434
8,914,145
8,628,671
Less: accumulated depreciation
(5,812,265)
(5,690,066)
Underlying assets under operating leases, net
$
3,101,880
$
2,938,605
Depreciation expense for the underlying assets under operating leases where we are the lessor for the three and nine months ended September 30, 2024 and 2023, respectively, is summarized as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(Thousands)
2024
2023
2024
2023
Depreciation expense for underlying assets under operating leases
$
46,307
$
45,795
$
137,955
$
136,640
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, equipment, 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 September 30, 2024, we have short term lease commitments amounting to approximately $4.2 million.
Future lease payments under non-cancellable leases as of September 30, 2024 are as follows:
(Thousands)
Operating Leases
Finance Leases
2024
$
4,079
$
1,060
2025
17,095
4,241
2026
13,616
4,115
2027
10,833
3,408
2028
9,196
2,581
Thereafter
102,944
9,327
Total undiscounted lease payments
$
157,763
$
24,732
Less: imputed interest
(78,978)
(6,863)
Total lease liabilities
$
78,785
$
17,869
Note 6. Fair Value of Financial Instruments
FASB ASC 820, Fair ValueMeasurements, 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 September 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 September 30, 2024
Assets
Derivative asset
$
231
$
—
$
231
$
—
Total
$
231
$
—
$
231
$
—
Liabilities
Senior secured notes - 10.50%, due February 15, 2028 (see Note 10)
$
3,100,886
$
—
$
3,100,886
$
—
Senior secured notes - 4.75%, due April 15, 2028
526,462
—
526,462
—
Senior unsecured notes - 6.50%, due February 15, 2029
974,565
—
974,565
—
Senior unsecured notes - 6.00%, due January 15, 2030
604,480
—
604,480
—
Convertible senior notes - 7.50% due December 1, 2027
345,783
—
345,783
—
ABS Loan Facility, variable rate, due September 1, 2025
273,625
—
273,625
—
Senior secured revolving credit facility, variable rate, due September 24, 2027
4,999
—
4,999
—
Settlement payable
94,465
—
94,465
—
Total
$
5,925,265
$
—
$
5,925,265
$
—
(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 $5.87 billion at September 30, 2024, with a fair value of $5.83 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 13. 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 September 30, 2024, the remaining Settlement Payable is $95.1 million. There have been no changes in the valuation methodologies used since the initial recording.
Note 7. Property, Plant and Equipment
The carrying value of property, plant and equipment is as follows:
(Thousands)
Depreciable Lives
September 30, 2024
December 31, 2023
Land
Indefinite
$
30,507
$
30,099
Building and improvements
3 - 40 years
371,600
366,490
Poles
30 years
333,447
314,489
Fiber
30 years
5,148,425
4,835,623
Equipment
5 - 7 years
493,096
460,463
Copper
20 years
3,973,887
3,974,410
Conduit
30 years
90,117
90,087
Tower assets
20 years
1,221
1,221
Finance lease assets
(1)
52,824
52,589
Other assets
15 - 20 years
10,435
10,436
Construction in progress
(1)
44,620
49,771
Corporate assets
3 - 7 years
16,315
15,731
10,566,494
10,201,409
Less accumulated depreciation
(6,409,952)
(6,219,340)
Net property, plant and equipment
$
4,156,542
$
3,982,069
(1) See our Annual Report for property, plant and equipment accounting policies.
Depreciation expense for the three and nine months ended September 30, 2024 was $71.9 million and $212.6 million, respectively. Depreciation expense for the three and nine months ended September 30, 2023 was $69.9 million and $209.1 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 milliongain 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 8. 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 10). 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 September 30, 2024 and December 31, 2023:
(Thousands)
Location on Condensed Consolidated Balance Sheets
September 30, 2024
December 31, 2023
Interest rate caps
Derivative asset
$
231
$
—
The following table presents the effects of the Company’s derivative financial instrument on the Condensed Consolidated Statements of Income (Loss) for the periods presented:
(Thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships (Interest Rate Caps)
2024
2023
2024
2023
Amount of loss recognized on derivative in Other Comprehensive Loss
$
(834)
$
—
$
(661)
$
—
Amounts reclassified from Accumulated Other Comprehensive Loss into Interest Expense
$
122
$
—
$
159
$
—
Total Amount of Interest Expense Presented in the Condensed Consolidated Statements of Income (Loss)
$
131,007
$
120,691
$
381,693
$
389,243
The company estimates that an additional $0.9 millionwill be reclassified from accumulated other comprehensive income as a decrease to interest expense over the next twelve months.
Exchangeable Notes Hedge Transactions
On June 25, 2019, concurrently with the pricing of the 4.00% Exchangeable Notes due June 15, 2024 (the "Exchangeable Notes"), and on June 27, 2019, concurrently with the exercise by the initial purchasers involved in the offering of the Exchangeable Notes (the “Initial Purchasers”) of their option to purchase additional Exchangeable Notes, Uniti Fiber Holdings Inc., the issuer of the Exchangeable Notes, entered into exchangeable note hedge transactions with respect to the Company’s common stock (the “Note Hedge Transactions”) with certain of the Initial Purchasers or their respective affiliates (collectively, the “Counterparties”). The Note Hedge Transactions covered, subject to anti-dilution adjustments substantially similar to those applicable to the Exchangeable Notes, the same number of shares of the Company’s common stock that initially underlie the Exchangeable Notes in the aggregate and were exercisable upon exchange of the Exchangeable Notes. The Note Hedge Transactions had an initial strike price that corresponded to the initial exchange price of the Exchangeable Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Exchangeable Notes. The Note Hedge Transactions expired on June 15, 2024, upon the maturity and repayment of the Exchangeable Notes (see Note 10).
Warrant Transactions
On June 25, 2019, concurrently with the pricing of the Exchangeable Notes, and on June 27, 2019 concurrently with the exercise by the Initial Purchasers of their option to purchase additional Exchangeable Notes, the Company entered into warrant transactions to sell to the Counterparties warrants (the “Warrants”) to acquire, subject to anti-dilution adjustments, up to approximately 27.8 million shares of the Company’s common stock in the aggregate at an exercise price of approximately $16.42 per share. The initial maximum number of shares of the Company’s common stock that could be issued pursuant to the Warrants was approximately 55.5 million. The maximum number of shares of the Company's common stock that could be issued pursuant to the Warrants subsequently decreased due to the partial unwind agreements
that the Company entered into with the Counterparties in connection with each repurchase of Exchangeable Notes. The Warrants terminated in June 2024and are no longer outstanding.
Capped Call Transactions
On December 7, 2022, in connection with the pricing of the 7.50% Convertible Notes due December 1, 2027 (the "Convertible 2027 Notes"), the Company entered into privately negotiated capped call transactions (the “Capped Calls”) with certain financial institutions at a cost of $21.1 million. The Capped Calls cover the same number of shares of the Company’s common stock that initially underlie the Convertible 2027 Notes in the aggregate. By entering into the Capped Calls, the Company expects to reduce the potential dilution to its common stock (or, in the event a conversion of the Convertible 2027 Notes is settled in cash, to reduce its cash payment obligation) in the event that at the time of conversion of the Convertible 2027 Notes its common stock price exceeds the conversion price of the Convertible 2027 Notes. The cap price of the Capped Calls will initially be $10.63 per share of common stock, which represents a premium of 75% over the last reported sale price of the Company’s common stock of $6.075 per share on December 7, 2022 and is subject to customary anti-dilution adjustments substantially similar to those applicable to the Convertible 2027 Notes. The Company used approximately $21.1 million of the net proceeds from the offering of the Convertible 2027 Notes to pay for the cost of the Capped Calls. The Capped Calls meet the criteria for classification in equity, are not remeasured each reporting period and are included as a reduction to additional paid-in-capital within stockholders’ equity.
Additionally on December 7, 2022, in connection with the Company’s repurchase of the Exchangeable Notes, the Company entered into partial unwind agreements with the Counterparties to unwind a portion of the Note Hedge Transactions and the Warrants described above (collectively, the “Unwind Transactions”). In connection with the Unwind Transactions, the Company received cash as a termination payment for the portion of the Note Hedge Transactions that were unwound, and the Company delivered cash as a termination payment in respect of the portion of the Warrants that were unwound. The amount of cash that was received, which was approximately $1.2 million, and the amount of cash that was delivered to the Counterparties, which was approximately $0.5 million, were based generally on the termination values of the unwound portions of such instruments.
Note 9. Goodwill and Intangible Assets and Liabilities
Changes in the carrying amount of goodwill occurring during the nine months ended September 30, 2024 are as follows:
(Thousands)
Uniti Fiber
Total
Goodwill at December 31, 2023
$
672,878
$
672,878
Accumulated impairment charges as of December 31, 2023
(515,498)
(515,498)
Balance at December 31, 2023
$
157,380
$
157,380
Goodwill at September 30, 2024
$
672,878
$
672,878
Accumulated impairment charges as of September 30, 2024
(515,498)
(515,498)
Balance at September 30, 2024
$
157,380
$
157,380
In accordance with ASC 350-20, Intangibles-Goodwill and Other ("ASC 350-20"), 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”). During the three months ended September 30, 2023, 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 Uniti Fiber segment, estimated using a combination of the income approach and market approach, was less than its carrying amount. Accordingly, we recorded a $204.0 million ($151.9 million net of tax) goodwill impairment charge in the Uniti Fiber segment during the three months ended September 30, 2023 (as restated).
Carrying value of intangible assets and liabilities at September 30, 2024 and December 31, 2023 are as follows:
(Thousands)
September 30, 2024
December 31, 2023
Original
Cost
Accumulated
Amortization
Original
Cost
Accumulated Amortization
Finite life intangible assets:
Customer lists
$
416,104
$
(168,630)
$
416,104
$
(151,542)
Contracts
52,536
(26,268)
52,536
(21,343)
Underlying Rights
10,497
(1,400)
10,497
(1,137)
Total intangible assets
$
479,137
$
479,137
Less: accumulated amortization
(196,298)
(174,022)
Total intangible assets, net
$
282,839
$
305,115
Finite life intangible liabilities:
Below-market leases
$
191,154
$
(42,777)
$
191,154
$
(34,757)
Finite life intangible liabilities:
Below-market leases
$
191,154
$
191,154
Less: accumulated amortization
(42,777)
(34,757)
Total intangible liabilities, net
$
148,377
$
156,397
As of September 30, 2024, the remaining weighted average amortization period of the Company’s intangible assets was 13.4 years, 4 years, and 26 years for customer lists, contracts, and underlying rights, respectively. As of September 30, 2024, the total remaining weighted average amortization period for total intangible assets was 13 years.
Amortization expense for the three and nine months ended September 30, 2024 was $7.4 million and $22.3 million, respectively. Amortization expense for the three and nine months ended September 30, 2023 was $7.4 million and $22.3 million, respectively. Amortization expense is estimated to be $29.7 million for the full year of 2024, $29.7 million in 2025, $29.7 million in 2026, $29.7 million in 2027, and $28.1 million for 2028.
We recognize the amortization of below-market leases in revenue. Revenue related to the amortization of the below-market leases for the three and nine months ended September 30, 2024 was $2.7 million and $8.0 million, respectively. Revenue related to the amortization of the below-market leases for the three and nine months ended September 30, 2023 was $2.7 million and $8.0 million, respectively. As of September 30, 2024, the remaining weighted average amortization period of the Company’s intangible liabilities was 15.4 years. Revenue due to the amortization of the below-market leases is estimated to be $10.7 million for the full year of 2024, $10.7 million in 2025, $10.7 million in 2026, $10.7 million in 2027, and $10.2 million in 2028.
Note 10. Notes and Other Debt
All debt, including the senior secured credit facility and notes described below, are obligations of the Operating Partnership and/or certain of its subsidiaries as discussed below. The Company is, however, a guarantor of such debt.
Notes and other debt are as follows:
(Thousands)
September 30, 2024
December 31, 2023
Principal amount
$
5,866,500
$
5,617,442
Less unamortized discount, premium and debt issuance costs
(83,867)
(93,863)
Notes and other debt less unamortized discount, premium and debt issuance costs
Notes and other debt at September 30, 2024 and December 31, 2023 consisted of the following:
September 30, 2024
December 31, 2023
(Thousands)
Principal
Unamortized
Discount,
Premium and
Debt Issuance
Costs
Principal
Unamortized
Discount,
Premium and
Debt Issuance
Costs
Senior secured notes - 10.50% due February 15, 2028
(discount is based on imputed interest rate of 10.99%)
$
2,900,000
$
(40,006)
$
2,600,000
$
(48,290)
Senior secured notes - 4.75%, due April 15, 2028
(discount is based on imputed interest rate of 5.04%)
570,000
(5,345)
570,000
(6,360)
Senior unsecured notes - 6.50%, due February 15, 2029
(discount is based on imputed interest rate of 6.83%)
1,110,000
(13,783)
1,110,000
(15,761)
Senior unsecured notes - 6.00% due January 15, 2030
(discount is based on imputed interest rate of 6.27%)
700,000
(8,335)
700,000
(9,307)
Exchangeable senior notes - 4.00%, due June 15, 2024
(discount is based on imputed interest rate of 4.77%)
—
—
122,942
(427)
Convertible senior notes - 7.50%, due December 1, 2027
(discount is based on imputed interest rate of 8.29%)
306,500
(6,742)
306,500
(8,092)
ABS Loan Facility, variable rate, due September 1, 2025
(discount is based on imputed interest rate of 10.33%)
275,000
(4,983)
—
—
Senior secured revolving credit facility, variable rate, due September 24, 2027
(discount is based on imputed interest rate of 11.16%)
5,000
(4,673)
208,000
(5,625)
Total
$
5,866,500
$
(83,867)
$
5,617,442
$
(93,863)
At September 30, 2024, notes and other debt included the following: (i) $5.0 million balance under the Revolving Credit Facility (as defined below) pursuant to that certain credit agreement, dated as of April 24, 2015, by and among the Operating Partnership, Uniti Group Finance 2019 Inc. and CSL Capital, LLC (hereinafter, the “Borrowers”), the guarantors party thereto, Bank of America, N.A., as administrative agent, collateral agent, swing line lender and an L/C issuer and certain other lenders named therein, as amended (the “Credit Agreement”); (ii) $275.0 million under the bridge loan and security agreement (the "ABS Loan Agreement"), a multi-draw term loan facility dated February 23, 2024, entered into by and among Uniti Fiber Bridge Borrower LLC (the “ABS Bridge Borrower”), Uniti Fiber Bridge HoldCo LLC and Uniti Fiber GulfCo LLC (together, the “ABS Bridge Loan Parties”), each an indirect subsidiary of the Company, Wilmington Trust, National Association, as administrative agent, collateral agent, account bank and verification agent, Barclays Bank PLC, as facility agent, and the lenders identified therein; (iii) $2.9 billion aggregate principal amount of 10.50% Senior Secured Notes due February 15, 2028 (the “February 2028 Secured Notes”); (iv) $570.0 million aggregate principal amount of 4.75% Senior Secured Notes due April 15, 2028 (the “April 2028 Secured Notes”); (v) $1.1 billion aggregate principal amount of 6.50% Senior Unsecured Notes due February 15, 2029 (the “2029 Notes”); (vi) $700.0 million aggregate principal amount of 6.00% Senior Notes due January 15, 2030 (the “2030 Notes”); and (vii) $306.5 million aggregate principal amount of Convertible 2027 Notes and, together with the February 2028 Secured Notes, April 2028 Secured Notes, 2029 Notes, and the 2030 Notes, the "Notes". The terms of the Notes are as described in the Company’s Annual Report.
Credit Agreement
The Borrowers are party to the Credit Agreement, which provides for a $500 million revolving credit facility that will mature on September 24, 2027 (the “Revolving Credit Facility”) and provides us with the ability to obtain revolving loans as well as swingline loans and letters of credit from time to time. On June 17, 2024, the Borrowers, each a subsidiary of the Company, entered into Amendment No. 9 (the “Amendment”) to the Credit Agreement. Pursuant to the Amendment, the Credit Agreement’s requirement for the Operating Partnership to use commercially reasonable efforts to maintain its status as a REIT will now terminate (i) at the end of the taxable year in which the Company’s proposed merger with Windstream is consummated or, (ii) at December 31, 2024, if the Company determines that by reason of such proposed merger, the Company will cease to qualify as a REIT for the year during which the Merger is consummated.
All obligations under the Credit Agreement are guaranteed by (i) the Company and (ii) certain of the Operating Partnership’s subsidiaries (the “Subsidiary Guarantors”) and are secured by substantially all of the assets of the Borrowers and the Subsidiary Guarantors.
The Borrowers are subject to customary covenants under the Credit Agreement, including an obligation to maintain a consolidated secured leverage ratio, as defined in the Credit Agreement, not to exceed 5.00 to 1.00. We are permitted, subject to customary conditions, to incur other indebtedness, so long as, on a pro forma basis after giving effect to any such indebtedness, our consolidated total leverage ratio, as defined in the Credit Agreement, does not exceed 6.50 to 1.00 and, if such debt is secured, our consolidated secured leverage ratio, as defined in the Credit Agreement, does not exceed 4.00 to 1.00. In addition, the Credit Agreement contains customary events of default, including a cross default provision whereby the failure of the Borrowers or certain of their subsidiaries to make payments under other debt obligations, or the occurrence of certain events affecting those other borrowing arrangements, could trigger an obligation to repay any amounts outstanding under the Credit Agreement. In particular, a repayment obligation could be triggered if (i) the Borrowers or certain of their subsidiaries fail to make a payment when due of any principal or interest on any other indebtedness aggregating $75.0 million or more, or (ii) an event occurs that causes, or would permit the holders of any other indebtedness aggregating $75.0 million or more to cause, such indebtedness to become due prior to its stated maturity. As of September 30, 2024, the Borrowers were in compliance with all of the covenants under the Credit Agreement.
A termination of either Windstream Lease would result in an “event of default” under the Credit Agreement if a replacement lease is not entered into within ninety (90) calendar days and we do not maintain pro forma compliance with a consolidated secured leverage ratio, as defined in the Credit Agreement, of 5.00 to 1.00.
Borrowings under the Revolving Credit Facility bear interest at a rate equal to either a base rate plus an applicable margin ranging from 2.75% to 3.50% or a Term SOFR rate plus an applicable margin ranging from 3.75% to 4.50% in each case, calculated in a customary manner and determined based on our consolidated secured leverage ratio. We are required to pay a quarterly commitment fee under the Revolving Credit Facility equal to 0.50% of the average amount of unused commitments during the applicable quarter (subject to a step-down to 0.40% per annum of the average amount of unused commitments during the applicable quarter upon achievement of a consolidated secured leverage ratio not to exceed a certain level), as well as quarterly letter of credit fees equal to the product of (A) the applicable margin with respect to Term SOFR borrowings and (B) the average amount available to be drawn under outstanding letters of credit during such quarter.
Mandatory Exchange of Additional February 2028 Secured Notes
As previously disclosed, on May 17, 2024, the Operating Partnership, CSL Capital, LLC, Uniti Group Finance 2019 Inc. and Uniti Fiber Holdings Inc. (collectively, the “Issuers”) completed a private offering of $300.0 million aggregate principal amount of February 2028 Secured Notes (the "Additional February 2028 Secured Notes"). In accordance with the terms of the indenture governing the Additional February 2028 Secured Notes, following the receipt of regulatory approval to enable certain subsidiaries of the Operating Partnership to guarantee the Additional February 2028 Secured Notes, the Issuers caused the Additional February 2028 Notes to be mandatorily exchanged for February 2028 Secured Notes issued as “additional notes” under the Indenture dated as of February 14, 2023, as amended and supplemented among the Issuers, the guarantors party thereto and the trustee and collateral agent party thereto (the “2023 Indenture”). The mandatory exchange occurred on November 1, 2024, and the additional notes comprise part of the same series as the February 2028 Secured Notes issued under the 2023 Indenture and have the same CUSIP numbers as, and are fungible with, the February 2028 Secured Notes issued under the 2023 Indenture.
February 2028 Secured Notes
On February 14, 2023, the Issuers completed a private offering of $2.6 billion aggregate principal amount of the February 2028 Secured Notes. The Issuers used the net proceeds from the offering to fund the redemption in full of the Issuers’ outstanding 7.875% senior secured notes due 2025 (the "2025 Secured Notes"), to repay outstanding borrowings under the Revolving Credit Facility and to pay any related premiums, fees and expenses in connection with the foregoing. On February 14, 2023, the Issuers deposited the full redemption price of $2.25 billion for the 2025 Secured Notes with the trustee and satisfied and discharged their obligations with respect to the 2025 Secured Notes at such time. During the first quarter of 2023, we recorded $32.3 million of loss on the extinguishment of the 2025 Secured Notes within interest expense, net on the Condensed Consolidation Statements of Income (Loss), which includes $10.3 million of non-cash
interest expense for the write off of the unamortized discount and deferred financing costs and $22.0 million of cash interest expense for the redemption premium.
Exchangeable Notes
The Exchangeable Notes matured on June 15, 2024, and the principal balance of $122.9 million was repaid.
Asset-Backed Bridge Loan Facility
On February 23, 2024, ABS Bridge Borrower and the other ABS Bridge Loan Parties entered into the ABS Loan Agreement, which provides for a secured, multi-draw term loan facility of up to $350 million (the “ABS Loan Facility”). On March 1, 2024 (the “ABS Loan Closing Date”), the ABS Bridge Borrower made an initial drawing under the ABS Loan Facility in a principal amount of $275 million. Amounts borrowed under the ABS Loan Facility may not be reborrowed. Unless otherwise terminated pursuant to the terms of the ABS Loan Agreement, the ABS Loan Facility matures on the date that is 18 months from the ABS Loan Closing Date. The Company intends to refinance the ABS Loan Facility in full with proceeds from a long-term asset-backed securitized debt offering secured primarily by certain Uniti Fiber network assets.
Amounts outstanding under the ABS Loan Facility bear interest at a floating rate equal to, at the Company’s option, either (i) the one-month or three-month SOFR, plus a spread of 3.75% per annum or (ii) Base Rate (as defined in the ABS Loan Agreement), plus a spread of 2.75% per annum; provided that the spread will automatically increase to (a) 4.50% per annum in the case of loans bearing interest based on SOFR and 3.50% per annum in the case of loans bearing interest based on Base Rate, in each case to the extent outstanding on and after the date that is 12 months following the ABS Loan Closing Date and (b) 5.25% per annum in the case of loans bearing interest based on SOFR and 4.25% per annum in the case of loans bearing interest based on Base Rate, in each case to the extent outstanding on and after the date that is 15 months following the ABS Loan Closing Date. The Company capped SOFR interest expense at 4.50% for the duration of the ABS Loan Facility pursuant to the ABS Loan Interest Rate Cap (see Note 8).
In connection with the ABS Loan Facility, the Company formed Uniti Fiber ABS Parent LLC, an indirect subsidiary of the Company that qualifies as a bankruptcy-remote special purpose entity (“ABS Parent”) and directed the formation of the ABS Bridge Loan Parties, which are direct or indirect wholly-owned subsidiaries of ABS Parent. Each of the ABS Bridge Loan Parties is a special purpose, bankruptcy-remote, indirect subsidiary of the Company. The ABS Loan Facility is secured by equity in the ABS Bridge Borrower and substantially all of the assets of the ABS Bridge Loan Parties (subject to certain customary limited exceptions) and is non-recourse to the Company. Each of the ABS Bridge Loan Parties and ABS Parent was designated as an unrestricted subsidiary under the Credit Agreement and the applicable indentures governing the Company’s outstanding senior notes. The assets of the ABS Bridge Loan Parties will only be available for payment of the obligations arising under the ABS Loan Agreement and will not be available to pay any obligations or claims of the Company’s other creditors.
In connection with the initial funding under the ABS Loan Facility on the ABS Loan Closing Date, the Company, directly or indirectly, (i) transferred certain Uniti Fiber non-regulated and interstate customer contracts and related equipment to the ABS Bridge Loan Parties and (ii) granted an indefeasible right of use in the related fiber network assets to such ABS Bridge Loan Parties. In addition, certain of the ABS Bridge Loan Parties entered into a management agreement (the “Management Agreement”) with Uniti Fiber Holdings Inc. (in its capacity as manager thereunder, the “Manager”), pursuant to which the Manager is responsible for servicing and administering the assets securing the ABS Loan Facility and is permitted to make reimbursable servicing advances in respect of the collateral securing the ABS Loan Facility under certain circumstances.
The ABS Loan Agreement contains customary covenants limiting the ability of the ABS Bridge Loan Parties to: incur or guarantee additional indebtedness; pay dividends or distributions on, or redeem or repurchase, capital stock; make certain investments or other restricted payments; sell fiber network assets; enter into transactions with the Company and other affiliates; and create restrictions on the ability of the ABS Bridge Loan Parties to incur liens on their assets constituting collateral to secure obligations under the ABS Loan Agreement. These covenants are subject to a number of limitations, qualifications and exceptions. The ABS Loan Agreement also contains a maximum leverage financial maintenance covenant and customary events of default.
Deferred Financing Cost
Deferred financing costs were incurred in connection with the issuance of the Notes and our entry into the Revolving Credit Facility and the ABS Loan Facility. These costs are amortized using the effective interest method over the term of the related indebtedness and are included in interest expense in our Condensed Consolidated Statements of Income (Loss).
For the three and nine months ended September 30, 2024, we recognized $6.3 million and $17.4 million, respectively, of non-cash interest expense related to the amortization of deferred financing costs. For the three and nine months ended September 30, 2023, we recognized $4.4 million and $13.6 million, respectively, of non-cash interest expense related to the amortization of deferred financing costs.
Note 11. Earnings Per Share
Our time-based restricted stock awards are considered participating securities as they receive non-forfeitable rights to dividends at the same rate as common stock. As participating securities, we included these instruments in the computation of earnings per share under the two-class method described in FASB ASC 260, Earnings per Share (“ASC 260”).
We also have outstanding performance-based restricted stock units that contain forfeitable rights to receive dividends. Therefore, the awards are considered non-participating restrictive shares and are not dilutive under the two-class method until performance conditions are met.
The dilutive effect of the Exchangeable Notes, which were repaid on June 15, 2024 (see Note 10), and the Convertible 2027 Notes is calculated by using the “if-converted” method. This assumes an add-back of interest, net of income taxes, to net income attributable to shareholders as if the securities were converted at the beginning of the reporting period (or at time of issuance, if later) and the resulting common shares included in number of weighted average shares. The dilutive effect of the Warrants (see Note 8) is calculated using the treasury-stock method. During the three and nine months ended September 30, 2024 and 2023, the Warrants were excluded from diluted shares outstanding because the exercise price exceeded the average market price of our common stock for the reporting period.
The following sets forth the computation of basic and diluted earnings per share under the two-class method:
Three Months Ended September 30,
Nine Months Ended September 30,
(Thousands, except per share data)
2024
2023
2024
2023
(as restated)
(as restated)
Basic earnings per share:
Numerator:
Net income (loss) attributable to shareholders
$
12,229
$
(118,843)
$
71,836
$
(112,419)
Less: Income allocated to participating securities
Less: Income allocated to participating securities
(334)
(321)
(1,493)
(890)
Dividends declared on convertible preferred stock
(5)
(5)
(15)
(15)
Impact on if-converted dilutive securities
—
—
—
—
Net income (loss) attributable to common shares
$
11,890
$
(119,169)
$
70,328
$
(113,324)
Denominator:
Basic weighted-average common shares outstanding
237,480
236,533
237,242
236,352
Effect of dilutive non-participating securities
—
—
—
—
Impact on if-converted dilutive securities
—
—
—
—
Weighted-average shares for dilutive earnings per common share
237,480
236,533
237,242
236,352
Dilutive earnings (loss) per common share
$
0.05
$
(0.50)
$
0.30
$
(0.48)
For the three and nine months ended September 30, 2024, 1,412,563 non-participating securities were excluded from the computation of earnings per share, as their performance conditions have not been met. For the three and nine months ended September 30, 2024, we excluded 42,043,892 and 50,032,050 potential common shares related to the Exchangeable Notes and the Convertible 2027 Notes, respectively, from the computation of earnings per share, as their effect would have been anti-dilutive. For the three and nine months ended September 30, 2023, 1,053,189 non-participating securities were excluded from the computation of earnings per share, as their performance conditions have not been met. For the three and nine months ended September 30, 2023, we excluded 53,427,833 and 53,836,845 potential common shares related to the Exchangeable Notes and the Convertible 2027 Notes, respectively, from the computation of earnings per share, as their effect would have been anti-dilutive.
Our management, including our chief executive officer, who is our chief operating decision maker, manages our operations as two reportable segments, in addition to our corporate operations, which include:
Uniti Leasing: Represents the operations of our leasing business which is engaged in the acquisition and construction of mission-critical communications assets and leasing them to anchor customers on either an exclusive or shared-tenant basis, in addition to the leasing of dark fiber on our existing dark fiber network assets that we either constructed or acquired. While the Leasing segment represents our REIT operations, certain aspects of the Leasing segment are also operated through taxable REIT subsidiaries.
Uniti Fiber: Represents the operations of our fiber business which is a leading provider of infrastructure solutions, including cell site backhaul and dark fiber, to the telecommunications industry.
Corporate: Represents our corporate office and shared service functions. Certain costs and expenses, primarily related to headcount, information technology systems, insurance, professional fees and similar charges, that are directly attributable to operations of our business segments are allocated to the respective segments.
Management evaluates the performance of each segment using Adjusted EBITDA, which is a segment performance measure we define as net income determined in accordance with GAAP, before interest expense, provision for income taxes, depreciation and amortization, stock-based compensation expense and the impact, which may be recurring in nature, of transaction and integration related costs, costs associated with Windstream’s bankruptcy, costs associated with litigation claims made against us, costs associated with the implementation of our enterprise resource planning system, goodwill impairment charges, severance costs, costs related to the settlement with Windstream, amortization of non-cash rights-of-use assets, the write off of unamortized deferred financing costs, costs incurred as a result of the early repayment of debt, including early tender and redemption premiums and costs associated with the termination of related hedging activities, gains or losses on dispositions, changes in the fair value of contingent consideration and financial instruments, and other similar or infrequent items (although we may not have had such charges in the periods presented). Adjusted EBITDA includes adjustments to reflect the Company’s share of Adjusted EBITDA from unconsolidated entities. The Company believes that net income, as defined by GAAP, is the most appropriate earnings metric; however, we believe that Adjusted EBITDA serves as a useful supplement to net income because it allows investors, analysts and management to evaluate the performance of our segments in a manner that is comparable period over period. Adjusted EBITDA should not be considered as an alternative to net income as determined in accordance with GAAP.
In the ordinary course of our business, we are subject to claims and administrative proceedings, none of which we believe are material or would be expected to have, individually or in the aggregate, a material adverse effect on our business, financial condition, cash flows or results of operations.
Windstream Commitments
Following the consummation of our settlement agreement with Windstream, including entry into the Windstream Leases, we are obligated to make $490.1 million of cash payments to Windstream in equal installments over 20 consecutive quarters beginning in October 2020, and Uniti may prepay any installments due on or after the first anniversary of the settlement agreement (discounted at a 9% rate). As of September 30, 2024, the Company has made payments totaling $386.9 million.
Further, beginning in October 2020, we became obligated to reimburse Windstream for up to an aggregate of $1.75 billion for certain growth capital improvements in long-term fiber and related assets made by Windstream (“Growth Capital Improvements”) through 2029. Uniti’s reimbursement commitment for Growth Capital Improvements does not require Uniti to reimburse Windstream for maintenance or repair expenditures (except for costs incurred for fiber replacements to the property leased under the competitive local exchange carrier master lease agreement, up to $70 million during the term), and each such reimbursement is subject to underwriting standards. Uniti’s total annual reimbursement commitments for the Growth Capital Improvements under both Windstream Leases (and under separate equipment loan facilities) were limited to $225 million in 2023, and are limited to $225 million per year in 2024; $175 million per year in 2025 and 2026; and $125 million per year in 2027 through 2029. If the cost incurred by Windstream (or the successor tenant under a Windstream Lease) for Growth Capital Improvements in any calendar year exceeds the annual limit for such calendar year, Windstream (or such tenant, as the case may be) may submit such excess costs for reimbursement in any subsequent year and such excess costs shall be funded from the annual commitment amounts in such subsequent period. In addition, to the extent that reimbursements for Growth Capital Improvements funded in any calendar year during the term is less than the annual limit for such calendar year, the unfunded amount in any calendar year will carry-over and may be added to the annual limits for subsequent calendar years, subject to an annual limit of $250 million in any calendar year. During the nine months ended September 30, 2024, Uniti reimbursed $230.8 million of Growth Capital Improvements, of which $104.6 million represented the reimbursement of capital improvements completed in 2023 that were previously classified as tenant funded capital improvements. As of the date of this Quarterly Report on Form 10-Q, we have reimbursed a total of $1.0 billion of Growth Capital Improvements.
Starting on the first anniversary of each installment of reimbursement for a Growth Capital Improvement, the rent payable by Windstream under the applicable Windstream Lease will increase by an amount equal to 8.0% (the “Rent Rate”) of such installment of reimbursement. The Rent Rate will thereafter increase to 100.5% of the prior Rent Rate on each anniversary of each reimbursement. In the event that the tenant’s interest in either Windstream Lease is transferred by Windstream under the terms thereof (unless transferred to the same transferee), or if Uniti transfers its interests as landlord under either Windstream Lease (unless to the same transferee), the reimbursement rights and obligations will be allocated between the ILEC MLA and the CLEC MLA by Windstream, provided that the maximum that may be allocated to the CLEC MLA following such transfer is $20 million per year. If Uniti fails to reimburse any Growth Capital Improvement reimbursement payment or equipment loan funding request as and when it is required to do so under the terms of the Windstream Leases, and such failure continues for thirty (30) days, then such unreimbursed amounts may be applied as an offset against the rent owed by Windstream under the Windstream Leases (and such amounts will thereafter be treated as if Uniti had reimbursed them).
Uniti and Windstream have entered into separate ILEC and CLEC Equipment Loan and Security Agreements (collectively “Equipment Loan Agreement”) in which Uniti will provide up to $125 million (limited to $25 million in any calendar year) of the $1.75 billion of Growth Capital Improvements commitments discussed above in the form of loans for Windstream to purchase equipment related to network upgrades or to be used in connection with the Windstream Leases. Interest on these loans will accrue at 8% from the date of the borrowing. All equipment financed through the Equipment Loan Agreement is the sole property of Windstream; however, Uniti will receive a first-lien security interest in the equipment purchased with the loans. No loans have been made under the Equipment Loan Agreement.
Changes in accumulated other comprehensive loss by component is as follows for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,
Nine Months Ended September 30,
(Thousands)
2024
2023
2024
2023
Cash flow hedge:
Balance at beginning of period attributable to shareholders
$
136
$
—
$
—
$
—
Change in fair value of derivative asset
(834)
—
(661)
—
Amounts reclassified from accumulated other comprehensive income
(122)
—
(159)
—
Balance at end of period
(820)
—
(820)
—
Less: Other comprehensive income attributable to noncontrolling interest
0
—
0
—
Balance at end of period attributable to shareholders
(820)
—
(820)
—
Accumulated other comprehensive loss at end of period
$
(820)
$
—
$
(820)
$
—
Note 15. Capital Stock
The limited partnership interests in our operating partnership (commonly called “OP Units”), are exchangeable on a one-for-one basis for shares of our common stock or, at our election, cash of equivalent value. NoOP Units held by third parties were exchanged during the three months ended September 30, 2024. During the nine months ended September 30, 2024, the Company exchanged 68,384 OP Units held by third parties, of which 53,662 OP Units were exchanged for an equal number of shares of our common stock and 14,722 OP Units were purchased for cash consideration of $0.1 million, representing approximately 65% of the OP Units held by third parties with a carrying value of $1.3 million as of the exchange dates.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following management’s discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of our operations, financial condition, and changes in financial condition for the three and nine months ended September 30, 2024. This discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements, and the notes thereto set forth in Part I, Item 1 "Financial Statements" of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“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”).
Overview
Company Description
Uniti Group Inc. (the “Company”, “Uniti”, “we”, “us” or “our”) is 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.
On April 24, 2015, we were separated and spun-off (the “Spin-Off”) from Windstream Holdings, Inc. (“Windstream Holdings” and together with Windstream Holdings II, LLC, its successor in interest, and its subsidiaries, “Windstream”) pursuant to which Windstream contributed certain telecommunications network assets, including fiber and copper networks and other real estate (the “Distribution Systems”) and a small consumer competitive local exchange carrier (“CLEC”) business (the “Consumer CLEC Business”) to Uniti and Uniti issued common stock and indebtedness and paid cash obtained from borrowings under Uniti’s senior credit facilities to Windstream. In connection with the Spin-Off, we entered
into a long-term exclusive triple-net lease (the “Master Lease”) with Windstream, pursuant to which a substantial portion of our real property is leased to Windstream and from which a substantial portion of our leasing revenues are currently derived. In connection with Windstream’s emergence from bankruptcy, 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 CLEC operations.
Uniti operates as a REIT for U.S. federal income tax purposes. As a REIT, the Company is generally not subject to U.S. federal income taxes on income generated by its REIT operations, which includes income derived from the Windstream Leases. We have elected to treat the subsidiaries through which we operate our fiber business, Uniti Fiber, and certain aspects of our leasing business, Uniti Leasing, as taxable REIT subsidiaries (“TRSs”). TRSs enable us to engage in activities that result in income that does not constitute qualifying income for a REIT. Our TRSs are subject to U.S. federal, state and local corporate income taxes.
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, 2024, we are the sole general partner of the Operating Partnership and own approximately 99.98% of the partnership interests in the Operating Partnership. In addition, we have undertaken a series of transactions to permit us to hold certain assets through subsidiaries that are taxed as REITs, which may also facilitate future acquisition opportunities.
We aim to grow and diversify our portfolio and tenant base by pursuing a range of transaction structures with communication service providers, including (i) sale-leaseback transactions, whereby we acquire existing infrastructure assets from third parties, including communication service providers, and lease them back on a long-term triple-net basis; (ii) leasing of dark fiber and selling of lit services on our existing fiber network assets that we either constructed or acquired; (iii) whole company acquisitions, which may include the use of one or more TRSs that are permitted under the tax laws to acquire and operate non-REIT businesses and assets subject to certain limitations; (iv) capital investment financing, whereby we offer communication service providers a cost efficient method of raising funds for discrete capital investments to upgrade or expand their network; and (v) mergers and acquisitions financing, whereby we facilitate mergers and acquisition transactions as a capital partner, including through operating company-property company (“OpCo-PropCo”) structures.
Segments
We manage our operations astwo reportable business segments, in addition to our corporate operations, which include:
Uniti Leasing: Represents the operations of our leasing business, which is engaged in the acquisition and construction of mission-critical communications assets and leasing them to anchor customers on either an exclusive or shared-tenant basis, in addition to the leasing of dark fiber on our existing dark fiber network assets that we either constructed or acquired. While the Leasing segment represents our REIT operations, certain aspects of the Leasing segment are also operated through TRSs.
Uniti Fiber: Represents the operations of our fiber business which is a leading provider of infrastructure solutions, including cell site backhaul and dark fiber, to the telecommunications industry.
Corporate: Represents our corporate office and shared service functions. Certain costs and expenses, primarily related to headcount, information technology systems, insurance, professional fees and similar charges, that are directly attributable to operations of our business segments are allocated to the respective segments.
We evaluate the performance of each segment based on Adjusted EBITDA, which is a segment performance measure we define as net income determined in accordance with GAAP, before interest expense, provision for income taxes, depreciation and amortization, stock-based compensation expense and the impact, which may be recurring in nature, of transaction and integration related costs, costs associated with Windstream’s bankruptcy, costs associated with litigation claims made against us, costs associated with the implementation of our enterprise resource planning system, goodwill impairment charges, severance costs, costs related to the settlement with Windstream, amortization of non-cash rights-of-use assets, the write off of unamortized deferred financing costs, costs incurred as a result of the early repayment of debt,
including early tender and redemption premiums and costs associated with the termination of related hedging activities, gains or losses on dispositions, changes in the fair value of contingent consideration and financial instruments, and other similar or infrequent items (although we may not have had such charges in the periods presented). Adjusted EBITDA includes adjustments to reflect the Company’s share of Adjusted EBITDA from unconsolidated entities. For more information on Adjusted EBITDA, see “Non-GAAP Financial Measures.” Detailed information about our segments can be found in Note 12 to our accompanying Condensed Consolidated Financial Statements contained in Part I, Item 1 "Financial Statements" of this Quarterly Report on Form 10-Q.
Significant Business Developments
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 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 the Merger, 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.
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. All Windstream debt obligations would remain obligations of Windstream and our debt obligations would remain as ours, with no cross-guarantees or credit support between the Company and Windstream. For a description of the Windstream Leases and the settlement agreement with Windstream, refer to “Liquidity and Capital Resources—Windstream Leases” within Part I, Item 2 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q. In September and October 2024, Windstream undertook a series of transactions through which it amended the terms of its outstanding debt to, among other things, allow for the consolidation of Uniti's and Windstream's debt following the completion of the Merger into a single silo under a common parent entity (the "Post-Closing Reorganization"). As a result, following the completion of the Merger, Uniti may, but is not required to, consummate the Post-Closing Reorganization. If the Post-Closing Reorganization
is completed, certain existing agreements and arrangements presently in effect between Uniti and Windstream, including the Windstream Leases and the settlement agreement described above, could be (but are not required to be) terminated. In addition, if the Post-Closing Reorganization is completed, each obligor under Uniti's outstanding debt (other than the ABS Loan Facility) would become an obligor under Windstream's outstanding debt, and each obligor under Windstream's outstanding debt would become an obligor under Uniti's outstanding debt (other than the ABS Loan Facility).
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. Finally, it is expected that, following consummation of the Merger, Uniti will cease to be a REIT for U.S. federal income tax purposes.
The following tables set forth revenues, Adjusted EBITDA and net income of our reportable segments for the three months ended September 30, 2024 and 2023:
Three Months Ended September 30, 2024
(Thousands)
Uniti Leasing
Uniti Fiber
Corporate
Subtotal of Reportable Segments
Revenues
$
222,922
$
69,325
$
—
$
292,247
Adjusted EBITDA
$
215,188
$
25,557
$
(5,421)
$
235,324
Less:
Interest expense
131,007
Depreciation and amortization
45,281
34,031
13
79,325
Transaction related and other costs
14,404
Other, net
918
Stock-based compensation
3,375
Income tax benefit
(5,935)
Net income
$
12,230
Three Months Ended September 30, 2023
(as restated)
(Thousands)
Uniti Leasing
Uniti Fiber
Corporate
Subtotal of Reportable Segments
Revenues
$
214,588
$
76,067
$
—
$
290,655
Adjusted EBITDA
$
208,561
$
29,857
$
(5,408)
$
233,010
Less:
Interest expense
120,691
Depreciation and amortization
44,754
32,570
13
77,337
Transaction related and other costs
1,441
Gain on sale of real estate
(1,424)
Goodwill impairment
203,998
Other, net
2,091
Stock-based compensation
3,148
Income tax benefit
(56,130)
Adjustments for equity in earnings from unconsolidated entities
Uniti Leasing – Uniti Leasing revenues are primarily attributable to rental revenue from leasing our Distribution Systems to Windstream pursuant to the Windstream Leases. Under the Windstream Leases, Windstream is responsible for the costs related to operating the Distribution Systems, including property taxes, insurance, and maintenance and repair costs. As a result, we do not record an obligation related to the payment of property taxes, as Windstream makes direct payments to the taxing authorities. The initial term of the Windstream Leases expires on April 30, 2030. Annual rent under the Windstream Leases for the full year 2024 is $675.6 million and is subject to annual escalation at a rate of 0.5%. For a description of the Windstream Leases, see “Liquidity and Capital Resources— Windstream Leases” below.
The rent for the first year of each renewal term under the Windstream Leases will be an amount agreed to by us and Windstream. While the agreements require that the renewal rent be "Fair Market Rent," if we are unable to agree, the renewal Fair Market Rent will be determined by an independent appraisal process. Commencing with the second year of each renewal term, the renewal rent will increase at an escalation rate of 0.5%.
Pursuant to the Windstream Leases, Windstream (or any successor tenant under a Windstream Lease) has the right to cause Uniti to reimburse up to an aggregate $1.75 billion for certain growth capital improvements in long-term value accretive fiber and related assets made by Windstream (or the applicable tenant under the Windstream Lease) to certain ILEC and CLEC properties (the “Growth Capital Improvements” or “GCIs”). Uniti’s total annual reimbursement commitments to Windstream for the Growth Capital Improvements is discussed below in “Liquidity and Capital Resources—Windstream Leases.”
Starting on the first anniversary of each installment of reimbursement for a Growth Capital Improvement, the rent payable by Windstream under the applicable Windstream Lease will increase by an amount equal to 8.0% (the “Rent Rate”) of such installment of reimbursement. The Rent Rate will thereafter increase to 100.5% of the prior Rent Rate on each anniversary of each reimbursement. In the event that the tenant’s interest in either Windstream Lease is transferred by Windstream under the terms thereof (unless transferred to the same transferee), or if Uniti transfers its interests as landlord under either Windstream Lease (unless to the same transferee), the reimbursement rights and obligations will be allocated between the ILEC MLA and the CLEC MLA by Windstream, provided that the maximum that may be allocated to the CLEC MLA following such transfer is $20.0 million per year. If Uniti fails to reimburse any Growth Capital Improvement payment or
equipment loan funding request as and when it is required to do so under the terms of the Windstream Leases, and such failure continues for thirty (30) days, then such unreimbursed amounts may be applied as an offset against the rent owed by Windstream under the Windstream Leases (and such amounts will thereafter be treated as if Uniti had reimbursed them).
The Windstream Leases provide that tenant funded capital improvements (“TCIs”), defined as maintenance, repair, overbuild, upgrade or replacement to the Distribution Systems, including without limitation, the replacement of copper distribution systems with fiber distribution systems, automatically become property of Uniti upon their construction by Windstream. We receive non-monetary consideration related to TCIs as they automatically become our property, and we recognize the cost basis of TCIs that are capital in nature as property, plant, and equipment and deferred revenue. We depreciate the property, plant, and equipment over their estimated useful lives and amortize the deferred revenue as additional leasing revenues over the same depreciable life of the TCI assets. TCIs exclude Growth Capital Improvements as and when reimbursed by Uniti.
Three Months Ended September 30,
2024
2023
(Thousands)
Amount
% of Segment Revenues
Amount
% of Segment Revenues
(as restated)
Uniti Leasing revenues:
Windstream Leases:
Cash revenue
Cash rent
$
169,180
75.9%
$
168,338
78.5%
GCI revenue
14,613
6.6%
8,450
3.9%
Total cash revenue
183,793
82.5%
176,788
82.4%
Non-cash revenue
TCI revenue
12,791
5.7%
11,707
5.4%
GCI revenue
3,136
1.4%
4,436
2.1%
Other straight-line revenue
558
0.2%
1,401
0.7%
Total non-cash revenue
16,485
7.3%
17,544
8.2%
Total Windstream revenue
200,278
89.8%
194,332
90.6%
Other services
22,644
10.2%
20,256
9.4%
Total Uniti Leasing revenues
$
222,922
100.0%
$
214,588
100.0%
The increase in TCI revenue is attributable to continued investment by Windstream. Windstream invested $69.6 million in TCIs during the quarter ended September 30, 2024. The total amount invested in TCIs by Windstream since the inception of the Windstream Leases (including the Master Lease) was $1.3 billion as of September 30, 2024 and $1.1 billion as of September 30, 2023.
The increase in GCI revenue is attributable to Uniti’s continued reimbursement of Growth Capital Improvements. During the three months ended September 30, 2024, Uniti reimbursed $34.2 million of Growth Capital Improvements. As of the date of this Quarterly Report on Form 10-Q, we have reimbursed a total of $1.0 billion of Growth Capital Improvements.
We recognized $22.6 million and $20.3 million of revenues from other services including non-Windstream triple-net leasing and dark fiber indefeasible rights of use (“IRU”) arrangements for the three months ended September 30, 2024 and 2023, respectively. The increase is primarily driven by revenues from new customer arrangements.
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 maintain our status as a REIT and service debt if Windstream were to become 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 new 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. Moody's Investor Service's current corporate family rating for Windstream is B3 with a stable outlook. S&P Global Ratings' current issuer rating for Windstream is B- with a stable outlook. In addition, in order to assist us in our continuing assessment of Windstream’s creditworthiness, we periodically receive certain confidential financial information and metrics from Windstream.
Uniti Fiber – Uniti Fiber revenues for the three months ended September 30, 2024 and 2023 consisted of the following:
Three Months Ended September 30,
2024
2023
(Thousands)
Amount
% of Segment Revenues
Amount
% of Segment Revenues
(as restated)
Uniti Fiber revenues:
Lit backhaul services
$
17,938
25.9%
$
18,246
24.0%
Enterprise and wholesale
26,381
38.1%
24,211
31.9%
E-Rate and government
11,327
16.3%
15,911
20.9%
Dark fiber and small cells
12,762
18.4%
16,913
22.2%
Other services
917
1.3%
786
1.0%
Total Uniti Fiber revenues
$
69,325
100.0%
$
76,067
100.0%
For the three months ended September 30, 2024, Uniti Fiber revenues totaled $69.3 million as compared to $76.1 million for the three months ended September 30, 2023. Uniti Fiber revenues decreased $6.7 million, primarily attributable to a $4.6 million decrease in E-rate and government, driven primarily by non-recurring equipment and installation sales, and a $4.2 million decrease in dark fiber and small cells, driven primarily by one-time cancellation revenues, partially offset by a $2.2 million increase in enterprise and wholesale, driven primarily by increased customer connections.
Amortization of deferred financing costs and debt discount
5,824
4,520
1,304
Accretion of settlement payable
1,421
2,497
(1,076)
Interest rate cap
429
—
429
Capitalized interest
(719)
(418)
(301)
Total non-cash interest
6,955
6,599
356
Total interest expense, net
$
131,007
$
120,691
$
10,316
Interest expense for the three months ended September 30, 2024 increased $10.3 million compared to the three months ended September 30, 2023. The increase is primarily attributable to an increase in cash interest of $10.0 million driven by the Additional February 2028 Secured Notes issued on May 17, 2024 and the March 1, 2024 initial drawing of $275 million on the ABS Loan Facility.
Depreciation and Amortization Expense
Three Months Ended September 30,
(Thousands)
2024
2023
Increase / (Decrease)
(as restated)
Depreciation and amortization expense by segment:
Depreciation expense
Uniti Leasing
$
43,552
$
43,026
$
526
Uniti Fiber
28,335
26,872
1,463
Corporate
13
13
—
Total depreciation expense
71,900
69,911
1,989
Amortization expense
Uniti Leasing
1,729
1,728
1
Uniti Fiber
5,696
5,698
(2)
Total amortization expense
7,425
7,426
(1)
Total depreciation and amortization expense
$
79,325
$
77,337
$
1,988
Uniti Leasing – Uniti Leasing depreciation expense increased $0.5 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily attributable to asset additions since September 30, 2023, offset by the decrease associated with the CableSouth network sale in the first quarter of 2024.
Uniti Fiber – Uniti Fiber depreciation expense increased $1.5 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily attributable to asset additions since September 30, 2023.
General and Administrative Expense
General and administrative expenses include compensation costs, including stock-based compensation awards, professional and legal services, corporate office costs and other costs associated with administrative activities of our segments.
Three Months Ended September 30,
2024
2023
(Thousands)
Amount
% of Consolidated Revenues
Amount
% of Consolidated Revenues
(as restated)
General and administrative expense by segment:
Uniti Leasing
$
2,972
1.0%
$
2,668
1.0%
Uniti Fiber
16,313
5.6%
15,590
5.4%
Corporate
7,412
2.5%
7,223
2.4%
Total general and administrative expenses
$
26,697
9.1%
$
25,481
8.8%
Uniti Leasing – Uniti Leasing general and administrative expense increased $0.3 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily attributable to an increase in personnel expenses.
Uniti Fiber – Uniti Fiber general and administrative expense increased $0.7 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily attributable to an increase in personnel and insurance expenses.
Corporate – Corporate general and administrative expense increased $0.2 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily attributable to an increase in personnel expenses of $0.7 million, partially offset by a decrease in insurance expense of $0.5 million.
Operating Expense
Operating expenses consist of network related costs, such as dark fiber and tower rents, lit service and maintenance expense and costs associated with our construction activities.
Three Months Ended September 30,
2024
2023
(Thousands)
Amount
% of Consolidated Revenues
Amount
% of Consolidated Revenues
(as restated)
Operating expense by segment:
Uniti Leasing
$
6,096
2.1%
$
6,070
2.1%
Uniti Fiber
28,423
9.7%
31,322
10.8%
Total operating expenses
$
34,519
11.8%
$
37,392
12.9%
Uniti Leasing – Uniti Leasing operating expense remained consistent for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.
Uniti Fiber – Uniti Fiber operating expense decreased $2.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily attributable to a decrease in non-recurring installation and equipment expense of $3.4 million and off network expense of $0.5 million, partially offset by an increase in personnel expenses of $0.9 million.
During the third quarter of 2023, as a result of macroeconomic and financial market factors, specifically, increased interest rates impacting our discount rate, we concluded that it was more likely than not that the fair value of the Uniti Fiber segment, estimated using a combination of the income approach and market approach, was less that its carrying amount. Accordingly, we recorded a $204.0 million ($151.9 million net of tax) goodwill impairment in the Uniti Fiber segment during the nine months ended September 30, 2023. We recorded no impairment during the three months ended September 30, 2024. See Note 9 of Notes to Condensed Consolidated Financial Statements in Part I Item 1 of this Quarterly Report on Form 10-Q.
Transaction Related and Other Costs
Transaction related and other costs include incremental acquisition, pursuit, transaction and integration costs (including unsuccessful acquisition pursuit costs). For the three months ended September 30, 2024, we incurred $14.4 million of transaction related and other costs, compared to $1.4 million of such costs during the three months ended September 30, 2023. The increase is primarily attributable to costs associated with the Merger.
Income Tax Benefit
The income tax benefit recorded for the three months ended September 30, 2024 and 2023, respectively, is related to the tax impact of the following:
Three Months Ended September 30,
(Thousands)
2024
2023
(as restated)
Income tax benefit
Pre-tax loss (Uniti Fiber)
$
(6,321)
$
(56,522)
REIT state and local taxes
386
392
Total income tax benefit
$
(5,935)
$
(56,130)
Comparison of the nine months ended September 30, 2024 and 2023
The following table sets forth our results of operations expressed as dollars and as a percentage of total revenues for the periods indicated:
Operating expense (exclusive of depreciation and amortization)
106,753
12.2
%
109,878
12.7
%
Transaction related and other costs
31,068
3.6
%
9,805
1.1
%
Goodwill impairment
—
—
%
203,998
23.6
%
Gain on sale of real estate
(18,999)
(2.2
%)
(1,424)
(0.2
%)
Other expense (income), net
(301)
—
%
21,323
2.5
%
Total costs and expenses
815,622
93.4
%
1,041,533
120.5
%
Income (loss) before income taxes and equity in earnings from unconsolidated entities
57,990
6.6
%
(177,358)
(20.5
%)
Income tax benefit
(13,869)
(1.6
%)
(62,899)
(7.3
%)
Equity in earnings from unconsolidated entities
—
—
%
(1,990)
(0.2
%)
Net income (loss)
71,859
8.2
%
(112,469)
(13.0
%)
Net income (loss) attributable to noncontrolling interests
23
0.0
%
(50)
0.0
%
Net income (loss) attributable to shareholders
71,836
8.2
%
(112,419)
(13.0
%)
Participating securities' share in earnings
(1,493)
(0.2
%)
(890)
(0.1
%)
Dividends declared on convertible preferred stock
(15)
0.0
%
(15)
—
%
Net income (loss) attributable to common shareholders
$
70,328
8.1
%
$
(113,324)
(13.1
%)
The following tables set forth revenues, Adjusted EBITDA and net income of our reportable segments for the nine months ended September 30, 2024 and 2023:
Uniti Leasing – Uniti Leasing revenues for the nine months ended September 30, 2024 and 2023 consisted of the following:
Nine Months Ended September 30,
2024
2023
(Thousands)
Amount
% of Segment Revenues
Amount
% of Segment Revenues
(as restated)
Uniti Leasing revenues:
Windstream Leases:
Cash revenue
Cash rent
$
506,417
76.9%
$
503,897
79.0%
GCI revenue
38,888
5.9%
22,128
3.5%
Total cash revenue
545,305
82.8%
526,025
82.5%
Non-cash revenue
TCI revenue
37,248
5.7%
34,628
5.4%
GCI revenue
10,643
1.6%
12,245
1.9%
Other straight-line revenue
2,796
0.4%
5,323
0.9%
Total non-cash revenue
50,687
7.7%
52,196
8.2%
Total Windstream revenue
595,992
90.5%
578,221
90.7%
Other services
62,837
9.5%
59,628
9.3%
Total Uniti Leasing revenues
$
658,829
100.0%
$
637,849
100.0%
The increase in TCI revenue is attributable to continued investment by Windstream.
The increase in GCI revenue is attributable to Uniti’s continued reimbursement of Growth Capital Improvements. During the nine months ended September 30, 2024, Uniti reimbursed $230.8 million of Growth Capital Improvements. As of the date of this Quarterly Report on Form 10-Q, we have reimbursed a total of $1.0 billion of Growth Capital Improvements.
We recognized $62.8 million and $59.6 million of revenues from non-Windstream triple-net leasing, dark fiber IRU arrangements, and other services for the nine months ended September 30, 2024 and 2023, respectively. The increase is primarily attributable to revenues from new customer arrangements.
Uniti Fiber – Uniti Fiber revenues for the nine months ended September 30, 2024 and 2023 consisted of the following:
Nine Months Ended September 30,
2024
2023
(Thousands)
Amount
% of Segment Revenues
Amount
% of Segment Revenues
(as restated)
Uniti Fiber revenues:
Lit backhaul services
$
58,305
27.2%
$
57,221
25.3%
Enterprise and wholesale
77,601
36.1%
70,144
31.0%
E-Rate and government
38,645
18.0%
43,947
19.4%
Dark fiber and small cells
37,588
17.5%
52,750
23.3%
Other services
2,644
1.2%
2,264
1.0%
Total Uniti Fiber revenues
$
214,783
100.0%
$
226,326
100.0%
For the nine months ended September 30, 2024, Uniti Fiber revenues totaled $214.8 million as compared to $226.3 million for the nine months ended September 30, 2023. Uniti Fiber revenues decreased by $11.5 million, primarily attributable to a $15.2 million decrease in dark fiber and small cells, driven primarily by one-time cancellation revenues, and $5.3 million decrease in E-rate and government, driven primarily by non-recurring equipment and installation sales and net churn,
Amortization of deferred financing costs and debt discount
16,774
13,974
2,800
Write off of deferred financing costs and debt discount
—
10,412
(10,412)
Accretion of settlement payable
5,080
8,273
(3,193)
Gain on extinguishment of debt
—
(1,269)
1,269
Interest rate cap
1,149
—
1,149
Capitalized interest
(2,181)
(948)
(1,233)
Total non-cash interest
20,822
30,442
(9,620)
Total interest expense, net
$
381,693
$
389,243
$
(7,550)
Interest expense for the nine months ended September 30, 2024 decreased $7.6 million compared to the nine months ended September 30, 2023. The decrease is primarily attributable to a loss on extinguishment of debt of $32.3 million recognized in the first quarter of 2023 related to the 7.875% senior secured notes due 2025 (the "2025 Secured Notes"), which included $10.3 million of non-cash interest expense for the write off of the unamortized discount and deferred financing costs and $22.0 million of cash interest expense for the redemption premium, and a reduction in the accretion expense on the settlement payable of $3.2 million, partially offset by an increase in cash interest on our senior secured notes and the ABS Loan Facility of $30.3 million.
Uniti Leasing – Uniti Leasing depreciation expense increased $1.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase is primarily attributable to asset additions since September 30, 2023, partially offset by the decrease associated with the CableSouth network sale in the first quarter of 2024.
Uniti Fiber – Uniti Fiber depreciation expense increased $2.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase is primarily attributable to asset additions since September 30, 2023.
General and Administrative Expense
General and administrative expenses include compensation costs, including stock-based compensation awards, professional and legal services, corporate office costs and other costs associated with administrative activities of our segments.
Nine Months Ended September 30,
2024
2023
(Thousands)
Amount
% of Consolidated Revenues
Amount
% of Consolidated Revenues
(as restated)
General and administrative expense by segment:
Uniti Leasing
$
8,903
1.0
%
$
8,713
1.0
%
Uniti Fiber
48,624
5.6
%
46,692
5.4
%
Corporate
23,019
2.6
%
21,926
2.5
%
Total general and administrative expenses
$
80,546
9.2
%
$
77,331
8.9
%
Uniti Leasing – Uniti Leasing general and administrative expense increased $0.2 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily attributable to an increase in personnel expenses.
Uniti Fiber – Uniti Fiber general and administrative expense increased $1.9 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, which is primarily attributable to increases in personnel and insurance expenses.
Corporate – Corporate general and administrative expense increased $1.1 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, which is primarily attributable to an increase in professional and legal fees of $2.0 million, partially offset by a decrease in insurance expenses of $1.0 million.
Operating Expense
Operating expense consists of network related costs, such as dark fiber and tower rents, lit service and maintenance expense and costs associated with our construction activities.
Uniti Leasing – Uniti Leasing operating expense increased $0.7 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase is primarily attributable to increases in leased asset costs of $1.3 million, partially offset by a decrease in non-recurring operating expenses of $0.6 million.
Uniti Fiber – Uniti Fiber operating expenses decreased$3.8 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, which is primarily attributable to decreases in off network expense of $2.5 million and non-recurring installation and equipment expense of $2.1 million, partially offset by an increase in personnel expense of $0.8 million.
Goodwill Impairment
During the third quarter of 2023, as a result of macroeconomic and financial market factors, specifically, increased interest rates impacting our discount rate, we concluded that it was more likely than not that the fair value of the Uniti Fiber segment, estimated using a combination of the income approach and market approach, was less that its carrying amount. Accordingly, we recorded a $204.0 million ($151.9 million net of tax) goodwill impairment in the Uniti Fiber segment during the nine months ended September 30, 2023. We recorded no impairment during the nine months ended September 30, 2024. See Note 9 of Notes to Condensed Consolidated Financial Statements in Part I Item 1 of this Quarterly Report on Form 10-Q.
Transaction Related and Other Costs
Transaction related and other costs during the nine months ended September 30, 2024 and 2023 included acquisition, pursuit, transaction and integration costs (including unsuccessful acquisition pursuit costs). For the nine months ended September 30, 2024, we incurred $31.1 million of transaction related and other costs, compared to $9.8 million of such costs during the nine months ended September 30, 2023. The increase relates primarily to costs associated with the Merger.
Other Expense (Income), net
Other expense (income), net changed $21.6 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, which included $20.6 million of costs related to the issuance of the February 2028 Secured Notes.
Income Tax Benefit
The income tax benefit recorded for the nine months ended September 30, 2024 and 2023, respectively, is related to the tax impact of the following:
Nine Months Ended September 30,
(Thousands)
2024
2023
(as restated)
Income tax benefit
Pre-tax loss (Uniti Fiber)
$
(15,071)
$
(64,077)
REIT state and local taxes
1,157
1,151
Other
45
27
Total income tax benefit
$
(13,869)
$
(62,899)
Non-GAAP Financial Measures
We refer to EBITDA, Adjusted EBITDA, Funds From Operations (“FFO”) (as defined by the National Association of Real Estate Investment Trusts (“NAREIT”)) and Adjusted Funds From Operations (“AFFO”) in our analysis of our results of operations, which are not required by, or presented in accordance with, accounting principles generally accepted in the United States (“GAAP”). While we believe that net income, as defined by GAAP, is the most appropriate earnings measure, we also believe that EBITDA, Adjusted EBITDA, FFO and AFFO are important non-GAAP supplemental measures of operating performance for a REIT.
Wedefine “EBITDA” as net income, as defined by GAAP, before interest expense, provision for income taxes and depreciation and amortization. We define “Adjusted EBITDA” as EBITDA before stock-based compensation expense and
the impact, which may be recurring in nature, of incremental acquisition, pursuit, transaction and integration costs (including unsuccessful acquisition pursuit costs), costs associated with Windstream’s bankruptcy, costs associated with litigation claims made against us, and costs associated with the implementation of our enterprise resource planning system, (collectively, “Transaction Related and Other Costs”), costs related to the settlement with Windstream, goodwill impairment charges, severance costs, amortization of non-cash rights-of-use assets, the write off of unamortized deferred financing costs, costs incurred as a result of the early repayment of debt, including early tender and redemption premiums and costs associated with the termination of related hedging activities, gains or losses on dispositions, changes in the fair value of contingent consideration and financial instruments, and other similar or infrequent items (although we may not have had such charges in the periods presented). Adjusted EBITDA includes adjustments to reflect the Company’s share of Adjusted EBITDA from unconsolidated entities. We believe EBITDA and Adjusted EBITDA are important supplemental measures to net income because they provide additional information to evaluate our operating performance on an unleveraged basis. In addition, Adjusted EBITDA is calculated similar to defined terms in our material debt agreements used to determine compliance with specific financial covenants. Since EBITDA and Adjusted EBITDA are not measures calculated in accordance with GAAP, they should not be considered as alternatives to net income determined in accordance with GAAP.
Because the historical cost accounting convention used for real estate assets requires the recognition of depreciation expense except on land, such accounting presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and other conditions, presentations of operating results for a REIT that uses historical cost accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income, as defined by GAAP. FFO is defined by NAREIT as net income attributable to common shareholders computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization and impairment charges, and includes adjustments to reflect the Company’s share of FFO from unconsolidated entities. We compute FFO in accordance with NAREIT’s definition.
The Company defines AFFO, as FFO excluding (i) Transaction Related and Other Costs; (ii) costs related to the litigation settlement with Windstream, accretion on our settlement obligation, and gains on prepayment of our settlement obligation as these items are not reflective of ongoing operating performance; (iii) goodwill impairment charges; (iv) certain non-cash revenues and expenses such as stock-based compensation expense, amortization of debt and equity discounts, amortization of deferred financing costs, depreciation and amortization of non-real estate assets, amortization of non-cash rights-of-use assets, straight line revenues, non-cash income taxes, and the amortization of other non-cash revenues to the extent that cash has not been received, such as revenue associated with the amortization of TCIs; and (v) the impact, which may be recurring in nature, of the write-off of unamortized deferred financing fees, additional costs incurred as a result of the early repayment of debt, including early tender and redemption premiums and costs associated with the termination of related hedging activities, severance costs, taxes associated with tax basis cancellation of debt, gains or losses on dispositions, changes in the fair value of contingent consideration and financial instruments and similar or infrequent items less maintenance capital expenditures. AFFO includes adjustments to reflect the Company’s share of AFFO from unconsolidated entities. We believe that the use of FFO and AFFO, and their respective per share amounts, combined with the required GAAP presentations, improves the understanding of operating results of REITs among investors and analysts, and makes comparisons of operating results among such companies more meaningful. We consider FFO and AFFO to be useful measures for reviewing comparative operating performance. In particular, we believe AFFO, by excluding certain revenue and expense items, can help investors compare our operating performance between periods and to other REITs on a consistent basis without having to account for differences caused by unanticipated items and events, such as transaction and integration related costs. The Company uses FFO and AFFO, and their respective per share amounts, only as performance measures, and FFO and AFFO do not purport to be indicative of cash available to fund our future cash requirements. While FFO and AFFO are relevant and widely used measures of operating performance of REITs, they do not represent cash flows from operations or net income as defined by GAAP and should not be considered an alternative to those measures in evaluating our liquidity or operating performance.
Further, our computations of EBITDA, Adjusted EBITDA, FFO and AFFO may not be comparable to that reported by other REITs or companies that do not define FFO in accordance with the current NAREIT definition or that interpret the current NAREIT definition or define EBITDA, Adjusted EBITDA and AFFO differently than we do.
The reconciliation of our net income (loss) to EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023 is as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(Thousands)
2024
2023
2024
2023
(as restated)
(as restated)
Net income (loss)
$
12,230
$
(118,896)
$
71,859
$
(112,469)
Depreciation and amortization
79,325
77,337
234,862
231,379
Interest expense, net
131,007
120,691
381,693
389,243
Income tax benefit
(5,935)
(56,130)
(13,869)
(62,899)
EBITDA
$
216,627
$
23,002
$
674,545
$
445,254
Stock based compensation
3,375
3,148
10,120
9,408
Transaction related and other costs
14,404
1,441
31,068
9,805
Goodwill impairment
—
203,998
—
203,998
Gain on sale of real estate
—
(1,424)
(18,999)
(1,424)
Other, net (1)
918
2,091
3,877
23,073
Adjustments for equity in earnings from unconsolidated entities
—
754
—
2,264
Adjusted EBITDA
$
235,324
$
233,010
$
700,611
$
692,378
(1) A reconciliation of Other expense (income), net as reported in our Condensed Consolidated Statements of Income (Loss) to Other, net is as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(Thousands)
2024
2023
2024
2023
(as restated)
(as restated)
Other expense (income), net
$
—
$
1,435
$
(301)
$
21,323
Amortization of non-cash rights-of-use assets (a)
851
759
2,521
2,277
Severance costs (b)
67
—
1,657
—
Insurance recovery (a)
—
(103)
—
(527)
Other, net
$
918
$
2,091
$
3,877
$
23,073
(a) Included within the Operating expense (exclusive of depreciation and amortization) line item in our Condensed Consolidated Statements of Income (Loss).
(b) Included within the General and administration expense line item in our Condensed Consolidated Statements of Income (Loss).
The reconciliation of our net income (loss) attributable to common shareholders to FFO and AFFO for the three and nine months ended September 30, 2024 and 2023 is as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(Thousands)
2024
2023
2024
2023
(as restated)
(as restated)
Net income (loss) attributable to common shareholders
$
11,890
$
(119,169)
$
70,328
$
(113,324)
Real estate depreciation and amortization
56,370
55,405
167,915
164,983
Gain on sale of real estate, net of tax
—
(1,424)
(18,951)
(1,424)
Participating securities share in earnings
334
321
1,493
890
Participating securities share in FFO
(1,871)
(321)
(4,166)
(1,298)
Real estate depreciation and amortization from unconsolidated entities
—
435
—
1,305
Adjustments for noncontrolling interests
(9)
(24)
(34)
(74)
FFO attributable to common shareholders
$
66,714
$
(64,777)
$
216,585
$
51,058
Transaction related and other costs
14,404
1,441
31,068
9,805
Amortization of deferred financing costs and debt discount
5,824
4,521
16,774
13,975
Write off of deferred financing costs and debt discount
—
—
—
10,412
Costs related to the early repayment of debt
—
—
—
51,997
Stock based compensation
3,375
3,148
10,120
9,408
Non-real estate depreciation and amortization
22,955
21,932
66,947
66,396
Goodwill impairment
—
203,998
—
203,998
Straight-line revenues and amortization of below-market lease intangibles
(7,320)
(9,579)
(24,358)
(28,795)
Maintenance capital expenditures
(1,891)
(1,594)
(5,889)
(5,338)
Other, net
(16,999)
(63,998)
(44,297)
(90,076)
Adjustments for equity in earnings from unconsolidated entities
—
320
—
960
Adjustments for noncontrolling interests
(3)
(72)
(11)
(109)
AFFO attributable to common shareholders
$
87,059
$
95,340
$
266,939
$
293,691
Liquidity and Capital Resources
Our principal liquidity needs are to fund operating expenses, meet debt service obligations, fund investment activities, including capital expenditures, and to fund the Merger Cash Consideration. Furthermore, following consummation of our settlement agreement with Windstream, including entry into the Windstream Leases, we are obligated (i) to make $490.1 million of cash payments to Windstream in equal installments over 20 consecutive quarters beginning in October 2020 and (ii) to reimburse Windstream for up to an aggregate of $1.75 billion for Growth Capital Improvements in long-term value accretive fiber and related assets made by Windstream through 2029. To date, we have paid $386.9 million of the $490.1 million due to Windstream under the settlement agreement. Uniti’s reimbursement commitment for Growth Capital Improvements does not require Uniti to reimburse Windstream for maintenance or repair expenditures (except for costs incurred for fiber replacements to the CLEC MLA leased property, up to $70 million during the term), and each such reimbursement is subject to underwriting standards. Uniti’s total annual reimbursement commitments for the Growth Capital Improvements under both Windstream Leases (and under separate equipment loan facilities) were limited to $225 million in 2022 and 2023, and are limited to $225 million per year in 2024; $175 million per year in 2025 and 2026; and $125 million per year in 2027 through 2029.
Our primary sources of liquidity and capital resources are cash on hand, cash provided by operating activities (primarily from the Windstream Leases), available borrowings under our credit agreement by and among the Operating Partnership, CSL Capital, LLC and Uniti Group Finance 2019 Inc., the guarantors party thereto, Bank of America, N.A., as administrative agent, collateral agent, swing line lender and an L/C issuer and certain other lenders named therein (the
"Credit Agreement"), and proceeds from the issuance of debt and equity securities. See “—Outlook” for additional information concerning our near-term and long-term liquidity requirements.
As of September 30, 2024, we had total cash and cash equivalents of $53.4 million, including $19.3 million of restricted cash and cash equivalents, approximately $495.0 million of borrowing availability under our revolving credit facility maturing on September 24, 2027 under the Credit Agreement (the “Revolving Credit Facility”), and up to $75.0 million of borrowing capacity under our ABS Loan Facility, subject to satisfying certain financial metrics and transferring certain additional assets into the facility as collateral, which we expect to occur within twelve months. Subsequent to September 30, 2024, there have been no material outlays of funds outside of our scheduled interest payments. Availability under our Revolving Credit Facility is subject to various conditions, including a maximum secured leverage ratio of 5.0:1. In addition, if we incur debt under our Revolving Credit Facility or otherwise such that our total leverage ratio exceeds 6.5:1, our Revolving Credit Facility would impose significant restrictions on our ability to pay dividends. See “—Dividends.”
Nine Months Ended September 30,
(Thousands)
2024
2023
(as restated)
Cash flow from operating activities:
Net cash provided by operating activities
$
181,080
$
190,575
Cash provided by operating activities is primarily attributable to our leasing activities, which includes the leasing of mission-critical communications assets to anchor customers on either an exclusive or shared-tenant basis, in addition to the leasing of dark fiber network assets to the telecommunications industry. Cash used in operating activities includes compensation and related costs, interest payments, and other changes in working capital. Net cash provided by operating activities was $181.1 million and $190.6 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease in net cash provided by operating activities during the nine months ended September 30, 2024 is primarily attributable to an increase in cash interest expense of $2.1 million and cash paid for the interest rate cap of $2.2 million, along with a decrease in distributions from unconsolidated entities of $3.0 million.
Nine Months Ended September 30,
(Thousands)
2024
2023
(as restated)
Cash flow from investing activities:
Capital expenditures
$
(327,762)
$
(368,264)
Proceeds from sale of other equipment
528
1,581
Proceeds from sale of real estate
40,039
1,530
Proceeds from sale of unconsolidated entity
40,000
—
Net cash used in investing activities
$
(247,195)
$
(365,153)
Net cash used in investing activities decreased $118.0 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily driven by proceeds from the sale of our investment in BB Fiber Holdings LLC of $40.0 million, proceeds from the sale of the CableSouth network of $40.0 million, and a decrease in Uniti Fiber and Uniti Leasing capital expenditures of $37.9 million. Capital expenditures are primarily related to our Uniti Fiber and Uniti Leasing businesses for deployment of network assets, as described below under “—Capital Expenditures.”
Payments related to tax withholding for stock-based compensation
(1,587)
(1,359)
Net cash provided by financing activities
$
57,239
$
164,894
Net cash provided by financing activities was $57.2 million for the nine months ended September 30, 2024, which was primarily related to the $309.0 million proceeds from issuance of the Additional February 2028 Secured Notes and $275.0 million of proceeds from the ABS Loan Facility, partially offset by $122.9 million repayment of debt, net payments under the Revolving Credit Facility of $203.0 million, dividend payments of $108.4 million, repayments of the settlement payable of $73.5 million, and payments for financing costs of $15.8 million. Net cash provided by financing activities was $164.9 million for the nine months ended September 30, 2023, which was primarily related to proceeds from issuance of the February 2028 Secured Notes of $2.6 billion, offset by repayment of the 2025 Secured Notes of $2.3 billion, net borrowings under the Revolving Credit Facility of $83.0 million, dividend payments of $107.4 million, repayments of the settlement payable of $73.5 million, costs related to the early repayment of the 2025 Secured Notes of$44.3 million, and payments for financing costs of $27.0 million.
Windstream Leases
The initial term of the Windstream Leases expires on April 30, 2030. The aggregate initial annual rent under the Windstream Leases is $663.0 million. The Windstream Leases contain cross-guarantees and cross-default provisions, which will remain effective as long as Windstream or an affiliate is the tenant under both of the Windstream Leases and unless and until the landlords under the ILEC MLA are different from the landlords under the CLEC MLA. The Windstream Leases permit Uniti to transfer its rights and obligations and otherwise monetize or encumber the Windstream Leases, together or separately, so long as Uniti does not transfer interests in either Windstream Lease to a Windstream competitor.
Beginning in October 2020, pursuant to the Windstream Leases, Windstream (or any successor tenant under a Windstream Lease) has the right to cause Uniti to reimburse up to an aggregate $1.75 billion of Growth Capital Improvements through 2029. Uniti’s reimbursement commitment for Growth Capital Improvements does not require Uniti to reimburse Windstream for maintenance or repair expenditures (except for costs incurred for fiber replacements to the CLEC MLA leased property, up to $70 million during the term), and each such reimbursement is subject to underwriting standards. Uniti’s total annual reimbursement commitments for the Growth Capital Improvements under both Windstream Leases (and under separate equipment loan facilities) were limited to $225 million in 2022 and 2023, and are limited to $225 million in 2024; $175 million per year in 2025 and 2026; and $125 million per year in 2027 through 2029. If the cost incurred by Windstream (or the successor tenant under a Windstream Lease) for Growth Capital Improvements in any calendar year exceeds the annual limit for such calendar year, Windstream (or such tenant, as the case may be) may submit
such excess costs for reimbursement in any subsequent year and such excess costs shall be funded from the annual commitment amounts in such subsequent period. In addition, to the extent that reimbursements for Growth Capital Improvements funded in any calendar year during the term is less than the annual limit for such calendar year, the unfunded amount in any calendar year will carry-over and may be added to the annual limits for subsequent calendar years, subject to an annual limit of $250 million in any calendar year.
Starting on the first anniversary of each installment of reimbursement for a Growth Capital Improvement, the rent payable by Windstream under the applicable Windstream Lease will increase by an amount equal to 8.0% (the “Rent Rate”) of such installment of reimbursement. The Rent Rate will thereafter increase to 100.5% of the prior Rent Rate on each anniversary of each reimbursement. In the event that the tenant’s interest in either Windstream Lease is transferred by Windstream under the terms thereof (unless transferred to the same transferee), or if Uniti transfers its interests as landlord under either Windstream Lease (unless to the same transferee), the reimbursement rights and obligations will be allocated between the ILEC MLA and the CLEC MLA by Windstream, provided that the maximum that may be allocated to the CLEC MLA following such transfer is $20 million per year. If Uniti fails to reimburse any Growth Capital Improvement reimbursement payment or equipment loan funding request as and when it is required to do so under the terms of the Windstream Leases, and such failure continues for thirty (30) days, then such unreimbursed amounts may be applied as an offset against the rent owed by Windstream under the Windstream Leases (and such amounts will thereafter be treated as if Uniti had reimbursed them).
Uniti and Windstream have entered into separate ILEC and CLEC Equipment Loan and Security Agreements (collectively “Equipment Loan Agreement”) in which Uniti will provide up to $125 million (limited to $25 million in any calendar year) of the $1.75 billion of Growth Capital Improvements commitments discussed above in the form of loans for Windstream to purchase equipment related to network upgrades or to be used in connection with the Windstream Leases. Interest on these loans will accrue at 8% from the date of the borrowing. All equipment financed through the Equipment Loan Agreement is the sole property of Windstream; however, Uniti will receive a first-lien security interest in the equipment purchased with the loans. No such loans have been made as of September 30, 2024.
UP-REIT Operating Partnership Units
Our UP-REIT structure enables us to acquire properties by issuing to sellers, as a form of consideration, limited partnership interests in our operating partnership, (commonly called “OP Units”). We believe that this structure will facilitate our ability to acquire individual properties and portfolios of properties by enabling us to structure transactions which will defer taxes payable by a seller while preserving our available cash for other purposes, including the possible payment of dividends. We would expect to eliminate this structure when we complete the Windstream combination.
Outlook
We anticipate continuing to invest in our network infrastructure across our Uniti Leasing and Uniti Fiber portfolios. We anticipate that we will partially finance these needs, as well as operating expenses (including our debt service obligations), from our cash on hand, borrowings under our Revolving Credit Facility and ABS Loan Facility, and cash flows provided by operating activities. As of September 30, 2024, we had $495.0 million in borrowing availability under our Revolving Credit Facility. Additionally, we have up to $75.0 million in borrowing availability under our ABS Loan Facility, subject to satisfying certain financial metrics and transferring certain additional assets into the facility as collateral, which we expect will occur within twelve months. In addition, we anticipate our cash on hand and borrowing availability under the Revolving Credit Facility and ABS Loan Facility, combined with our cash flows provided by operating activities, will be sufficient to fund our business operations, reimbursement commitments for Growth Capital Improvements and obligations under the settlement agreement with Windstream, and debt service over the next twelve months. However, we may need to access the capital markets to generate additional funds to fund such expenditures. On a longer-term basis, the Company believes the same sources of liquidity and capital will be sufficient to satisfy these liquidity needs and anticipated capital expenditures, which we anticipate will be in line with historic amounts. See “Liquidity and Capital Resources” and “—Capital Expenditures” for additional information. A significant portion of the Company's indebtedness matures within the next four years, and the Company expects that it will need to refinance or repay its indebtedness at maturity by raising additional capital (which could include a combination of equity offerings and/or debt offerings) or instead seek to extend the applicable maturity dates of its indebtedness. We closely monitor the equity and debt markets and may seek to access them promptly if and when we determine market conditions are appropriate.
The amount, nature and timing of any capital markets transactions will depend on: our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions. These expectations are forward-
looking and subject to several uncertainties and assumptions. If our expectations about our liquidity prove to be incorrect or we are unable to access the capital markets as we anticipate, we would be subject to a shortfall in liquidity in the future which could lead to a reduction in our capital expenditures and/or dividends and, in an extreme case, our ability to pay our debt service obligations. If this shortfall occurs rapidly and with little or no notice, it could limit our ability to address the shortfall on a timely basis.
In addition to exploring potential capital markets transactions, the Company regularly evaluates market conditions, its liquidity profile, and various financing alternatives for opportunities to enhance its capital structure. If opportunities are favorable, the Company may refinance or repurchase existing debt. However, there can be no assurances that any debt refinancing would be on similar or more favorable terms than our existing arrangements. This would include the risk that interest rates could increase and/or there may be changes to our existing covenants.
Capital Expenditures
Nine Months Ended September 30, 2024
(Thousands)
Success Based
Maintenance
Non-Network
Total
Capital expenditures
Uniti Leasing
$
13,949
$
—
$
—
$
13,949
Growth capital improvements
230,815
—
—
230,815
Uniti Fiber
76,611
5,889
469
82,969
Corporate
—
—
29
29
Total capital expenditures
$
321,375
$
5,889
$
498
$
327,762
We categorize our capital expenditures as either (i) success-based, (ii) maintenance, or (iii) non-network. We define success-based capital expenditures as those related to installing existing or anticipated contractual customer service orders. Maintenance capital expenditures are those necessary to keep existing network elements fully operational. We anticipate continuing to invest in our network infrastructure across our Uniti Leasing and Uniti Fiber businesses and expect that cash on hand and cash flows provided by operating activities will be sufficient to support these investments. We have the right, but not the obligation (except for Growth Capital Improvements), to reimburse growth capital expenditures in certain of our lease arrangements where we are the lessor.
Uniti’s total annual reimbursement commitments to Windstream for the Growth Capital Improvements is discussed above in this Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in “Liquidity and Capital Resources—Windstream Leases.” Growth Capital Improvements are treated as success-based capital improvements based on the rents paid with respect to such amounts.
If circumstances warrant, we may need to take measures to conserve cash, which may include a suspension, delay or reduction in success-based capital expenditures.
Dividends
We have elected to be taxed as a REIT for U.S. federal income tax purposes. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. In order to maintain our REIT status, we intend to make dividend payments of all or substantially all of our taxable income to holders of our common stock out of assets legally available for this purpose, if and to the extent authorized by our board of directors. Before we make any dividend payments, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service obligations. If our cash available for distribution is less than our taxable income, we could be required to sell assets or borrow funds to make cash dividends or we may make a portion of the required dividend in the form of a taxable distribution of stock or debt securities.
The following table below sets out details regarding our cash dividends on our common stock:
Period
Payment Date
Cash Dividend Per Share
Record Date
January 1, 2024 - March 31, 2024
April 12, 2024
$
0.15
March 28, 2024
April 1, 2024 - June 30, 2024
June 28, 2024
$
0.15
June 14, 2024
Under the Merger Agreement with Windstream, 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 its status as a REIT or to avoid the payment or imposition of income or excise tax, among other customary exceptions. Any dividends must be declared by our Board of Directors, which will take into account various factors including our current and anticipated operating results, our financial position, REIT requirements, conditions prevailing in the market, restrictions in our debt documents and additional factors they deem appropriate. Dividend payments are not guaranteed, and our Board of Directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends or to change the amount paid as dividends.
Critical Accounting Estimates
We make certain judgments and use certain estimates and assumptions when applying accounting principles in the preparation of our Condensed Consolidated Financial Statements. The nature of the estimates and assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain factors or the susceptibility of such factors to change. We have identified the accounting for income taxes, revenue recognition, the impairment of property, plant and equipment, goodwill impairment and business combinations as critical accounting estimates, as they are the most important to our financial statement presentation and require difficult, subjective and complex judgments.
We believe the current assumptions and other considerations used to estimate amounts reflected in our accompanying Condensed Consolidated Financial Statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our Condensed Consolidated Financial Statements, the resulting changes could have a material adverse effect on our consolidated results of operations and, in certain situations, could have a material adverse effect on our financial condition.
For further information on our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the notes to our audited financial statements included in our Annual Report. As of September 30, 2024, there has been no material change to these estimates.
Recent Accounting Guidance
New accounting rules and disclosures can impact our reported results and comparability of our financial statements. See Note 3 to our accompanying Condensed Consolidated Financial Statements contained in Part I, Item 1 "Financial Statements" of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes from the information reported under Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
We have established disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024, and based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act, that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
A description of legal proceedings can be found in Note 13- Commitments and Contingencies to our Condensed Consolidated Financial Statements, included in Part I, Item 1 " Financial Statements" of this Quarterly Report on Form 10-Q, and is incorporated by reference into this Item 1.
Item 1A. Risk Factors.
There have been no material changes to the risk factors affecting our business that were discussed in Part II, Item 1A "Risk Factors” in our Quarterly Report on Form 10-Q filed with the SEC on May 3, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The table below provides information regarding shares withheld from Uniti employees to satisfy minimum statutory tax withholding obligations arising from the vesting of restricted stock granted under the Uniti Group Inc. 2015 Equity Incentive Plan. The shares of common stock withheld to satisfy tax withholding obligations may be deemed purchases of such shares required to be disclosed pursuant to this Item 2.
Period
Total Number of Shares Purchased
Average Price Paid per Share(1)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2024 to July 31, 2024
—
—
—
—
August 1, 2024 to August 31, 2024
1,029
$
4.05
—
—
September 1, 2024 to September 30, 2024
—
—
—
—
Total
1,029
$
4.05
—
—
(1) The average price paid per share is the weighted average of the fair market prices at which we calculated the number of shares withheld to cover tax withholdings for the employees.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not Applicable
Item 5. Other Information.
(a) None
(b) None
(c) During the three months ended September 30, 2024, none of the Company’s directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).
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______________________________
*
Filed herewith
#
Schedules and similar attachments have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or similar attachment will be furnished to the Securities and Exchange Commission upon request.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
UNITI GROUP INC.
Date:
November 8, 2024
/s/ Paul E. Bullington
Paul E. Bullington Senior Vice President – Chief Financial Officer and Treasurer (Principal Financial Officer)
Date:
November 8, 2024
/s/ Travis T. Black
Travis T. Black Senior Vice President – Chief Accounting Officer (Principal Accounting Officer)