SEC Filing | Uniti Group, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒

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

For the quarterly period ended March 31, 2021

☐

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

For the transition period from _______ to _______

Commission File Number: 001-36708

Uniti Group Inc.

(Exact name of registrant as specified in its charter)

Maryland	46-5230630
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
10802 Executive Center Drive Benton Building Suite 300 Little Rock, Arkansas	72211
(Address of principal executive offices)	(Zip Code)

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

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


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

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

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

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

Large accelerated filer	☒	Accelerated filer	☐

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

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

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

As of April 29, 2021, the registrant had 233,448,317 shares of common stock, $0.0001 par value per share, outstanding.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements as defined under U.S. federal securities law. Forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements regarding: our expectations regarding the settlement we have entered into with Windstream Holdings, Inc. (together with Windstream Holdings II, LLC, its successor in interest, and subsidiaries, “Windstream”); the future prospects and financial health of Windstream; our expectations about our ability to maintain our status as a real estate investment trust (a “REIT”); our expectations regarding the effect of the COVID-19 pandemic on our results of operations and financial condition, including the potential need to perform an interim goodwill analysis and report an impairment charge related thereto; our expectations regarding the effect of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), the Consolidated Appropriations Act of 2021 (the “2021 Appropriations Act”) and other tax related legislation on our tax position; our expectations regarding the future growth and demand of the telecommunication industry, future financing plans, business strategies, growth prospects, operating and financial performance, and our future liquidity needs and access to capital; our expectations regarding levels of capital expenditures; expectations regarding the deductibility of goodwill for tax purposes; our expectations regarding reclassification of accumulated other comprehensive income (loss) related to derivatives to interest expense; our expectations regarding the amortization of intangible assets; our expectations regarding remediation of the material weakness in our internal control over financial reporting as discussed in Part II, Item 9A of our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 5, 2021, as amended by Amendment No. 1 thereto filed on Form 10-K/A with the SEC on March 30, 2021 (the “Annual Report”); and our expectations regarding the payment of dividends.

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

•

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

•

adverse impacts of the COVID-19 pandemic 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 of our customers to comply with laws, rules and regulations in the operation of the assets we lease to them;

•

the ability and willingness of our customers to renew their leases with us upon their expiration, 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;

•

our ability to renew, extend or retain our contracts or to obtain new contracts with significant customers (including customers of the businesses that we acquire);

•

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;

•

adverse impacts of changes to our business, economic trends or key assumptions regarding our estimates of fair value, including potential impacts of recent developments surrounding Windstream that could result in an impairment charge in the future, which could have a significant impact to our reported earnings;

•

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

•

adverse impacts of litigation or disputes involving us or our customers;

•

our ability to retain our key management personnel;

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•

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, including the impact of the 2017 U.S. tax reform legislation, the CARES Act, the Families First Coronavirus Response Act and the 2021 Appropriations Act;

•

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 and in Part I, Item 1A "Risk Factors" of our Annual Report, 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. Except in the normal course of our public disclosure obligations, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based.

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Uniti Group Inc.

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		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	5
	Uniti Group Inc.
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Income (Loss)	6
	Condensed Consolidated Statements of Comprehensive Income (Loss)	7
	Condensed Consolidated Statements of Shareholders’ Deficit	8
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	10
	1.Organization and Description of Business	10
	2.Basis of Presentation and Summary of Significant Accounting Policies	10
	3.Revenues	12
	4.Leases	14
	5.Assets and Liabilities Held for Sale	17
	6.Investments in Unconsolidated Entities	18
	7.Fair Value of Financial Instruments	19
	8.Property Plant and Equipment	21
	9.Derivative Instruments and Hedging Activities	21
	10.Goodwill and Intangible Assets	23
	11.Notes and Other Debt	24
	12.Earnings Per Share	27
	13.Segment Information	28
	14.Commitments and Contingencies	30
	15.Accumulated Other Comprehensive (Loss) Income	32
	16.Subsequent Events	32

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
	1.Overview	34
	2.Results of Operations	36
	3.Non-GAAP Financial Measures	43
	4.Liquidity and Capital Resources	45
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53

Signatures		54

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Uniti Group Inc.

Condensed Consolidated Balance Sheets

(Thousands, except par value)	(Unaudited) March 31, 2021			December 31, 2020
Assets:
Property, plant and equipment, net	$	3,329,239		$	3,273,353
Cash and cash equivalents		122,466			77,534
Accounts receivable, net		51,485			62,952
Goodwill		601,878			601,878
Intangible assets, net		387,013			390,725
Straight-line revenue receivable		19,557			13,107
Other assets, net		108,208			152,883
Investment in unconsolidated entities		65,481			66,043
Deferred income tax assets, net		8,682			-
Assets held for sale		87,750			93,343
Total Assets	$	4,781,759		$	4,731,818
Liabilities and Shareholders' Deficit:
Liabilities:
Accounts payable, accrued expenses and other liabilities, net	$	145,568		$	146,144
Settlement payable (Note 14)		398,887			418,840
Intangible liabilities, net		185,807			187,886
Accrued interest payable		68,845			95,338
Deferred revenue		1,021,627			995,123
Derivative liability, net		19,908			22,897
Dividends payable		36,894			36,725
Deferred income tax liabilities, net		-			10,540
Finance lease obligations		14,856			15,468
Contingent consideration		-			2,957
Notes and other debt, net		4,988,890			4,816,524
Liabilities held for sale		54,167			55,752
Total liabilities		6,935,449			6,804,194

Commitments and contingencies (Note 14)

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: 231,694 shares at March 31, 2021 and 231,262 at December 31, 2020		23			23
Additional paid-in capital		1,150,550			1,209,141
Accumulated other comprehensive loss		(17,580	)		(20,367	)
Distributions in excess of accumulated earnings		(3,355,423	)		(3,330,455	)
Total Uniti shareholders' deficit		(2,222,430	)		(2,141,658	)
Noncontrolling interests:
Operating partnership units		68,615			69,157
Cumulative non-voting convertible preferred stock, $0.01 par value, 3 shares authorized, 1 issued and outstanding		125			125
Total shareholders' deficit		(2,153,690	)		(2,072,376	)
Total Liabilities and Shareholders' Deficit	$	4,781,759		$	4,731,818

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

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Uniti Group Inc.

Condensed Consolidated Statements of Income (Loss)

(unaudited)

	Three Months Ended March 31,
(Thousands, except per share data)	2021			2020
Revenues:
Leasing	$	194,936		$	184,352
Fiber Infrastructure		77,650			77,407
Tower		-			3,720
Consumer CLEC		-			683
Total revenues		272,586			266,162
Costs and Expenses:
Interest expense		140,581			178,393
Depreciation and amortization		70,964			86,121
General and administrative expense		25,823			27,133
Operating expense (exclusive of depreciation and amortization)		38,084			40,310
Transaction related and other costs		4,137			15,972
Other expense, net		454			3,075
Total costs and expenses		280,043			351,004

Loss before income taxes and equity in earnings from unconsolidated entities		(7,457	)		(84,842	)
Income tax benefit		2,557			4,576
Equity in earnings from unconsolidated entities		398			-
Net loss		(4,502	)		(80,266	)
Net loss attributable to noncontrolling interests		(64	)		(1,413	)
Net loss attributable to shareholders		(4,438	)		(78,853	)
Participating securities' share in earnings		(248	)		(200	)
Dividends declared on convertible preferred stock		(3	)		(3	)
Net loss attributable to common shareholders	$	(4,689	)	$	(79,056	)

Loss per common share:
Basic	$	(0.02	)	$	(0.41	)
Diluted	$	(0.02	)	$	(0.41	)

Weighted-average number of common shares outstanding:
Basic		231,469			192,236
Diluted		231,469			192,236

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

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Uniti Group Inc.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

	Three Months Ended March 31,
(Thousands)	2021			2020
Net loss	$	(4,502	)	$	(80,266	)
Other comprehensive income (loss):
Unrealized loss on derivative contracts		-			(7,036	)
Interest rate swap termination		2,829			1,666
Other comprehensive income (loss):		2,829			(5,370	)
Comprehensive loss		(1,673	)		(85,636	)
Comprehensive loss attributable to noncontrolling interest		(22	)		(1,508	)
Comprehensive loss attributable to common shareholders	$	(1,651	)	$	(84,128	)

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

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Uniti Group Inc.

Condensed Consolidated Statements of Shareholders’ Deficit

(unaudited)

	For the Three Months Ended March 31,
(Thousands, except share data)	Preferred Stock				Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Distributions in Excess of Accumulated Earnings			Noncontrolling Interest - OP Units			Noncontrolling Interest - Non-voting Preferred Shares		Total Shareholders' Deficit
	Shares		Amount		Shares		Amount
Balance at December 31, 2019		-	$	-		192,141,634	$	19	$	951,295		$	(23,442	)	$	(2,494,740	)	$	83,704		$	-	$	(1,483,164	)
Net loss		-		-		-		-		-			-			(78,853	)		(1,413	)		-		(80,266	)
Other comprehensive loss		-		-		-		-		-			(5,275	)		-			(95	)		-		(5,370	)
Common stock dividends declared ($0.15 per share)		-		-		-		-		-			-			(29,184	)		-			-		(29,184	)
Distributions to noncontrolling interest		-		-		-		-		-			-			-			(520	)		-		(520	)
Cumulative non-voting convertible preferred stock		-		-		-		-		-			-			-			-			125		125
Payments related to tax withholding for share-based compensation		-		-		-		-		(373	)		-			-			-			-		(373	)
Stock-based compensation		-		-		95,609		-		2,995			-			-			-			-		2,995
Issuance of common stock - employee stock purchase plan		-		-		43,849		-		306			-			-			-			-		306
Balance at March 31, 2020		-	$	-		192,281,092	$	19	$	954,223		$	(28,717	)	$	(2,602,777	)	$	81,676		$	125	$	(1,595,451	)

Balance at December 31, 2020		-	$	-		231,261,958	$	23	$	1,209,141		$	(20,367	)	$	(3,330,455	)	$	69,157		$	125	$	(2,072,376	)
Cumulative effect adjustment for adoption of new accounting standard		-		-		-		-		(59,908	)		-			14,598			-			-		(45,310	)
Net loss		-		-		-		-		-			-			(4,438	)		(64	)		-		(4,502	)
Other comprehensive income		-		-		-		-		-			2,787			-			42			-		2,829
Common stock dividends declared ($0.15 per share)		-		-		-		-		-			-			(35,128	)		-			-		(35,128	)
Distributions to noncontrolling interest		-		-		-		-		-			-			-			(520	)		-		(520	)
Payments related to tax withholding for share-based compensation		-		-		-		-		(2,306	)		-			-			-			-		(2,306	)
Stock-based compensation		-		-		396,481		-