SEC Filing | Uniti Group, Inc.

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unit-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________________________________

FORM 10-Q

_______________________________________________________________

(Mark One)


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

For the quarterly period ended March 31, 2023


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

For the transition period from _______ to _______

Commission File Number: 001-36708

_______________________________________________________________

Uniti Group Inc.

(Exact name of registrant as specified in its charter)

_______________________________________________________________


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

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

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

_______________________________________________________________

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


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

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

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

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


Large accelerated filer	x	Accelerated filer	o

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

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

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

As of April 27, 2023, the registrant had 238,583,101 shares of common stock, $0.0001 par value per share, outstanding.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements as defined under U.S. federal securities law. Forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements regarding: our expectations regarding the settlement we have entered into with Windstream Holdings, Inc. (together with Windstream Holdings II, LLC, its successor in interest, and its subsidiaries, “Windstream”); 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 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; expectations regarding future deployment of fiber strand miles and small cell networks and recognition of revenue related thereto; expectations regarding levels of capital expenditures; expectations regarding the deductibility of goodwill for tax purposes; expectations regarding reclassification of accumulated other comprehensive income (loss) related to derivatives to interest expense; expectations regarding the amortization of intangible assets; and expectations regarding the payment of dividends.

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

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

•adverse impacts of the COVID-19 pandemic, inflation and higher interest rates on our employees, our business, the business of our customers and other business partners and the global financial markets;

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

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

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

•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;

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•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 on Form 10-K, as well as those described from time to time in our future reports filed with the U.S. Securities and Exchange Commission (the “SEC”).

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

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Uniti Group Inc.

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		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	5
	Uniti Group Inc.
	Condensed Consolidated Balance Sheets	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	11
	1.Organization and Description of Business	11
	2.Basis of Presentation and Summary of Significant Accounting Policies	11
	3.Revenues	13
	4.Leases	14
	5.Investments in Unconsolidated Entities	16
	6.Fair Value of Financial Instruments	16
	7.Property Plant and Equipment	18
	8.Derivative Instruments and Hedging Activities	18
	9.Goodwill and Intangible Assets and Liabilities	19
	10.Notes and Other Debt	20
	11.Earnings Per Share	24
	12.Segment Information	25
	13.Commitments and Contingencies	27
	14.Accumulated Other Comprehensive Loss	29

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
	1.Overview	29
	2.Results of Operations	33
	3.Non-GAAP Financial Measures	40
	4.Liquidity and Capital Resources	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	47

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	48
Item 6.	Exhibits	49

Signatures		50

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Uniti Group Inc.

Condensed Consolidated Balance Sheets


	(Unaudited)
(Thousands, except par value)	March 31, 2023		December 31, 2022
Assets:
Property, plant and equipment, net	$	3,855,189	$	3,754,547
Cash and cash equivalents	70,346		43,803
Accounts receivable, net	53,594		42,631
Goodwill	361,378		361,378
Intangible assets, net	327,402		334,846
Straight-line revenue receivable	74,654		68,595
Operating lease right-of-use assets, net	85,551		88,545
Other assets	78,364		77,597
Investment in unconsolidated entities	38,337		38,656
Deferred income tax assets, net	43,384		40,631
Total Assets	$	4,988,199	$	4,851,229
Liabilities and Shareholders' Deficit:
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	125,832	$	122,195
Settlement payable (Note 13)	229,610		251,098
Intangible liabilities, net	164,418		167,092
Accrued interest payable	72,726		121,316
Deferred revenue	1,226,389		1,190,041
Dividends payable	35,855		2
Operating lease liabilities	64,045		66,356
Finance lease obligations	16,186		15,520
Notes and other debt, net	5,377,313		5,188,815
Total liabilities	7,312,374		7,122,435

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: 236,427 shares at March 31, 2023 and 235,829 at December 31, 2022	24		24
Additional paid-in capital	1,212,137		1,210,033
Distributions in excess of accumulated earnings	(3,538,683)		(3,483,634)
Total Uniti shareholders' deficit	(2,326,522)		(2,273,577)
Noncontrolling interests:
Operating partnership units	2,097		2,121
Cumulative non-voting convertible preferred stock, $0.01 par value, 6 shares authorized, 3 issued and outstanding	250		250
Total shareholders' deficit	(2,324,175)		(2,271,206)
Total Liabilities and Shareholders' Deficit	$	4,988,199	$	4,851,229

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)	2023		2022
Revenues:
Leasing	$	210,808	$	204,641
Fiber Infrastructure	79,014		73,393
Total revenues	289,822		278,034
Costs and Expenses:
Interest expense, net	148,863		96,172
Depreciation and amortization	76,775		71,457
General and administrative expense	28,433		23,870
Operating expense (exclusive of depreciation and amortization)	35,068		34,976
Transaction related and other costs	2,788		1,714
Other expense (income), net	20,179		(398)
Total costs and expenses	312,106		227,791

(Loss) income before income taxes and equity in earnings from unconsolidated entities	(22,284)		50,243
Income tax benefit	(2,412)		(2,071)
Equity in earnings from unconsolidated entities	(661)		(544)
Net (loss) income	(19,211)		52,858
Net (loss) income attributable to noncontrolling interests	(9)		128
Net (loss) income attributable to shareholders	(19,202)		52,730
Participating securities' share in earnings	(247)		(331)
Dividends declared on convertible preferred stock	(5)		(5)
Net (loss) income attributable to common shareholders	$	(19,454)	$	52,394

(Loss) income per common share:
Basic	$	(0.08)	$	0.22
Diluted	$	(0.08)	$	0.21

Weighted-average number of common shares outstanding:
Basic	236,090		235,046
Diluted	236,090		267,304

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

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Uniti Group Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)


	Three Months Ended March 31,
(Thousands)	2023		2022
Net (loss) income	$	(19,211)	$	52,858
Other comprehensive income:
Interest rate swap termination	—		2,830
Other comprehensive income	—		2,830
Comprehensive (loss) income	(19,211)		55,688
Comprehensive (loss) income attributable to noncontrolling interest	(9)		135
Comprehensive (loss) income attributable to shareholders	$	(19,202)	$	55,553

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 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, 2021	—	$	—	234,779,247	$	23	$	1,214,830	$	(9,164)	$	(3,333,481)	$	13,893	$	125	$	(2,113,774)
Net income	—	—		—	—		—		—		52,730		128		—		52,858
Other comprehensive income	—	—		—	—		—		2,823		—		7		—		2,830
Common stock dividends declared ($0.15 per share)	—	—		—	—		—		—		(35,905)		—		—		(35,905)
Distributions to noncontrolling interest declared	—	—		—	—		—		—		—		(82)		—		(82)
Cumulative non-voting convertible preferred stock	—	—		—	—		—		—		(125)		—		125		—
Exchange of noncontrolling interest	—	—		157,733	—		3,158		—		—		(3,158)		—		—
Payments related to tax withholding for stock-based compensation	—	—		—	—		(1,525)		—		—		—		—		(1,525)
Stock-based compensation	—	—		331,686	—		3,312		—		—		—		—		3,312
Issuance of common stock - employee stock purchase plan	—	—		29,324	—		264		—		—		—		—		264
Balance at March 31 2022	—	$	—	235,297,990	$	23	$	1,220,039	$	(6,341)	$	(3,316,781)	$	10,788	$	250	$	(2,092,022)

Balance at December 31, 2022	—	$	—	235,829,485	$	24	$	1,210,033	$	—	$	(3,483,634)	$	2,121	$	250	$	(2,271,206)
Net (loss) income	—	—		—	—		—		—		(19,202)		(9)		—		(19,211)
Common stock dividends declared ($0.15 per share)	—	—		—	—		—		—		(35,847)		—		—		(35,847)
Distributions to noncontrolling interest declared	—	—		—	—		—		—		—		(15)		—		(15)
Payment for settlement of common stock warrant	—	—		—	—		(56)		—		—		—		—		(56)
Termination of bond hedge option	—	—		—	—		59		—		—				—		59
Payments related to tax withholding for stock-based compensation	—	—		—	—		(1,343)		—		—		—		—		(1,343)
Stock-based compensation	—	—		530,861	—		3,130		—		—		—		—		3,130
Issuance of common stock - employee stock purchase plan	—	—		66,904	—		314		—		—		—		—		314
Balance at March 31, 2023	—	$	—	236,427,250	$	24	$	1,212,137	—		$	(3,538,683)	$	2,097	$	250	$	(2,324,175)

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

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Uniti Group Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Three Months Ended March 31,
(Thousands)	2023		2022
Cash flow from operating activities
Net (loss) income	$	(19,211)	$	52,858
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	76,775		71,457
Amortization of deferred financing costs and debt discount	4,963		4,514
Loss on extinguishment of debt, net	31,187		—
Interest rate swap termination	—		2,830
Deferred income taxes	(2,754)		(3,664)
Equity in earnings of unconsolidated entities	(661)		(544)
Distributions of cumulative earnings from unconsolidated entities	980		980
Cash paid for interest rate swap settlement	—		(3,144)
Straight-line revenues and amortization of below-market lease intangibles	(9,427)		(11,022)
Stock-based compensation	3,130		3,312
Loss (gain) on asset disposals	(422)		663
Accretion of settlement obligation	3,017		2,876
Other	—		(318)
Changes in assets and liabilities:
Accounts receivable	(10,963)		(2,814)
Other assets	6,553		157
Accounts payable, accrued expenses and other liabilities	(68,605)		(54,920)
Net cash provided by operating activities	14,562		63,221
Cash flow from investing activities
Capital expenditures	(114,981)		(94,728)
Proceeds from sale of other equipment	607		379
Net cash used in investing activities	(114,374)		(94,349)
Cash flow from financing activities
Repayment of debt	(2,263,662)		—
Proceeds from issuance of notes	2,600,000		—
Dividends paid	(9)		(105)
Payments of settlement payable	(24,505)		—
Borrowings under revolving credit facility	140,000		85,000
Payments under revolving credit facility	(253,000)		(60,000)
Finance lease payments	(452)		(280)
Payments for financing costs	(26,688)		—
Payment for settlement of common stock warrant	(56)		—
Termination of bond hedge option	59		—
Costs related to the early repayment of debt	(44,303)		—
Employee stock purchase program	314		264
Payments related to tax withholding for stock-based compensation	(1,343)		(1,525)
Net cash provided by financing activities	126,355		23,354
Net increase (decrease) in cash and cash equivalents	26,543		(7,774)
Cash and cash equivalents at beginning of period	43,803		58,903
Cash and cash equivalents at end of period	$	70,346	$	51,129

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Non-cash investing and financing activities:
Property and equipment acquired but not yet paid	$	13,049	$	13,338
Tenant capital improvements	81,592		38,669

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

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Uniti Group Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Note 1. Organization and Description of Business

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

The Company operates through a customary “up-REIT” structure, pursuant to which we hold substantially all of our assets through a partnership, Uniti Group LP, a Delaware limited partnership (the “Operating Partnership”) that we control as general partner. The up-REIT structure is intended to facilitate future acquisition opportunities by providing the Company with the ability to use common units of the Operating Partnership as a tax-efficient acquisition currency. As of March 31, 2023, we are the sole general partner of the Operating Partnership and own approximately 99.96% of the partnership interests in the Operating Partnership.

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

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

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

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information set forth in the Accounting Standards Codification (“ASC”), as published by the Financial Accounting Standards Board (“FASB”), and with the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. Operating results from any interim period are not necessarily indicative of the results that may be expected for the full fiscal year. The accompanying Condensed Consolidated Financial Statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K filed with the SEC on February 28, 2023, as amended by Amendment No. 1 thereto filed on Form 10-K/A with the SEC on March 29, 2023 (the “Annual Report”). Accordingly, significant accounting policies and other disclosures normally provided have been omitted from the accompanying Condensed Consolidated Financial Statements and related notes since such items are disclosed in our Annual Report.

Concentration of Credit Risks—Prior to September 2020, we were party to a long-term exclusive triple-net lease (the “Master Lease”) with Windstream Holdings, Inc. (together with Windstream Holdings II, LLC, its successor in interest, and its subsidiaries, “Windstream”) pursuant to which a substantial portion of our real property was leased to Windstream and from which a substantial portion of our leasing revenues were derived. On September 18, 2020, Uniti and Windstream

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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 66.0% and 66.9% of our revenue for the three months ended March 31, 2023 and 2022, respectively. Because a substantial portion of our revenue and cash flows are derived from lease payments by Windstream pursuant to the Windstream Leases, there could be a material adverse impact on our consolidated results of operations, liquidity, financial condition and/or ability to pay dividends and service debt if Windstream were to default under the Windstream Leases or otherwise experiences operating or liquidity difficulties and becomes unable to generate sufficient cash to make payments to us.

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

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

Recently Adopted Accounting Pronouncements

In March 2022, the FASB issued Accounting Standards Update ("ASU") 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"), which eliminates the accounting guidance for troubled debt restructurings and requires the disclosure of current-period gross write-offs of financing receivables and net investment in leases by year of origination. The Company adopted ASU 2022-02 on January 1, 2023, and the adoption had no impact on the Company's consolidated financial statements.

In December 2022, the FASB issued Accounting Standards Update ("ASU") 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 ("ASU 2022-06"), which provides additional relief for contract modifications completed after the December 31, 2022 LIBOR sunset date. The amendment allows for a deferral until December 31, 2024. The Company adopted ASU 2022-06 at issuance, and the adoption had no impact on the Company's consolidated financial statements.

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Note 3. Revenues

Disaggregation of Revenue

The following table presents our revenues disaggregated by revenue stream.


	Three Months Ended March 31,
(Thousands)	2023		2022
Revenue disaggregated by revenue stream
Revenue from contracts with customers
Fiber Infrastructure
Lit backhaul	$	19,522	$	19,438
Enterprise and wholesale	22,576		20,935
E-Rate and government	13,891		14,276
Other	748		661
Fiber Infrastructure	$	56,737	$	55,310
Leasing	1,165		1,159
Total revenue from contracts with customers	57,902		56,469
Revenue accounted for under leasing guidance
Leasing	209,643		203,482
Fiber Infrastructure	22,277		18,083
Total revenue accounted for under leasing guidance	231,920		221,565
Total revenue	$	289,822	$	278,034

At March 31, 2023 and December 31, 2022, lease receivables were $35.5 million and $26.2 million, respectively, and receivables from contracts with customers were $17.9 million and $16.1 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 months ended March 31, 2023, we recognized revenues of $0.6 million which was included in the December 31, 2022 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, 2022	$	173	$	8,699
Balance at March 31, 2023	$	69	$	10,217

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Transaction Price Allocated to Remaining Performance Obligations

Performance obligations within contracts to stand ready to provide services are typically satisfied over time or as those services are provided. Contract liabilities primarily relate to deferred revenue from upfront customer payments. The deferred revenue is recognized, and the liability reduced, over the contract term as the Company completes the performance obligation. As of March 31, 2023, our future revenues (i.e., transaction price related to remaining performance obligations) under contract accounted for under ASC 606 totaled $544.4 million, of which $461.1 million is related to contracts that are currently being invoiced and have an average remaining contract term of 2.3 years, while $83.3 million represents our backlog for sales bookings which have yet to be installed and have an average contract term of 5.4 years. We do not disclose the value of unsatisfied performance obligations for contracts that have an original expected duration of one year or less.

Note 4. Leases

Lessor Accounting

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

The components of lease income for the three months ended March 31, 2023 and 2022 respectively, are as follows:


	Three Months Ended March 31,
(Thousands)	2023		2022
Lease income - operating leases	$	231,920	$	221,565

Lease payments to be received under non-cancellable operating leases where we are the lessor for the remainder of the lease terms as of March 31, 2023 are as follows:


(Thousands)	March 31, 2023⁽¹⁾
2023	$	583,407
2024	797,561
2025	799,672
2026	801,051
2027	801,727
Thereafter	2,318,910
Total lease receivables	$	6,102,328
(1) Total future minimum lease payments to be received include $5.2 billion relating to the Windstream Leases.

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


(Thousands)	March 31, 2023		December 31, 2022
Land	$	26,549	$	26,549
Building and improvements	346,636		346,093
Poles	299,799		296,941
Fiber	3,638,160		3,529,835
Equipment	437		437
Copper	3,972,704		3,964,439
Conduit	89,963		89,963
Tower assets	1,397		1,397
Finance lease assets	28,126		28,126
Other assets	10,434		10,434
	8,414,205		8,294,214
Less: accumulated depreciation	(5,586,881)		(5,542,726)
Underlying assets under operating leases, net	$	2,827,324	$	2,751,488

Depreciation expense for the underlying assets under operating leases where we are the lessor for the three months ended March 31, 2023 and 2022, respectively, is summarized as follows:


	Three Months Ended March 31,
(Thousands)	2023		2022
Depreciation expense for underlying assets under operating leases	$	45,206	$	43,187

Lessee Accounting

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

As of March 31, 2023, we have short term lease commitments amounting to approximately $3.1 million.

Future lease payments under non-cancellable leases as of March 31, 2023 are as follows:


(Thousands)	Operating Leases		Finance Leases
2023	$	12,340	$	2,103
2024	14,031		2,616
2025	11,346		2,562
2026	8,663		2,562
2027	6,103		2,444
Thereafter	45,502		12,708
Total undiscounted lease payments	$	97,985	$	24,995
Less: imputed interest	(33,940)		(8,809)
Total lease liabilities	$	64,045	$	16,186

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Note 5. Investments in Unconsolidated Entities

Fiber Holdings

BB Fiber Holdings LLC (“Fiber Holdings”) was primarily established to develop fiber networks as real estate property for long-term investment. On July 1, 2020, the Company completed the sale of an ownership stake in the entity that controls the Company’s Midwest fiber network assets (the “Propco”). Fiber Holdings has a 47.5% ownership in the Propco that is under a long-term, triple net lease with our joint venture partner. Our ownership interest in Fiber Holdings represents approximately a 20% economic interest in the Propco. The Company’s current investment and maximum exposure to loss as a result of its involvement with Fiber Holdings, an equity method unconsolidated entity, was approximately $38.3 million as of March 31, 2023. The Company has not provided financial support to Fiber Holdings.

Note 6. Fair Value of Financial Instruments

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

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

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

Level 3 – Unobservable inputs for the asset or liability.

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

The following table summarizes the fair value of our financial instruments at March 31, 2023 and December 31, 2022:


(Thousands)	Total		Quoted Prices in Active Markets (Level 1)		Prices with Other Observable Inputs (Level 2)		Prices with Unobservable Inputs (Level 3)
At March 31, 2023
Liabilities
Senior secured notes - 10.50%, due February 15, 2028	$	2,531,945	$	—	$	2,531,945	$	—
Senior secured notes - 4.75%, due April 15, 2028	444,560		—		444,560		—
Exchangeable senior notes - 4.00%, due June 15, 2024	111,751		—		111,751		—
Convertible senior notes - 7.50% due December 1, 2027	230,215		—		230,215		—
Senior unsecured notes - 6.50%, due February 15, 2029	680,003		—		680,003		—
Senior unsecured notes - 6.00%, due January 15, 2030	415,342		—		415,342		—
Senior secured revolving credit facility, variable rate, due December 10, 2024	74,992		—		74,992		—
Settlement payable	211,725		—		211,725		—

Total	$	4,700,533	$	—	$	4,700,533	$	—

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(Thousands)	Total		Quoted Prices in Active Markets (Level 1)		Prices with Other Observable Inputs (Level 2)		Prices with Unobservable Inputs (Level 3)
At December 31, 2022
Liabilities
Senior secured notes - 7.875%, due February 15, 2025	$	2,208,319	$	—	$	2,208,319	$	—
Senior secured notes - 4.75%, due April 15, 2028	469,740		—		469,740		—
Exchangeable senior notes - 4.00%, due June 15, 2024	127,024		—		127,024		—
Senior unsecured notes - 6.50% , due February 15, 2029	759,917		—		759,917		—
Senior unsecured notes - 6.00%, due January 15, 2030	467,401		—		467,401		—
Convertible senior notes - 7.50%, due December 1, 2027	297,765		—		297,765		—
Senior secured revolving credit facility, variable rate, due December 10, 2024	187,981		—		187,981		—
Settlement payable	232,350		—		232,350		—
Total	$	4,750,497	$	—	$	4,750,497	$	—

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 $5.48 billion at March 31, 2023, with a fair value of $4.49 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 March 31, 2023, the remaining Settlement Payable is $229.6 million and is reported on our Condensed Consolidated Balance Sheets. There have been no changes in the valuation methodologies used since the initial recording.

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Note 7. Property, Plant and Equipment

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


(Thousands)	Depreciable Lives	March 31, 2023		December 31, 2022
Land	Indefinite	$	28,963	$	28,845
Building and improvements	3 - 40 years	363,913		363,077
Poles	30 years	299,799		296,941
Fiber	30 years	4,556,716		4,434,506
Equipment	5 - 7 years	426,127		399,473
Copper	20 years	3,972,704		3,964,439
Conduit	30 years	89,963		89,963
Tower assets	20 years	5,361		5,619
Finance lease assets	(1)	74,585		73,487
Other assets	15 - 20 years	10,436		10,436
Corporate assets	3 - 7 years	15,266		14,883
Construction in progress	(1)	56,387		46,508
		9,900,220		9,728,177
Less accumulated depreciation		(6,045,031)		(5,973,630)
Net property, plant and equipment		$	3,855,189	$	3,754,547

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

Depreciation expense for the three months ended March 31, 2023 and 2022 was $69.3 million and $64.0 million, respectively.

Note 8. Derivative Instruments and Hedging Activities

Exchangeable Notes Hedge 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 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 cover, 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 are exercisable upon exchange of the Exchangeable Notes. The Note Hedge Transactions have an initial strike price that corresponds 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 will expire upon the maturity of the Exchangeable Notes, if not earlier exercised. The Note Hedge Transactions are intended to reduce potential dilution to the Company’s common stock upon any exchange of the Exchangeable Notes and/or offset any cash payments Uniti Fiber is required to make in excess of the principal amount of exchanged Exchangeable Notes, as the case may be, in the event that the market value per share of the Company’s common stock, as measured under the Note Hedge Transactions, at the time of exercise is greater than the strike price of the Note Hedge Transactions.

The Note Hedge Transactions are separate transactions, entered into by Uniti Fiber Holdings Inc. with the Counterparties, and are not part of the terms of the Exchangeable Notes. Holders of the Exchangeable Notes will not have any rights with respect to the Note Hedge Transactions. The Note Hedge Transactions meet certain accounting criteria under GAAP, are recorded in additional paid-in capital on our Condensed Consolidated Balance Sheets and are not accounted for as derivatives that are remeasured each reporting period.

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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 has 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 Company offered and sold the Warrants in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended. If the market value per share of the Company’s common stock, as measured under the Warrants, at the time of exercise exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on the Company’s common stock unless, subject to the terms of the Warrants, the Company elects to cash settle the Warrants. The Warrants will expire over a period beginning in September 2024.

The Warrants are separate transactions, entered into by the Company with the Counterparties, and are not part of the terms of the Exchangeable Notes. Holders of the Exchangeable Notes will not have any rights with respect to the Warrants. The Warrants meet certain accounting criteria under GAAP, are recorded in additional paid-in capital on our Condensed Consolidated Balance Sheets and are not accounted for as derivatives that are remeasured each reporting period.

Note 9. Goodwill and Intangible Assets and Liabilities

Changes in the carrying amount of goodwill occurring during the three months ended March 31, 2023 are as follows:


(Thousands)	Fiber Infrastructure		Total
Goodwill at December 31, 2022	$	672,878	$	672,878
Accumulated impairment charges as of December 31, 2022	(311,500)		(311,500)
Balance at December 31, 2022	$	361,378	$	361,378

Goodwill at March 31, 2023	$	672,878	$	672,878
Accumulated impairment charges as of March 31, 2023	(311,500)		(311,500)
Balance at March 31, 2023	$	361,378	$	361,378

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(Thousands)

March 31, 2023

December 31, 2022

Original

Cost

Accumulated

Amortization

Original

Cost

Accumulated
Amortization

Finite life intangible assets:

Customer lists

416,104

(