Uniti Group Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Merger with Windstream: Pleased to have closed the merger, sees fiber as mission-critical for broadband delivery. 4 large wireless carriers in North America investing heavily in fiber-to-the-home, and Uniti benefits from this trend.
• Fiber Investment Acceleration: Expect to pass 3.5 million homes with fiber within Kinetic footprint by end of 2029, with fiber-based revenue expected to be about 75% of total revenue by then. Proven success of fiber-based products leads to predictable growth and improving churn.
• Segment Performances: Kinetic has 1.7 million homes passed with fiber, expects to reach 2 million by end of 2025 and 3.5 million by end of 2029. Fiber Infrastructure had consolidated bookings MRR of $1.2 million in second quarter, with wireless bookings up 30% in first half of 2025. Uniti Solutions is a managed services provider generating predictable cash flow but with declining revenue and EBITDA from legacy TDM services.
• Regulatory Environment: Favorable regulatory backdrop at FCC and state PUCs, with 9 states in Kinetic's footprint eliminating COLR obligations and 9 others allowing flexibility in voice services using alternative technologies.
• Capital Structure: Cost of capital has improved significantly, with debt yielding around 7% on blended basis now, a 550 basis point improvement in 2.5 years. Successfully collapsed legacy debt silos into one unified structure, with combined net leverage expected to be between 5.5x and 6.0x by end of 2025.

Segment Performance

• Kinetic: Consumer represents about 60% of total revenue and is expected to grow to about 75% by 2029. In 2025 midpoint, expects revenues and adjusted EBITDA to be $945 million and $385 million respectively. Will deploy $510 million of net CapEx primarily for fiber build-out within its footprint.
• Fiber Infrastructure: In 2025 midpoint, expects revenues and adjusted EBITDA to be $1.1 billion and $735 million respectively. Outlook for net CapEx is $310 million at midpoint with a capital intensity of approximately 30%.
• Uniti Solutions: In 2025 midpoint, expects revenues and adjusted EBITDA to be $320 million and $155 million respectively. Still has a portion of TDM services which are being exited, but retains profitable parts and sees potential to cross-sell into other segments.

Guidance

• Kinetic: Midpoint expects revenues and adjusted EBITDA to be $945 million and $385 million respectively in 2025. Will deploy $510 million of net CapEx for fiber build-out. Expects to reach 2 million homes passed with fiber by end of 2025 and 3.5 million by end of 2029, with fiber-based revenue increasing to about 75% of total revenue.
• Fiber Infrastructure: Midpoint expects revenues and adjusted EBITDA to be $1.1 billion and $735 million respectively in 2025. Net CapEx outlook is $310 million at midpoint with a capital intensity of approximately 30%.
• Uniti Solutions: Midpoint expects revenues and adjusted EBITDA to be $320 million and $155 million respectively in 2025. Aims to flatten the decline of the business by 2028, resulting in an NPV of over $1 billion of enterprise value.
• Capital Structure: Continues to be opportunistic in extending debt maturities and driving down interest expense. Combined net leverage at merger closing is around 5.5x, expected to be between 5.5x and 6.0x by end of 2025.

Risks

• Market Competition: Facing competition from other fiber providers and cable companies, which could impact market share and pricing.
• Regulatory Changes: Although regulatory environment is currently favorable, there could be changes in regulations that impact the ability to operate and invest in fiber infrastructure.
• Execution Risks: Challenges in executing the fiber build-out plan as expected, including potential issues with cost per passing and on-time completion of projects.

Question and Answer

Q: Gregory Williams from TD Cowen asked about how deal constructs change in the inference phase and the win rate on the $1.5 billion funnel.

A: Kenneth A. Gunderman responded that inference phase will bring more recurring revenue and EBITDA, with win rate on hyperscaler deals being very high as hyperscalers prioritize reliability, on-time build, and budget compliance. The $1.5 billion funnel has a high win rate as hyperscalers prefer reliable partners and Uniti is selective in pursuing deals.

Q: Frank Louthan from Raymond James & Associates inquired about the time frame for the $1.5 billion funnel and the economic viability of building in the 20% of Kinetic's footprint without cable competition.

A: Kenneth A. Gunderman stated that deals in the funnel usually take 12 to 18 months to materialize, but with strong demand from hyperscalers, much of it could work through in 6-18 months. Regarding the 20% footprint, Kinetic has a substantial fiber investment, with cost per passing historically around $650, and expects to get to 75-80% of the footprint with direct fiber-to-the-home and the rest via fixed wireless or alternative technologies leveraging fiber-to-the-node investment.

Q: Michael Rollins from Citi asked about aggregate growth for segments and margin progression, and about Kinetic Fiber ARPU.

A: Paul Bullington mentioned Fiber Infrastructure is expected to have mid-single-digit growth, Kinetic has some resegmentation muddling comparisons but expected to turn into a growth business as fiber is driven, and Uniti Solutions has revenue losses from TDM exit but sees margin conversion and free cash flow. Kenneth A. Gunderman noted Kinetic Fiber ARPU is robust, with opportunities to upsell customers to higher speeds as the inference phase approaches, though mindful of competition pressures.