Uniti Group Inc. fourth quarter net income dips 25%

Uniti Group Inc. reported Thursday that its net income dropped 25% in the fourth quarter while earnings per share held steady at 13 cents. The results were in step with Wall Street's expectations.

The Little Rock fiber provider, which Bloomberg News reported last week was negotiating with Windstream Holdings Inc. about a potential merger, told the investment community in a conference call Thursday it would not take merger-and-acquisition questions but remains open to a "transformative transaction" moving forward.

Uniti, structured as a real estate investment trust, delivered net income of $30.4 million in the period ending Dec. 31, down from $40.7 million in 2022's fourth quarter. Earnings per share of 13 cents matched earnings per share achieved in the prior year. Revenue fell short of Wall Street consensus, coming in at $285.6 million, an increase from $283.7 million in 2022. Analysts projected revenue of $296.6 million.

However, the company did meet the street's projections for adjusted funds from operations, the financial metric most important to investors in real estate investment trusts. Adjusted funds from operations in the fourth quarter was $91.6 million, or 34 cents per share, which the analysts predicted. The metric uses net income as a baseline and adds back items such as depreciation and amortization.

Chief Executive Officer Kenny Gunderman said 2023 was another productive year for Uniti.

"Our core recurring strategic fiber business continues to demonstrate its resiliency with top line growth of 5% in 2023 when compared to 2022," Gunderman said.

The company made several strategic moves, selling non-core assets and strengthening its balance sheet, that will allow it to focus on its primary business of providing fiber to some of the nation's largest wireless and technology companies. "These are exciting developments which reinforces that fiber truly is a mission-critical communications asset," Gunderman said.

For the full year, Uniti reported adjusted funds from operations of $385.3 million – $1.42 per share. That was down from $1.75 per share in 2022.

Uniti restructured $3.1 billion in debt last year and established bridge financing -- which could provide up to $350 million -- to strengthen its balance sheet, leaving the company with no permanent debt maturities until 2027 and setting 95% of debt at a fixed rate. "Just as importantly, by addressing our balance sheet we afforded ourselves the ability to focus on strategic matters," Gunderman said on Thursday's call.

The company also sold non-core assets including its wireless tower business and other properties that brought in $87 million.

Regarding going-forward strategy, Gunderman deflated any intentions the investment community may have had about asking questions related to a potential Windstream deal. Windstream, Uniti's largest customer, created Uniti in 2015 in a spinoff transaction.

"Please keep in mind that we will not be making any specific comments about rumors, potential strategic transactions involving Uniti that have been circulating in recent reports," Gunderman said on the call. "As an asset-rich company with one of the largest fiber portfolios in the country, Uniti is uniquely positioned to benefit from [merger and acquisition] trends that continue to highlight the quality of fiber assets, including wholesale and fiber to the home."

The company, he said, "expects to be active in evaluating transformative transactions, including ongoing review of our asset portfolio."

Uniti said less than 25% of its fiber network is in use and has unused fiber connecting to 300 markets nationwide that wireless providers and other enterprise customers will eventually lease to grow their businesses. "We continue to believe that the wireless carriers will eventually need ... to reach these markets and Uniti is well-positioned for that growth in the future" Gunderman said.

Uniti shares rose 12 cents, or 2%, to close Thursday at $5.86. The stock is up about 15% over the past 12 months.

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