Yahoo Finance

Paul Bullington

Thank you, Kenny. I'd like to begin by reviewing our first-quarter performance, followed by an overview of our current 2025 outlook.
We once again delivered solid results during the quarter, with our core recurring strategic revenue growing approximately 4%; and the capital intensity of our fiber business, excluding the impact of GCI, declining over 50% year over year. We continue to see strong tailwinds in our recurring business and are executing well on our lease-up strategy at both Uniti Leasing and Uniti Fiber.
As I'll cover in more detail in just a bit, our 2025 outlook for consolidated revenue, adjusted EBITDA, and AFFO remains unchanged, as we expect to end the year within the previous guidance ranges provided. Finally, I'll end with some commentary on our current balance sheet and capital structure. We also recently provided Windstream's first quarter financial information in an 8-K filed with the SEC on May 1.
Please turn to slide 8, and I'll start with comments on our first quarter. We reported consolidated revenues of $294 million, consolidated adjusted EBITDA of $238 million, AFFO attributed to common shareholders of $92 million, and AFFO per diluted common share of $0.35.
At Uniti Leasing, we reported segment revenues of $222 million and adjusted EBITDA of $215 million, representing an adjusted EBITDA margin of 97% for the quarter. Both revenue and adjusted EBITDA were in line with our expectations for the quarter.
During the first quarter, Uniti Leasing net success-based CapEx was approximately $170 million, including $175 million of investment relating to the Windstream GCI program. Taking into account this funding amount during the quarter, Windstream has reached its GCI funding limit for 2025, and there will be no further GCI payments for the remainder of the year.
At Uniti Fiber, we reported revenues of $72 million and adjusted EBITDA of $29 million during the first quarter, resulting in an adjusted EBITDA margin of 40%. Non-recurring revenue during the quarter was lower than expected, primarily due to the timing of delivery on a $4 million one-time sale of fiber to a government customer that was originally expected to be realized in the first quarter and is now expected later this month. The delay was requested by the customer to allow for the completion of an unrelated customer project prior to the completion of our work.
Uniti Fiber net success-based CapEx was $18 million in the first quarter, which represents an approximate 25% decline from prior year's levels. We also incurred about $1.5 million of maintenance CapEx during the quarter. As I've mentioned previously, there continue to be a number of encouraging trends in bookings that are driving this capital efficiency, including our continued focus on lease-up and a higher mix of dark fiber deals, primarily from hyperscalers, that generally come with higher NRCs.
Please turn to slide 9, and I'll now cover our updated 2025 guidance. We are revising our 2025 outlook for business unit-level revisions, the impact from the partial redemption of the 10.5% senior secured notes due 2028, and the impact of transaction-related and other costs incurred to date.
Our outlook excludes any impact from the expected merger with Windstream, future acquisitions, capital market transactions, and future transaction-related and other costs not mentioned herein. Actual results could differ materially from these forward-looking statements.
Beginning with Uniti Leasing, we continue to expect revenues and adjusted EBITDA to be $902 million and $872 million, respectively, at the midpoint. We still expect to deploy $185 million of success-based CapEx at the midpoint of our guidance, of which $175 million relates to Windstream GCI investments.
At Uniti Fiber, we expect revenues and adjusted EBITDA to be $304 million and $125 million, respectively, at the midpoint for full year 2025, representing an EBITDA margin of approximately 41%. Our outlook for net success-based CapEx at Uniti Fiber this year remains $85 million at the midpoint of our guidance and represents a capital intensity of 28%.
As a reminder, given this strong financial performance and declining capital intensity, standalone Uniti is expected to be free cash flow positive on a consolidated basis in 2025. We continue to expect full-year AFFO to range between $1.40 and $1.47 per diluted common share with a midpoint of $1.43 per diluted share, representing a 6% increase from the prior year.
As a reminder, guidance ranges for key components of our outlook are included in the appendix to our earnings presentation. At quarter end, we had $592 million of combined unrestricted cash and cash equivalents and undrawn revolver capacity. Our leverage ratio was 6.09 times based on net debt to first quarter 2025 annualized adjusted EBITDA, excluding the debt and net contributions from the ABS loan facility.
Slide 10 illustrates how Uniti's cost of capital has improved significantly over the past two years. If you go back to this time two years ago when we launched our 10.5% secured notes offering, our secured and unsecured debt was yielding over 12%.
Fast forward to today, and our debt is currently yielding around 7.5% on a blended basis, a 500-basis-point improvement in just two years. As a result, we have taken an opportunistic approach to strengthening our combined balance sheet and will continue to look for opportunities across all of the debt markets to which we have access.
In regard to ABS specifically, we continue to view that market as an attractive source of financing that complements our existing capital structure well by providing an investment grade financing tool, and we will continue to evaluate further opportunities to expand our current program. To that end, we believe that the combined potential for incremental ABS capacity on our commercial fiber assets at Uniti and fiber-to-the-home assets at Kinetic represents a $1 billion-plus near-term opportunity with considerable upside to that over time.
On slide 11, we have provided a 2025 pro forma view of revenue and adjusted EBITDA for new Uniti by each segment we expect to report on post-close. Both Kinetic and fiber infrastructure consist of a highly predictable core recurring revenue base that continues to grow and yield attractive margins.
As a reminder, our fiber-to-the-home platform will continue to be branded as Kinetic. Fiber infrastructure will include our current Uniti Fiber and Uniti Leasing segments along with the Windstream Wholesale segment, all of which are highly complementary and will combine to create a premier fiber infrastructure company with both national and deep regional capabilities, as well as a fiber network that is predominantly owned and operated.
Going forward, as we continue to transition away from legacy services such as Windstream TDM services, we continue to expect the Kinetic and fiber infrastructure segments to realize low- to mid-single-digit top-line growth with an improving margin profile.
With that, I'll now turn the call back over to Kenny.

Kenneth Gunderman

Thanks, Paul. Slide 13 showcases the reach of new Uniti's insurgent fiber network, extending our successful strategy of targeting less competitive markets for wholesale and enterprise now into residential fiber-to-the-home. Our true north is building fiber first in less competitive markets, giving us the right to win for many years into the future.
Slide 14 highlights some of the benefits of bringing Uniti and Windstream together. At Uniti, we have been able to drive attractive financial results in large part because of our fully-owned fiber network and associated owners' economics.
Our combination with Windstream not only extends our fiber network materially, but will bring large parts of Windstream's business on net immediately, with a four-year plan to achieve virtually 100% on net. As such, with owners' economics and our same disciplined growth strategy, we will eventually see similar economic trends in Windstream's business, including mid-single-digit revenue growth, growing EBITDA, and declining capital intensity.
A big part of moving Windstream on net is transitioning Kinetic off of legacy-based copper systems and onto fiber. As mentioned earlier, by the end of 2025, we expect to have converted about 2 million of Kinetic's 4.4 million homes to fiber. And by 2029, we expect to have built fiber to approximately 3.5 million homes.
I am excited to share more details in the coming months when we have the plan fully locked in. Lastly, we have aggressively managed out-of-legacy services at Uniti and plan to continue that strategy at the combined new Uniti.
Turning to slide 15, our ability to address the burgeoning hyperscaler opportunity is going to be enhanced as well. Windstream's wholesale network is highly complementary to ours on key routes, and Windstream's largely lit waves product capabilities are additive to our strong dark fiber portfolio.
On a combined basis, we will be able to sell a full product suite and immediately begin selling into an expanded customer base, given that Windstream has an incremental 40 different MLAs with hyperscalers to complement Uniti's current count of only four.
Finally, as we mentioned previously, we believe the real opportunity with generative AI is when the inference phase begins in earnest. With a dramatic increase of distributed endpoints coming with our Windstream combination, our ability to provide enhanced broadband connectivity with low latency increases materially.
Moving to slide 16, we remain committed to making progress on numerous key initiatives between signing and closing of our transaction. First, both companies continue to execute well operationally, and we continue to provide a unified investor relations outreach to help investors understand the new company.
Next, we're very excited to have completed the simplification of our new pro forma balance sheet at closing, thus paving the way to roll out our accelerated and expanded fiber-in-the-home plan. We're also actively working with Kinetic on an integration plan to achieve our synergy goals. In the coming months, we plan to provide more details on our longer-term goals for the combined company, with a primary focus on the holistic Kinetic build plan and other key strategic initiatives.
Let me close by restating how excited we are for our pending merger with Windstream. The new unity is at the epicenter of the growing convergence trend, highlighting substantial strategic value on Kinetic and its scaled fiber-to-the-home platform. Our fiber infrastructure business is uniquely positioned to benefit from the explosion in broadband demand in general, including the demand being fueled by hyperscalers.
With that, we'd be happy to take your questions. Operator?

Question and Answer Session

Operator

(Operator Instructions) Greg Williams, TD Cowen.

Greg Williams

Kenny, I appreciate the color on the tariffs and recessionary insulation, but I had that same concern around the M&A environment. Are we pencils down at the moment? Or are deals moving forward in this environment?
Second question is just on the high mix of lease-ups, 72%. I think that's at or near a company record. I understand it's lumpy with that mix, but are we seeing a shift away from the new builds towards training data centers and maybe eventually towards inference? Any insights there would be great.

Kenneth Gunderman

Good questions. Yeah, on M&A, the short answer is no. We definitely don't see any slowdown in activity there at all. In fact, I'd say probably the opposite or, at the very least, no speed bumps related to the conversations that we're aware of and the progress that people are making on various strategic fronts.
And look, from our perspective, we're very focused on integration, putting an integration plan in place, and getting our transaction closed and hitting the ground running on legal day one without any disruption of service, but also accelerating our insurgent fiber go-to-market strategy and really accelerating the Kinetic build but always have M&A in the back of our minds. Right? That's a gene that we've had at Uniti for many, many years, and that's never going to change.
So we're staying very engaged with the strategic market, both strategic and financial parties. And I just think there's a lot of interest in the fiber space. I think it's fueled by both the convergence themes that we're seeing across the industry. And it's also, of course, fueled by the hyperscaler activity.
And we happen to have a set of assets, certainly on a combined basis with Kinetic, that are right down the fairway on both of those. And so we're in the middle of a lot of interesting conversations, and I look forward to -- we look forward to continuing that on a go-forward basis.
Look, on lease-up, yeah, I think you nailed it, Greg. I think it ebbs and flows when you just have the quarterly check-in. But from the standpoint of hyperscalers, we're definitely not seeing any slowdown in the investment required for the large-language models. And I think that's not going to change anytime soon.
I think we're in a one- or two- or three-year investment cycle here for those models. I think you're going to see some large -- probably some large greenfield-type opportunities coming down the pipe for us later this year, especially on a combined basis with Windstream wholesale.
We've got some opportunities in the funnel that we're very, very excited about and can't wait to talk to you about. So you're still going to see those large greenfield opportunities. But I do think the inference phase is going to be upon us a lot sooner than expected or at least sooner than we originally expected, Greg.
And as you've heard us talk about many times, that's the phase that we're most excited about because that's when I think you're going to see the real ramp in recurring revenue for fiber businesses as these large-language models start to fuel people's usage of AI across all the different endpoints that we have.
And when you listen to what the hyperscalers say publicly, they're starting to have trouble discerning between AI workstreams and cloud-based workstreams. They're starting to mesh into one single -- or AI is starting to be infused in all the other workstreams, cloud-based workstreams and others, which I think is an early indication that inference is already here. And at some point, we're not going to be able to distinguish what's AI versus not. And I think that's very exciting.
And we certainly haven't seen any slowdown in hyperscaler activity. And really, bringing that back to your question about lease-up, a large portion of the lease-up that we saw this quarter actually was from hyperscalers.
And another theme that we've mentioned previously was that some of these really high-strand count transactions that we've seen in the past 12, 18 months, we're now seeing hyperscalers come back to us and double down on those high-strand count requests, which, again, is an exciting trend because it validates their infrastructure investments from a couple years ago, a year ago. And they're now seeing that capacity be consumed and needing more, even when they're initially asking for 400 strands or 1,800 strands and coming back for more.
So exciting times. I think you're going to always see a good, healthy mix of lease-up in our model, though. That's a conscious effort on our part, and that's what keeps our free cash flow yields approaching between 25% and 30% when you're really sweating the asset in that way. So good call-out, Greg, but good themes behind all of that.

Operator

(Operator Instructions) Frank Louthan, Raymond James & Associates.

This is Rob on for Frank. Hey. Congratulations on the strong bookings this quarter. I'm wondering if you can unpack the nature of those bookings, including roughly how much of those are AI-related. And also, can you guys characterize the returns on these AI-driven builds relative to some of the other builds you've seen historically?

Kenneth Gunderman

Hey, Rob. Good morning. On the bookings -- so directly to your question, the percentage related to hyperscalers is probably around 20%, depending on how you measure it, so somewhere in the 15% to 20% range, which, by the way, has been pretty consistent over the past 12, 18 months.
It's been a growing percentage, but it's been relatively consistent in that range over the past couple -- three quarters, which is great. We always talk about one of the benefits of the wholesale fiber business is that we're agnostic as to the winning use cases of fiber or the use case of the day in fiber.
Right now, AI is front and center for everybody. But the reality is, when you peel back the onion, all of the different use cases of fiber for us are accelerating. Last year, and continuing into this year, our biggest customer segment is actually the fiber-to-the-home providers across the country procuring backhaul to support the fiber-to-the-home build-out, and we're seeing that again this year.
Very excited about that. We're excited about the AI theme. I mentioned in my prepared remarks that the wireless carriers are starting to spin again. Bookings for wireless was double the first quarter, what it was the first quarter of last year, which -- again, we sort of foreshadowed that at the end of last year, that wireless was picking up.
All that to say, AI bookings are growing. It's just the rest of our bookings are growing as well, and so it's continuing to be in that 15% to 20% range.
Also, just a call-out, Rob, on AI. We've mentioned this before. But because we're still in this large investment period for the learning models, many of those deals don't get reflected in bookings in the traditional way because these are greenfield builds that have very high or high NRCs and get treated as either IRUs or strategic fiber sales.
The activity with the hyperscalers is a little bit understated by the bookings number when in reality, I think it's a lot greater. Back to my point about inference, I think that's going to change once we really get into the inference ramp later on.
With respect to the returns on these deals, look, I think that we treat them in the same way that we treat all other anchor lease-up models that we look at, and for the most part, the hyperscaler deals are generally anchor deals for us.
As a reminder, our strategy is to target 5% to 10% yields for the anchor with a really clear path to lease-up beyond 10% after the anchor deal. And that's why we track and report each quarter to show that across the portfolio, we're nearing 30% blended yields on our initial anchor deals.
When you put the hyperscaler opportunities and you look at it through that lens, we're nearing 20% yields on our hyperscaler deals. So inclusive of anchor yields plus lease-up, over the past couple of years, we're already approaching 20% yields.
We don't like to talk about specific customers and specific customer deals. But on a blended basis, our hyperscaler deals are tracking, frankly, ahead of our traditional anchor lease-up model.

Operator

That ends the Q&A session and concludes today's conference call. Thank you for participating. You may now disconnect.