Uniti Earnings: Asset Sales, Secured Financing, and New Windstream Leadership Could Alter Trajectory

Uniti’s UNIT third-quarter results were generally in line with our expectations, but the firm’s long-term capital structure continues to take center stage. Management indicated that it is pursuing asset-backed debt financing, similar to what Frontier Communications recently issued. In addition, management sees multiple opportunities to sell or possibly acquire assets. This discussion comes amid the backdrop of a CEO change at Windstream, by far Uniti’s largest customer. We expect Uniti will be able to navigate the capital markets and maintain a reasonably healthy Windstream relationship, and we are not changing our $12 fair value estimate.

Revenue increased 3% year over year, with the fiber segment returning to growth. Movements in nonrecurring revenue, like installation and early termination fees, caused fiber revenue to decline last quarter. Management believes the same underlying trends continued during the quarter, with wireless carrier spending muted while demand around datacenters, fueled by AI investments, remains robust. The firm booked $710,000 of monthly recurring revenue during the quarter, which remains modestly weaker than the pace of new business wins during 2022. The firm still anticipates 5% growth in monthly recurring revenue during 2023.

Windstream replaced long-time CEO Tony Thomas with Paul Sunu earlier this week. Sunu has a long history of leading telecom firms through mergers and buyouts, which could indicate Windstream’s private-equity owners are looking for an exit. Building certainty around the Uniti master lease agreement would help facilitate a transaction. We like Windstream’s aggressive network upgrade effort, but the Uniti relationship unnecessarily complicates the financial details. Fiber-to-the-home assets like those Windstream and Uniti are building are likely the most attractive to secured lenders, but borrowing against these networks likely isn’t possible given the current situation.