Windstream, Uniti report 1Q losses

Windstream Holdings Inc. and Uniti Group Inc. continue to be plagued by income losses though the two are optimistic their fortunes are turning based on approval of a long-term leasing agreement between the two Little Rock companies.

Both companies announced first quarter losses on Monday as they cited future growth potential after the leasing settlement was approved Friday by U.S. Bankruptcy Judge Robert Drain.

“Net-net, Uniti is getting substantial value in this transaction, but so is Windstream,” Uniti President and Chief Executive Officer Kenny Gunderman

told analysts on a conference call Monday.

The agreement gives Windstream greater liquidity and a stronger network to compete with cable providers.

Likewise, Uniti will benefit from a long-term lease with Windstream that is valued at about $650 million annually. Additionally, Uniti’s network will gain from significant investments that improve the company’s ability to lease infrastructure to other communications providers, Gunderman said.

In the first quarter, Windstream recorded an income loss of $78.7 million and Uniti said it lost $79 million for the period that ended March 31.

“We look forward to emerging from bankruptcy later this summer, with greatly improved financial flexibility with over $4 billion in reduced debt compared to our current debt levels, as well as the economic benefits of our new agreement with Uniti,” Windstream’s Chief Financial Officer Bob Gunderman said in prepared remarks released

in conjunction with earnings.

Bob and Kenny Gunderman are brothers.

Approval of the settlement ends a long-running dispute over a $650 million annual master-leasing arrangement between the two companies. Windstream filed suit last July to alter the agreement, which outlines Windstream’s use of network infrastructure owned by Uniti.

As part of the settlement, Uniti has agreed to invest up to $1.75 billion to improve Windstream’s network through 2030. Uniti also will pay Windstream about $490 million in cash and purchase fiber assets from Windstream for another $285 million. Windstream will continue to make the $650 million in annual payments to access the network.

For the quarter, Windstream reported total revenue of $1.2 billion, down from $1.32 billion over the same period last year, driven by revenue declines in all three key business segments.

Consumer broadband revenue fell by $9 million to $505 million and businesssegment revenue dropped $106 million to $590 million. Wholesale revenue declined $8 million to $85 million compared with the first quarter of 2019.

The next hurdle for Windstream is to gain approval for its business-restructuring plan, which is scheduled for review on June 15 in Drain’s court.

Windstream will emerge from bankruptcy with lower debt and more ability to invest in its broadband business, CEO Tony Thomas said.

In addition to the network investment, the agreement calls on Uniti to provide $775 million in cash to Windstream, including the purchase of dark (unused) fiber assets that will bolster Uniti’s infrastructure.

Overall, the settlement agreement approved by Drain on Friday will lower Windstream’s net payments to Uniti by $294 million annually from 2021-2025.

The agreement also is a boost for Uniti, which reported revenue was up $5 million in the first quarter of 2020 compared with the first quarter of last year.

“This agreement adds significant strategic value for Uniti as it further expands and enhances the value of our national network, strengthens Windstream’s competitive position, and provides Uniti a clear path forward,” Kenny Gunderman said.

After the stock market closed Monday, Uniti reported that net income in the first quarter fell from $1 million in 2019 to a loss of $79 million in 2020. Earnings per share reported a loss of 41 cents.

The company also announced that it has sold 90% of the communications towers it owns in the U.S. to Melody Investment Advisors for $220 million, up about $30 million from a previously disclosed sale price.

Uniti will retain 10% ownership of the tower business. The transaction, scheduled to close in the second quarter, will produce a $55 million gain for Uniti, Kenny Gunderman said on the call with analysts.

Uniti also announced Monday that its board of directors declared a quarterly cash dividend of 15 cents per share, payable on July 10 to shareholders of record on June 26.

Windstream’s reorganization plan would reduce its overall debt by $4 billion as part of an agreement with creditors. With approval from the judge, Windstream estimates it will emerge from bankruptcy in August.

Windstream voluntarily filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Southern District of New York on Feb. 25, 2019.

Windstream provides communications and network services to consumers and businesses across the nation. Uniti is a real estate investment trust that provides communications infrastructure, including fiber networks, to customers.