American Tower Corporation (REIT)

Ladies and gentlemen, thank you for standing by. Welcome to the American Tower first quarter 2019 earnings call. Now at this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to place yourself in queue for questions at any time, please press star then zero and give the operator your name and company name. The operator will instruct you further. If you've already given the operator your name and company, you may depress star one at any time for Q&A. As a reminder, today's call is being recorded, and you're hosting speaker Igor Akivlovsky. Please go ahead.

Thanks, Kevin. Good morning, and thank you for joining American Tower's first quarter 2019 earnings conference call. We've posted a presentation, which we will refer to throughout our prepared remarks under the investor relations tab of our website, www.americantower.com. Our agenda for this morning's call will be as follows. First, I'll provide an overview of our financial results for the quarter. Next, Jim Taklett, our Chairman, President, and CEO, will provide a brief update on our U.S. business. And finally, Tom Bartlett, our Executive Vice President and CFO, will discuss our first quarter results and 2019 outlook in more detail. After these comments, we will open up the call for your questions. Before I begin, I'll remind you that this call will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include our expectations regarding industry trends, as well as our future growth, including our 2019 outlook, capital allocation, and future operating performance, the pacing and magnitude of the Indian carrier consolidation process and its impacts on American Tower, and any other statements regarding matters that are not historical fact. You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in this morning's earnings press release, those set forth in our Form 10-K for the year ended December 31, 2018, and in other filings we make with the SEC. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call to reflect subsequent events or circumstances. Now, please turn to slide four of our presentation, which highlights our financial results for the first quarter of 2019. As expected, these results, as well as our year-over-year growth rates, were impacted by Indian carrier consolidation-driven churn. During the quarter, our property revenue grew 4.4% to $1.8 billion. Our adjusted EBITDA grew about 5% to $1.1 billion. And our consolidated AFFO and consolidated AFFO per share increased by 6.7% and 5.4% to $861,001.94 per share, respectively. Finally, net income attributable to American Tower Corporation common stockholders increased by more than 44% to $397 million, or $0.89 per diluted common share. Additionally, like last quarter, many of our comments around first quarter results in our 2019 outlook focused on growth rates normalized for carrier consolidation-driven churn in India. Normalized outlook growth rates also adjust for the non-recurrence of the impacts of the TATA settlement we recorded in the fourth quarter of 2018. We view these normalized results as important indicators of the underlying trends of our business. Reconciliations of these normalized metrics to our GAAP results are included in the back of our earnings presentation, in our press release, and in our supplemental package. And with that, I'll turn the call over to Jim.

Thanks, Igor, and good morning to everyone on the call. My remarks today will focus on the traditional first quarter report theme of our U.S. business, which accounts for the majority of our cash flows. ATC's U.S. operations continue to generate strong organic tenant billings growth, achieving 8.2% in Q1 2019. Rapidly rising mobile data usage in the range of 30% to 40% per year remains the underlying driver of demand for our U.S. assets. The sheer growth in the volume of mobile data traffic plus consumers' expectations of ubiquitous, higher-quality coverage motivates the national wireless carriers to continually invest in their networks to remain competitive. Consequently, we again expect U.S. aggregate mobile capex in 2019 to be on the order of $30 billion as carriers preserve network quality and enhance capacity. For ATC, we expect that to translate into significant lease amendment revenue growth on our towers, including for equipment to support the deployment of new and repurposed spectrum bands. Independent industry research estimates suggest that elevated usage trends will persist as more advanced devices, applications, and network technologies are introduced in the United States. One key projection is that by 2023, the average U.S. consumer mobile device is expected to consume nearly 50 gigabytes of data per month, which is nearly four times current levels. Meanwhile, industry analysts are also forecasting the deployment of more than half a billion active IoT devices in the U.S. within the next five years. Taken together, in aggregate, monthly U.S. mobile data usage is therefore predicted to exceed 20 exabytes by 2023, again, about four times today's levels. As our tenants seek to optimize their networks in the context of this tremendous usage growth, initial deployments and mobile operator planning for wider implementation of 5G have intensified. As described in their respective public statements, each US wireless carrier is crafting its own individual approach to the rollout of this new technology. Each has outlined initial plans based on specific spectrum assets, coverage goals, and a number of other factors. At the same time, there are a few fundamental 5G-related themes that we believe will be broad-based throughout the industry. In addition to providing a more efficient technology to help support the existing pace of aggregate data demand growth, we expect 5G to usher in a variety of new products and services for both consumers and business. These will include numerous IoT functions and a host of other low-latency, high-bandwidth applications. And when it comes to 5G, we firmly believe that a substantial portion of that network investment will be oriented towards macro towers, utilizing sub-6 gigahertz spectrum to serve the needs of the 85% of the U.S. population that's living outside of urban areas. This is likely to include spectrum assets like 600 megahertz, 2.5 gigahertz, CBRS and the C-band, among others. All these bands largely deployed on macro tower assets will likely be utilized to achieve the capacity and the broad coverage needed to serve the topographic and demographic realities of the United States population. Importantly, we view our approximately 40,000-site macro tower portfolio as extremely well-positioned to capture a significant portion of this activity during the evolution from 4G to 5G, similar to past network technology cycles. Our franchise real estate assets typically have significant incremental capacity and are located in high-value areas, such as highway corridors and major suburbs. We contract for space on these assets under lease structures that have enabled us to maximize the revenue and cash flows throughout the mobile technology deployment cycle, while at the same time providing significant value to our tenants. We believe that the combination of the highest quality asset base and the resiliency of our carefully crafted commercial agreements has contributed to the relative outperformance in our organic growth for the U.S. business within our domestic peer group. Slide 6 of our earnings deck provides a quick overview of our recent U.S. track record. As you can see, U.S. organic tenant billings growth since 2015 has averaged more than 6.5% at American Tower, including another strong year expected now in 2019 at roughly 7%. An important component of this growth has been consistently low churn. averaging under 2% over the same time period, which correlates directly with our lease arrangements and ability to mitigate churn events, including those resulting from carrier consolidation. We've also made a concerted effort to build and acquire low capital intensity assets that show attractive operating leverage. As a result, U.S. capital intensity for ATC has declined over time, as revenue has grown and maintenance capex has remained broadly consistent on a per-site basis. Consequently, the overall return on invested capital for our U.S. tower assets has risen by nearly 240 basis points since 2015, with sites we've owned since 2010 generating an even higher ROIC, approaching 20%. Based on the underlying demand trends in the industry, the upcoming rollout of 5G will anticipated deployments of new spectrum, and our strong competitive positioning, we expect that our core U.S. business will continue to produce favorable results over a multi-year period looking forward. At the same time, we are proactively looking for ways to further enhance our growth trajectory, augment the value of our existing assets, and explore efficiencies through our innovation program. This program includes attracting new tenants in industries beyond our traditional telecom tenants, finding new ways to take advantage of the ground space at the base of our tower sites, along with a number of other opportunities. We've also made some relatively small investments in international fiber within that innovation framework, but continue to view U.S. fiber assets as inherently less attractive due to the extensive availability of competitive fiber supply in the U.S. and the resulting less attractive growth and return characteristics of domestic U.S. fiber. One area of focus I'll expand on for just a few minutes is the initiative that we are pursuing on edge data. As information generation and processing progressively moves to the network edge, particularly with respect to advanced IoT applications, we expect there to be a greater need for lower latency through distributed storage and compute functionality in close proximity to both wireless and wireline end consumers. Edge compute offerings may eventually serve autonomous vehicle networks, interactive and immersive media delivery, content caching, and any number of other products and services where low latency is a must or data needs to be closer to the consumer or the machine. We've been evaluating this for some time and have an ongoing edge compute trial at several of our tower sites. In addition, we recently acquired ColoATL, an interconnection facility in Atlanta, to further explore the latency in distributed transport networks and get a firsthand look at the early stages of the cloud evolution to the edge that we expect to see accelerate in the future. ColoATL is exactly the type of asset that is ideally suited for our innovation program. The $70 million or so purchase price represents a roughly 15 times year one adjusted EBITDA and we expect additional growth as this facility is leased up, driving an attractive return on existing business. Even more importantly, ColoATL affords us the opportunity to learn firsthand about the evolution of connectivity for consumers' devices, IoT units, and autonomous vehicles to the cloud. This includes direct and interactive knowledge of potential future tenant needs, key trends like cloud gaming, technology developments, like hybrid cloud and a host of other aspects that we could not evaluate and prototype with partners without owning an asset like this. At the same time, I'll emphasize to everyone that projects like COLO-HCL do not indicate a shift in strategy or a material pivot and focus for American Tower. On the contrary, our innovation investments are designed primarily to drive additional tenant leasing growth on our tower and in-building systems. whether it be from existing or new customers and adjacent assets that enhance the leasing value and potential of the tower. Importantly, we will apply the same capital allocation discipline that we've used for our tower acquisitions over the years to sizable innovation-related investments that we might explore. In the U.S. in particular, we believe those existing assets are poised to deliver continued strong performance based on the drivers I referenced earlier. In short, we anticipate more equipment finding its way onto more of our sites as network quality and performance remain essential to our domestic wireless operator tenants. Moreover, whether there are three national wireless players or four in the U.S., the number of subscribers will remain consistent, and these subscribers will continue to expand their data usage. Therefore, in either a four- or three-carrier market, we would continue to expect 30% to 40% annual mobile data usage growth roughly $30 billion of industry capex annually, and further deployment of 4G and 5G equipment on towers. Consequently, we expect to generate continued solid U.S. organic growth and attractive returns over our planning cycle. With that, I'll turn the call over to Tom to go through our results for the quarter and our 2019 outlook.

Hey, thanks, Jim. Good morning, everyone. Following a strong finish to 2018, We've kicked off 2019 with a terrific set of results. Our Q1 U.S. organic tenant buildings growth came in at over 8%. New business trends throughout our Latin America and EMEA segments remain solid. The recovery in India continues to progress in line with our expectations, and we constructed over 700 sites globally. We also grew our common stock dividend by 20% over the prior year quarter. while continuing to deploy capital to both our core business and to select innovation-oriented investments that Jim just mentioned. With that, let's take a deep dive into our first quarter results and our outlook for the full year. If you'll please turn to slide eight. During the quarter, we generated consolidated organic tenant buildings growth, normalized for the impacts of Indian carrier consolidation-driven churn of over 8%. More than 6% of this was driven by volume growth from gross new business. From a segment perspective, our U.S. region reported property revenue growth for the period of nearly 6%, including a negative impact of 2.3% from lower non-cash straight-line revenue recognition. This reflected our second consecutive quarter of record new business contributions, leading to organic tenant buildings growth of 8.2%. Volume growth from co-locations and amendments contributed over 6%, while pricing escalators contributed just over 3%. This was partially offset by churn of about 1.3%. Our major U.S. wireless carrier customers continue to make significant network investments to keep pace with the growing mobile data usage, and we again saw activity largely weighted towards amendments in the quarter. Our reported international property revenue growth during the period was about 3%, including a negative impact of 9% due to the Indian carrier consolidation driven churn. Underpinning this growth was normalized organic tenant billings growth of over 8%. International new business was supported by significant network spending from tenants across our footprint, especially in key markets like India, Mexico, and South Africa. New business revenue from collocations and amendments drove about 6% of the growth, while escalators contributed nearly 4%. Other run rate items added nearly 1%, with normal due course churn offsetting the items above by just over 2%. As expected, the flow-through financial impacts due to the Indian carrier consolidation churn accelerated in the quarter, and Q1 should be the high-water mark for the year regards this consolidation churn. Consequently, we expect to see sequential improvement in India churns starting in Q2 and anticipate that overall organic tenant buildings growth rates in the market to approach historical rates beginning in 2020. In fact, even in this past quarter, normalized organic tenant buildings growth in Asia was over 10%. And finally, the day one revenue associated with the more than 25,000 sites we've added over the course of the last year contributed another 4.2% to our global tenant billings growth. These new assets included our acquisitions of around 20,000 sites from Vodafone and Idea in India, as well as the nearly 3,200 newly constructed sites built primarily in our international markets, where average day one U.S. dollar-denominated NOI yields were nearly 12%. New builds continue to be an integral part of our capital deployment program, and we had a strong quarter of activity in Q1 across our international markets, constructing more than double the number of sites we built in Q1 2018. In India, we sustained momentum from last quarter and built over 540 sites, while also building nearly 100 sites in both EMEA and Latin America. Importantly, the day one NOI yield on these sites remains extremely attractive. with yields on new builds in India and EMEA in particular generating initial NOI yields in the mid-teen percent range. This activity is an extension of the historical success we've had building sites across our diverse international portfolio, where carriers continue to make significant investments in network coverage and capacity. In fact, more than 15 percent of our total international portfolio is comprised of sites we've constructed. with NOI yields on those sites now in the 20% range. And as I'll touch on later, given the attractive economics of these projects and the strong demand for additional towers, particularly in Indian Africa, we expect our construction activity to ramp throughout the year. Turning to slide 9, we also generated solid adjusted EBITDA and consolidated AFFO growth during the first quarter, driven by the strong revenue growth and diligent management of operating interest expense, and seasonally low maintenance capex. Adjusted EBITDA grew by nearly 5%, with our adjusted EBITDA margin increasing to about 61.5%. Normalized adjusted EBITDA growth was over 9%, resulting in normalized adjusted EBITDA margin of nearly 62%. These results included benefits from recent investments we've made in power and fuel, particularly in our African markets, where we continue to optimize our processes and invest in solutions like lithium-ion batteries and solar power. As a result of these investments, for example, we reduced our generator run hours in Africa by over 15% as compared to Q1 of 2018 and continue to look for ways to further reduce our fuel consumption. We also drove solid consolidated AFFO and AFFO per share in Q1, Consolidated AFFO grew by nearly 7%, and consolidated AFFO per share grew over 5% to $1.94 per share, while AFFO attributable to common stockholders grew nearly 8% to over 6% per share. On a normalized basis, consolidated AFFO grew by over 11%, or nearly 10% per share. This was driven largely by our strong cash-adjusted EBITDA growth, as well as prudent maintenance of our balance sheets. In addition, our Q1 results also vented from the lower seasonally adjusted maintenance CapEx levels, which we expect will revert to a more typical range as we move through the rest of the year. Turning to slide 10, let's now take a look at our expectations for 2019, which are largely consistent with the outlook we previously reviewed with you, given we only issued guidance just a short while ago. At this point, we are reiterating our expectations for organic tenant buildings growth across all of our geographic segments. Trends continue to be roughly in line with our prior assumptions. We continue to expect normalized international organic tenant buildings growth to be about 50 basis points higher than our U.S. organic tenant buildings growth of about 7%. These projections include a record year of contributions from co-locations and amendments throughout the business, just as we discussed last quarter. We expect to see a return to positive organic tenant buildings growth in our international business by Q4 after flushing out most of the remaining Indian carrier consolidated churn. Looking at slide 11, at this point, we're also maintaining our expectations for 2019 property revenue, despite FX headwinds of around $13 million versus our prior outlook. Current assumptions reflect a $10 million increase in U.S. revenue versus our prior outlook, primarily driven by the combination of slightly higher straight-line revenue and acquisitions closed in the quarter. In addition, we expect around $3 million in outperformance internationally, including higher new build assumptions, particularly in EMEA. We view this as an early indication of increasing demand for tower space in the region. We're also reconfirming our expectations for adjusted EBITDA at the midpoint of our outlook, despite approximately $14 million in unfavorable FX translation. This is primarily due to the revenue items I just mentioned, as well as some slight outperformance on the operating expense side throughout the business. And lastly, we're reiterating our expectations for consolidated AFFO for the year, with the business offsetting about $12 million in unfavorable FX. On a per share basis, we continue to expect normalized growth of over 9% at the midpoint, reflecting our strong operating leverage. Looking to slide 12, I'd like to now briefly discuss our capital allocation plans for the year and the success of our capital allocation program historically. We continue to target our annual common stock dividend growth of at least 20%, subject to the discretion of the board, and expect to declare roughly $1.7 billion in dividends in 2019. In addition, we plan to deploy $1 billion towards our CapEx program, with over 80% of that spending being discretionary in nature. This is up $50 million as compared to our prior expectations, driven by a 250-site increase in expected new builds for the year. We now expect to construct almost 3,300 sites at the midpoint during 2019, which would represent a new record for American power. This speaks to the tremendous long-term opportunity we have in our existing markets to add incremental scale and to help our tenants add coverage and capacity to their networks. Importantly, and as I mentioned earlier, most of our new builds are concentrated in our Indian-African markets, where initial NOI yields on new site builds were in the mid-teens of Q1. We're especially pleased by the progress you've made in Nigeria, our largest market in Africa, where we have a strong new build pipeline. And finally, taking into account the M&A we've completed year to date, the first part of the TATA's options being exercised in our India business that were redeemed in Q1, and the second part that we would expect to redeem in late Q2 or early Q3, we've committed roughly $900 million to acquisitions. Our capital allocation plan for 2019 is firmly aligned with our capital allocation methodology we've used over the last decade to drive attractive long-term returns. This process focuses on constructing and acquiring assets that have exclusive real estate rights, significant structural capacity, low capital intensity, and the potential for sustained long-term growth and pre-cash flow generation, all at attractive price points. Since 2009, utilizing this criteria, We've amassed a high-quality portfolio of communications infrastructure assets in the most significant free market democracies around the globe and expanded our global site count at an average annual rate of over 22%. This has driven a free cash flow CAGR of over 15% over the same period. That growing recurring free cash flow base has enabled us to further expand our portfolio while maintaining a strong balance sheet and simultaneously returning capital to shareholders to our common stock dividend and share repurchase programs. Turning to slide 13, a key part of our ability to deploy capital effectively has been an extensive evaluation of different asset classes within the communications infrastructure space, drawing on a large set of historical data. For example, while we have a leading portfolio of macro towers in the United States, we also have one of the largest networks of indoor DAS systems in the United States, and a smaller portfolio of outdoor small cells. We evaluate the performance of these assets regularly to help inform our future investments in the U.S. and our international markets, where small cell densification is typically in earlier stages. As you can see on the slide, the performance of these assets is varied considerably over time, with towers and indoor systems generating margins and returns significantly in excess of outdoor small cells. This divergent performance is in part due to the much higher tenancy ratios we have seen on towers and venue-based DAS systems as opposed to outdoor networks, with towers and indoor DAS at over 2 and non-venue outdoor DAS in the low 1 range. Additionally, the capital intensity of outdoor systems in the U.S. is higher, with incremental CapEx generally required to secure additional tenancy. And finally, cash flows of small-cell systems tend to be more non-recurring in nature due to the non-cash prepaid amortization revenue associated with upfront capital contributions. Armed with this historical data, we've optimized our capital allocation decisions over time to ensure that capital is deployed to more attractive projects centered on inherently more attractive assets. This drove our decision to increase the scale of our macro tower and indoor system portfolio in the U.S., through large transactions with GTP and Verizon, for example, while passing on large U.S. fiber assets that have been available for sale. Importantly, we expect to utilize this framework within our innovation program as well. Significant innovation investments, just like the investments we make in our core business, must conform to the same rigorous database criteria as well as the governance and decision-making approval process. Turning to slide 14 and in summary, 2019 is off to a strong start in American Tower with solid organic trends being realized across our global footprint. Our U.S. business generated organic tenant billings growth of 8% or above for the second consecutive quarter, while new business in EMEA and India continues to build. We've also increased assumptions for new site builds driven primarily by the elevated demand from our carrier customers in Nigeria, which speaks to the tremendous need for incremental coverage in the emerging markets we serve as the technological migration to 4G continues. We are able to translate this strong top-line growth into solid growth in adjusted EBITDA, a solid AFFO per share, and expect to grow AFFO per share on a normalized basis by over 9% for the full year. Additionally, we remain firmly committed to growing our common stock dividend, subject to the Board discretion, as a key part of our total return formula. while maintaining our long-held financial policies and investment-grade credit rating. All in all, we expect 2019 to be another solid year and look forward to updating you all on our continued progress in July. With that, I'll turn the call over to the operator so we can jump into some Q&A.

Thank you. Now, if you've already given the operator your name and pressed star 1, you're all set for Q&A. If you have not done so, please press star 0, simply give the operator your name and company, and you will be ready for Q&A. With that being said, we'll go straight to the first question from Brandon Miskel, KeyBank Capital Market. Please go ahead.

Great. Thanks for taking the questions. I have two, if I could. First, in the U.S. business, another strong quarter of 8% plus growth. I think some people had thought that that could never happen, given the size of your business. Can you maybe unpack that growth in terms of what percentage of your new leasing activity is coming from the big four U.S. carriers? I was hoping that you could also unpack your guidance along the same lines for the year. Secondly, one of the things that we get questions on and I thought was highlighted really well on the call was the return on investment in the U.S. business. When you think about the different international markets you had and maybe particularly India, I was hoping you could comment on your longer-term expectations for return on investment and whether or not there are any structural benefits or negatives that may make those markets less attractive from a return on investment standpoint. Thanks.

So, Brandon, good morning. The percent of U.S. business coming from the big four carriers in the United States, both for the quarter and our expectation for the year is going to range 85% to 90% coming from those four companies. So it's similar for both current results and for the guidance for the year. And then when it comes to India and emerging markets in Asia generally, low to mid-10% ROI is our ultimate goal, ROIC. So we expect to attain that within the, you know, planning period, you know, which is 10 years for each investment. So with the buy-on investment a couple, three years old, you know, we expect by the mid-2020s that we should be able to achieve that kind of level.

And just to add on, just on the color on the growth, again, we're still, as I mentioned, largely amendment-driven in 2019. And I would expect that to be the same, really, for the balance of the year. It's probably 80-20 kind of a relationship. And as Jim mentioned, on the ROI, I mean, if you take a look at the U.S., actually in May and Latam, our ROIs seized in those markets are all north of 10% at this point in time. Now, given the consolidated churn that we've seen in India, the ROIC in that particular region is below 10, probably in the 6-plus kind of range. So we would, obviously, given the growth that we've seen in the market, by the way, in Q1, we had a record level of new co-locations in Mehmet contributing to the organic growth in that market. And as I mentioned, they're over kind of a 10% on a normalized basis growth. So we would definitely see that kind of expansion in ROAC over the next several years.

And I guess if I could just follow up quick, the 85% to 90%, new leasing from Big Four. How does that compare with what you've seen historically?

Very consistent with what we've seen historically.

Thank you. And next question is from the line of Colby Sinistel, Cowan & Company. Please go ahead.

Great. Thank you. As it relates to your innovation program, and I guess that's where the COLO ATL $70 million investment fits in. I'm just curious, how big is that program and what is the expectation or what expectations should we have for additional smaller, I guess what I'll refer to as just trial-type acquisitions just to learn more about that market? And then secondly, as it relates to the U.S. organic guidance of around 7% versus the 8 plus percent you just did. That obviously would imply then that we should see a notable step down as we go through the year. How should we interpret that in terms of what might be driving that slowdown as we go through? Thanks.

Colby, good morning. It's Jim. On innovation program, we're essentially in the exploratory and prototyping phase with outside customers, including customers You know, in some areas of Big Four or international markets, there's sort of equivalence overseas in markets, whether it's energy management or it's figuring out what the edge data plan is going to be. It's often with our current customers. And secondly, we're trying to understand and prototype projects with potential customers that might scale in industries other than telecommunications, which will need those kind of assets, the kind of assets that we provide. which are tower sites and indoor DAS systems predominantly. So that's the realm of the program. What we've spent so far to date on capital expenses and mergers and acquisitions has been about a billion dollars total, the bulk of that in fiber-related assets outside the U.S., whose predominant purpose at ATC is is to connect fiber to towers in markets and countries where there isn't a robust fiber supply base like there is in the U.S. So for 4G sites and certainly for 5G, every tower is ultimately going to need a fiber-like connection or a fiber connection to it, and we're making most of our investments to lay the groundwork literally for that to happen in emerging markets. And so as Tom said, we're only going to make investments in assets and in locations and for applications that we expect to meet our return criteria similar to towers.

And, Colby, regarding your second question, you know, at this point in time in the year, we're keeping our annual guidance roughly the same. You know, really, we only issued the guidance, as I mentioned, kind of a short while ago. We continue to see the same positive trends we expected when we originally rolled out the guidance just a couple of months ago. Coming into the year, you always have more visibility into the first half. So it makes sense that you would expect a stronger first half. And as you know, we can progress through the year in July to the extent that we see some different trends. Hopefully we'll see upside. But we'll see, and we'll update that guidance in July.

So nothing specific that you're thinking of that would, you know, clearly lead to a step down. I guess it sounds like just more conservatism at this point than anything else.

Yeah, I think that's fair. I mean, I think we have strong application pipelines. The U.S. group is – our U.S. team is excited about the types of activity that they're seeing. And, you know, we're coming off a very strong first quarter. And, you know, hopefully we'll see some of those continuing trends going forward.

And there's one mathematical factor in addition to that, which is the quarterly comps from year to year – can vary, right? So in 2018 at ATC, we had relatively lower growth than later in the year, and this year we're having initially high growth, and we've kept our guidance, as Tom said, for the following quarter. So even the comps mathematically simply give you a little bit of a different answer, if you will, going forward. So, again, we'll update everything based on what actually happens over the next couple of months.

Thank you. Next question is from the line of Simon Flannery.

Morgan Stanley, please go ahead. Great. Thanks a lot. I wonder if we could talk a little bit about some of the international markets. Can you dive a little bit more into the individual markets in Latin America and EMEA? What are you seeing? Where is strong? Where is a little bit slower? And also in Europe, there's a lot of portfolios that are potentially being offered by the carriers. How do you think about that market and portfolio? Is there likely to be any value there to cause you to do more in that area? Thanks.

Sure, Simon. Some of the strong international markets continue to be Mexico, which is having a 4G campaign, if you will, between the new entrant all-town and some of the incumbents that are already there. Brazil has also been strong. All four of the wireless operators there are competing and deploying 3G and 4G. In spite of all that, there's some lower escalators based on inflation and also some slightly higher churn in the markets due to some Nextel legacy item sites rolling off, which we expected anyway. But overall, gross growth rates, as Tom suggests, in Brazil are really strong. India is really – coming back on the new business, the gross new business, if you will, before churn. And we expect that trend to continue, especially with the rice offerings and other capital-raising activities of Idea, Vodafone, and Airtel along the way. So when you add it all up, it's about 10% plus normalized organic growth in our national markets in our forecast this year. As far as European assets, we're going to look at them through the same lens we've always looked at them through, most likely lower growth than some of our current markets, including the U.S. Also, some industry structure concerns over there that could also inhibit growth and returns. And, frankly, there's a new investor class coming into that space. It has come into that space. They have lower return criteria than us, and until that changes – because we're not changing our investment criteria, we may or may not act in a large way in Europe.

And the industry structure means less than four players, or what's that kind of comment?

Well, you know, there are three or four mobile operators in all the markets in Europe, which causes them to be highly competitive. It's tougher for them to because the countries are smaller in scale to say the U.S. is to invest sort of rapidly historically than the U.S. will invest. So growth rates tend to be a little bit lower. And then there's the standard supply side of towers in Europe, which tend to be shorter, a lot of overlap, and often some churn that comes with infrastructure consolidation that you have to absorb if you are into these businesses. So those are some of the structural issues in Europe that we think retarded the growth rate potential a little bit.

You know, just, you know, even silent, if you even take a look at the press release, just look at some of the segment information, you can see some of the growth we've had in the quarter internationally in co-location and amendments. You know, we have roughly $32 million of new businesses versus 27 from last year. So, you know, I think they're all strong growth. And it's largely being led by Indians. I mean, the Latin America continues to be strong, and I may end up a little bit, but India has actually been kind of the driving force in Q1. So just something to look at.

Thank you. Our next question is from the line of Batya Levy, UBS. Please go ahead.

Great. Thank you. In the U.S., can you provide maybe a little bit more color on the type of early activity and applications you're seeing related to 4G deployments? And how do you think that changes the 80-20 amendment new lease mix going forward? Do you think some of that new business is going towards carrier-owned towers or maybe other private companies? And just lastly, can you provide an update on the monthly revenues you get from the amendment today? Has that been increasing over time?

Yeah, I mean, I think the question was on the 5G. What are you actually seeing relative to deployment of 5G activity on the towers? Is that correct?

That's right, and amendment new lease, and if you think some of that activity is actually going towards their own towers or other private companies.

Well, I mean, I don't know about that mix. I can tell you that I'm – I mean, it's a better question for the carriers themselves in terms of the types of things that they're – they are deploying, but I'm sure that they're 4G enhanced, they're 5G radios that are being deployed as we speak so that when 5G gets turned on, it's really just a kind of a software upgrade. So I'm certain that those applications, I don't know what the percentage is relative to how much of that activity is normal to normal kind of 4G activity, but I'm certain that the carriers themselves are are deploying that kind of technology. I mean, if you look at T-Mobile, they said they talked about 600 megahertz being rolled out to really support their nationwide 5G capabilities. So you know that those types of radios are being deployed. And relative to, you know, amendment activity, as I said, overall, you know, amendments are roughly 80% of the activity that we're seeing from an application and an application perspective in the United States. And they're probably in the, you know, the $800 range, $800, $900 range, given the level of equipment that is being put on the site and amending those particular leases.

Okay. Thank you.

Next question is from the line of David Barden, Bank of America. Please go ahead. Hey, guys.

Thanks for taking the questions. I guess two, I guess, to start. First would be SBA went out of their way to call out fish as a new business driver for them. Sounds like they were willing to be flexible to kind of accommodate some fish's challenges as they look to kind of get their 2020 deadline fulfilled. So I was wondering if you guys could kind of address that opportunity and what it's contributing to this kind of 8.2% domestic growth rate that we're seeing today. And then the second is, Jio in India has spoken publicly about trying to monetize its roughly 100,000-tower portfolio, and I could see how that might represent a potential risk if it fell into an independent operator's hands or a potential opportunity if it represented a consolidation opportunity for American Towers. So I was wondering if you could talk about the risk opportunities that Jio represents in their tower portfolio. Thanks.

As far as specific customers, including DISH, David, we don't comment on either negotiations, contracts, or new business flow with any of them. But you can assume that for us, DISH is in that 10% to 15% – within that 10% to 15% non-major carrier new business ratio that we talked about earlier. As far as GEO, yes, there are press reports about the company exploring – ways to either refinance or monetize or spin off tower and fiber assets. We will stay abreast of that, those developments. Historically, when independent investors eventually get a hold, if they do, of carrier-owned tower assets, that's good for the tower industry because the contracts tend to be arm's length and more what I would call sort of industry standard once the the outside owners are in control of the assets and not the captive carrier business. So it'll be a positive if it comes through. Either way, I don't see it as a risk at all.

Okay, great. Thanks, guys. And next question is from the line of Rick Prentice. Raymond James, please go ahead.

Hey, good morning, guys. Eric? Hey, a couple of follow-ups and then one deeper question. First, when you guys talk about 80-20 amendment COLAW, How do you count if an existing customer comes and wants to do more work at the tower, maybe also including a new RAD center? Is that still counting as an amendment?

Generally, Rick, that would be a separate lease. But, you know, based on specific customers or circumstances or legacy contract that may be on the tower, it could be different. But generally, a new RAD center equates to a new lease, which would count as a co-location.

Okay. And the second one, one of the other tower guides mentioned that they had explicitly kind of assumed in their guidance accommodation in the U.S. from four to three, at least on the services business. Is there anything baked into your guidance on assumption of any industry change in the U.S.?

We don't have any assumptions either way baked into industry consolidation in the U.S., And given that we're almost halfway through the year and by the time something might close, whatever ramifications could occur from that if it happened would probably be out in 2020 and beyond.

Makes sense. The deeper question is following up on Simon's question where you said the new investor class is coming in with lower return hurdles. Is that driving also some of your thoughts that building towers might be more relevant able to create value than buying towers as you look at M&A?

Yes, because those new builds, whether they're inside or outside the U.S., tend to be historically for ATC the highest return projects we have. It's always been that way because you're meeting a specific need of a specific carrier in a specific geography versus buying a portfolio and sort of paying the acquisition premium for that. So it's historically been the best return activity we can do, and we'll continue to do so. And, you know, as the batting order, Rick, of our capital allocation process has remained the same, we're going to fund our dividend first, we're going to build towers second, we're going to do M&A third, and if there's excess capital left over, we'll buy back equity, we'll buy back stock. So that batting order remains the same.

Makes sense. Appreciate the batting order with the Rays doing pretty well. Final question wraps into that. Does it make sense to sell any portions of your portfolio, increase the amount of joint ventures that people have lower return hurdles and have cash in their pocket? Could we see you guys sell some more stakes in your company to bring in fresh capital to deploy elsewhere?

We're always open to... Innovative financing and partnership arrangements, Rick, and you've seen us do that in numerous countries, whether they're with carriers or with independent financial partners like PGGM in Europe, where actually we're a 5149 partner with them in both France and Germany. So, yes, we're open to it, and we don't have any sort of religious restrictions, whether it's getting into those states or getting out of them, if we think the economic situation merits that. Great. Thanks, guys.

Next question is from the line of Michael Rollins, Citi. Please go ahead.

Hi. Thanks, and good morning. Just maybe on the strategic front, two questions. A few years back, you articulated the importance of being, I think, one of the top three competitors in any market that you're in. I was just curious, you know, in some of the key international markets, how do you evaluate that today? And is that still important as you look at the path to new markets? And then going back to the question on partnerships or the comments on partnerships, are partnerships more important for the adjacent growth opportunities that you've been considering, for example, on the edge data center front or maybe some of the other initiatives where you're trying to edge out into a broader ecosystem? Thanks.

So we're already at either first or second, Mike, in most of our major international markets. And by the way, we're first in the U.S. as an independent tower company and have been for some time. We're first in Brazil. And remember, independent tower company is important here because captive carrier assets really, to us, don't perform and aren't managed the same way. But nevertheless, in Brazil, we're number one. In Mexico, we're number one. South Africa, the number one independent. In India, the number one independent. So we've achieved industry leadership as an independent infrastructure provider outside of carrier ownership and control in essentially all the major markets that we care to be in. There's some where we're not, and those were conscious decisions, like at the time in Nigeria where IHS was creating a larger market position than we currently have. We'll be a happy number two there for a while, it looks like. But generally in the large major markets, we are the number one or two operator. As far as partnerships, we're applying our innovation initiative really across the board. As I said, the PGGM initiative partnership on a financial perspective in Europe was something that, you know, Tom and I talked about as an innovative way to bring capital in to support our ambitions in Europe. Similarly, if we get into, and you pointed out specifically edge data, I think there's a great opportunity for us to bring the asset base that we bring, which is the 40,000 U.S. towers and the 350,000 30 or 40 indoor DAP systems we have in the U.S. to a partner who brings something else. Could it be spectrum? Could it be cloud compute capability? Could it be existing big, larger data centers? Any of those are possible. So we've had to actually pivot our thinking to say partnerships can be, in an innovation sense, a much broader context than they are today, or they have been historically, I'd say, in our industry, which is partnerships with wireless operators in some fashion, whether it's a sale leaseback, it's a sublease, et cetera. With the mobile operators, those have always been in our industry, but now we're taking a much wider perspective on partnerships and figuring out, we hope, where the puck is going Who can partner with our assets and bring theirs in a complimentary fashion? And that's a perspective we're now taking.

Thanks a lot. Next question is on the line of Matthew Nickham, Doge Bank. Please go ahead.

Hey, guys. Thank you for taking the question. Just on India, any more color you can share in terms of what's driving the growth activity and then what gives you confidence in the ability of the business to actually return growth to sort of historical levels within the next couple of quarters by 2020. Thanks.

So the drivers in India organic growth for us on a growth basis now are Jio and the other two major carriers are actually ramping up as well. As I mentioned, they're going to be having access to proceeds from both rights issues, so equity investments from their end investors, and also asset sales that they're all planning or expected to do. So we think that those three carriers, along with BSNL in a much more minor way, will continue to drive organic growth in India because the three of them are going to need to establish a national 4G network, which although GEO gets a lot of headlines for doing it first, is A, not pervasive across the country, and B, not with the capacity to handle a billion users on 4G. That spend is going to happen. We think there will be a significant increase in the number of sites and the loading on sites in India. And as Tom referenced, our most active construction program already is in India to start serving this market. So, you know, when you look at, again, the fundamentals in the U.S. we talk about is 30% to 40% data growth, 30 billion of CapEx. In India, you're talking about even faster data growth rates on three times as many people much earlier than the technology deployment cycle. So once the industry consolidation settles in over the course of 2019 and as we roll into 2020 and beyond, we fully expect between those three large carriers and BSNL that there will be strong top-line organic growth demand in India.

The other thing I'd add, Matt, is that, you know, our own internal estimates as well as outside third-party estimates is suggesting that kind of the roughly industry 600,000 tower leases that exist in the market are going to be growing to over a million over the next several years. And I think that's just a reflection of all the things that Jim just talked to.

If I could just follow up, I think in the past you've talked about 3% to 4% sort of normalized longer-term churn in that market. Is that still the case? And when do you sort of anticipate getting to more of a stabilized rate?

Actually, we think that probably the normalized rate of churn, which is, you know, if you back out what the impact of the IndyCarrier consolidation churn in Q1, is probably more in that 1% to 2% kind of range. So, right, half of what you just talked to.

And in terms of timing to get there, that sort of late 2020?

We realized that already in Q1. So we would think that, you know, as we're going out into the, you know, the end of this year we'll flush out all of that India carrier consolidated churn. So getting back into 2020, we should start to get back to those historical rates of what we realized in terms of growth, you know, back in the 2016 and 2017 timeframes. Thank you.

Next question is from the line of Tim Horan, Oppenheimer. Please go ahead.

Thanks, guys. Tom, I know you said normalized ASFO grew 11%, but if you normalize for the India churn, was that closer to 15%?

No. When I refer to, Tim, the normalization, it's actually backing out that India carrier consolidated churn.

Great. Indoor, can you talk about what percentage of revenue indoor is in the United States now, and do you think you're kind of growing at the market rate?

The indoor gas assets are about 2% to 3% of our U.S. revenue at this point, and it's been growing about 10% recently. So pretty solid growth in that business, although it's relatively small compared to the major tower assets that we have in the U.S.

And then lastly, on India, do you think with the consolidation being done and maybe more sales of assets that the pricing structure over there could look more like the U.S. over time? It's a fairly unique market in terms of pricing.

The pricing is going to be in a different category than the U.S., but the long-term structure of contracts will, I think, evolve more closely to what I would call the global talent industry standard where, you know, there's more favorable escalation rates, less favorable, you know, reinvestment rates, et cetera, on the sites. and the elimination of discounts for second or third tenants along the way. So those sort of, you know, contract structural adjustments I expect to come over time in India, which will actually improve your effective pricing, frankly. But as far as rates of rupees per month per antenna, you know, I can't predict where those are going to go.

Yeah, no, that's what I was looking for. That's very helpful. Thank you.

Thank you. And we do have time for one additional question, and that will be from the line of Philip Cusick, J.P. Morgan. Please go ahead.

Just before the bell, Jim, can you talk more about the potential model for you of edge compute at the tower? Any estimate on the potential number or percent of sites over time that that might generate and sort of relative rent versus a carrier? Thanks. Sure.

Well, there's a lot of uncertainty around all those factors, Phil, and that's why we're broadening our access and involvement with other industries right now. So we're engaged with cloud providers. We're part of the CVRS team that's looking at how to deploy 3.5 spectrum, both within and outside of mobile operators. We're involved and engaged, especially our CTO is on innovation and technology task forces with other industries like the automotive industry, for example. So we are in a learning phase about a lot of these initiatives, including Edge Compute, but we are taking them in a methodical, serious, and resourced way so that we can be ahead of our industry, both in the U.S. and outside, because, frankly, we feel we're the only globally accessible tower company in the world that can reach, you know, really all the highly populated continents with a partner, and some of those partners will be – global multinational companies, unlike even the national license holders we have in our tenant base today. So we will learn and prototype and determine all those factors. We know it's going to be important, and we want to lead, you know, the wider industry in figuring out that these power sites, because of their placement and their immediate proximity to the mobile RAN, radio access network, are going to be really important real estate assets that they should learn how to work with, and we want them to work with us.

Great. Thanks, Jim.

Thank you. We'll back over to speakers for any closing remarks.

Great. Thank you, everybody, for joining. Have a great day.

Thank you. Ladies and gentlemen, that does conclude your conference. We do thank you for joining. You may now disconnect.