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.