American Tower Corporation (REIT)

Ladies and gentlemen, thank you for standing by. Welcome to the American Tower second quarter 2019 earnings call. At this time, all lines are in listen-only mode. Later, we will conduct a question-and-answer session. If you should require assistance or have a question during today's call, please press star then zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Igor Kishlovsky, please go ahead.

Thank you. Good morning, and thank you for joining American Tower's second 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 quickly summarize our financial results for the quarter. Next, Jim Taklett, our Chairman, President, and CEO, will provide a brief update on our international business. And finally, Tom Bartlett, our Executive Vice President and CFO, will discuss our second quarter results and revised 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 2019 outlook, capital allocation, pending acquisitions, 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 31st, 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 second quarter. 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 5.7% to $1.8 billion. Our adjusted EBITDA grew over 9% to $1.2 billion. and our consolidated AFFO and consolidated AFFO per share increased by 7.8% and 7.4% to $910 million and $2.04 per share, respectively. Finally, net income attributable to American Tower Corporation common stockholders increased by more than 39% to $429 million, or $0.96 per diluted common share. Additionally, similar to the last few quarters, many of our comments around second quarter results and our updated 2019 outlook will be 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 in Q4 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. Consistent with our past practice for second quarter reports, my remarks today will center on American Tower's international business. But first, I do want to make just a few comments on the anticipated merger between T-Mobile USA and Sprint. which was approved by the US Department of Justice last Friday. Since then, T-Mobile and DISH have made public statements and filings regarding their agreements and plans for their respective networks. Based on what has been made public to date, we at American Tower continue to expect that these developments will likely result in net positive impacts on our US business over the long term. While there may be some decommissioning of sites as the new T-Mobile optimizes its network, and rolls out 5G, we would also expect significant demand from the combined company for our extensive U.S. portfolio during that process and well into the future. Furthermore, DISH is set to acquire Sprint's prepaid business and has made a commitment to deploy a facilities-based 5G broadband network capable of serving 70% of the U.S. population by June of 2023. As a result, we also expect to secure meaningful new business from DISH as they transition their current narrowband IoT network design into a full-fledged 5G mobile architecture over the coming years. In the near term, we do not expect the recently announced transaction approval to materially impact our 2019 results, and we will provide you with ongoing updates as the situation develops going forward. With that, let's get into our international business. With a portfolio of approximately 130,000 communication sites in 16 countries outside the U.S., we believe that our global scale, diversity, and reach is unmatched. As a result, we are well positioned to work closely with the large multinational tenants who comprise the significant majority of our international revenues and who together are on track to spend upwards of $25 billion on network CapEx in our served markets this year. In the second quarter, our business outside the U.S. accounted for nearly half of our property revenue and about 35% of our property operating profit, generating an aggregate U.S. dollar NOI yield of over 11%. In our most seasoned vintage of international sites, those builder acquired prior to 2010 yielding approximately 30% in U.S. dollar terms, illustrating the power of our recurring organic revenue model overseas. We've been growing this portfolio steadily through a combination of internal new build programs and selective acquisitions, the most recent example being the Eaton Towers transaction that we signed and announced in May. The thesis underpinning our international expansion is that rapid growth and mobile data usage is not just a U.S., but a global phenomenon. And as a result, demand for communications real estate is expected to grow over an extended time horizon. Under that premise, I'd like to spend a few minutes discussing each of our international segments and their key growth drivers. I'll begin with Latin America, where we've owned and operated towers for over two decades in Mexico and Brazil and now have nearly 38,000 sites across eight countries. Just to give you a comparison, we have about 40,000 sites in the U.S. Today, carriers across Latin America are focused on 4G network deployments. Fueling this trend are a series of recent and upcoming spectrum auctions, primarily in low and mid bands in our two largest markets, Brazil and Mexico, and in many other countries in the region as well. Moreover, our long-time presence and scale in Latin America has resulted in substantial business relationships with the key operators in the region, including AT&T, Telefonica, American Mobile, and others. Consequently, over the last five years, we've averaged double-digit organic tenant buildings growth in Latin America, backed by strong levels of new business activity and a continuing appetite for mobile data in the region. In addition to continuing organic growth opportunities, we're now seeing solid momentum from new build towers, with our outlook for new tower construction in Latin America in 2019 up significantly versus last year. And with regional 4G penetration still well below 50%, we expect solid demand for co-locations, amendments, and new bills in Latin America to continue for some time. Moving on to EMEA, we currently have a portfolio of nearly 17,000 sites, yielding over 11% on U.S. dollar basis, and another 5,500 or so sites coming with the Eaton Towers transaction. Since entering the region in 2011, we've helped bring greatly improved connectivity to hundreds of millions of subscribers while partnering with many of the key telecom operators across Africa and Europe, including Vodafone, MTN, Airtel, and others. And while our German and French markets are well into the 4G transition, with stable carrier investments and relatively consistent growth prospects going forward, most of our African markets are much earlier in terms of technology evolution, network capacity, and mobile data usage. We see a tremendous opportunity in the region as a result, particularly given that there's limited fixed line infrastructure in place in Africa, and wireless broadband has been recognized by African governments as one of the key aspects of their economic modernization plans. At the current time, 4G penetration on average is still under 10% in our African markets, and mobile data usage is a fraction of what we see in the U.S. and other more advanced countries. As smartphone prices continue to come down and as more Africans begin using advanced handsets, we expect to see significant incremental mobile data usage and, consequently, demand for towers, both for existing sites as well as for new builds. We've spent the better part of the last decade positioning American Tower to benefit from this upcoming wave of demand by acquiring more than 10,000 sites in Africa and constructing another 1,700. This macro tower-oriented portfolio has performed well to date, with significant future upside expected. In addition to the Eaton Towers acquisition, we've also started to ramp our build program in the region, with 2019 new builds expected to be roughly double 2018 levels. We're also making great progress increasing our operational efficiency while reducing the mobile industry's carbon footprint through our innovative power and fuel programs. In Africa, where grid power in many areas tends to be unreliable, we are actively deploying next-generation greener technologies, including lithium-ion batteries and solar solutions. We expect to invest more than $50 million in 2019 to enhance the uptime performance of our sites in the region, while at the same time significantly reducing greenhouse gas emissions. Finally, moving to India, the mobile communications industry is completing a much-needed consolidation to support the funding of 4G technology throughout the country. There are now four large and capable wireless carriers, Vodafone Idea, Airtel, Reliance Jio, and BSNL. In our view, each has sufficient spectrum assets and customer bases to credibly deploy 4G in the coming years. Although only a relatively small proportion of subscribers in India are on a 4G network today, their usage pattern indicates a bright future for adoption and network demand in India. Incredibly, those people with smartphone access are using an average of upwards of 10 gigabits per month already, more than the current average for U.S. smartphone subscribers. We believe that a significant buildout will be needed in India to meet 4G-driven demand and that our portfolio of approximately 75,000 sites is well positioned to garner solid organic growth for years to come. Beginning at some point in 2020, as we've said previously, we would expect to see the leading edge of more normalized levels of organic growth as Indian carrier consolidation churn subsides, enabling organic tenant billings growth to resume an upward trajectory. New bill demand in India is also robust, and we anticipate constructing more than 2,000 sites this year as 4G deployments ramp up there. To summarize, Indian macro trends are stable, the telecom industry seems to be on the right track, and we think that our portfolio, coupled with our relationships with the major carriers now in the marketplace, positions us to be successful over a long period of time in that region. At the consolidated international level at American Tower, we are confident about the prospects for strong long-term growth as the global migration to 4G continues to progress in Latin America, EMEA, and India. We view our international business as tremendously complementary and additive to our core U.S. Tower business, which continues to drive the majority of our ASFO. So with that, let me hand it over to Tom to go through the details of our results and our updated output. Hey, thanks, Jim. Good morning, everyone.