American Tower Corporation (REIT)

Ladies and gentlemen, thank you for standing by. Welcome to the American Tower First Quarter 2021 Earnings Conference Call. As a reminder, today's conference is being recorded. Following the prepared remarks, we will open the call for questions. If you'd like to ask a question, please press 1 and 0. I would now like to turn the call over to your host, Peter Kozlowski, Vice President of Investor Relations.

Let's go ahead, sir. Good morning, and thank you for joining American Tower's First Quarter 2021 Earnings 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. On this morning's call, Tom Bartlett, our President and CEO, will provide a strategic update on our U.S. business. And then, Rob Smith, our Executive Vice President, CFO, and Treasurer, will discuss our Q1 2021 results and revised full-year outlook. After these comments, we will open up the call for your questions. Before we begin, I'll remind you that our comments will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include our expectations regarding future growth, including our 2021 outlook, capital allocation, and future operating performance, our expectations regarding the impacts of COVID-19, our expectations regarding the impacts of the AGR decision in India, our expectations regarding our pending Telstra acquisition, 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 releases, those set forth in our Form 10-K for the year ended December 31st, 2020, 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. And with that, let me turn the call over to Tom.

Thanks, Igor. Good morning, everyone. As is typical in our first quarter of calls, The focus of my comments today will be on our foundational U.S. business, which represented nearly 58% of our total property revenue and more than two-thirds of our consolidated property segment operating profit in Q1, while accounting for about three-quarters of our $60 billion in contractually committed revenue. The overall NOI yield of our U.S. property segment now stands at 11.5%. with sites in the portfolio for at least 10 years, generating more than 20%. These metrics reflect our long track record of driving strong, profitable, recurring cash flow growth in the U.S., and we remain confident in our ability to extend that track record long into the future. This confidence is inspired not only by the exceptional visibility we have into our long-term organic growth rates through our existing comprehensive master lease agreements, but also due to a number of favorable industry trends that we expect to drive our business forward. These trends in large part center on our customers' 5G network deployments, which we expect to meaningfully accelerate over the next several years, giving rise to a more developed 5G world. On the demand side of the equation, mobile data usage growth shows no signs of slowing. The average smartphone user in the U.S. is currently consuming more than 15 gigabits per month and is expected to be using more than 50 gigabits on a monthly basis by 2026, reflecting a CAGR of nearly 30%. The proliferation of value-added streaming services, mobile video conferencing, and other content-rich, bandwidth-intensive applications continues to stress existing 4G wireless networks creating the need for more material additional network capital investment. And emerging AR and VR applications and other next-gen capabilities are contributing virtually nothing to mobile data usage today, given the limited coverage and low 5G device penetration. But we don't think that will be the case for long. The 5G network revolution is underway, and it's quite possible, perhaps even likely, that current growth projections for U.S. mobile data usage will prove to be conservative, much like what we've seen in the past. The development of 5G-related low-latency applications and services, additional growth from enterprise accounts, and even fixed wireless applications in the home could all drive usage much higher over time. We expect that the increased availability of Spectrum in the marketplace, particularly on the mid-band side, will help enable this usage growth going forward. spectrum has always been the lifeblood of the wireless industry, and given the capacity necessary to provide users a true 5G experience, it is more important today than ever before. Particularly significant in our view are mid-band spectrum assets like 2.5 gig and the newly acquired T-band frequencies, as they provide our customers with a crucial middle ground between the attractive propagation characteristics of low-band spectrums and the deep capacity characteristics of higher bands. We believe the results of the most recently completed C-band auction underscore the importance of this spectrum to our customers as they look to monetize the benefits of 5G. Importantly, as the carriers emphasized in their public comments after the auction, we expect this spectrum to be deployed quickly. The wireless industry is in a strong financial position, and numerous steps have been taken by the carriers to not only fund the upfront purchase price of the spectrum, but also to effectively deploy it. In fact, we are already seeing sizable increases in activity in our own services segment. And consistent with our long-term outlook expectations, we expect to see higher levels of gross new business in our property segment beginning later this year, particularly in 22 and beyond. Part of this uptick in activity is in rural areas, as stimulus funds from the government support smaller companies to effectively deploy wireless Internet services, and as the major operators continue to fill in the white spaces in their network. The deployment of fixed wireless for households around the country using mid-band spectrum, as our customers are planning, could also provide further opportunities for us going forward. Taking all of these factors into account, we believe we have a highly attractive network long-term monetization opportunity in turn. The carriers further densify their network and add more equipment to existing lease sites to support their incremental capacity needs. A significant portion of this growth is locked in to our existing contractual relationships. Other components of the growth may be more variable. Either way, we expect to see higher levels of activity in the marketplace, accompanied by increasing wireless CapEx spend. On this point, analysts are projecting more than $35 billion in average annual capital spending from our customers over the next several years, which would represent industry records. Put that in perspective, that average annual rate is more than double what the carriers spent back when 2G was actually deployed. While each of our customers have slightly different strategies to deploy 5G, we are confident that they will be successful in doing so. We also believe that our macro tower-oriented U.S. portfolio of over 43,000 sites is optimally positioned to benefit from these accelerating deployments. Macro sites continue to be by far the most cost-effective RF-efficient network engineering option and are also optimally located to help deliver coverage and capacity for hundreds of millions of people nationwide. As a result, we continue to believe that the vast majority of mid-band deployments in the U.S. for the foreseeable future will be on macro towers. Our network infrastructure was ideally suited for our customers' needs for 2G, 3G, and 4G, and we have no reason to believe that 5G will be any different. What we do expect to be unique to 5G is the added use of massive MIMO technology for mid-band spectrum deployments on our macro towers. which should provide operators with more dynamic coverage and capacity capabilities. The race to nationwide 5G with the use of massive MIMO will require more fiber connections to antennas, increased DC power, and enough capacity to accommodate the size and weight of these more intelligent RF solutions. To prepare for these requirements, we have been proactively investing in more efficient and scalable power solutions at many of our sites, We've also upgraded the capacity of many of our tower structures over the last decade, installed energy-efficient LED lighting on many sites, and invested in site hardening initiatives where appropriate. Simply put, we stand ready to service our customers as they accelerate their 5G deployment. Importantly, macro sites may even be more critical today given the incremental density networks we'll require to support a 5G architecture. And because only one of our existing tenants is on more than half of our sites today, we have a tremendous opportunity to drive incremental lease effect and capacity utilization as densification initiatives ramp up. As has been our experience, we would expect that roughly 90 cents of every dollar we generate from this organic leasing activity will flow straight to the bottom line. As a result, we expect to continue to drive strong operating leverage in the business along with modest capital intensity, reflecting two of the hallmarks of our last several decades of growth. Additionally, we expect to continue to generate strong operating profit margins, including more than 78% in 2021. All of these factors contribute to our confidence in our ability to drive average annual U.S. and Canada organic tenant billings growth of at least 5% through 2027, normalized for the sprint current impact and at least 6% from 23 to 27 specifically calculated on the same basis. Importantly, more than two-thirds of this growth has now been factually locked in, given the signing of our MLA with DISH in the first quarter. Embedded with these expectations is the assumption that our portfolio of wireless towers will be our fastest-growing asset, as has been the case over the last five years when our organic tenant billings growth was an average of roughly 40 basis points higher than our overall U.S. metric. This resilient trend, in our view, is another point of validation. MacroTower will continue to be the focal point of modern wireless networks, generating the best economics across the telecommunications real estate universe. Going forward, we expect these economics to get even better. Margins will benefit from densification-driven leasing activity and continued amendments, while costs will remain largely fixed and capital intensity should continue to be low. Existing leases will escalate at a historical rate of at least 3%, and normal course churn should be quite modest, likely trending down over time, particularly once we warp through the sprint cancellations over the next few years. We intend to remain laser-focused on maximizing our sustainable cash flow growth from these fundamental 5G drivers. We also believe that the economics of our U.S. business, and specifically of our macro tower sites, can be further enhanced through the implementation of selective platform expansion initiatives. Chief among them is edge computing, which is starting to come into clear view as true 5G becomes a reality for consumers, and perhaps even more importantly, for the enterprise segment. We expect the key drivers of demand for edge compute solutions to be the emerging need for incremental cloud-ran locations and lower-latency applications processing in a 5G environment. As more and more data processing evolves to the network edge to support those needs, we anticipate that new micro-edge data center architecture will be necessary to complement the existing regional framework. Select locations within our nationwide macro tower asset base which by definition are at the mobile network edge, are positioned to play a meaningful role in this evolution. The underlying thesis supporting this belief is the concept that just as it has been for the last two decades in the deployment of wireless networks, shared neutral host infrastructure will be the most cost-effective and efficient way to rapidly deploy cloud-native 5G applications at scale. And given that our attractively located tower sites have existing access to fiber and power while already hosting multiple communications providers, they are natural candidates to represent hub locations for these low latency wireless edge data centers. Scale deployment of the true mobile edge remains several years away. But in our view, the TAM could be quite significant, running well into the billions of dollars annually. In the meantime, we have some half dozen ongoing small scale distributed commuter trials at our tower sites, creating a beachhead to larger scale through mobile edge deployment. Additionally, our COLO ATL facility continues to outperform our expectations, and we are having meaningful conversations with a number of key stakeholders across the data center and cloud sectors regarding the optimal requirements for the 5G edge. As we've noted previously, we intend to explore global joint ventures or partnerships to effectively leverage these inherent opportunities. And we continue to work through a number of different scenarios on that front. The early data points we are seeing throughout the industry all suggest that this can be a meaningful, scalable opportunity that can represent solid upside for us in due time. And we are devoting resources internally to ensure that we are in a position to be opportunistic and agile. In the context of the long-term outlook we discussed last quarter, we believe that mobile edge compute could eventually represent meaningful potential upside. Having said that, we are going to remain disciplined from a capital deployment perspective, as you would expect. Returning revenue, strong long-term growth prospects, healthy ROIC, and an attractive margin profile are all prerequisite for us to deploy meaningful capital anywhere. and that includes our efforts on the platform expansion side. Our preliminary assessments indicate that the edge opportunity fits nicely into our framework, but we will need to prove out this thesis going forward. So taking into account the strong underlying baseline growth path we have in the U.S. for the next decade, we are in a position to be thoughtful, deliberate, and strategic with these types of initiatives. Additionally, While we are laser-focused on driving incremental value in the U.S., we expect to have attractive opportunities to deploy capital internationally, where high-quality, scaled, macro-tower portfolios are likely to come to market. And while my comments today are focused on our U.S. operation and marketplace, the exact same approach can be duplicated globally. Whether it's growth, platform expansion opportunities, or margin expansion, the messages globally are identical. With our roughly 220,000 sites pro forma for the Celsius acquisition, we have an unmatched presence in some of the fastest-growing wireless broadband markets, period. And we can offer to a number of different parties a one-stop capability that is second to none. While we would expect to expand the depth of this presence over time so as not to be complacent, we believe that it already gives us a significant competitive advantage. So as we've always done on a global basis, we will be seeking to maximize long-term growth and AFFO per share while maintaining attractive returns on invested capital. We also continue to invest in our people, our systems, and processes and remain focused on numerous ESG initiatives while dedicating ourselves to ensuring a diverse and inclusive culture throughout the company. To summarize, I want to reiterate our excitement about the U.S. markets We are in the very early stages of a transformative period in U.S. wireless technology, one that has the potential to fundamentally alter how we live, work, and play, while opening up tremendous new possibilities across numerous industries. Our extensive portfolio of communications real estate across the country sits at the cross-section of the elements that can make this transformation a reality. And as a result, We are positioned to drive compelling long-term stockholder returns while continuing to provide industry-leading service level to both existing and new customers. Finally, I want to recognize our nearly 6,000 employees around the world who are working tirelessly for all of us. Achieving the types of results Rod is going to walk you through now, particularly through this horrific pandemic, is really remarkable. and I want them to know just how much we all appreciate their dedication and hard work. With that, let me hand the call over to Rod to discuss our first quarter results and updated outlook. Rod?