American Tower Corporation (REIT)

Ladies and gentlemen, thank you for standing by. Welcome to the American Tower fourth quarter and full year 2023 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, then 0 now. I would now like to turn the call over to your host, Adam Smith, Senior Vice President of Investor Relations. Please go ahead, sir.

Good morning, and thank you for joining American Tower's fourth quarter and full year 2023 earnings conference call. We have posted a presentation, which we will refer to you throughout our prepared remarks under the investor relations tab of our website, www.americantower.com. I'm joined on the call today by Steve Vondran, our president and CEO, and Rod Smith, our executive vice president, CFO, and treasurer. Following our prepared remarks, 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 2024 outlook, capital allocation, and future operating performance, our expectations for the closing of the sale of our India business and the expected impacts of such sale on our business, our collections expectations in India, and any other statements regarding matters that are not historical facts. 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 that will be set forth in our upcoming Form 10-K for the year ended December 31st, 2023, 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. With that, I'll turn the call over to Steve.

Thanks, Adam, and thanks to everyone for joining the call today. I'd like to start by saying it's an honor and a privilege to step into the role of CEO at American Tower. I want to thank Tom Bartlett for his leadership over the last 15 years at the company and congratulate him on an exceptional career. I certainly recognize I have big shoes to fill, and to all of our stakeholders, I look forward to continuing to build on the tremendous success we've achieved together to date. In recent weeks, I've been telling many of our employees, customers, and investors that I'm more excited today by the opportunity ahead than I've been in my 20 plus years with the company. There are two key reasons for that. First, we're still in the early stages of a mobility and computing driven technology wave that suggest distributed digital infrastructure is going to be in higher demand for the foreseeable future. Second, we've spent the last two decades developing a leading global portfolio with real estate, power, and interconnection platforms that will serve as the core backbone of this wave. I believe we're now positioned to harvest the benefits of the scaled, differentiated tower and data center platforms we've built to provide a unique value for our customers and best-in-class growth, profitability, and returns for our investors. To deliver on that opportunity, we're going to be zeroing in on a few key areas in 2024 and beyond. To begin, we're committed to operating the highest quality portfolio. This means owning and investing in assets in the most attractive geographies where secular demand trends signal the potential for long-term sustained growth. Equally as important, it means securing business with market leaders, maintaining contract structures that maximize organic growth and minimize downside risks, as well as attracting and securing accretive development opportunities afforded by our in-market scale and leading operational capabilities. We saw the clear benefits of these factors play out in 2023. In our anchor U.S. and Canada tower business, the 5G investment cycle and contributions from our comprehensive MLAs drove a record of roughly $230 million in co-location and amendment growth. International performance was also driven by record organic new business growth contributions and further supported by critical CPI-linked escalator terms and growth from our build-a-suit and powers-of-service programs. Furthermore, our differentiated CoreSight interconnection business sought second consecutive year of record-signed new business. Going forward, we're going to continue our focus on maximizing organic growth across our existing assets and complement that with incremental revenue generation through select development opportunities. At the same time, we'll continue to actively assess and challenge our prior capital allocation decisions to ensure the opportunity we see ahead across our global footprint is still supportive of our original underwriting thesis and apply what we've learned over the last two decades to our deployment plans going forward. Ultimately, we're focused on operating a portfolio that provides the proper mix of risk exposure and can deliver high-quality, sustained top-line growth supported by an operating structure that drives outsized rates of conversion to profitability and commands a premium in the market. That's a good segue into the next area of focus, which is delivering the most efficient global operating model centered around cost discipline, margin expansion, and increasing returns on invested capital. Our global and regional scale and long operating track record present an opportunity to further improve on the operating leverage inherent in the neutral host infrastructure model. We're accelerating initiatives in our regional operations to bring down direct cost per site. We're also investing in experimentation and implementation of AI applications and other technologies that create a more cost and time efficient equipment deployment cycle, bring greater precision and lower cost to our maintenance operations, and improve yields on renewable energy generation just to name a few examples. When it comes to our overhead costs, as you'll see in our 2024 guidance, we're targeting a reduction in SG&A, which combined with healthy top line growth is supporting an 80 basis point reduction in cash SG&A as a percentage of property revenue and an approximately 200 basis point expansion in cash adjusted EBITDA margins since 2022. Continued improvement to our cost structure and driving profitability is going to be a cornerstone of our growth algorithm going forward. Next, and as we've highlighted on past calls, we're working today to further reinforce our balance sheet as a strategic asset. Our investment-grade credit rating is at the core of our strategy, and that's not going to change. In fact, I believe market access and cost of capital advantages may be of even more strategic importance in this cycle than they were over the last decade. As Rod will elaborate on further, we made substantial progress towards strengthening the balance sheet in 2023. And as we look to 2024 and beyond, our capital allocation program is going to prioritize resiliency and flexibility in this evolving economic environment. Together with other strategic initiatives, like reducing our overall capital intensity and executing on cost savings across the business, we'll hold the dividend relatively flat in 2024, subject to board approval. In turn, we'll prioritize a reduction to our gross debt balance and accelerate the pathway to achieving our net leverage target and enhance financial flexibility. As we've highlighted in the past, while M&A is not a priority today, as a company, we want to be in a position of strength when and if strategically relevant portfolios that meet our investment criteria do come to the market. In our internal CapEx program, we'll continue investing to expand our existing tower and data center platforms by selecting the opportunities with the highest risk-adjusted rates of return. At American Tower, we've developed a unique ability to allocate capital between our US and international tower businesses as well as our U.S.-based CoreSight platform. We see this as a distinct competitive advantage. While we continue to view the tower business as the best model out there, the flexibility we're building into our CapEx program and the robust cash flow our assets generate allow us to be nimble and responsive to market conditions as we make capital allocation decisions over time, which in the near term means growing our exposure to developed markets. In our outlook for 2024, a larger share of our development capital is going toward the US and Europe, including expanding within our core site footprint, where the same demand trends that have resulted in two consecutive years of record new leasing are expected to drive stabilized returns in the mid-teens for ongoing development projects. We're balancing that with an expectation to build around 3,000 new tower sites, primarily in our international markets. This does represent a decline in volumes compared to 2022 and 2023, particularly as we assess certain risks in our emerging market footprint, including the FX volatility we've seen recently in Africa. However, I want to reiterate that we continue to see partnering with market leaders to grow our tower portfolio globally as a key component of our long-term growth algorithm. Simply put, the changes in the global macroeconomic environment we've seen over the last 24 months and our balance sheet priorities have raised the bar when it comes to required returns. And you're seeing discipline and flexibility reflected in the capital allocation expectations that we're rolling out for 2024. Finally, and foundational to our strategy, are the people throughout the global business. Everything I've talked about today hinges on the dedication and performance of our teams across the globe and the impact we can make for our customers, investors, and the communities we serve. I've been so impressed by the teams I've met with and heard from over recent weeks And we're going to continue strengthening our organization around the world and focus on developing, attracting, and rewarding the best talent in the industry. In closing, I want to reiterate my comments from the outset. I believe there's tremendous opportunity ahead for American Tower. Evolving technology trends continue to drive demand for more ubiquitous, dense, low latency distributed networks. Against those trends, we're going to leverage our leading tower and data center platforms, balance sheet strength, capital allocation discipline, and the dedicated teams that are supporting our global business to present a truly differentiated value proposition and compelling growth and return opportunities for shareholders. With that, I'll hand the call over to Rod to discuss our 2023 results and 2024 outlook.