American Tower Corporation (REIT)

Ladies and gentlemen, thank you for standing by. Welcome to the American Tower First Quarter 2024 Earnings Conference Call. As a reminder, today's conference call is being recorded. Following the prepared remarks, we will open the call for questions. If you would like to ask a question, please press 1 and 0 now. I would now like to turn the call over to your host, Adam Smith, Senior Vice President of Investor Relations and FP&A. Please go ahead, sir.

Good morning, and thank you for joining American Tower's First Quarter Earnings Conference Call. We have posted a presentation which we will refer to 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'll 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 set forth in our most recent annual report on Form 10-K, and other risks described in documents we subsequently file from time to time 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 today. As you can see in the results we reported this morning, mobile network upgrades and digital transformation trends are driving compelling demand across our tower and data center platforms. 5G rollouts are contributing to an acceleration in our U.S. application pipeline and another sequential step-up in co-location and amendment growth in Europe. Solid demand in Africa continued to drive elevated new business growth, and retail demand resulted in another quarter of strong sales performance at CoreSight, which you'll hear more about later on. Before handing the call over to Rod, I'm going to spend a few minutes discussing the key factors that have driven performance in our U.S. and Canada tower business and underpin the evaluation and execution of our global expansion strategy. In particular, we believe that our focus on asset quality, operational excellence, and contract structures, all through the prism of long-term value creation, have been the most critical factors in determining our ability to monetize growth in mobile data consumption and our ability to drive leading performance in our assets over multiple network investment cycles. Over the last 25 years, we've developed a scaled nationwide portfolio of approximately 43,000 sites across the U.S. and Canada. This portfolio has been methodically constructed, primarily through the acquisition of high-quality carrier-designed and constructed tower portfolios, on which nationwide networks have been built and expanded upon through each successive G, and have further benefited from the transition to neutral host operations. We've complemented the acquisition of these target assets with select high-quality independent tower provider portfolios, smaller tuck-in portfolios, and build-a-suit sites, which taken together represent meaningful scale. Our ability to be highly selective in the assets that we've aggressively pursued for acquisition and development the assets we've chosen not to pursue, and the standards we've used to underwrite our growth are the result of robust internal analysis and due diligence capabilities that rely on data insights that we've accumulated through our history as a tower operator. These insights have reinforced our understanding of how asset location, competition considerations, and structural dynamics come together to create the potential for differentiated value creation. For example, our focus on high-quality assets in premier locations has resulted in a portfolio that's geographically skewed towards suburban and rural environments and transport corridors where the vast majority of Americans live and travel, as well as towers that are structurally designed for co-tenancy, which we believe has enabled us to generate leading new business growth on our assets. Similarly, by focusing on assets with significant structural capacity, we believe we can reduce overall operating and redevelopment costs, allowing for profit and return maximization at the asset level and industry-best speed to market for care deployments in our towers. And we've seen these factors come together to result in significant value creation on our assets. Notably, cash operating profit margins for our U.S. and Canada property segment have expanded by over 440 basis points since 2016, the year following our Verizon transaction in the U.S. As we continue to focus on driving more new business and efficiency at the asset level, we see a path to further increasing the profitability of our U.S. and Canada business going forward. Turning to our operating model, through our focus on efficiency and delivering exceptional value for customers, we've invested in technology and the buildup of capabilities that we believe enhance the service we provide our customers and the value of our product offering. For example, through our application and services automation programs, we've continuously reduced cycle times, further supporting critical speed-to-market advantages for our customers, which translates into accelerated revenue realization for our business. Elsewhere in our services segment, we've combined investments in data quality and governance with the development of internal data platforms to improve our overall service offerings and asset integrity. Over time, customer feedback shows that these investments have resulted in a consistent upward trajectory in customer satisfaction, achieved by providing a differentiated customer experience of high asset integrity. In our land management operations, we've also taken an approach that's focused on our customers' needs and expanding the profitability of our sites. Through our Tower Asset Protection Program, we perform thousands of transactions a year that improve the ground rights and ease site access conditions, a critical factor for our customers. And over the last decade, we've deployed significant capital at attractive rates of return and admitted thousands of contracts to protect our assets and mitigate growth in land rent, supporting margin performance. Finally, as we've said publicly many times, contract terms and structure are critical to realizing the full value of the assets we own and manage. And our approach has been centered around creating long-term value for American Tower and our carrier customers, even when it can potentially come at the expense of short-term wins. Perhaps the most important capability we've built internally over the last two decades is knowing our assets and understanding their value. As a result, we've been able to achieve outstanding growth and create significant shareholder value under traditional MLA agreements, while also developing innovative structures such as the comprehensive MLA. Under these agreements, we're able to secure guaranteed growth over a multi-year period in a way that maximizes the value of our assets, while providing a degree of insulation from quarter-to-quarter ebbs and flows in wireless network spendings. Critically, we've seen that these contracts represent a compelling value proposition for our carrier customers by lowering their total cost of ownership when compared to self-performance, by providing a framework to leverage our skill for their networks that translates to budgetary operational visibility, and by creating administrative efficiencies that yield lower transaction costs on sell-side deployments. Taking all this together, we've seen this focus on the right assets, high-quality contracts, and operational excellence facilitate increasing monetization and growth in mobile data consumption and corresponding carry of CapEx increases over time. Over the course of the 4G investment cycle between 2010 and 2018, average mobile data consumption per smartphone increased from less than 100 megabytes per month to 7 gigabytes per month. And over that period, carriers were deploying approximately $29 billion annually on average, up from approximately $23 billion during 3G. As we've moved into the 5G investment cycle for early 2019 to today, we've once again seen mobile data consumption for smartphones grow to almost 30 gigabytes per month in 2024. We've seen early 5G subscribers consuming roughly two times the mobile data compared to the average 4G subscriber. And we've seen average annual carrier CapEx step up to approximately $36 billion a year. This CapEx investment translated to the approximately $230 million in year-over-year co-location amendment growth we delivered last year, much of which was attributed to 5G activity, as well as an expectation for growth on a per-site basis in 2024 that significantly exceeds the average seen during the 4G deployment cycle. That brings us to today. where we continue to see all of our key customers actively working on network upgrades and rollouts, and the 5G cycle playing out in line with the broader expectations underwritten in our long-term guidance. On our last call, we indicated that we expected a year-over-year increase in contributions for our services segment due in part to early indications of an uptick in our application pipeline, as well as conversations that our teams were having with their customers on the ground. The activity we saw in Q1 reinforces that expectation. Specifically, contributions in our services segment for the quarter came in ahead of our internal expectations. And on the application side, Q1 volume was over 70% higher than what we saw in Q4 of last year. In fact, March represented the highest volume level of the trailing 12 months. It was supported by broad-based step-ups across our major U.S. customers. Now, while there's always some level of risk associated with our expectations in the services segment, I'm pleased to say that what we've seen thus far supports the 2024 guidance we provided in February, including approximately $195 million in expected services revenue contributions, approximately 4.7% organic tenant billings growth, and $180 to $190 million in year-over-year co-location and amendment growth, one of our strongest years to date. So as we move forward, we believe our U.S. Tower portfolio is uniquely positioned to continue driving compelling growth as 5G, expected increases in mobile data consumption, and associated carrier investments drive increasing demand for our assets over time. Importantly, by leveraging that same expertise to develop our leading global portfolio, we're well-positioned to monetize similar trends across our global footprint while delivering a differentiated experience and value proposition to our customers. Further, we believe the factors I've taken you through today, as well as the global focus on increasing efficiency in our cost structure, provide a path to continue converting top-line growth at a rate that expands already attractive cash operating profit margins and creates incremental shareholder value. With that, I'll turn it over to Rod to discuss Q1 performance and our updated outlook.