Crown Castle Inc.

Please stand by. We're about to begin. Good day and welcome to the Crown Castle Q2 2021 earnings conference call. Today's call is being recorded. And now at this time, I'd like to turn the conference over to Mr. Ben Lowe, Vice President of Corporate Finance. Please go ahead, sir.

Great. Thank you, Cody, and good morning, everyone. Thank you for joining us today as we discuss our second quarter 2021 results. With me on the call this morning are Jay Brown, Crown Castle's Chief Executive Officer, and Dan Schlanger, Crown Castle's Chief Financial Officer. To aid the discussion, we have posted supplemental materials in the investor section of our website at crowncastle.com that will be referenced throughout the call this morning. This conference call will contain forward-looking statements which are subject to certain risks, uncertainties, and assumptions, and the actual results may vary materially from those expected. Information about potential factors which could affect our results is available in the press release and the risk factors section of the company's SEC filings. Our statements are made as of today, July 22nd, 2021, and we assume no obligations to update any forward-looking statements. In addition, today's call includes discussions of certain non-GAAP financial measures. Tables reconciling these non-GAAP financial measures are available in the supplemental information package in the investor section of the company's website at crowncastle.com. Before I turn the call over to Jay, I want to mention that we will take as many questions as possible following our prepared remarks, but we plan to limit the call to 60 minutes this morning. So with that, let me turn the call over to Jay.

Thanks, Ben, and thank you everyone for joining us on the call this morning. As you saw from our second quarter results and increased full year outlook, we continue to generate significant growth in cash flows and dividends from the deployment of 5G in the U.S. We are experiencing the highest level of tower activity in our history, resulting in a year of outsized growth as we now anticipate 12% growth in ASFO per share for full year 2021. meaningfully above our long-term annual target of 7% to 8%. Our current 7% to 8% growth target was established in 2017 when we expanded our fiber and small cell strategy through the completion of our largest acquisition. This 7% to 8% growth target was an increase of 100 basis points from our prior target since we expected a diverse portfolio to increase our ability to consistently drive long-term growth. Since that time, this strategy has worked better than expected, as we have grown our dividend per share at a compounded annual growth rate of 9%, with some years being driven by outsized growth in our fiber and small cell business, like last year, and other years, like this one, being driven by higher growth in our tower business. This record level of activity is tied to the existing wireless carriers increasing their spend to add more equipment to tower sites, and DISH starting to build a new nationwide 5G network from scratch. We expect this elevated level of activity to continue beyond this year and support future growth on our towers. While driving strong growth in our tower business this year, the initial focus by our customers on towers has also led to some delays in our small cell deployment, shifting the timing of when we expect to complete the nearly 30,000 small cells contractually committed in our backlog. When combined with zoning and permitting challenges, as well as the previously disclosed sprint cancellation, we now expect to deploy approximately 5,000 small cells in each of this year and next year, with the remaining nearly 20,000 from our current backlog completed beyond 2022. This delay has not impacted our view of long-term attractiveness of small cells, since the fundamental need for small cells continues and the unit economics remain in line with our expectations. With more than 50,000 small cells on air, we have already seen how important small cells are as a key tool used by the carriers to add network capacity by reusing their spectrum over shorter and shorter distances. We believe small cells will be an even more important tool going forward as the nature of wireless networks requires continued cell site densification to meet the increasing demand for data, especially as 5G networks are deployed. As a result, we believe these timing factors will not alter our long-term returns on our investments or our ability to deliver on our growth objectives. Dan is going to discuss our second quarter results and our expectations for the balance of 2021 in a bit more detail, so I want to focus my comments this morning on our strategy to deliver the highest risk-adjusted returns for our shareholders. One of the core principles of our strategy is to focus on the U.S. market, because we believe it is the best market for communications infrastructure ownership with the most attractive growth profile and the lowest risk. With that view in mind, we've invested nearly $40 billion in shared infrastructure assets that we believe are mission critical for today's wireless networks and sit in front of what is expected to be a massive decade-long investment by our customers to deploy 5G in the US. As you can see on slide four, Our tower and fiber investments are at two different stages of development and maturity. Our tower investment began more than 20 years ago at an approximately 3% yield when we built and acquired assets that we could share across multiple customers. By providing a lower cost to each customer, we have leased up those assets over the years and generated compelling returns for our shareholders. As we have proven out the value proposition for our customers over time, Our tower assets now generate a yield on invested capital of 11%, with meaningful capacity to support additional growth. As we realized that wireless network architecture would need to evolve with 4G, requiring a network of cell sites that would be much denser and closer to end users, we expanded our shared infrastructure offering beyond towers, establishing the industry-leading small cell business in the U.S. It's encouraging that the business is already generating a current yield on invested capital of more than 7%, given the relative immaturity of these investments. To provide additional visibility into how our investments are progressing, we've updated our analysis of the cohort of five markets we introduced a year ago. Looking at a collective view of how these five markets have performed over the last year on slide five, growth from both small cells and fiber solutions has contributed to an incremental yield of 7 percent on the approximately 200 million of incremental net capital investment. Adjusted for the timing impacts associated with a large in-process small-cell project where capital investment has occurred in advance of the corresponding revenue and cash flows, the incremental yield is approximately 8 percent. This incremental yield resulted in a modest decline in the combined cash yield from 9.2 percent a year ago to 9 percent currently. This is in line with our expectations as we have invested in new small cells at a 6% to 7% initial yield that we expect to grow over time as we lease up those assets to additional customers. During the last year in these markets, we have added more than 500 route miles of new high capacity fiber to support the deployment of approximately 2,000 small cells. Importantly, approximately 40% of the small cells deployed were co-located on existing fiber, with the balance representing new anchor builds and attractive areas of these markets where we expect to capture future small cell and fiber solutions demand. We believe each of the markets shown on slide six provides a helpful representation of how our overall strategy is performing over time, given how different these markets are when it comes to the average life of the investment, the density of small cell nodes per mile of fiber, and the degree of contribution from both small cells and fiber solutions. Generally speaking, we would expect markets that have a longer average investment life to have higher returns than those with less mature assets. This is true because we have more time to add customers to existing assets, which is consistent with our historical experience with towers, where we have, on average, added about one new tenant every 10 years. Similar to our experience with the movements in yield and tower investments over time, as we showed back on page 4, sometimes this steady climb of yields on legacy investments is less obvious as we invest in less mature assets that bring down the overall market yield. This is certainly true of some of the cohort. Very much related to the average life of the investment is the density of small cells per route mile of fiber. Since, as in the tower business, the co-location of additional nodes on existing fiber is what drives the yields up over time. Consequently, we typically see a higher percentage of nodes co-located on existing fiber as the density of nodes increases. On the third characteristic, we believe the markets with both small cells and fiber solutions will ultimately have higher yields than those with only one of the two revenue streams. With this setup as a backdrop, I want to share a few observations that I think are important to highlight as we assess this data set on page six. Looking across the markets, you can see the longer average investment lives tend to correspond to higher yields. Denver has the least mature capital base and the lowest market yield, while Orlando has one of the most mature capital bases and the highest yield. In addition, the higher density of nodes per mile, which is generally correlated with the longer investment life and higher percentage of co-located nodes, generates higher market yields. The financial benefit associated with co-locating nodes is apparent when looking at the incremental yield in Los Angeles and Phoenix. In the last year, about half of the small cells deployed across those two markets were co-located on existing fiber, resulting in a strong incremental yield. Meanwhile, Denver does not fit neatly into this framework, featuring the highest node density but the lowest yield. Part of the explanation is that Denver is a market where we spent more than we originally budgeted on our initial build activity, which weighed down the starting yield. Importantly, during the last 12 months, we achieved strong yields on incremental invested capital in Denver, increasing the market yield by 70 basis points. This is consistent with our experience more broadly in the small cell business, as co-located nodes on existing fiber come at high incremental yields, driving attractive returns over time. And finally, looking at the financial benefit of having both small cells and fiber solutions leveraging the same asset base, you can see the markets with a meaningful contribution from both offerings are generally performing better. The best example to point to here is Philadelphia, where despite having a less mature capital base and lower node density than Phoenix, it is generating a similar yield on invested capital of nearly 10%, due primarily to the higher contribution from fiber solutions. Our experience in Philadelphia also highlights another important point when assessing the performance of a portfolio of assets. Similar to what we've seen throughout our long history of Towers, when you zoom in on a particular set of assets and focus on a short time period, the picture may not always be perfect. Over the last year, the market yield in Philadelphia has contracted by 60 basis points due to a combination of a lack of small-cell activity, as this was not a priority market for our customers, and more muted growth from fiber solutions. Despite this, Philadelphia is still generating a very attractive yield on invested capital, and we believe our dense fiber footprint in this top market is positioned well to capture future small cell and fiber solutions growth. In summary, the combined performance of this cohort of markets provides another point of validation for our strategy, with small cells and fiber solutions growth contributing to attractive incremental yields while we continue to make discretionary investments in new assets that will expand the long-term growth opportunity. Turning back now to our overall strategy, as has been obvious to all of us over the last 18 months, connectivity is vital to our economy and how we live and interact with one another. Our strategy is to provide profitable solutions to connect communities and people to each other. Our business is also inherently sustainable. Our shared infrastructure solutions limit the proliferation of infrastructure and minimize the use of natural resources. Our solutions help address societal challenges like the digital divide in underserved communities by advancing access to education and technology. As you've seen in our last two sustainability reports, we've enhanced our focus on ESG, which we believe will drive increased revenue opportunities from things like smart cities and broadband for all, and lower operating costs in areas like power lighting, electric vehicles, and interest savings, which Dan will discuss in just a minute. Importantly, none of this is possible without a team at Crown Castle that embraces diversity and inclusion, ensuring that our employees and our business partners are empowered to help us serve our customers, connect our communities, and build the future of communications infrastructure in the U.S. So to wrap up, we expect to deliver outsized AFFO per share growth of 12% this year, as we capitalize on the highest tower activity levels in our history, with our customers deploying 5G at scale. We expect this elevated level of tower activity to continue beyond this year. Our diversified strategy of towers and small cells has driven higher growth than expected as we have grown our dividend at a compounded annual growth rate of 9% since we expanded our strategy in 2017. And looking forward, I believe our strategy to offer a combination of towers, small cells, and fiber solutions, which are all critical components needed to develop 5G, will extend our opportunity to deliver dividend per share growth of 7% to 8% per year. And when I consider the durability of the underlying demand trends we see in the U.S. that provides significant visibility into the future growth for our business, I believe Crown Castle stands out as a unique investment that we believe will generate compelling returns over time. And with that, I'll turn the call over to Dan.