Q1 2020 Earnings Call

Good day I welcome you to close <unk> first quarter 2020, Onee School today's conference is being recorded at this time I'd like to turn the conference over to Benno Vice President Corporate Finance. Please go ahead Sir.

Thank you and good morning, everyone. Thank you for joining us today as we review our first quarter 2020 results.

On the call. This morning are Jay Brown Crown castles, Chief Executive Officer, and Dan Schlanger Crown castles Chief Financial Officer.

Hey, the discussion we have pets.

Materials in the Investor section of the web site at Crown Castle Dot Com, which we refer to throughout the call. This morning.

This conference call will contain forward looking statements, which are subject to certain risks uncertainties and assumptions and actual results may vary materially from those expected.

Information about potential factors, which could affect results is available in the press release and the risk factor section of the company's actually see filings.

Our statements are made as of today April Thirtyth 2020 can we assume no obligation to update 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, a crown castle Dot com, so with that let me turn call over to Jay.

Thanks, Dan Good morning, everyone. Thanks for joining us on the call. This morning.

You saw from our press release, we delivered another quarter of positive results and maintained our guidance for 2020 growth the NAV per share of 7% to 8% consistent with our long term growth expectations.

I believe our strategy, an unmatched portfolio of more than 40000 towers and approximately 80000 route miles.

Five are concentrated in the top 100 U.S. markets.

In addition, crown castle generate growth in cash flows and dividends per share both in the near term and for years to come.

Dan will discuss the results and the full year 2020 outlook and a bit more detail. So I'll focus my comments. This morning lunch you coupons.

First our business is performing well despite the challenges and uncertainties created by Cobot 19, and second I believe the strong fundamentals the bar business and long term trends driving demand for critical infrastructure remain intact and provide a long runway of growth for Crown Castle.

On the first point, we see robust activity across our business both in terms of customer demand as well as our ability to continue to effectively operate.

As a provider of critical telecommunications infrastructure that is considered essential to public health and safety, we continue to construct and install our customers on our infrastructure.

That's the outbreaks code that we have focused on two primary goals to help guide our decision making.

First care for our workforce.

I can't deliver for our customers and the communities in which we operate.

We have undertaken a number of measures to promote the health and safety of our employees, including implementing work from home arrangements for the portion of our workforce, but typically works on the office.

Imposing travel restrictions in canceling in person meeting.

Providing an additional five days paid time off to all the bar employees.

Allowing flexible working hours to accommodate our employees, who are taking care of children and other loved ones and maintaining our workforce at frito that 19 levels.

Our people have been terrific throughout this crisis adjust into our new normal and we will continue to make the appropriate decisions to promote their health and safety.

In addition to our employees, we have focused on delivering for our customers and I'm encouraged by the activity levels, we are seeing across the business.

On the tower side, our customers continue to invest in their networks by deploying additional spectrum and new cell sites to keep pace with the 30% to 40% annual growth and data demand.

As we previously discussed the notice will decrease in activity that occurred late last year amid uncertainty around the merger between T mobile in spread carried into the first quarter. This year.

With the merger now complete we believe this slowdown will prove temporary as we anticipate a significant increase in industry activity and the second half of this year as all our carrier customers begin to spend money to improve their existing networks and asked fiveg investments begin to ramp.

Within our small cell business, we finished the quarter with approximately 45000 small cell bonaire unexpected deployed approximately 10000. This year as we are actively working a lot of construction pipeline currently exceeds 25000 notes.

We continue to respond to the significant demand smart customers, while at the same time navigating ongoing deployment challenges from some of our municipality and utility.

Adding to the returns we are seeing on our fiber investments, we generated 3% revenue growth from our fiber solutions business in the first quarter and anticipate similar level growth for the full year.

This growth is due to the increased bandwidth requirements. We are seeing from our large enterprise and carrier customers, which make up the vast majority of our fiber solutions customer base.

Although we have not seen the material impact from Cowen 19 on our ability to deliver for our new small cell and fiber solutions customers today.

It is possible we could see some new challenges the merge with respect to getting construction crews to sites or traversing it already difficult zoning and permitting environment.

On a positive note we have seen the wireless carriers efforts to improve their networks continue during the last six weeks.

As we discussed last quarter, we are expecting a significant ramp in activity throughout 2020.

Equally in the second half of the year.

Usually the level of intra year ramp implied in our outlook is significant and while there are many unknowns due to cope with 19, we believe we will be able to achieve this growth.

Importantly, we believe that any potential near term impacts from Cove, it would not alter our long term growth trajectory.

Which brings me to my second key point, we remain confident that our long term contracted revenues will allow us to deliver value to shareholders through a high quality dividend that we expect to grow 7% to 8% per year, given the durability of the demand for our critical infrastructure.

We have situated the company with the right assets in the right markets with market, leading capabilities to deliver value to our customers and generate shareholder returns for years to come.

We are providing investors with a consistent return of capital with the dividend funded with contracted revenues from our existing tower and fiber assets, while investing in new assets that will be critical for the future of communications networks.

Since last year, we have experienced the highest level of tower leasing activity in more than a decade with activity largely tied to our customers investing heavily in their fourg networks to keep pace with a 30% to 40% annual data demand growth that I mentioned earlier.

The combination of the market dynamics and our unique portfolio of assets positions us for a long runway as continued growth as the wireless industry transitions into another long investment cycle. This time to deploy fiveg.

As I look at the Big picture I believe we are seeing the very beginning of the wave of Fiveg activity that will begin this year and continued for years to come.

My view is supported by the public comments that Verizon ATM tea and T. Mobile have made over the last several weeks affirming their commitment to build robust fiveg networks.

Adding to this long term opportunity a new customers entering the wireless market at scale for the first time in more than a decade.

This networks planning to deploy a nationwide network over the next several years to compete with the established operators and to me, it's significant buildout requirements in D.O.J. settlement.

With our unmatched asset base of towers small cells and fiber. We believe we are in a very favorable position to assist this as they build up their network.

And with this unmatched portfolio of assets, our financial Wherewithal and operating in the best market in the World for Communications infrastructure I believe Crown Castle is in great position to excel and the current environment and to capture substantial long term opportunity while consistently returning capital to shareholders through.

Hi, quality dividends that we expect to grow 7% to 8% annually and with that I'll turn the call over to date.

Thanks, Jay and good morning, everyone.

As discussed we got off to a solid start with first quarter results performing in line with our expectations and we continue to expect to generate attractive growth in cash flows and dividends per share for the full year 2020.

Turning to slide three of the presentation, we experienced another excellent quarter of strong topline results that included nearly 6% growth inorganic contribution to site rental revenues driven by approximately 10% growth from new leasing activity and contracted tenant escalations netted approximately 4% from tenant non renewals.

The revenue growth was offset by lower surfaces contribution increased costs relative to the same period last year, resulting in 1% growth in adjusted EBITDA and et cetera.

The lower services contribution was in line with our expectations and tied to the slowdown in tower activity, but again in the fourth quarter last year and carried through the first quarter of this year.

As Jay mentioned, we anticipate a significant increase in industry activity in the second half of this year as all our carrier customers and best to improve their existing networks and as fiveg investments begin to ramp.

With respect to the increase in costs, we incurred approximately $10 million of costs in the first quarter that we do not expect to recur going forward.

Turning to page four we're maintaining our full year outlook for 2020.

At the midpoint. This represents approximately 5% growth in site rental revenue, 6% growth in adjusted EBITDA and 9% growth at Cisco year over year compared to 2019 and includes approximately 6% growth year over year inorganic contribution to site rental revenues.

Turning to investment activities during the first quarter capital expenditures totaled $447 million, including $21 million, a sustaining expenditures and $426 million discretionary capital investments across fiber towers and small cells.

Additionally, we returned significant capital to our shareholders during the first quarter with our quarterly common stock dividend totaling $513 million or $1.20 per share representing growth of approximately 7% on a per share basis compared to the same period fear ago.

At the end of the quarter, we further improved our financial flexibility by Opportunistically accessing the investment grade bond market to lock in long term debt at attractive rates.

Specifically in April we issued $1.25 billion of senior unsecured notes with a combination of 10 and 30 year maturities using the net proceeds to repay outstanding borrowings under our revolver.

The offering at a weighted average maturity of 18 years and coupon of approximately 3.6% achieving the second those coupons in our history for comparable maturities.

Our ability to Opportunistically access long term capital at historically low all in rates during a period of disruption in capital markets speaks volumes to the strength of our underlying business in the level of support we have from our investors.

Following this financing transaction, our balance sheet and liquidity position remains in great shape with $5 billion of available liquidity from our undrawn revolving credit facility.

Only $1.6 billion of debt maturing through the end of next year.

Weighted average cost of debt of 3.7% with a weighted average maturity of seven years across our entire balance sheet.

In addition, we finished the quarter at 5.6 times debt to EBITDA.

We remain committed to our investment grade credit rating and anticipate a glide path back to our target leverage of approximately five times by the end of 2020 based on the expected EBITDA growth throughout the year.

So to wrap up our first quarter results were in line with our expectations and we believe we remain well positioned to generate 7% to 8% growth in AFFO per share in 2020.

Looking further out we believe our ability to offer towers small cells in fiber solutions, which are all integral components of communications networks provides us the best opportunity to generate significant growth, while delivering high returns for our shareholders.

With that operator, I'd like to open the call to questions.

Thank you if you would like to ask a question. Please note that trend seems to have one on your telephone keypad is interesting if speakerphone. Please make sure your nutrition is Candace Joe logistic now to each other quite thanks again first I want to ask a question with thoughts with just a moment gentlemen, if one and it puts you need to signal for questions.

The first question comes from Simon Flannery at Morgan Stanley.

Great. Thank you very much and thanks for all the color here. So I wonder if you could just talk a little bit more about the ramp in the caused the back half a year.

Can you give us some more color about how your longer think it'll take to negotiate with.

T mobile where you stand on that and then do we see significant activity into.

Q3 years already Q4 run a lot of the major activity will take place and then on the fiber <unk>. How much you can you talk little bit about your exposure to SMB on are you seeing any pressure from that segment. Thank you.

Good morning, Thanks for the questions on your first question around around the ramp in the second half of the year I think the the ramp that's probably most pronounced in our services business.

You saw that down sequentially quarter on quarter enough in the first quarter, we expect the second quarter to look somewhat similar to what we saw in the first quarter.

And then as we get into the second half of 2020, we think it's going to look pretty similar to what we saw in the first half of 2019.

And that's based on activity that we're seeing across the entire industries. So.

Obviously dance spoke to and I mentioned that briefly.

What we saw from T mobile.

In the fourth quarter of 2019, and then that continued into 2020.

Well they got the merger complete but.

If we send out away from just just thinking about one customer.

I would I would point folks to go back and look at what activity look like in the first half of 2019, and we think that's about what it's going to look like in the second half of 2000.

2020, that's separate and distinct importantly from what we're seeing around the recurring revenue. So as we think about site rental revenues. Those those are continuing to grow throughout the course of 2020 and and I think the differentiation on the ramp really really plays itself.

Out in terms of services.

For all of the reason for both Dan and I mentioned about our prepared remarks as the carrier activity really starts to pick up and they start to see the benefit of.

Fiveg.

On your on your second question around fiber exposure to small businesses, a little less than 5% of our of our total revenues in the fiber side or are coming from small business. The median businesses we are.

We are.

Vast majority of our fiber business.

It is related to the large enterprises and things that are.

Things like education healthcare the carriers and those businesses are really skewed away from things that we would expect to be impacted by code that night team.

So as we look at the landscape.

Today, we really don't see.

Much impact from some cobot 19 have very little exposure to small and medium business side in that business.

Right, Thanks, what color.

With that.

If you sign to your question answered you maybe move yourself from the cubic Princeton started.

Next question comes from to the Cusick at JP Morgan.

Hi, guys. Thanks.

The follow up on funds question I wasn't quite clear so services ramp certain should ramp in second half do you think that site rental revenue ramps as well or does it just happened late to really impact this year and the impact is more next year.

Sure Bill good morning.

On the on the ramp then and recurring revenue obviously the business has the nature of whatever we put in revenue today, we know that that recurs next quarter and then we add to it. So there is a ramp in the back half of the year.

But as folks think about the amount of ramp and the the pronounced impact to that ramp.

It's more impacted by what happens with services.

As we think about site rental revenue growth over the over the course of 2020.

Remember, there's sort of three components that that drives that growth and inside of the calendar year and its or are reflected in our expectations or growth.

At the top line, we have all of the leases that we signed during 2019.

That turned on during 2019, but we didn't get a full year benefit of those leases. So there's a rollover effect that we have in 2020 as we got a full 12 month of those leases.

Then there's a then there's a group of leases signed in 2019 and those are turning on now in 2020. So we have visibility to on there already signed there theres scheduled in the pipeline to be turned on there.

That will benefit gross and revenues year over year, and then the last component the smallest component bye bye bye quite a quite a measure would be leases that we signed in any given calendar year I. We signed in 2020 and then those leases turned on in 2020 that represent a small portion of our of our site.

Rental revenue growth so.

The portions that drive the biggest impact we have really good visibility to those because frankly, they've already been side and in many cases are already turned on.

And we're we're benefiting from the rollover effect.

And as you saw from our numbers or organic revenue growth from our prior guidance. In addition to that's not changing how we think about before you're in terms of guidance. If you look at the components of that guidance and the organic revenue growth whether its towers small cells more fiber those are unchanged from our previous.

Expectation, so we still expect tower revenue growth 275 million.

Small cell revenue growth to be so that 70 million and then the fiber revenue to be up about 165 million euro per year over year, which is exactly what we expected.

Active lifestyle.

Okay, and the restatement of services change the benefit at all as you compare that.

Second half when activity levels versus first half 19.

No the numbers that I'm speaking to in terms of pointing back to 2019 would be though the restated quarterly numbers for 2019, so it's an apples to apples comparison.

Good and then finally can you give us a sense just didn't win.

She and fiber in small cell construction little surprise, there hasn't been I mean, any delay and permitting and construction there.

Yeah, you know if you look at our results in the in the first quarter. We saw we saw no impact at all from code at 19, and thus far in April we've we've only seen a minimal impact anywhere in our business and we believe that.

As reflected by the fact that our guidance is unchanged. We believe that we can works through the challenges without any minute material impact on our on our results.

I think my cautionary statements.

Comments that I'm that I made in my prepared remarks.

Those are in recognition that the world is seeing significant disruption across nearly every industry.

So I think it seems to me the people prudent at appropriate state the obvious that we may not have visibility today and so all of the impacts because it would have a hub business I think on balance we believe our business will perform within the range of the outlook, which is unchanged from our from our prior view.

So we're excited and pleased with how it's done so far and believe we're in great position for the balance of the here.

[music].

Try to remain but you know clear eyes open minded to the fact that there there may be things that today, we just don't have visibility towards.

Thank you.

The next question comes from Jonathan Atkin, just because the markets.

Yeah. Thanks, very much so a couple of questions I wanted to.

That's true about kind of the ramp and we've seen in second half attributable to Fiveg is that true across each of the major carriers or was that more of an aggregate trend that you were calling out.

Jonathan It would be true of both.

Both integrated Ed and individually.

Okay. That's very helpful. And then I apologize if you didnt touch on this but the the 10 million increase and costs.

You didn't expect to the co going forward, what's what's the nature of those.

Yeah.

Those are related to some legal fees associated with our restatement.

In taxes on our RSU vesting that happened in the first quarter.

Uh huh.

Okay, and then lastly need more of a bigger picture question on that said on prior calls as well, but but just.

Any updated thoughts on edge computing and the role of your Brio investments as well as you're up your father assets.

Sure.

We're we're seeing really encouraging results on on that front.

As you'll recall, we made an investment and they brio several years ago, which has been our ability to sort of have insight into what's happening on the edge.

And it's certainly plays to our strategy of owning the infrastructure around the ecosystem of telecommunications both on the fiber side as well as on the tower side and believe that those assets combined have real strategic value at edge networks. That's developed largely in line with what we expected.

I'm really to.

In April and resource allocation to reduce network connection congestion and improve the latency around the networks.

And that the value and the opportunity that we really see and that's it if we.

We think about it thats kind of network or access edge.

Which really requires both fiber.

And network integration so the physical edge component of the network is not really that unique if you've got real estate at the edge the network.

I guess you on real estate close to where cell towers are the differentiation is not so much just that physical access it's the combination of the physical access.

With the fiber and so we believe we have a really unique and compelling opportunity here on the edge.

We are operational and four markets now a in the U.S. err on the edge side, and that's where it's worth thinking about.

The rest of this year and into next year, there's a number of other markets that will be operational in.

It's not material today in terms of or our results, but it is a an early I think it early indication of our strategy being one that that creates some pretty compelling opportunities long term. So we're thinking about this is kind of a long long long runway and opportunity for future growth not my.

Trialed today won't be material, probably next year, but.

As that continues to develop it could create some real real unique and an exciting opportunities for us.

Thank you.

Your next question comes from Colby and is now at college.

Great. Thank you.

You mean, just touched on this and as it relates to Jonathan's question, but has there been any notable change.

And carry behavior since keeping asking about 18.

Rising going.

Capex expectations at 18 keep seem to be suggesting that there is maybe not lower than they previously are expecting just color. If you can just talk about that out potential without mentioning names and thinking about share. Your preference and then also as it relates to cheeky Melissa I guess more specifically can I mean.

When you think your intention to just signed in new on the law with them and if so any color on when that might actually occur thinking.

Sure Colby on your on your first question around the change and carrier behavior.

You know if I, if I step back and look at where we are today.

Where we were six to nine months ago, I think our long term visibility around the investment, but the carriers going to make around fiveg better today than it was six to nine better today than it was six to nine months ago, we can see it across the entire industry. The plans are becoming more real more specific.

We're starting to see exactly where they're targeting the sites and how they're thinking about deploying fiveg network in terms of what quit equipment needs to be added how much of it needs to be added. So I think the visibility today is there've been a change in behavior. If you were to ask me that's relative to six months ago, yeah that the change in behavior.

Better today than what it was a enough thing that's happened in the last six weeks around around code that night team has changed that a change that view as I mentioned in my prepared comments I think carriers have been really public about the fact that they are intending to build build fiveg networks and up affirmed that.

Even in the midst of out of the current current environment. So I think from.

Everything that we can see we're we're more encouraged today than we would've done six months ago about what that the point that an opportunity opportunity looks like on your second question I'm going to back off of that we really prefer not to talk about specific customers of what the network deployment plans are so.

We're in we're in great shape with all of the carriers across the industry in terms of their ability to access our sites and we're certainly really focused on making sure that all of them are are able to achieve their deployment plans across or infrastructure.

Great. Thank you.

The next question comes from TV stopping at Bank of America.

Hey, guys. Thanks for taking the question.

So thanks for sharing the details or the.

Data point on the small business exposure being kind of sub 5%.

In the fiber services business I was wondering if you could kind of elaborate a little bit more on.

What the enterprise fiber services exposure you do have is related to and then began we saw some provisions being taken at 18 to you'd be easy for their business services Butier, presumably mostly on the SMB side, but I was wondering kind of what if anything you guys are provisioning for or expect.

You may have to provision for.

On the bed in enterprise services. Thanks.

Yeah, Dave Thanks for the question on the.

The vast majority of our customers would fall into the camp of.

What we would call the carriers and the large large enterprises that would make up more than two thirds of of the of the of the back of the base of revenues.

And specifically on the large enterprise, where we're heavily skewed towards a healthcare education and financial services. So if you were to take.

Those three large components.

That that's going to along with the carriers, that's going to make up the vast majority of our revenues and as I mentioned earlier and you you referenced at less than 5% of the revenues are coming from small and medium medium businesses. So obviously when you think about healthcare education, the financial services that customer base, we think it's less likely to be in.

Active by code that out and as we look at the Oh, the new new lease bookings that we saw during the month of March.

And as you know our business is heavily weighted towards the northeast corridor, which.

Many of the streets and aspects was shut down the second half of March we didn't see any impact within the month of March in fact, we had a very good showing and they're not the March.

Even as we are booking new new new revenues.

As I mentioned in my comment there are some places and some facilities where customers who have committed to use our service.

Need the bandwidth from us have delayed our ability to access their their facilities as a result of covert 19.

But we think that's a relatively short impact so once a once or protocols in place and were able to access. The facilities. Then we'll go into and be able to add the additional bandwidth and bring the surface to those customers. So.

I think in terms of our exposure both in terms of what the direction. If that is and then how we've seen it play out at the last six weeks I think our think our business there as.

We'll see very very little.

So no impact from from covered my team.

Awesome. Thanks.

Your next question comes from Brett Feldman at Goldman Sachs.

Oh, Thanks, I'm going after the M&A question, a little more broadly because if you look at your business you have customers as Colby noted who might need to combine anyways you might have new emerging customers you might need to create then might have existing customers. You just wanted to revisit them for a range of regions and you're offering multiple types of infrastructure now nothing towers.

I think small cells dropping fiber and most of your large wireless customers might have an interest in all of them and so as you approach. These conversations what are you hoping to achieve as you enter into new or modified were combined them away. What are the success components and as you do as you can look at that and see whether you're checking the boxes or not thanks.

Yeah, Brett Thanks, a question.

Stephanie stepping back from this and just kind of a broad answer to how we think about about running the assets and really just goes to how we think about the investment as well.

We make investment decisions based on what we think the recurring yield on those assets is gonna be and ultimately whether or not it is enhancing to our long term dividend per share growth rates. So embedded in that obviously, if we're going to get to a growth in the dividend we have to consider all of the cost of capital associated with the.

Assets that were that we're looking at and then how much cash flow can we ultimately generate off of those generate off of those assets. So we start first with kind of a perspective of what's the cost of the capital to acquire the asset and then what do we think the return around the asset it's gonna be and then build it up from there as we've talked about area.

Company I think this is particularly important as we think about the investment that we've made in fiber and in small cells where.

There's not as well.

Taking a historical way of thinking about the tower business. There was more of a wrote way of thinking about what the price per tower was and as we think about the pricing around small cells.

Which we think is the biggest driver of returns on on fiber that pricing is determined based on cost. So it's going to look different and a in a major metro dense urban downtown a business district I've been at Midas and more suburban setting depending on the cost of Costa deployment, so as we turn to having.

Conversations with the with the carriers.

Our aim is to provide them with the lowest cost alternative to them owning or building it themselves and so our aim is.

Tried to deliver something to them, but the shared infrastructure models, the play where it's cheaper for them to to shared among all of the carriers and police it from us than it would be for them to build it themselves and then as we think about whether or not that asset or that particular opportunity would be aventura square measuring that against.

The returns required in order to make sure we're delivering equity returns above and beyond any cost of the capital associated with that to be a little more specific to your question around how we think about that with the assets will then we just play that out into the specific the specific asset the carrier. So we'll go and understand.

Now what markets are they trying to go into what type of infrastructure do they do they want or need from us and ER and then and then work our way back works through the through the framework of ensuring that we're pricing appropriately in order to achieve the appropriate returns across the asset.

Yeah.

The next question comes from Rick Prentiss Raymond James.

Thanks for so could you guys. Your family employees are all save a little various crazy time, so it sounds like you're doing a good job there.

Thanks directly to the.

Should we think.

Well the tech the question maybe from a different angle.

Require new M.L.A.'s to see or modified in middle east to see the ramp into service business in the second half.

No. We don't we don't need to sign new Emily's customers in order to it to a cheaper ramp in front us.

And then obviously you guys have been approached the debt market got some really good tenor and cost of debt you got to glide path, but what if anything would cause you to think that.

Tap the equity markets I know in the past you kind of laid it out there as a potential but what would be making raising equity interesting as opposed to not interesting.

Yes, Rick.

We.

As a general don't want to issue equity going to keep our equity for our existing holders.

To think that see significant value there over the long term so the thing that would make us.

Let us know position of having finished right would be if we do get to a point that glide path is not happening.

And our leverage is remaining.

At elevated levels for two high that it would jeopardize our investment grade rating.

At that point, we would and that's what that means is that our EBITDA generation doesn't create enough leverage capacity to make up for the the capital we're spending.

And that would lead us to issuing equity.

So we're we're not looking at it to.

Certainly the said okay. As this opportunistically can we get something done right now it's more houses can impact our overall.

Average profile and when will we be required in order to maintain the rating that we.

The investment grade rating, we want to maintain for all the reasons you said earlier wishes.

We were able to access the debt markets.

And your pretty disruptive period, and got very good dinner and very good rates and won't be ability to do that going forward because we want in times of of distress and in times of things going well to be able to spend money on assets that we think will generate good long term returns like Jay was just talking about when we think that that having investment grade rating with hopes that.

That's it from the zoning permitting side any.

So you're watching but any concerns on ability to get crews or equipment supply with the supply chain out there anything from the crew side or the supply chain side.

Yeah, Rick I mean, I can speak to only what we've seen thus far which is a we haven't seen that I mentioned before we haven't seen any impact.

To date from from covert 19 so.

I recognize and again I'll say it again I think that to the widespread nature of Coca 19, and maybe the second and third derivatives of of impacts.

I don't want to say that I have perfect visibility to what that's going to look like into the future.

But thus far our crews have been able to continue to work and install our tenants and deliver the infrastructure that that's necessary. So we've not seen that impact we didn't see any impact in the in the first quarter results and haven't seen it thus far our teams are continuing to work in the states of then.

The states have been great as long as the federal government and then really clear that other deployment of telecommunications infrastructure is essential work that needs to be done and so our crews have been able to to navigate into work and to do so safely.

And and install that installed infrastructure and so at this point, we we don't see any impact.

Any impacts from from covert 19 in terms of limiting our ability to continue to deliver for for customers.

Okay and wish you all the best for you and your family stay safe and wellness.

That's right.

Yes.

Your next question comes from Michael Rollins at Citi.

Hi, good morning, and thanks for taking the questions two if I could first.

If you step back on the small cell business.

Frame, how the contract value allocate it.

Between the fiber infrastructure, we are providing versus the axles that you have to poles and other structures that they might more.

The attached to and then the actual you know electronics friend Palmer anything that you provided more technical basis, and then I'm. Just secondly is there an update to your prior disclosures around the inquiry from the FTC. Thanks.

Sure Good morning, Mike Thanks for the question.

On the on the first question around the small cell contracts.

We don't differentiate that as in terms of the contracts a itself I think probably the best way and hopefully that answers. The question in terms of which are like you're driving towards if you think about the capital cost associated with building small cell networks.

About 80, 85% of the total cost of the building those networks in the fiber itself.

So if you think about the contractual value coming back to us and what were what we're pricing the investment back to my comments about it differs market by market and even inside of a market based on the type of infrastructure that has to be deployed in order to to achieve a small cell solution for the carriers the majority of the.

Think about the revenue or or and the underlying costs that you had it with that there's going to be in the fiber assets. The fiber asset itself and then what it looks like in terms of the a static and the actual delivery of the antenna that'll really change based on the architecture and the S and the desire to statics by the.

The municipality or potentially by the utility that we're working with in order to figure out what is the what does the vertical infrastructure that becomes the broadcast point for that so that small so that's a much smaller component of the overall cost and therefore, a smaller driver of what the of what the returned to us its or or cash flows to us or.

On your on your second question, we don't have any update to the f. The FCC process. The prior comments that we've made still stand obviously were fully cooperating with any questions that they have for us and we'll continue to do so.

Thanks.

Your next question comes from need Gil deal agnostic Nations.

Hi, Good morning, Thanks for taking my questions on <unk> first with respect to small cells and fiber solutions can you help us understand what the typical lagged is between when the permitting for project is complete and when you actually deploying infrastructure and does it very very much between a small cells and fiber.

Sure.

Thanks, Nick I'm on the Oh.

On the small cell side and fiber side. It will there are different answers depending on the communities because the amount of work that we have to work through whether it's a utility or a municipality or both but those have differing answers, but in general the entire timeline from the time that a carrier tells us that they were.

Like of small cell to when we have it on air the outcome there is ranging.

From about 18 months to 36 months and the majority are kind of in the 24 month to 36 month period of time. The vast majority of that time period is we're incurring what we would describe the soft costs and those costs are relatively low and the reason for that is because we're working through the process with the municipality.

Then the utilities in order to figure out what the structure and access is going to look like in order to build it once we have all of the zoning permitting approvals that are necessary in order to build or to deploy that.

Those assets the build cycle itself is relatively short so we'll incur the majority of the cost of the capital.

In the last several months of the of the build before before the revenue revenue turns on so that that build cycle is relatively short al when I say relatively short that's relative to the 24 to 36.

24 to 36 month time cycle, there are exceptions to that we're putting in fiber in places that are very difficult to build and it may take us longer than just a few months.

Where it's actually build the infrastructure, so but in general that that would hold where we've got through a long period of time at the soft costs to build and then the actual construction portion because relatively short.

The same would hold true on the on the fiber solutions side.

Before building new fiber for new customers in a new and a new market, but it would not hold true. If we were looking at a building that we were already providing fiber to or a location, where we had already built small cells than we had a fiber run just outside or relative proximity to a potential energy.

Customer and in those cases, the ability to get them on air is much faster than that timeline at 24 to 30 36 months generally speaking we will have a new customer on air within within six months of us contracting with them on the on the enterprise fiber on the enterprise fiber.

Side.

Some of that and and I think this is helpful. Just in terms of from a strategic standpoint, as we think about the business, we think about the long term.

Value drivers going it we believe it's going to come primarily from small cells and so where we've invested the capital and that's we thought about the opportunity were zero in capital in places, where we think there's gonna be the most small cell opportunity.

We then look at that those assets that have been created for <unk> for small cells, we invested them because of the opportunity. We think about from a small cell standpoint, and then we pursue customers on the enterprise side that could use those fiber runs.

A portion of the reason why were faster on the on the enterprise side is by definition, we're targeting customers who can utilize that same assets up are you the utilizing on the small cell side. So it's self select whereas on the other side. When you think about where were building small cells were working closely with with the carriers Some places.

That's there is no existing fiber today and so we're going in a building high capacity dense urban fiber for the purpose of small cells and then we would go back and rolled that into opportunities around the enterprise fiber. So.

Okay. That's helpful. Just maybe just to put a finer point on kind of where I was trying to go. The question. If we think about the remaining knows that you plan on putting on hair on it.

The balance of the year is it then fair to say that a good chunk of those are kind of through the permitting process and ready to go.

Yes, they would be in various stages with that but in order to get them on air in 2020, we would have to have pretty good visibility towards from either we via either achieved all of the approvals or the majority of them that we have line of sight that the the other approvals are coming.

Okay. Okay, and then you don't want one on I'd expect that services, Matt can you expand a little bit on the degree which your expectation that the ramp is based on your interpretations of the carriers.

Tensions versus specific planning discussions, you're having or or work orders you proceed.

Well I think going back to my comments that I made around the recurring revenue.

The leases that we would have signed today, whether that was last year.

For this year the surface. This work will be related to that so preconstruction work that we're performing for the carriers in advance of them a installing on a site and then so much smaller component.

The services now coming and the and the periods in which we perform a work where we're actually adding tenants to the tower. So we would have pretty good visibility towards what that.

What that activity would look like now.

The same come into that have always applied to that business I think certainly applies today. It is the most volatile component of our of our of our results because knowing exactly when some of these sites will turn on when that work will actually be completed.

We don't have the same kind of visibility that we do on the recurring revenue revenue slot side. So I think anytime we couple and this is why my remarks were really bifurcated between here's what we're seeing in the current year 2020, and then discuss what we're seeing over a long runway period of time.

Is there a possibility that some of the services activity that we're expecting to come in in the second half of the year that some of that slides into 2021, that's possible, but the activity level in terms of a recurring revenue I think we have pretty good visibility on that front and we feel better about that recurring revenue opportunity today.

And what we did six months ago, and so whether that that results in services activity as we believe it will in the second half of your off a little bit of it slips into 2021 off from a run rates standpoint, if we get out into 21, I think we feel better today about our run rate and 21 than what we would have.

Six six months ago. So.

Our best view today is the guidance that we've provided a and and that looks like second half of services and 20 kind of similar to what we saw in the first half of 2000 in 2019, and then that second quarter that we're going right now probably looks similar to what we saw in the first quarter of this year.

Okay. Thank you Jay.

You bet.

Next question comes from that she Aviva Youve, yes.

Great. Thank you couple of follow ups first on the small towns deployment side can you talk about if there has been any change in demand from the carriers the pipeline for the ones on air and under construction seems to be relatively flat in the last few quarters. I was wondering how we should think about that total number going forward and and second.

Question on the mobile usage girls, who will work at home in place right now.

Any change in Dod usage growth that you could back that you can talk about that could potentially delaying the carry you actually come down give out.

I'm I'm just a final question on.

They should now about the tenant where tenants I, adding dish spectrum temporarily to their sites. If that he is that is extended beyond the 60 day do you think that could provide an opportunity for you. Thank you.

Sure.

The first question around the pipeline for small cell nodes.

We continued to see out activity in normal course, and a and believe that will continue as the curious work on.

There there fiveg deployment plans, we've seen steady growth in that front over the last over the last several quarters and and so really encouraged about the continued need for it I think we're positioned really well for that opportunity. Both in terms of the systems that we built a in the early days and have a great located.

<unk> loads are anchored by one of the big three operators today and well positioned for additional lease up from those from those operators and then obviously, we have the capabilities to be able to stand with the carriers and as they think about broadening out the number of markets that they want to go in and those discussions have continued to be.

To be really fruitful.

On your second comment around office remote working right relationships.

As I've said in a couple of different ways, we haven't seen any change in behavior.

From a fiber customer side, and a and frankly don't expect to see a any any or any change in behavior. There I.

I think it will be interesting to see in terms of what the traffic patterns change and what the impact is ultimately to overall data growth I think our bias is probably towards believing that it is increased data traffic and then there's been a number of studies out that have kind of shown some increases in overall traffic as.

The result of a change in the working environment.

But I'd say net that that has not that is not really.

Led to a change in the way, we would think about the or think about the business.

And your line.

Sorry, I was mostly asking about the macro environments actually have you seen any mobile usage of kind of maybe stepping down a little bit as more people use their broadband connectivity at home.

No we haven't I mean to some of my comments in terms of the carrier activity, we've seen them not we've not seen them change at all there they're push towards.

Building out their networks improving their networks for Fourg.

And then also getting ready for Fiveg and the prior statistics that we've talked about three years in terms of overall data growth of 30% to 40% annual growth and data that appears to be intact, and maybe even biased a little bit towards the upside. So in terms of carrier behavior in the current as well.

Conversations that we're having with them about what it's going to look like over the coming months and and years again, we feel better about what that opportunity is today than what we would have said six six months ago.

On your last question around around dish. Obviously, there are at the very beginning portion of beginning to as I made in my prepared comments made in my prepared comments that the very beginning of of starting to launch the network and.

They have some big targets in terms of how much deployment is going to be needed them to come we don't expect that and don't have any benefit of that in our 2020 results are very little impact in our 2020 results. We think thats really a 2021 and beyond a impact and so we're working we're working.

Closely with this to to provide them that's service that we possibly can and then we'll see a we'll see how how it how it develops from that.

Okay. Thank you.

The button.

We have time for a little one more question operator.

Absolutely. Your last question comes from Penn since acquiring New Street research.

Hey, guys. Thanks for taking your question somebody wants thing because on what you're seeing a year tower backlog.

I would think side the pieces.

She is through the volumes of applications at father and.

So is there some southernsun spreads into mobile and dish or maybe back part of last year.

Curious as to where it stands now relative to trough levels and what do they see expenses for mortgage improving its easier progressive relative to the examples that we saw last year.

Sure good morning sensor.

No I think my comments earlier sensor around how we think about the growth and recurring revenue is probably the best best way to think about the answer to your question. So.

Obviously, we had a really good activity throughout 2000 and 2019 across the board from the carriers.

And a lot of those leases are now turning on here in 2020, which gives us comfort that we've we've been able to assess where the run rate of revenues will be that's adjusted to the portion of 2020.

And then new leasing activity, obviously, we're getting new applications everyday and so factoring that into as we think about the as we think about the growth over the balance of the of the calendar year and then the implication to that on on on revenues. The leases that were signing today and then turning.

On in calendar year, 2020 that that makes a relatively small impact and the overall overall results for calendar year 2020, so less impactful there.

But again, so all of the comments that I've made throughout the call. We're seeing a significant amount of activity and the conversations with the carriers would indicate that that activity is going to continue to ramp as we go through the calendar year and that will be in a place where we'll see.

Even greater applications than what we're seeing today for her per our sites that well well, but that's the trend line.

That doesn't really impact our 2020 results, but that's that's what we're seeing this is.

And the environment that we're more positive about today than where we would have done then six months ago. So I I would I'm, a little I would be resistant to describing a backlog that fall and I think the pipeline and the opportunity sets is.

Growing as we as we pick about what's in front of us.

And then if I just follow up on another.

I want to which is just shirt.

From the tower business, Yeah, we tend to take a normalized shirt or <unk> percent.

And it's for the past several years you then.

Those levels because.

Right.

Okay, So those who true nurture Pts nuclear wire.

I'm, just hoping you could touch on how much of that shared with you.

And.

Is there a prospect that we sort of turn back to you on line.

Later this year, it's we think about the next several years ahead of us ignoring the impact.

Sprint Tower D.

Which would happened a few years in them.

Sure sensor.

On the churn side, we saw the end of the consolidated churn in terms of an event.

Happen in the fourth quarter of 2019.

So late me here so in terms of run rate impact on the run rate that's continuing to affect our results that you are comparing Q1 of 2020 to Q1 of 2019 are we still have that elevated level of churn.

About 2% on an annualized basis, roughly so about double our normalized churn or which you accurately said was 1% that is our normalized level churn as we get into the back half of 2019 and by the time, we get to the fourth quarter of 2019, 2000, and sorry, if you get into the back half of 2000.

20 and into the fourth quarter of 2020, we think that normalize churn of about 1% is what we'll see so a part of the part of the answers you think about what's the net impact on site rental revenues is we're benefiting from a reduction in churn as we go up go through the course of the.

Sure. In addition to the uplift for the new leasing that were that that we're seeing so we believed by the time we get.

We get towards the back half of the year, and particularly the fourth quarter or all of the consolidating churn that we've been talking about over the last several years, we'll have that we'll have worked itself through.

Awesome. Thank you.

With that.

Well thanks, everyone for joining the call. This morning I want to lastly, just thank all of our employees who've done a tremendous job over the last six to seven weeks and both delivering for our customers and ER and and delivering for the communities on which we operate so many thanks to all of you for the work.

Good work that you're doing keep up the great job and well clutch everyone that score. Thanks, so much.

This concludes today's calls thank you for your participation you may now disconnect.

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