Q2 2020 Crown Castle International Corp Earnings Call

Please standby.

Good day, everyone and welcome to the Crown Castle Q2, 2020 <unk> earnings call. Today's conference is being recorded this current I'd like to turn the conference Overdependent. While please go ahead.

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

With me 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've posted supplemental materials on the Investor section of our website at Crown Castle Dot Com, which we will refer to throughout the call. This morning.

This conference call will contain forward looking statements and discussions with hypothetical scenarios, which are subject to certain risks uncertainties and assumptions and actual results may vary materially from those projected were presented during this call.

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

First payments are made as of today July Thirtyth 2020, 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, a crown castle Dot com.

With that let me turn the call over to Jay.

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

As you saw some our results we delivered another quarter of positive results that were in line with our expectations and we maintained our guidance for 2020 growth in <unk>, so 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 with fiber concentrated in the top U.S. markets have positioned crown castle to generate growth in cash flows and dividends per share both in the near term and for years to come.

Following an industry slowdown in tower activity late last year, we're seeing activity on towers and the increase and we continue to anticipate a significant step up in industry activity in the second half of this year, that's our carrier customers invest to improve their existing networks and as fiveg start to ramp.

Well the full rebound in activity on towers is occurring a little bit slower than we previously expected we remain on track to generate at least 7% growth and asked AFFO per share and see potential for our S. AFFO per share growth to be above our expected, 7% to 8% target going into next year.

Dan will discuss start the results and our expectations for the balance of 2020 in a bit more detail. So I want to focus my comments. This morning on our strategy to maximize long term shareholder value, while delivering attractive short term returns.

As many of you know shareholder engagement has always been a priority as we continued to execute on our strategy over the last several weeks we've engaged in productive conversations with many of our shareholders and I'm very much appreciate the feedback we received and thoughtful exchange of ideas during those discussions.

Through those interactions we heard broad support for our overall strategy, including our continued investment in towers small cells and fiber and our overall approach to capital allocation and our dividend policy.

We also heard that you as owners of the business are looking for more visibility into how our strategy is performing.

And with that in mind, we've taken steps this quarter to increase the disclosure around our small cells and fiber strategy. We look forward to hearing your feedback about the additional information provided and welcome ideas for other disclosure, we should consider going forward.

Turning to our strategy to maximize long term shareholder value. We believe we have positioned the company with the right assets in the right markets with leading capabilities to deliver value to our customers and generate shareholder returns for years to come.

Focusing on slide three we've invested nearly $40 billion and shared infrastructure assets that we believe our mission critical for today's wireless network.

And sit in front of what is expected to be a mass this decade long investment by our customers to create the next generation of wireless networks.

As you can see our tower in fiber investments are at two different stages of development and maturity.

Our tower investment began more than 20 years ago. When we built in acquired assets that we could share across multiple customers, providing a low lower cost to each customer well generating compelling returns for our shareholders over time as we leased up those assets.

As we have proven out the value proposition for our customers over time, we have leased up our tower assets. So they now generate a yield on invested capital of approximately 10%.

More recently, we realize that wireless network architecture would need to evolve with fourg, requiring a network of cell sites that would be much denser and closer to the end users.

With that in mind, we expanded our shared infrastructure offering beyond towers by building the industry, leading small cell business than the U.S.

Because small cells really developed during the Fourg investment cycle. We are much earlier on when it comes to our small cell on fiber investments with approximately 90% of the approximately $14 billion have invested capital having been deployed in the last five years.

Given the immaturity of these investments it's encouraging that the business is already generating a current yield on invested capital of more than 7%.

As you can see on slide four extension of our strategy into small cells was based on how similar the two business models or.

Those small cells and towers have the same underlying demand driver of wireless data growth and the same core customers.

They both have a high initial cost that is ultimately scared across multiple customers that lowers the capital and ongoing operating costs to those customers, while generating returns for shareholders through the long term lease up of those assets.

They both have tenure initial contract terms with escalators that meet or exceed annual churn rate.

And they have similar barriers to entry.

On the tower side. The strategy has created significant value for shareholders and still has a long runway of growth as we believe towers remain the most cost effective way to deploy spectrum, making them critical to next generation wireless networks.

You can see on slide five the returns and ultimate value realization for towers has taken decades to play out.

We started with initial returns and towers of approximately 3%.

And grew those yields to nearly 9% over six years as we increase the tenancy and cash flows on a largely static asset base.

We didn't have the opportunity to double down on our investment strategy, which diluted the overall yields to approximately 7% as we added less mature assets to the portfolio and it took us another five years to get back to the more than 9% yield.

As the business model and strategy continues to prove out we decided to double down again with the T mobile and ATM each tower acquisition once again diluting the consolidated yields as we nearly doubled our tower asset base by adding less mature assets that came with a lower initial return.

Once again, it took us about six years to return to 9% yields on the overall portfolio.

In all its taken US 20 years to move our returns from 3% to the 10% levels, we see today.

As I reflect on my 20 plus years, you're at Crown Castle, having lived through this journey with our shareholders. There are several important observations when I look at this slide.

First what is largely taken for granted today by most investors that the U.S. tower business is one of the best business model Bever was not a widely held view in the earlier years of development.

Even as we were proving out the business by adding several hundred basis points of yield to the early investments I can remember answering questions about the long term return potential of the business the negative free cash flow profile and when or if we would that would inflect and the potential negative impact of carrier consolidation just to name.

A few.

Second the increase in yields occurred over a long period of time and only when we maintained a static asset base.

However, if at any point, we had stopped investing in new assets to focus on driving the yields up we would have missed out on significant value creation.

Although similar to our tower investment profile, we expect small cells will have a different yield progression since we are making organic investments to construct less mature small cell assets.

As opposed to purchasing tower assets, which should result in a more gradual increase in returns as opposed to the large ups and downs you see on this page related to towers.

And third a significant portion of the ultimate value realization from towers came much later once there was little to no remaining debate in the market about how good the U.S. tower business actually does.

The significant multiple expansion seen on this slide is a good indication of how that debate was ultimately decided over a long period of time.

Turning to our small cell in fiber strategy, we're generating a 7% yield on approximately 14 billion of invested capital today.

We have legs into our small cell in fiber investment over the last decade concentrated as I mentioned before in the last five years as our conviction in the value creation opportunity increase including seeing returns on early investments increases we co locate new small cell customers on existing fiber assets.

As I mentioned earlier, we expect the yield on invested capital in fiber to have a more gradual increase overtime relative to what we've experienced with towers as we make additional organic investments in new small cell and fiber assets.

To give additional visibility into how our organic investments are progressing on slide six we've identified five markets that we will discuss today in greater detail and we'll update on an annual basis during our second quarter calls.

These five markets should provide a helpful representation of how our overall strategy is performing over time, given how different these markets are when it comes to the scale of the investment the revenue mix between small cells and fiber solutions. The no density and the contribution from acquisitions.

Let me make a few observations within these markets I would like to draw to your attention.

Los Angeles provides an important proof point that increases our confidence that our strategy is working.

More than 70% of the invested capital is associated with several acquisitions, including next geez nieces and will come on at an initial return of less than 6%.

Since that time, we've added more than 200 basis points of yield to the overall invested capital base by adding customers and cash flow to the nearly 7000 route miles the fiber.

Most of the growth coming from adding small cell customers.

The returns in Philadelphia are also encouraging with the current yield of approximately 10% as a result is combining fiber solutions and small cells on the same assets, which gives us a great opportunity to meaningfully increased returns as we continue to add small cells to the fiber overtime.

Although the nodes per mile and is the highest in Denver. The majority of the investment in activity to date has been for anchor small cell customers.

The 5.5% yield is lower than we would typically expect from small cell anchor builds due to some higher costs that we incurred during construction, which were beyond what we had initially estimated.

Looking at Phoenix, the nearly 12% return is higher than we would typically expect with the no density of just two nodes per mile which is primarily driven by a combination of some co location that has occurred in the market as well as the contribution from small cell then.

And to the last market on the page, we believe Orlando is a key market to review.

The very first investment we made around our small cell strategy was in Orlando more than a decade ago.

We built this initial system for one carrier and were able to subsequently leased it up to other carriers over time.

This initial system has also benefited from both amendments and increased density for evolving technologies.

We think Orlando provides a clear example of what a fully leased up or stabilize market can look like.

The capital we invested now yields nearly 20%, which is where we believe all markets can get with the level of lease up we think as possible in the future.

Again, we think it will be helpful for you to see how these markets develop over time. So we plan to revisit these same markets each year to give you visibility into how the returns and operating performance of all.

Some of these markets will likely so yields increasing overtime as we co locate additional nodes on existing fiber, while others may show decreasing yields for a period of time as we expand our fiber footprint, mainly growing outside of the urban cores to cover the entire market where small cells may be.

Zooming Backout, we believe our small cell in fiber strategy provides a compelling risk reward opportunity for our shareholders.

As you can see on slide seven with 30% to 40% anticipated annual growth and data demand from current fourg applications and the additional demand that we expect to be generated by the deployment of Fiveg networks. We believe the long term addressable market for small cells will be very significant.

Based on industry estimates the total number of small cells on air in the U.S. could be over a million by 2024, and we don't think it stops there.

As a reminder, our base case underwriting has always assumed we add one additional tenant equivalent at Fourg densities of approximately two to three nodes per mile over a 10 year period.

And we believe Fiveg has the potential to drive network density well beyond our underwriting assumptions.

Considering the combination of Fiveg network requirements and the higher spectrum bands that will be available to meet future mobile demand. We believe no densities approaching 20 nodes per mile could represent an achievable upside scenario longer term.

Slide eight helps to illustrate just how compelling the risk reward opportunity could be for our small cell strategy all other factors being held constant.

The purple line on this graph is an illustrative representation of possible total shareholder value in 10 years.

With the only major change in the assumptions being no densities, increasing as you moved from left to right on the chart, but.

The light Green shaded area on the chart illustrates where we could be on that curve. If we sustained current growth profile of the business, which we believe we can achieve based on Fourg densities.

We believe the value for shareholders could potentially be two times higher based on these assumptions.

As small cell densities increase moving left to right. You can see are the potential our small cell strategy could result in the value for shareholders being four times higher in 10 years.

Even with only seven nodes per mile on average.

As we just went over we believe ultimate fiveg densities could be significantly higher than that potentially approaching upwards of 20 nodes per mile over the long term.

Going the other direction.

The current volume and mix of small cell co location activity do not increase from current levels and fiber solutions growth were to decelerate. We believe the potential downside is fairly muted as shown on the graph when compared to the potential upside.

Similar to when we made our first investments and tower assets nobody can predict exactly how these things are going to play out over the next two decades.

In any case, though we believe that having the right shared communication infrastructure assets in the midst of significant wireless data growth that is driving network investment can lead to tremendous yield uninvested capital.

With small cells being that kind of inch infrastructure asset. We are excited when we assess the potential upside in proportion to the potential downside, we'd be limited risk and huge potential reward which increases our conviction that this is the right strategy to pursue.

So to wrap up we believed that our strategy to maximize long term shareholder value is compelling and straightforward.

We are 100% levered to the largest and best market in the world for owning communications infrastructure assets.

We are positioned to enable and benefit from the way those investment our customers are expected to make over the next decade to build out fiveg and meet the growing demand for wireless data.

We are investing for the future, while delivering a compelling near to medium term total return with a high quality dividend, we expect to grow 7% to 8% per year, and we believe our strategy offers shareholder significantly potential more upside and downside.

And with that I'll turn the call over to Dan.

Thanks, Jay and good morning, everyone.

We delivered another quarter positive results that were in line with our expectations reflect the resilience of our business. During this period of unprecedented uncertainty in the broader economy.

We are seeing activity on towers begin to increase.

And we continue to anticipate significant step up and industry activity in the second half of this year as our carrier customers invest to improve their existing network and as fiveg investments start to ramp.

However, the full rebound in activity on towers is occurring a bit slower than we previously expected it could impact our expected service margin contribution during the remainder of 2020.

Despite the potential for Sunpower activity pick up to occur later in the year or even potentially slip into 2021.

We remain on track to generate at least 7% growth and AFFO per share this year.

Because we see the situation as a delay and not a reduction activity. We believe there's the potential that AFFO per share growth will improve and be above our 7% to 8% per year growth target as we move into next year.

Turning to slide nine in the earnings presentation.

There is another quarter of strong topline results results that included 5.6% growth in the organic contribution to site rental revenues.

Driven by 9.4% growth from new leasing activity in contracted tenant escalations net of approximately 3.8% from tenant non renewals.

The revenue growth was offset by lower services contribution compared to the same period last year.

Resulting in more modest growth in adjusted EBITDA.

Oh per share.

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

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

Turning to page 10, we're maintaining our full year outlook for 2020.

At midpoint this represents approximately 5% growth and site rental revenue.

6% growth in adjusted EBITDA, and 9% growth and AFFO year over year compared to 2019.

And includes approximately 6% growth year over year inorganic contribution to site rental revenues.

Focusing on investment activity.

During the second quarter capital expenditures totaled $414 million, including $24 million sustaining expenditures and $383 million discretionary capital investments across fiber towers.

Additionally, we returned significant capital to our shareholders during the first quarter with our quarterly common stock dividends totaling approximately $500 million or $1.20 cents per share representing growth of approximately 7% on a shirt per share basis compared to the same period here again.

We were active on the financing front during the quarter, meaning meaningfully improving our financial flexibility by Opportunistically, raising $3.75 billion and senior unsecured notes across two separate offering.

With a weighted average maturity in coupon of approximately 17 years and 2.8%.

Refinance existing debt.

Following those refinancing transactions, we have nearly $5 billion of undrawn capacity under our revolving credit facility and no meaningful maturities until 2022.

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

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

Finally, I wanted to make sure you saw that we included some additional disclosures in our segment reporting in our press release and in the supplemental earnings materials, we posted to our website.

During the recent shareholder engagement Jay mentioned earlier, we receive feedback that it would be helpful. If you provided more than visibility into the composition of our fibers.

With that in mind, starting this quarter and going forward, we're providing a breakdown of our fiber segment revenues between small cells and fiber solutions as well as additional details around the composition of revenue within the fiber solutions business.

As you can see for this quarter, our fiber solutions business grew 3% over the same quarter in 2019, and our small cell business grew 17% both in line with our expectations.

We've also provided return metrics, both by segment and for the consolidated business in our supplemental earnings materials.

We hope this additional disclosure AIDS and your ability to analyze our business going forward.

So to wrap up our second quarter results were in line with our expectations and we believe we remain well positioned to generate at least 7% growth and AFFO per share in 2020 with the potential for growth to improve next year.

Looking further out we believe our ability to offer towers small cells and 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 let me turn the call back over to Jay.

Well before we take questions I wanted to speak to the separate press release, we issued yesterday, we heard your desire for us to enhance our corporate governance, and then outline the enhancements our board is making on this front, including instituting a mandatory board retirement policy specifically the board began a process two years ago focused on near term.

Freshman to advance the objective of adding highly qualified independent diverse individuals with relevant experience and expertise to oversee our strategic execution and continued value creation.

The board has determined to faith in the implementation of the mandatory retirement policy to provide a transition period for the five current Crown Castle directors, who are over the age of 72.

This phased implementation will result in three of our current directors not being re nominated for election in May 2021.

And an additional two current directors not being re nominated for election in May 2022 at our annual meetings of shareholders.

The collected advice oversight and wisdom of these directors have been significant drivers in the creation of Crown Castle unmatched portfolio of tower small cells and fiber.

On a personal level I'm grateful to these directors for their mentor ship their support and their friendship throughout my career here at Crown Castle. There is no way, we could have executed on our strategy that has created so much shareholder value over the last 20 years without their leadership.

On behalf of all of our shareholders I'd like to thank them for their tireless work and helping to create what Crown castle is today.

The board has hired a leading search firm to assist with its search for independent directors, who bring the right mix of skilled diversity and relevant experience to help our board further drive sustained value creation.

Also as noted in the press release, the board has committed to <unk> to reviewing the company's executive compensation program to ensure continues to align with the interest of all our shareholders and industry best practices.

We are certainly grateful for the feedback our shareholders have provided for us on our corporate governance and believe these actions demonstrate our board's desire to be responsive to that feedback and with that Vicki I'd like to open the call for questions.

And to ask a question. Please press star key followed by the digit one on your catch compound and I'll make sure. Your new patent has turned off to lie your second to reach our equipment again that is star one for questions.

And we will take our first question, Dave from Simon Flannery with Morgan Stanley.

Great. Thank you very much and good morning, Thanks for all the additional disclosure.

If I may one on fiber solutions could you just talk about the activity on the business. It looks like so growing around that 3% any impact so you're seeing some co rich hadn't Dan on the.

Return point, Tom on the small cell, perhaps would be helpful. If you could just goes through your capital budgeting process and how you think about setting your Capex times on your return hurdles, how just to put that through the filter to get those sort of long term target semi any sense on that process would be great.

Sure some and good morning on your first question around fiber business similar to what we talked about last quarter.

It's you can see from the disclosure the majority of our customers are carriers and large enterprise specifically in the financial health healthcare and education sector.

So we have seen very little to no impact from co that in the in the business there it hasn't impacted either the.

The gross revenue growth or churn so things have basically come in where we expected them to in total in the business less than 5% of the revenues are coming from small or medium medium businesses.

There are as I mentioned last quarter, we have had some customers request the delay and installation of new services. They have limited access to their facilities, but that hasn't really had any material impact. So theres theres no change to our overall guidance no change to the revenue growth through or churn profiles there on the fiber.

Side.

In terms of our return process, how we go about allocating capital internally, we haven't really rigorous process that we go through for each of the investments that we that we make and some of the materials that were laying out here this morning of showing.

Oh location and returns over time, so things that we've looked at historically to evaluate.

Markets and how cute curier behavior looks and given obviously the nature of the business because we're putting up.

A significant amount of initial capital.

One of things that's most important to that evaluation is what do we think the future demand for the assets will be.

So as we noted on on on the fourth on the fourth page. There you can see the returns initially when we go and build an initial system generally where we're investing that capital somewhere in the neighborhood of about a 6% to 7% initial yield on invested capital. So first thing we look at as far the are the terms in line with that expectation.

And then it really comes down to an evaluation of what do we think the future growth around those assets will be.

As you've heard US talk about we're primarily focused in the top markets in the US we think that is where the preponderance of the capital will go.

Both our capital as well as the carrier investment at the network Densify and moved towards Fiveg, and we think that sets us up for a long term sets us up for terrific returns in the business in order to deliver great returns for for shareholders. So its combination of making sure we get the terms right out of the gave financially and then assessing.

What we think the future lease up is going to be and last thing I would just say on this on this point.

We're in this business because we think it generates a lot of returns for shareholders over a long period of time and there are plenty of RFP is in the market that so far and I think this will continue to be the case, where we decide not to participate because either we think the economics on appropriate out of the game, where we think the potential for lease up and long term economics just.

Don't make sense and don't make the the business with like a tower business ultimately so.

Thats the framework through which were evaluating our our capital investments and plan to continue on that.

Great. Thank you very helpful.

Next is David Barden with Bank of America.

Hey, guys. Thanks, so much for protecting question, So hi, Dan I guess the first one is on the guidance.

Looking at the first half versus the second half the math implies a pretty substantial acceleration.

EBITDA, just because of the low and let's just say.

Roughly 7% sequentially accelerated from the 2% and saw one Q and then when you look at what that math implies you kind of land of around 945, or so so the fourth quarter EBITDA, we annualize that over the low end in all said and growth is accelerating to the 9% level in 2021, so could you kind of.

Help us understand where that conviction.

You can see this acceleration comes from bumps. The first question and then I guess it second question Jay. Thank you again I think that owns the welcome the additional disclosures here.

You kind of historically talked about carrier self performance the biggest competitor in the marketplace.

Could you talk about how would you think about it.

The Tam.

As carriers at building out their own.

Facilities in markets that kind of the loads the opportunity to get co location in those markets. So how big is this opportunity for you as we speak about from a capital budget standpoint.

Sure I'll take the first question Thanks, David.

On the guidance as you pointed out there is a significant ramp from the first half the second half and we've been talking about that.

Since we gave our outlook.

And certainly said that when we were talking through the first quarter. We have seen an increase in activity as we indicated as fan I talked about in her prepared remarks, and we think that did it is leading to what we see is as a significant ramp in activity and ultimately our cash flows and meet the degeneration going into the second half, but as you pointed out.

Hi, Yes, it is a pretty big ramp.

We've we've seen the beginnings of all that those activity and that those applications coming in.

But as we've talked about that pushed out a little bit from what we expected. So we do think that will likely be on the lower end of our guidance.

But at what it does show and what we were alluding to a few times to was that if that comes to be and filters through the way we expected to that.

We see a lot of momentum going into 2021, and when we give our guidance next quarter will confirm what we think that will ultimately be and how that will play out and what it will look like going forward, but we think there's a chance that it is going to be above our 7% to 8% longer term growth rate target. So we feel good about the activity levels around the business right now even if they are just.

A bit later than what we would have expected when we started and gave guidance.

Okay.

On your second question, Dave around the carrier self perform in the impact of the bid business.

First thing I think I would start with is just sort of fundamental to the to the product offering that we have to the carriers.

We are providing a low cost solution to the carriers and as has been proven out with towers over a long period of time. The curious are thoughtful about how to lower their overall cost of network and they have.

They have moved to a shared solution on the tower side, because that's the lowest cost for deployment network. We believe the exact same thing is going to happen with small cells.

In fact, the solution that were offerings of carriers is basically 50% reduction.

Reduction in their overall costs over time as dumb owning it themselves and overtime, they proven to be thoughtful allocators and and diligent around costs and we think they'll come to us.

As a result of being able to save meaningfully on the network deployment side.

That also means though that we're not going to do at all and so when I look at the carrier self perform in the comments that they've made about their needs to deploy and built around small cells. The reality is we will not be able to offer or have an interest in offering a shared solution everywhere in the you in the us the small cells are needed our strategy has been pretty clear from the beginning that we're focused.

On the top markets in the us and dense urban and suburban areas, where we think theres going to be significant co location overtime and that doesn't mean, we're going to build fiber everywhere for the carrier so they're going to be places, where they need to build that in order to provide.

US as consumers a ubiquitous ubiquitous solution.

As I look at the total addressable market, where our fiber is going I believe we're we're in a sweet spot there of were likely putting this capital based on what we believe will happen over a long period of time in the places that are are going to have a disproportionate amount of future demand for small cells. So as we've shown in the.

In the in the five part fiber markets laid out on the page there. So far we've been able to allocate that capital into places where there is has been future co location and we think there will be plenty of.

Plenty of addressable market in the future to continue to drive does drive those returns and achieve really attractive outcomes for shareholders.

On the last point around capital budget, one of the benefits of this of this business as you get long visibility.

Whenever we commit to customers that were going to go out and build nodes for them. There's about a two to three year build cycle and so you can look at the nodes that we have in process as a proxy for what capital capital deployment is going to be for for the next two to three years.

As we've made those commitments to customers at that point once we've signed up signed up to nodes. So one one way and we talked about this every quarter of kind of the total pipeline and Dan Dan walk through it in his comments.

If that pipeline starts to change then.

There could be.

Points, where it goes up or down relative to overall demand, but that gives you quite a bit a lead time in terms of what we think capital spending going to look like.

Okay, great. Thank you.

The next question I'm sorry.

Yes. Our next question will come from Phil Cusick with JP Morgan. Please go ahead.

Hey, guys. Thanks.

Can we dig a little bit into that slow ramping activity is there any of this you can do to co head of the municipal level or is it more carrier demand getting started as quickly as you expected.

Any inflection there as you would come into July.

And then second change we can get back to that million small cells. By 2024, you mentioned well find me, where you are now and what the pace of carrier convert conversations look like.

You haven't announced a major new small cell award in quite a while getting along bold cycle.

How we get to us.

That big of a number by 2024 without a pretty big ramp near term. Thanks.

Yeah on the first question I.

I think we've talked about this going all the way back to October of last year. When we first gave gave the guidance.

It's very difficult to be super precise as to when inflection points in activity happening in the business and given that this is a recurring business once we sign up the lease.

It stays for a very long long period of time.

It it becomes less important to be to figure out exactly which quarter a certain lease ends up in and I would describe the the activity and the push out as nothing other than a slightly different than what we anticipated. When we gave the guidance in October of 2019, but in terms of overall activity and what the carrier.

We're focused on and I think this is reflective of the statements that theyve made they've been making publicly we see no change in behavior activity long term that has any meaningful impact and into our long term growth rates around around towers or small cells.

So we think it's it's purely just timing and as Dan mentioned in his comments.

Where that is most pronounced in our numbers is not really in the recurring components of the business, but in the services component of the business, where we do some preconstruction work for the carriers and depending on when that hits that that slides into 2021 that obviously, we don't get the benefit benefit this year. So.

More still around that Preconstruction work on the services side and no real change in activity from the from the from our expectations of what the carriers will do just a slight change and timing.

On your second question around the awards of small cells.

Our experience has been over time that the carriers award small cell nodes and large bulk large books and.

This is very different than kind of the tower historical experience, where towers or at least one single tower at a time and it's very rare and the tower business.

I have an entire market deployed on time, but because of the nature of small cells being integrated and connected with fiber. They tend to look at either entire markets or large sections of a market and and we've won awards on on that basis. So.

And we've continued to two to win awards in the total number of notes has continued to go up but we haven't signed any major ones in the last couple of quarters. We we don't view that as a change in the business. We think it's just reflective of kind of than the natural timing, an ebb and flow that we'll see over time so.

I don't I think we will continue to see.

Lumpiness in that and the tower business, maybe a little steady or in terms of the way leases are signed but this is little bit of difference in terms, how the carrier think about those network deployments.

Yes, it's just that ammonia in four years as a pretty big helpful from several hundred thousand industry.

Today.

It sounds like there may be conversations about future awards happening at least no. It's not club those awards coming any assumption.

Well I think there's no question that.

From the comments that were making as well as industry estimates as well as with the carriers are thinking that we believe we're right on the doorstep of a significant increase in this activity over the come over the coming years and I think all of the industry estimates would suggest that that ramp is coming significantly I think there's probably some debate today as to how many actual small.

All cells there are on air.

So the math there would would put the total small cells on air North of North of 200000 today.

But growing to a million over five years, which indicates that were sort of right at the early stage of seeing significant increases over the over the next coming years.

Thanks.

What kind of Ric Prentiss with Raymond James.

Thanks, Good morning, guys first Pope new formal closer our door volatile global difficulties.

Thanks, Rick you as well yeah.

Want to.

Thanks for the.

Cyber versus small cell revenue split would want to get the third quarter nature in fourth quarter late July numbers before.

So that reported out in 2020 that would help us like as you think about disclosure.

Some of the shareholder comments out there have also been what about breaking out maybe a little more disclosure on KP eyes, such as new lease activity also wasn't sure do you envision.

Providing those Blake barrels at the local segment level fiber solutions small cell tower, which is just aggregate.

Yeah.

I think what you saw US do is take we think there's a meaningful step in trying to add disclosure to how our our strategy is playing out over time.

And.

You can see that what was given in terms of the revenue cyber solutions versus small cells versus towers, you can line up to get to what the net growth rates are in each of those businesses and as we discussed are right in line with what we told people unexpected and what we're trying to do is provide a long term view of how this business will play out.

And what to look last look at overtime.

And how how we think about it and the way we think about it is really in this type of the market analysis that we went through.

And it won't move on a quarter to quarter basis.

That's why we're gonna updated annually to show you kind of what we think is a reasonable estimate or reasonable expectation of how how these things can move over time, it will be very difficult to try to do that on a quarter to quarter business. So what we've done at this point, we believe gives really good insight into the business and how is playing out and how.

We think about it.

And we think that that hopefully a sufficient.

To the extent that there are other things that investors would like to see we would absolutely take that feedback and taking into consideration and think through it about whether we want to do that going forward.

How about can you update us as far as how many nodes are on air or in backlog or would that totals as Jay mentioned, there's been a couple ones would not many but it's only helps if we'll also look a little capital the nodes.

Sure.

We're a little over 45000 nodes on air at around 25000 nodes in the pipeline. So overall, a little more than 70000, those on air and the pipeline.

That's not significant change from last quarter. So like like we mentioned that I've missed significant bookings in the quarter, but we did put someone.

So on and then Jeff. Thank you Tom as exactly right to fall about maybe small cells are more lumpy or I didn't call chunky versus towers is more consistent as we think about the next couple of years from the carriers could there be a little more shifting to macro tower was a small cells as we see T mobile.

Focus on the merger integration with sprint the C band auction comes out maybe companies like rising I want to participate so there I think one yet or lumpy chunky aspects could be where carrier capex is getting focus in any given year or two over a 10 year period. So Sarah.

Yeah, I think thats possible there'll be some movement there I think what we'll see as we move in to the interior of Fourg densities and into Fiveg, I think you're going to see a mix of what we've seen historically with the migration from one GCG due to three and three to four across the tower portfolio I think you're going to.

See the carriers go through and add the Fiveg technologies.

Lot of that will incur on existing sites as they think about how to densify. The network. We think disproportionately on the densification side, they're going to need to use small cells in order to get to that densification. So I think each carrier and by market will be making deployments around kind of the the increase or upgrading of.

Their network to Fiveg and using the existing assets do so as well as the mix of the necessity to improve and increase the density of the network and that that probably goes.

Towards small so I think that we will see some lumpy continued lumpiness on that front I also think that it will not be kind of across the nation. The same answer so as we look at it on a market by market basis, depending on the spectrum bands that they have.

The capacity inside of the spectrum bands and what they're trying to accomplish I think we'll see some some pretty significant variation market by market as to whether or not the the share of wallet is going towards macro sites or for small cells.

Thanks, Rick just okay. One addition to that one of the reasons, where he is excited about the position. We're in is that whether the terror spend tilt towards towers or towards small cells in any given period. We are the beneficiary of that and we think that having.

Lets solution based offering as opposed to a product based offering of weekend. We can help with networks. This is a better place to be as these networks will become more converge and the spending patterns of our customers are going to have to be more nuanced and nimble and we think we're just really good position to be part of that conversation at a much more meaningful level.

Across.

Yes, it's safe to say, you're not going put out like five year plan, so different segments of the business.

No that's not our intention at this point like I said, I will take feedback and understand where people want us to go what we're trying to do as I mentioned, a second ago is really provide the type of information that we look at to assess whether the investments, we're making or making sense or not and and that's that's really where we.

The land it is you're seeing a lot of the information that we looked at in order to make sense of what these markets and what these investments are doing.

And you'll see that progression over time.

And in a way that I think addresses the underlying question of whether this business is working or not.

Five year plan is is obviously very difficult to make happen in a public context, but also it's a it's a set of assumptions that that clearly won't come true, though there may be directional and we get those with like our guidance and with our seven 8% targets. So we think we're kind of right in line with.

The core ask has been from the feedback and engagement with God with our investors.

Great appreciate save all guys.

Thanks, Rick.

Next question is can Colby synesael with Cowen.

Great. Thank you two if I may.

First off I think your fiber capex, including small solving that I guess station business.

Why is 1.4 billion in 2018 can you remind us a class with that guide implies your expectations after that and.

2020, and just broadly how you see that playing out over the next few years one can make your argument we essentially made the argument.

That given the significant investment the last five years, you could potentially being positioned to sustain similar types of topline growth in your fiber business, even at a lower capex.

Profile I'm just curious how you think about that and then secondly, and I apologize fares are going back to this but can you give us some color on what your services business looks like in a month in July and.

I'm getting a lot of questions I'm sure other analysts hires long terms of just investors.

Yes, really trying to get some more color on how you feel confident maintaining your guidance for the back half the year and whether or not.

And with what you're already seeing July or does it still seal.

Some significant ramp beyond what you're already seeing beyond what you're actually having conversations and it's still somewhat of a hope oppose to real heart condition. Thank you.

Yes. Thanks Colby on the first question Art Art Guide for 2020 is about $1.2 billion Capex in the fiber business for both fiber solutions in small cells survivor segment.

And with your question on lower Capex to sustain growth it really is going to be.

Predicated on how much co location first anchor builds we can have and whether we're building out additional portions of markets were in or whether we're leasing up on the markets that we already have you can see that some of our market analysis, something like Los Angeles, where where we're actually adding a significant amount of yield 230 basis points of yield over over.

3.7 years that we've had these assets and a lot from the acquisition from the time of acquisition until now.

That's more because the co location that's happening.

And if we do that yeah capex.

We will come down.

If we continue to build out markets, which we think as Jay pointed out is a good investment as long as they continue to meet our investment hurdles in the lease up we believe this is a reasonable assumption going forward.

Then that the Capex intensity may consider maybe where it is now for a period of time.

But much like the tower business once we maintain a stable asset base and slow down that capital. We believe that is when the yields will will expand significantly. It's just hard to tell from where we sit today when that might happen given the substantial ramp that we're we're looking at and what Jay alluded to a minute ago in that Fiveg.

Buildout of small cells.

It's just hard to know if it's going to take a few years or not for that for that that stability in the asset base to happen and how that happens where it happens which locations. So.

Well like I said, we'll give guidance in three months about what 20.1 to look like and hopefully that will give another data point to inform what you're thinking on but yeah. There's there's a potential that our growth rate can sustain and we bring capex down there's lots of potential that our growth rate fitted expanded and we bring capex up depending on the level activity that we see coming.

On your second question Colby.

Around what did we look out when we give the guidance I certainly we look at a number of factors one of those factors is what is our most recent activity and so your question. We we definitely looked at the activity that we saw in July of this year as we consider what we were going to do with the with our outlook for the full year. We also look at what is our applications.

Revenue for the year as well as the conversations that we're having with carriers in the activity that appears becoming so it's a it's a wholesome look in terms of all the various factors that one would look at an order to try to figure out where we believe the activity is going to go and I think in the comments that both Dan and I have made in our in our call and as you saw in the press release.

I think we're.

We're trying to point to the fact that we see every indication of an environment where activity and traffic is increasing and.

Being.

Exactly precise as to when that that services activity of Preconstruction work will show up.

We do think we're going to start to see meaningful increase in the second half of this year and and carry over into 2021.

Okay. Thank you.

I will try to come along with Barclays.

Thank you appreciate it.

Question on one follow up if I could first can you just give us a little upgrade on on the edge compute and you've got the deal the paper Io So any development there and change in outlook.

And then secondly on the on the fiber business appreciate those those targets cities.

Probably the difficult wants to answer but could you just give us a little color on on how yields are different end markets kind of based on competition of fiber assets Im assuming some places there are much less competitive in such more so so what kind of a factor that I'll play into into yields and some.

These larger cities. Thank you.

You bet on your first question around around as compute and we continue to see a significant amount of value and opportunity.

Around that that network or accessed edge as we as we've described it which really requires the combination of fiber and network integration.

And vapor has the our investment in paper has continued to give us.

Pretty good view as to where we think the world is headed headed on that front, we're operational and about four markets today and we're building out a note a number of other markets, it's not material to our overall results today and I don't expect it will be in the near term, but I do believe edge compute as another.

For example of why as Dan mentioned in one of the questions earlier. This combination of of providing a network solution to the carriers. The combination of towers and fiber gives us a really unique view as to where networks are developing and where the opportunity is an edge compute as one of those that is not in our model. It's not it's not in.

In our guidance for this year and we're not thinking about necessarily a big impact in 2021, but over time, it's a way of adding additional revenues and cash flow to these assets that are really core to their core to their network. The carry our customer network and we believe there is opportunities that will result in higher yields on.

The investment that we've made as a result to the the whole from product offering that we have when we're talking with our customers.

On the on the markets.

What I would tell you is it it's a from a competition standpoint.

We have a very very high win rate when we have existing fiber in the in the market. So as we go back and look at RFP that had been issued by our customers in the markets, where we already have existing fiber we win a very very very high percentage of those of those RF piece as a risk.

Both of having an asset that there that that asset being present means that theres, a shorter time to deployed for the carriers, which is attractive and it means the shared shared solution that I was speaking to in terms of cost savings to the carrier.

His president and so.

The competition doesn't really affect our yields the discipline that we have around the requirement to be able to invest capital is in place whether the regardless of the situation at a market by market basis. So if we're able to invest capital of the 6% to 7% initial yield and we think.

There's significant opportunity in the future and if the market that we're not in within that market is attractive to us and something we would we would potentially pursue.

If those characteristics are not there and that it could be competition or any other number of factors. Then we may just pass on the RFP as we do as we do frequently.

In the places, where we do have existing fiber and there's the opportunity to do co location.

I think the market analysis shows this and our practice and other places has shown thus we have a very high win rate. When those RFP is are rolled out in places where we have existing fiber.

Okay. Thank you.

Okay, well have that Brett Feldman with Goldman Sachs.

Hi, Thanks.

Originally gave your outlook for this year for Kobe, you had talked about some of the challenges.

The approvals in the eight from municipalities in utilities to the pull small cells and so it's kind of limiting you see a maximum of 10000 no deployments for year I would imagine that coal that hasn't made that any easier and nation.

Back and think about the outlook you have to small cell that seems like the funnel could theoretically increased significantly I.

Are you concerned at all that these roadblocks aren't knock down you actually won't be able to accelerate the business as the demand backdrop improves and then also do your customers. The carriers have any advantage is that dealt in terms of being able to move more quickly to municipal level or do you all sort of operate within the same sort of process. Thank you.

Yes on the first question and I know many of our employees listened to our quarterly calls and I've just got to tell you what a tremendous job they have done both on the tower.

And the fiber side managing through Covance.

We have about 1200 employees, who are in engaged in operating rolls out in the business and all throughout co that they have continued.

To to perform at an extraordinarily high level.

Working with municipalities and utilities in order to deploy nodes and we've had a number of wins even in the midst of covance. So the day to day work yeah. It looks a little different as a result of coated.

But I think I'm, so proud of our team who have not made excuses for the challenges that have arisen as a result of coven, but have figured out ways to to navigate and the new environment and we don't know how long were going to be in this environment. So our role in job for our customers is to figure out a way to navigate and get their network on air and.

Thus far I think the team has done a tremendous job of that and I have full confidence there will be able to continue to navigate those challenges.

On the customer side I don't believe there any advantages that are that our customers have at the market level working through those utilities and municipalities relative to us.

I believe some of the work the FCC has done has set forth some standards and guidelines around pricing and terms that benefit everybody in the market.

And obviously our interests are completely aligned with that of our carriers to the extent that we can get them on air on a lower cost a lower cost solution. The NIM building at themselves they want us to do well.

And and the same is true for us in the places where.

We're not building fiber and they're having to self perform it's in both of our best interest to work together to figure out ways to navigate at the local municipality in that the polity and utility level and we frequently work together in order to to accomplish that so I think theres, they're shared interest rather than a competition.

On that front doing it well goes goes better for everyone.

Thanks, and just to clarify does seem like at least right now in the midst evolve. This you still had been able to generally meet the deployment goals. We set out earlier this year that there.

Now that it's fair.

Thats what weve.

Let the targets ahead of time, and we've learned to navigate and the new environment that we're in and and believe we can continue to do so.

Thank you.

And Michael Rollins with city is next.

Hi, Thanks, and good morning.

Questions first on the strategic side of the fiber business can you give us an update on the strategy around market exposure I think in the past you talked about.

Top 25 markets larger focus for the company Im curious how that stand today, how you see that evolving over the next few years and then just a question about some of the new disclosures. So.

I think we've learned from a lot of that companies that we cover that there are many different ways to define return on capital.

I'm curious if you could unpack the philosophy.

Moving crowd will include the calculation and maybe some of the things that you didnt, including the calculation whether it be.

For the fiber solutions businesses.

It's capex or the adjustment to add back I think some labor costs in that fiber return calculation. Thanks.

That Michael on the first question I'll pick that want to know that Dan take the second one.

We are as you correctly stated we have been focused and have spent the majority of the capital in the top 30 markets in the U.S., we think that will be the biggest driver of long term lease up around small cells and so theres theres no change in terms of our overall view of where.

Capital will continue to go and where we think investment by the cure.

From Fourg into and to Fiveg I, certainly believe the carriers are going to be going to markets beyond the top top 30 markets and there may be occasions, where we choose to make investments.

And pursue opportunities as we move beyond markets market top 30 markets in the US we'll make those decisions on the same basis that we got us into the top 30 markets in the U.S. that is around what are the initial returns on capital and then what do we think the lease up opportunities are around that capital over the over the.

Long term and do they do they they meet our our internal hurdles of driving long term shareholder value.

But I think you should expect we will continue to be mostly focused on kind of those top markets top 30 markets here in the U.S.

Yes, and Michael under second question on our return on capital definitions, what we're trying to provide with side.

Is a view of what we think a more.

Normalized return will be over time, when we're not investing.

So heavily in the building out of assets.

So what we did is we've tried to be very clear on these on the calculation as we've done so people can look at them. However, you want to look at them, but the way we think about it is.

What would it be our yield on the asset if we were to operate the asset as it is today.

And those indirect labor cost, which I think there's the biggest adjustment we made.

In our are people, who are working on building out our fiber assets over time, and therefore, not part of the ongoing operating cost structure that we think will be required in order to maintain that asset base for the long term.

And we thought that burdening currently the return with what is going on in order to build new assets is not exactly a is not representative of what we think the asset is yielding as it sits today.

Thinking about it a little differently.

It it's like including acquisition costs in a ongoing basis. It just doesn't really provide the insight into what the long term return aspects via the business.

What we're trying to do and giving all of that detail and in providing the calculation itself is is to give what how we think about these things and why we think about these things. They give you the ability to look at it. However, you want to look at it so were.

Again happy to take feedback on this is our are kind of our shot at what we think is the right way to look at it and how it is internally how we look at it.

But we will be happy to take you back and think through if there are other was it more closely aligned with what investors and we'd like to say.

Thanks.

We'll now go to Spencer Kurn, What's New Street research.

Hey, Thanks for taking the question.

So I've a question on co location that you've seen in small cells.

You've made it pretty clear that the yields and returns you can generate a lot on small cells are largely a function of no density.

When you talk about deploy overbuilds with too much less per model, but if you look over the last couple of this we haven't really seen those levels of lease up.

I think in play lighting, United around one per new fiber mile.

And just for the business World class vehicles.

We would need to move towards higher nodes per mile deployed in the future. So I.

I just wonder if you could comment on well why we haven't really seen the levels of low density.

Local builds at least I can speak to the recorded ticket so far.

Sure sensor and I think this is where the five markets that we laid out our so helpful. Right. Because you can look at Orlando, where we've got.

19% recurring cash yield on invested capital and we're at about two and a half nodes per mile.

And then you look at Denver, and we're at 3.8 nodes per mile and we're at a 5.5% yield so the metric that you're referencing in terms of density of nodes is a an input that we look at and we certainly watch what is our density of nodes, but we're we're much more focused on it.

What is the return on invested capital what's the return on that capital that we've invested and driving that return over time and as you look at the whether it's the whole portfolio as you look at these individual market at points in time, you're going to see some movement. There that if all you zero in on is just one single metric.

Nodes per mile you'll Miss the broader picture of what's happening in terms of return and yield and the way, we're negotiating contracts with customers, whether its co location where anchor builds.

We're negotiating those contracts.

Based on a return on invested capital. So the metric is is interesting and certainly it's something we track and we look at.

But we're much more focused on the financial returns than we are singular metric around around around nodes per mile. Because it's not it's not necessarily the best predictor. Thank you can look at the tower business on the slide where we laid out.

Tenants per tower, and you can see that dynamic playing out and tenants per tower as well where people would say obviously in the tower business you want to watch how many tenants are on each tower and that's the best predictor of returns.

And it is a good predictor of returns, but it's not a perfect correlation. We you can see in the tower business, we've been able to grow yields on those assets.

With that without a direct correlation to a change in and change in tenancy and I think the same thing has played out thus far and small cells and we'll continue we'll continue to play out. So the driver will be this this big wave of demand, which will drive density across.

Of nodes per mile, but but we're watching carefully the financial returns and think Thats the best best predictor of it.

Got it thank you and just one more question if I may.

No.

Good question I get.

Is.

About small cell price so upon renewals on hand, the concern is that unlike a tower we thought.

Very.

Local competition with fiber God competitors.

For the 12 spy and so I was wondering if you could comment on pricing trends that youve seeing around renewals or whether you're able to.

Continue escalating.

The nodes.

The original contract rate or or can be seen any trends that pricing pressure.

Thanks.

Sure Spencer as you can see on the slide slide four when we talk about the escalations in the and the contractual terms and and churn and other things we've seen no difference in the small cell business relative to towers as contracts come up for renewal they've been renewed at a at a rate that is in line with where towers RF.

At a little bit higher.

We've seen we've seen no roll off of of tenants and this goes to the critical.

Network nature of these assets the carriers are putting in the small cells and locations in order to offload traffic off of the macro site in order to improve their network and just like on macro sites. There their mission critical to their to their network and they're designed in order to help that network performed.

Better so as we get to renewal the carriers have invested significantly around the exact location where that node is and have added additional nodes and macro sites in order to provide a solution to the consumer that is ubiquitous and as they come up for renewal Theres nothing about that renewals that frankly, we think will will change the.

The necessity of the location that they pick and and then.

And then design their network around around the rest of the network. The other the other point I would I would make about about small cells and pricing and towers.

That I think is helpful. And certainly has played itself out as you think about the returns in the yields here one of the Q1 of the things that the big our carrier customers have desired as we've gone down the path of small cells as they desire to put in additional capital upfront.

Beyond just us putting up a 100% of the capital as we deploy small cells and you look at the math as Dan was walking through earlier in terms of total capital that we will spend this year of about 1 billion seven and prepaid rent that the carriers put in of about $600 million up.

So on a net basis, we're putting in a 1 billion one of capital in essence, you can think about that as each carrier customer goes on they're paying for a third of the infrastructure and upfront capital or some some component of that upfront capital, which means from a competitive standpoint over time as renewals come up they've already reduced the cash.

Capital base and therefore, the market rent. If you will is already embedded in the upfront investment that they've made so our assets sitting there are net investment of the assets sitting there is that a price well below what a market price would be if someone were to have to go and overbuild at or try to put in new fiber or put in a new small cell.

And that dynamic I think also is helpful.

I don't believe it solely the driver historically I think it's much more like towers in terms of network design.

But if you want to do the practical math associated with it and think about how does that play out over time the entry point for somebody else come into market. We're sitting there with an asset thats price significantly below what the cost of deploying a new asset there would be and we think overtime that gives even greater strength to the fact that renewal, we will see very high renewal rates from.

Long period of time.

Got it it's a great point thanks.

Next to Nick I'll deal with Moffat Nathanson.

Hey, thanks for fitting in.

Appreciate disclosures and look forward to Seattle stats evolve over time.

And just as an aside if you're willing to publish the historical data for those five cities.

With the 2018 2019, I think folks if on the interesting just we had initial prices to work with.

Yes, Joe you've emphasized that it's hard to put together a specific long term fiber forecast.

The business is in its early stages and as a wide variety potential how concern here and that will make sense.

How do you judge whether or not the fiber strategy than success sort of them bigger picture sense is there something will but will be that you havent volumes five or 10 years out that you will reflect upon and say, yes, yes the strategy works.

Well, you're saying that it so path dependent but you can't currently defined what's going to count as as a good outcome looking ahead.

Well I think the simple measure upon which we measure the entire businesses are we are we growing the dividend, which is from a payout standpoint tied to our operating results are we growing it inline with the with the target that we've laid out.

Three years ago, we told the market as we did the investment in light towers that we would raise our long term growth rate from 6% to 7% terms of dividend and they AFFO per share growth on an annual basis, we're going to increase its a 7% to 8%.

And over the last three years, we've delivered that dividend growth tied to tied directly to operations at the 8% level, increasing the dividend by about 26.7% over that over that period of time.

I think that is the best measure of value over time as to how the business is doing.

As we laid out on page eight Nick I think this is the way to think about what is about what are the potential value opportunities here around small cells. So if you believe kind of the total addressable market that we laid out on page seven in the opportunity there to the extent that we capture.

Fair share of that addressable market across the assets that we own. We believe we have an opportunity here to outpace our projected growth rate over a 10 year period of time, 7% to 8% and potentially do much better than that.

And Conversely, if things don't go as well then we've shown some of the some some of the downside there and as we look at that has that as we look at that graph and it's something that we've done as we look at analyze our own investments and how are we positioning the overall from the thing that continually strikes Dan and I about this is how ace the metric the reward.

Versus the risk is here and we believe the business will play out fourg going into Fiveg densities and always had to underwrite as fourg densities and we've positioned ourselves for significant upside.

And.

As owners of the business.

We look at this and think this is a great place to be were leveraged towards the upside where leverage towards where the world is headed we're staying relevant with our customers. Because this is where their networks and their deployments need to go. So we've positioned the company for future growth and Weve positioned that growth with limited downside risk.

We're wrong.

Certainly we're in the business because we think it will create long term potential value if at some point the scenario comes out but that doesn't play itself out then we will pivot away and make a different decision, but but all everything that we're seeing as we laid out in this.

On this call this morning.

And this this sort of reward versus risk trade, we like where the business is positioned and think that you think it gives a lot of optionality to the upside with with limited limited downside risk and in the in between between now and the long term how do we measure the performance the way we measure the performance is what we were showing on the five five or more.

Markets that we laid out these are the things that we're looking at internally day in day out we look at the performance at the market level to see whether or not is the strategy playing out or we've seen co location, that's driving yield and as we look at each of our markets as representative as represented by these five markets on the page, we are seeing that and that Emboldens the car.

Evidence that ultimately.

If we do it well in the micro ultimately that'll show up in the macro and that leads to sort of an outcome that shows up on page eight.

Great. Thank you Jay.

But.

Well go to add Levi with new vs.

Great. Thank you couple of follow ups.

I think the smallest how construction capex in the quarter was down sequentially slightly but the nodes broad on where father minimal in the quarter can you help us reconcile why there's a difference and if we should still expected 10000 built.

For the year.

Second question on the revenue small town, though it looks like it came down on that basis is that a function of the lower contribution from pre pays rent and how should we think about revenue per node for the anchor tenant incremental nodes braces and second tenant that you're adding thank you.

Yes on the first question around small cell capex.

I wouldnt be two tied to quarterly movements around our Capex. Obviously, we're doing work on nodes that will be turned on in the third quarter in the fourth quarter and subsequent subsequent period. So I don't think that that math is going to give you a real good indication of the cost our general cost per node.

Has stayed at around $100000, including cost of fiber and the real estate cost of building a node and we havent seen that that really changing at the at the market level.

We do believe that we will continue to deploy about 10000 10000 nodes in calendar year 2000 2020.

Your last question there around revenue per node.

I think this is one of the things that is helpful about laying out the five markets is as you can back into the math around.

Contribution in each of those markets.

We priced this business on a yield basis, so theres not a.

We're not thinking about it necessarily on a revenue per node, we think about adopts a return per node.

Or a yield on on a dollar of invested capital. So the pricing is going to be determined market by market or quarter by quarter. As you are laying out the numbers there are going to be determined based on where do we turned nodes on and what was the underlying costs associated with building those nodes and that will impact our revenue per node so revenue.

We have per node is not a metric that I would point you towards is being indicative of how the business is performing better off looking at how yields on invested capital are going.

Okay got it thank you.

I will now credit brand and thus far with Keybanc capital markets.

Great. Thank you for taking the question is trying to correct.

And can you help us understand what was the quarter over quarter year over year change in the backlog of slide but not commenced leasing so far in to Q and maybe help us understand where that would have been.

And then that should go into second half year second.

Yes, I mean, I know, it's not in guidance, but what would it take in your view to dish to be an incremental.

50 to 100 basis points contribution to your growth. The next couple of years. Thanks.

That's great and I'm, sorry, I missed your first question.

I didn't quite follow it could you just restate.

Yes, what I'm curious is.

Backlog looks like in terms of signed but not commence new leases.

How that trended from a quarter over quarter any year over year standpoint, and really help let's figure out and help us understand where that should go into second half of the year because that will help inform our.

Assumptions for 2020 that okay, yes, sorry about that I I got it now on the backlog as.

Relatively consistent over the over.

Year over year as we look at it right now what we do expect as we see the activity levels picking up in the back half that that backlog will increase.

And that as applications come in to add more to the tower side of the business that those will does will lead into 2021. So we would expect the back half of the year to have more activity more leasing and more backlog as we look into.

At the end of the year and then into 2021.

Brendan on your second question around around dish, obviously, they've made significant commitments to the regulators.

Around what they're going to deploy and and and that's been very public about their intention to build a nationwide network and we are focused on being a terrific partner with them and working hard to ensure that they're able to meet those targets that they've set out for themselves over the next couple of years.

And as we get into the impacts to future years, I think I'll wait until October to give you. Some view of what we think the impact in 2021 is going to be.

But we're we're zeroed in and making sure that were being responsive to what could be a significant customer over the over the next few years as they build out a nationwide network.

Thank you maybe we have time take you got Brandon.

Thank you maybe we have time to take one more question. This morning, Okay and our final question will come from Tim Horan with Oppenheimer. Please go ahead.

Hi, Thanks, guys can you give some break down a percentage of fiber top that's that for geographic expansion.

Thank you are in the geographic expansion for the top 30 markets.

Yeah, I think generally what I would tell you is about 70% of the activity that we see on the fiber side with small cells are anchor builds so think about that as geographic expansion. It very well maybe in the top 30 markets, but it's in portions of the market that we don't have fiber rigs.

This thing and then about 30% of the activity is going to be in places, where we already have existing fiber and were co locating so that's not a perfect correlation to the actual capital dollars because colocations, obviously require far less capital, but in terms of activity is if you're trying to get a sense of how much of the act.

Tivity that we have going on is is is new market expansion and I would put into that new market expansion really the markets that were already in where we're investing and expanding the plan inside of those markets as compared to going on existing existing existing fiber is probably the best indication of that.

But that's that's for tall and the Jay what gives you the confidence that the small cell demand will be there will only be close it's been a hosted a little bit below investors' expectations and T. Mobile's engineers seems to be a little discount of small cell.

Rises seems to want to build a wrong I mean, what gives you the competence.

Demand is going to Eagle these million nodes, we have a lot of visibility on it because you obviously.

Visibility that we doing outside.

Well I think there's there's a few things that are confidence building around that front. One is we firmly believe in the necessity of it so as we look at data traffic growth.

Thats occurring in the market.

There is not a solution for that for meeting that growing demand from the consumers by solely using macro sites in order to meet that demand. So there is a tailwind of growth tailwind to the growth that is going to continue to drive the need for additional investment in infrastructure and.

Small cells are ours. The next best most cost effective way for the carriers solve that challenge of growing demand on the on the networks.

Second thing that gives me a great deal of confidence that the business is going to work is that the carriers are very good at managing the cost structure of their network and we have watched over the last 20 years as the carriers have migrated their entire network on to other People's towers.

As a result of it being a much lower cost solution than owning it themselves. So in the places where they can significantly lower their cost as I mentioned earlier in the call. They can lower their cost of deployment by about 50% by using our infrastructure versus their own cost of ownership.

That cost savings is meaningful and significant and their thoughtful allocators of capital and managing their their income statement and I think that ultimately will carry carry today.

As I said in my in my prepared remarks, obviously, no one can accurately predict exactly how much is going to be it but it's dramatically you believe in the us that a decade and two decades from now people will use wireless networks and greater ways than what they do today than you basically believed that theres going to be an increase in traffic.

And the assets that we own both towers and small cells are standing in front of that growing demand and I think the infrastructure assets will do really well over a long period of time as a result of positioning themselves right in the midst of a big macro trend thats going on in the world and that those two reasons give me the most confident.

That that this strategy is right and that we're going to deliver terrific shareholder returns over the long term so.

Really appreciate everyone joining us this morning, thanks for the thanks for the time and we look forward to the conversations in the feedback over the coming days. Thanks, so much.

And thank you very much that does conclude our conference for today I'd like to thank everyone for your participation and you may now disconnect.

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