Q3 2020 Crown Castle International Corp Earnings Call
Good day and welcome to the Crown Crafts really cute Twentytwenty earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Ben. Please go ahead.
Great. Thank you Mary and good morning, everyone. Thank you for joining US today is wherever you our third quarter 2020 result wouldn't.
With me on the call. This morning are Jay Brown Crown castle's, Chief Executive Officer, and Dan Schlanger Crown Castle's Chief Financial Officer.
The discussion we have 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, which are subject to certain risks uncertainties and assumptions and actual results may vary materially from those expected info.
Information about potential factors, which could affect our results is available in the press release and the risk factor sections of the company's asking some filings.
Our statements are made as of today October 22nd 2020, and we assume no obligation to update any forward looking statements.
In addition, today's call includes discussions of certain non-GAAP financial measures tables.
Tables reconciling these non-GAAP financial measures are available in the supplemental information package in the investors section of the company's website at Crown Castle Dot com. So.
So with that let me turn the call over to Jay.
Thanks, Dan and good morning, everyone I'd be corner earnings press release from last night, we delivered another quarter of positive results. We remain on track to generate growth in EPS AFFO per share this year, but it's consistent with our 7% to 8% target and we expect growth to accelerate to 10% in 2021.
I would highlight three key financial points in our earnings press release.
11% increase in aren't good and the reduction in capital intensity in fiber, while delivering consistent growth.
The ability to fund our 2021 capital plan without the need for equity issuance.
Dan will discuss the results and our expectations for the balance of 2020 and the full year 2021 outlook.
More detail so I want to focus my comments. This morning on our strategy to maximize long term shareholder value, while delivering attractive near term return.
I believe our strategy, an unmatched portfolio of more than 40000 towers and approximately 80000 route miles of fiber concentrated in the top U.S. markets have positioned crown castle to generate growth in cash flow and dividends per share both in the near term and for years to come.
Steady execution against this strategy is resulting in consistent dividend growth.
We increased our annualized common stock dividend by 11% the $5.32 per share in line with the high end of our outlook for EPS AFFO per share growth in 2021.
Despite some timing challenges this year, we continue to build on our long history of consistently delivering compelling growth through various market cycles, highlighting both the strength of our business model and the significant value creation opportunity our strategy provides to shareholders over.
Over the last six years and inclusive of the increase we announced yesterday, we have grown the dividend at a compound annual growth rate of more than 8% per share.
Additionally, since the acquisition of light tower in 2017.
When we increased our annual growth target by 100 basis points to 7% to 8% we have grown the dividend on average by 9% per year.
Importantly, as you can see on slide four while we have returned a total of $10 billion to shareholders through dividends. We have also invested in assets. We believe will generate great returns for our shareholders over the long term, that's our portfolio of assets positions us to benefit from what we expect will be a decade long and.
Definitely cycle, that's our customers deploy five G.
One of the core principles of our long term strategy is to focus on the U.S. market because we believe it represents the fastest growing market for wireless network investment with the least amount of risk leading to superior long term returns.
According to see T is shown on slide five our carrier customers have invested nearly $300 billion of capital to upgrade their wireless networks since the beginning of 2000 and said so.
Yes, it gently increasing the density of their network with tens of thousands of new cell sites, while deploying additional spectrum.
The U.S. wireless market attracts a disproportionate amount of capital investment because the market fundamentals are so attractive in two.
In 2019, that's an example carriers than the U.S. invested approximately $30 billion, representing nearly 20% of all mobile capex globally to serve demand from less than 5% of the world's population.
To go after the sizable and growing opportunity we have invested nearly $40 billion over the last couple of decades. It's shared infrastructure assets that we believe are mission critical for both today's wireless networks and the next generation of wireless networks. Our customers are just beginning to develop with fiveg.
Our tower and that's that began more than 20 years ago, when we built and acquired assets that we could share across multiple customers.
Writing, a lower cost to each customer while 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 that they now generate a yield on invested capital on invested capital approaching 11%.
With ample capacity to support additional etcetera, and generate future growth and cash flow.
More recently, we began investing in small cells as wireless network architecture evolves with Fourg.
Requiring a network of cell site, but as much denser and closer to the end users in order to serve the rapid growth in mobile data demand.
The impact on wireless networks from the persistent 30% plus annual growth in mobile data demand staggering.
Your mouth of wireless data used in 2019 was 96 times greater than the data demand is in 2010.
Further to the point the incremental growth from 2018 to 2019 alone exceeded the total data usage from 2010 through 2013 on a combined basis.
To respond to this insatiable demand our carrier customers have deployed more wireless spectrum for more locations.
Its 2010, the total number of locations where wireless carriers are broadcasting their spectrum has increased by approximately 150000 to nearly 400000.
The end of 2019 with most new sites deployed on existing macro towers as well as new small cell.
The increasing site Densification has always been a key tool the carriers have used to add network capacity, enabling our customers to get the most out of their spectrum assets by reusing spectrum over shorter and shorter distances.
The law of physics dictate that the site the cell site Densification will continue, particularly given the higher spectrum bands coming to market in recent and upcoming auctions.
We expect the Densification trends that drive additional leads to monarch tower assets for years to come.
But with the radius of cell sites continuing to shrink we expect small cells to play a greater role in network Densification going forward.
During our earnings call in July I talked about our assessment that our small cell business has significant potential upside and limited downside.
This is in part because we have assumed a relatively low density of small cells compared to industry estimate and carrier commentary.
The wireless ecosystem is beginning to show signs that would lead towards our potential upside cases.
Last week, we saw an important milestone in the March towards Greater network Densification, when Apple announced that all I phone 12 models sold in the U.S. support millimeter wave spectrum band.
While models offered in other regions of the World are limited the sub six gigahertz band.
This announcement reminds me a lot of 2007 that's it.
At the time, the wireless carriers in the U.S. had accumulated a vast supply of Threed you capable spectra, but there were no use cases identified requiring that much capacity.
The time phones were used for talking at unlimited cases text in Reno.
Ringtones, where the exciting feature you could download the personal lines your device.
Then Apple launched the original iPhone or the world changed.
People could use their phones to surf the web listen to music share picture and communicate with each other without speaking to.
And more importantly, the introduction of the iPhone kicked off a new era of wireless innovation that spurred unprecedented investment in wireless communication networks in the U.S. and no one really thought coming.
Fast forward to now and much of the same dynamics are at play the new iPhone with launch for spectrum bands that are not yet deployed at scale as was the case with the original iPhone. The use the millimeter wave opens up a whole new set of opportunities and use cases and ill.
And although no one can be certain about which use cases will take hold it is exciting that the company that started it all with the original iPhone is again at the front end of a wireless communication Revolution with the iPhone 12.
This is so important to our business because the carriers now have nearly 20 times more spectrum capacity than they did in 2007 with a significant portion yet to be deployed and more spectrum scheduled to be auctioned in the next few months.
In aggregate carrier that other market participants have already purchased approximately $15 billion that auction plus made acquisitions to gain access to higher spectrum bands needed to deploy fiveg.
And that investment is likely to increase considerably with the upcoming FY band auction.
No meter wave spectrum currently accounts for more than 80% of the total spectrum that's available for use in the U.S. and we believe the iPhone 12 will speed up its deployments.
Because of its RF characteristics millimeter wave spectrum provide significantly more capacity, but over a fraction of the geographic coverage area.
As a result, we believe the majority of millimeter wave spectrum will ultimately be deployed using small cells rather than towers with that.
With that in mind, we are excited about the industry, leading small cell business in the us that complements our tower business and provide substantial potential upsides to our fiveg growth strategy.
The 10% AFFO per share growth that we expect in 2021 is without the benefit of all the Fiveg investment I just described.
Because small cells develop during the Fourg investment cycle, we're much earlier on when it comes to our small cell and fiber investments with a 33 year weighted average life across the approximately $14 billion of invested capital.
Given the immaturity of these investments it's encouraging that the business is already generating a current yield on invested capital that is approaching 8%.
Similar to towers, the investments, we are making in small cells and fibers and five or have a high initial costs that will ultimately be shared across multiple customers lowering the capital and ongoing operating costs to each customer while generating returns for our shareholders as we lease up those assets.
We expect the yield on our investments to increase gradually over time as we benefit from the lease up of our existing assets offset by the pursuit of organic investment opportunities to construct less mature small cell assets for anchor tenants at an initial yield of 6% to 7%.
In recent years anchor builds have accounted for 70% to 80% of our small cell leasing with co.
With co location, making up the remaining 20% to 30% of activity.
Based on our current pipeline of notes we plan to construct in 2021, we expect the contribution from co location to increase to approximately 40% of the activity.
Contributing to a $400 million projected decrease in our discretionary fiber capital expenditures in 2021, when compared to levels of 2019.
In addition to the benefit from an increase in small cell co location activity. There are several large multi year fiber expansion projects that we inherited through acquisitions that are scheduled to be completed this year contributing to the forecasted decrease in capital expenditures and 21.
We believe the expected reduction in capital intensity of growth within our small cell small cell and fiber business is yet another encouraging sign that our strategy is generating the returns that we expected.
So to wrap up our strategy to deliver the highest risk adjusted returns for our shareholders by balancing a growing dividend and investing in assets that will drive future growth.
To that end, we are deliberately investing all of our capital in the largest and what we believe is the best market in the world for owning communications infrastructure assets we offer.
We offer a comprehensive solution to our customers the towers and small cells to enable and benefit from the wave of investment our wireless customers are expected to make over the next decade, the buildout fiveg and meet the growing demand for wireless data.
We are investing for the future, while increasing our dividend by 11%, which is meaningfully above our long term target of 7% to 8% per year as we.
As we focused on closing out another successful year I want to take a moment and thank our team for how well they have navigated through a pandemic and a significant carrier consolidation in our space to help deliver an AFFO per share growth in 2020 that is consistent with our long term growth target.
Before turning the call over to Dan I'd also like to briefly mention our other announcement yesterday, our board of directors appointed Tammy Jones, and Matthew Thornton as directors effective in November of this year.
The addition of these two highly qualified and experienced directors. Our board has made significant progress with the first phase of the board transition process, we announced last quarter.
On behalf of all of the board I'm excited to welcome Tami and Matthew the Crown Castle, and I personally look forward to working with them, but with that I will turn the call over to Dan.
Thanks, Jay and good morning, everyone as Jay.
As Jay mentioned, we delivered another quarter of solid results, we remain on track to generate at least 7% growth and AFFO per share in 2020.
Spec as AFFO per share growth to accelerate the 10% and 2021, allowing us to increase our dividend by 11% to $5.32.
Turning to slide six of the presentation site rental revenues and adjusted EBITDA grew 4%, while an AFFO increased 8% in the third quarter, Tony Tony when compared to the same period last year.
During the quarter, we experienced an increase in activity on towers that resulted in a meaningful increase in the contribution from services when compared to recent quarters.
We expect a further increase in industry activity as our carrier customers invest to improve their existing networks and as Fiveg investments ramp, which we believe will start in artist in 2021.
However, the full rebound in activity on towers is continuing to occur a bit slower later than we previously expected with a portion of the activity illegal we expected to occur in late 2020 shifting into early 2021.
As a result on slide seven you will see that at the Midpoints. We've decreased our 2020 outlook for site rental revenue by $43 million adjusted EBITDA by $83 million and fell by $8 million.
These changes are primarily the result of the expected shift in timing I mentioned, partially offset by lower than expected interest expense in sustaining capital expenditures.
Specifically the change in timing of towers activity negatively impacts the expected 2020 organic contribution to site rental revenues by approximately $20 million and services combination contribution from towers by approximately $50 million.
Additionally, the combination of the shift in timing as well as fewer lease extensions than previously forecasted.
Negatively impacts our 2025 straight line revenues by approximately $20 million.
These changes are offset by approximately $10 million in lower expenses.
$30 million, and lower interest expense and $25 million and lower sustaining capital expenditures.
As a result for full year 2020, we now expect approximately 6% growth inorganic contribution to say all revenues consisting of approximately 5% growth from towers more than 15% for small cells and approximately 3% from fiber solutions.
We also expect adjusted EBITDA to grow about 4% and AFFO per share to grow around 7% in 2012.
Shifting over to our full year 2021 outlook on slide eight we.
We expect organic contribution to site rental revenues of 295 million to $335 million or approximately 6% growth consist.
Consisting of approximately 6% growth from towers.
18% for small cells and 3% both firms from fiber solutions.
It's worth pointing out that our outlook does not include a material contribution from dish networks wireless network build out as we expect activity on that front to begin in late 2021, consistent with their public commentary.
As Jay discussed earlier, we expect discretionary capital expenditures in 2021 to be approximately $400 million lower when compared to 2019 totaling approximately $1.5 billion as we apply a rigorous analytical approach to each and capital investment decisions.
We anticipate the combination of lower capital expenditures and higher cash flow growth growth will allow us to fund our discretionary capital budget next year with free cash flow and incremental debt capacity consistent with our investment grade credit profile.
As it relates to the balance sheet, we finished the quarter with 5.4 times debt to EBITDA, a weighted average maturity of nine years, no maturities until 2022, and approximately $4.5 billion of undrawn capacity on our revolving credit facility.
Our debt maturity profile as a result of the deliberate approach to minimize financing risk and more closely match our debt maturity for the long term nature of our asset base, while focusing on driving down our overall cost of capital.
Turning to slide nine we expect 2021 growth in AFFO of 300 million to $345 million or approximately 12% growth.
In addition to the approximately 6% expected growth organic contribution to site rental revenues yes.
Yes. It will concludes expense increases primarily reflect the combination of typical escalations in cost of living increases as well as incremental direct costs associated with fiber revenue growth.
An increase in services contribution tied to the expected increase in tower activity in 2021 and.
And an expected contribution to growth of $60 million to $90 million from other items, primarily related to the conversion of preferred stock that occurred during the third quarter that will produce annual preferred stock dividends paid next year by approximately $85 million.
So before we open the call lets question. There are three key things we want to make sure you take away from our discussion.
We increased our dividend by 11% the.
The capital intensity in our fiber business is declining while delivering consistent growth.
And we expect to fund our 2021 capital plan without the need for additional equity.
Looking further out we believe our ability to offer towers small cell and fiber solutions, which are all integral components of communications networks provides us the best opportunity to deliver superior risk adjusted returns for our shareholders.
With that Mary I'd like to open the call to questions.
Thank you if you wish to ask a question at this time to signal by pressing star one on your telephone keypad.
Sure I think the assumption on your telephone switched off to allow your signal.
Again, Please press star one to ask a question.
And we can take our first question from Michael Rollins with Citi.
Please go ahead.
Hey, good morning.
Sure good morning.
Good morning, guys. Just curious if you could delve further into.
The tower leasing activity. So the prior guide I believe was 170 to one needs within the total new leasing activity.
And as you look at it shifting $20 million into 21.
Yes.
Holding then that eight flying back.
2020, and you see opportunities for $17 to continue to get better.
From the 21 level over the next few years as you look out.
At the potential activity from your carrier customers. Thanks.
You bet good morning, Mike.
Big picture, what I would say is we're continuing to see really consistent growth across all of the carriers in the business and I think the commentary that I made going back and looking at both our capital allocation plan historically, but also the activity of the carriers over the last decade shows a consistent investment in the in the network and I think we.
That's the same thing going forward.
Anytime anyone looked at the business and starts to try to figure out inflection points that always gives me pause because history would suggest that there is a.
Steadiness to the investment of capital and that the improvement to networks in order to provide data capacity for consumers is a long a long road not a short one and so as we look forward what I think we're most excited about is the long runway of growth that we see on the tower side, we see.
Consistent revenue growth over a long period of time as Fiveg gets gets built out.
And then in terms of the potential upside the comments that I made around the iPhone 12, and the opening up of millimeter wave. We think it's probably the most likely path of seeing significant upside to the consistent growth that we would expect driven by fiveg over the over the coming decade.
And I think.
It's important just to point out that we are seeing 6% growth in our tower business going into 2021, which we.
Which we think will be a pre.
Pretty well.
See it or look pretty good compared to our peers and that's without all of that investment that Jay is talking about so I think were and then we're translating that into 10% AFFO per share growth.
Pretty good set up to be in there.
We're moving into 2021 with really good tower growth really today, AFFO growth and a lot of upside from there.
If I could just follow up on small cells, just where I think you're seeing more co location opportunities for 2021.
In the plan.
That's a reflection of.
More co location concentrate where you already are seeing success or are you seeing the co location get more distributed across the different markets.
Now the co location will be coming on assets that we have both acquired and built over up over a period of time and obviously the co location that we're putting on in 2021 reflects no.
Note that we put into the pipeline probably a couple of years ago in most cases.
So it's a it's a reflection of those assets that we acquired or built several years ago, and then as we talked about it often they then leased up over a long period of time and as we look at the as we look at the at the business. Obviously, we've increased the base of investment over the last several years as we built anchored new.
[music] systems and the expectation of those new anchored systems is that overtime. They would see co location and lease up and as we look at the pipeline for 2021 as we were talking about the capital intensity associated with that growth obviously, the capital intensity comes down as co location close up and in 2000.
21, we're reaping the benefit both in terms of higher yields on the assets overtime from co location and also lower capital intensity related to those assets.
Thanks.
We can now take our next question from.
Goldman Sachs. Please go ahead.
Yeah. Thank you for taking the question when I look at the composition of your outlook for next year, you're expecting that non renewals at the midpoint of the range will be pretty similar to what you're expecting this year.
And the question I had is you do actually have sprint leases that come up for non renewal next year I'm curious what are you assuming about them.
And then I know you have a considerable amount of time on average with your T mobile and sprint leases T. Mobile has clearly shown to which and allays. What's your peers that they have a desire to align de lease terminations, which when they actually do site decommissioning. If you were to allow that you'd be making a concession. So did you have done this in the past how do you think about the trade off that you might be willing.
To make it a revised customer agreement, where you might allow them to take some sites off sooner. What do you have to get to feel like you've been made whole or better off in that relationship as a result of it. Thank you.
Yeah, Hey, Brad I'll take the first one.
On the churn assumption going into 2021, we talked about.
We talked about this before that the acquired network trend that we've seen coming up.
Through the end of last year had a rollover effect into 2020 that would stop by the end of 2020, and so 2021 churn is lower and is it kind of the lower end of our 1% to 2% long term churn rate.
Even within that though as you pointed out the specific turned around sprint we have some of that assumed in our in our model and how we're thinking about churn going forward. So that's inclusive EPS and sprint turn it to be at that low end.
Yeah on your second question, Brad obviously, we shied away from talking about specific customers and specific deals with with our customers. So I'll I'll, mostly back off of that question Big picture in terms of the economics, and how we think about our customer relationships the value that we provide to the customers as a shared.
Solution that ultimately lowers their cost of being able to deploy the network and that value proposition regardless of the construct under which it's made with each of our customers looks to be really healthy and then an intact and so.
So as I look across the landscape.
Both on the tower side and on the small cell side the value proposition holds through a number of different no.
Number of different market cycles, and we're looking at the same time, we're providing that value proposition to the customers. We're trying to be thoughtful about making sure we get an appropriate yield on the invested capital that we have and that's true both on the tower side is as as well as the as well as the small cell side. So we've laid out our contractual provisions in the in the supply.
And then obviously, we have about five years remaining on the on the T mobile leases and and we will continue to work with them as we do with all of the carriers to make sure. We have the right contractual relationship to ensure that they have access to the assets and can get network deployed in an expeditious fashion and we're getting the appropriate returns on the index.
Cost of capital.
Thank you.
We can now take our next question from Simon.
Please go ahead.
Great. Thanks, a lot good to hear the momentum and the small cell business on the opportunity around millimeter wave.
Can you talk a little bit about what the pipeline discussions the backlog looks like your ability to kind of add so they I think it was a 20000 backlog overtime I think there's some concern that your companies like Verizon will focus a lot on self perform so how are those conversations going on have you expect until evolves to one.
Where do you see that I felt starts to ramp and then related to that is I know.
I know I've gone back a couple of years, you are hoping to really accelerate the pace of small cell construction.
Any any change and that momentum either in the near term or in the medium term that you see where you could start to.
Shorten that timeframe. Thanks.
Hi, good morning Simon.
On the first question around the pipeline and small cells.
We're continuing to have really encouraging conversations with our customers about their need and and our ability to to perform for them and and both deploy capital and the.
And deliver small cell nodes for them and so the the environment in which we're having conversations with the customers as evidenced by some of the comments that I made around millimeter wave and the necessity of increased cell site density are really encouraging and support kind of our longer term view that small cells are just an integral component.
Of of wireless networks, and I think as you've heard both Verizon made TNT you talked about this week that you really can't do wireless without without wires without fibre and fiber is I think in terms of the conversation both with our customers.
And more broadly as people look at this industry I think more and more you are seeing the blending of of both fiber and wireless and I think you're going to see that trend continued. So I think we're we're still early stages in terms of what that's going to look like but.
But the total addressable market all of the signs point to an increasingly large addressable market.
Our role and capture that addressable market I think comes down to both where we've chosen to historically invest our capital as you know we focus most of the capital in the top markets in the US we think those.
The potential to produce the highest returns on invested capital. So we focused our fiber investments in those in those top markets. Because we think they have the best opportunity for future small cell lease up.
I listened to what the carriers are saying I think they believe that they're going to need small cells well beyond just the top markets in the us and that's going to require fiber deployed in a lot more locations than frankly, we'll probably meet our return thresholds as Dan talked about and some of his prepared remarks, the the rigorous analysis.
We go through in terms of allocating capital, we think about what kind of market than the U.S. do we really want to allocate capital towards and there are places in the in the U.S., where we choose not to pursue.
[noise] request for proposals from the carriers and and we've chosen to focus most of the capital investment in the top markets. Because we think the highest growth is there. So I think that leads to a commentary both today and what I would expect continue long into the future where the carriers are going to self perform a mean.
Equal portion of the small cells that they need there may be.
There may be other third parties, who also enter the space and I think that just speaks to how big the addressable market is going to be and also our our discipline and limiting where ultimately we're willing to extend capital where we think the best returns for Crown Castle or I think if those two things play themselves out, which we'll see over time I think.
There's plenty of of addressable market for us to get great returns on capital that we've invested thus thus far and at the same time I think you'll continue to see the carriers to self perform in locations, where it just doesn't make sense for us to extend the capital.
On your second question around it.
Accelerating the construction process.
We are obviously working every day to try to figure out ways to do that better and faster and the team has worked hard at that and there are there are instances, where we have found some opportunity to be able to do that.
I would say as I've said in the past.
The idea that there is a that is easy to deploy small cells into deployed fiber.
It's really a fallacy to sort of very difficult and long process to go through the zoning and planning process of being able to deploy small cells in the U.S. and I don't really see anything on the horizon that would meaningfully change that I believe.
I believe it's a significant moat around the business and will remain intact and in place for a very long period of time and to the extent there for somebody has fiber in locations or small cell network that has been built for future small cells. I think there is a real advantage to that in place.
That in place the operator for capturing future future opportunity around small cells so well.
We're working everyday to try to figure out a way to deliver these small cells faster for the customers, but I think the dynamics of zoning and planning and working with the utilities drive a pretty long timeline, but thus far we really haven't seen change meaningfully.
Thank you.
Okay.
I will now take our next question Jonathan Kim RBC capital. Please go ahead.
Thanks, I had a question about Threeq, two and then and then about the 2021 expectations.
Can you give us a sense of kind of the monthly cadence that you saw on your macro sites we see.
Temper any better.
Notably stronger than say July August.
And then on 2021 dimension, but timing expectations around dish.
I wondered if you had any sort of those comments about the expectations around.
Some of the say mid Threeq eclipse deployments throughout 2021 front end loaded when do you start to see.
For the rest of your portfolio. Thanks.
Yeah, Hey, John.
On your question on Q3.
I think what we can you can just see.
See from the overall Q3 results and then our 2020 guide going into 2021. It is activity is accelerating into the back half, albeit at a slower pace than what we would have expected you can see that in a couple of places one the relatively substantial increase the services that we saw from Q2 into Q3 and then.
Again, just the increase in overall leasing activity that we are going from 2020 into 2021.
I think as always we've talked about that and Jim mentioned it earlier.
We feel really comfortable with the overall activity levels, increasing and all of the demand that's being placed on wireless networks, requiring an increase in the amount of capital and operating expenses as being.
Required from our customers to keep up but it's all.
But it's always hard to tell exactly when the timing of that any type of change will happen. So trying to pinpoint it to a month or a quarter has always been hard and what we're seeing what we're excited about it as we're moving into 21, we see our tower growth accelerating into that 6% range.
Like I said earlier, that's a great place for us to be a as as we see a continuing.
As mentioned in his prepared remarks insatiable demand for for data on top of a fiveg ecosystem that being developed now that we think will generate substantial opportunities for us going forward.
Jonathan on your second question.
Again to my comments earlier about T mobile I certainly want to let this speak to their own plans and timing around what they're thinking about deployment of a network.
So it's I think it's fair to draw from the public commentary that that given thus far.
And and certainly in our in our own outlook, we assume we did not assume a significant contribution from dish and 2021, but.
But based on their public commentary, we would expect more of a comp contribution as we go into 2022.
And then finally on the operation side.
With.
The gym ones that EPS departure, just any kind of an update as to how things are going to be well don't follow through you're looking for how things organizationally might be different if at all.
Sure. We we did announce that we had hired an outside search firm to help us look at both internal and external candidates for the for that role for our COO COO of network and we feel good about the process is ongoing we've seen a number of quality candidates, but no specific update time.
I would say the part of your question in terms of what are we what are we looking forward we expect.
Obviously looking for somebody who has a proven ability to lead a large organization of our scale in size and we want to make sure. We pick somebody who has a good understanding of the strategy and the ability to execute against that strategy and and drive returns on the invested capital that was put there so no specific update beyond that and.
We'll let you know since we make a decision on that front.
Thank you.
We'll now take our next question from Tim.
Please go ahead.
Thank you.
Two if I could just one follow up on the fiber business.
Yes, the reduction in capital intensity.
This is something that.
It is interesting is some time there.
I'm just wondering is that we should look at that as kind of a 2021 event.
Just based on timing or is this something that you think.
It has a multi year tail to it and then.
And then second just on a higher level could you talk a little bit about edge compute I know you.
With that I will yield, but curious to see as we move towards EPS confused how you think five will play into that some of your peers have gotten involved in datacenters. So I'm just curious thoughts there. Thank you.
Yes in terms.
In terms of capital intensity, we called out two things. One is is we finished a few fiber projects that we had inherited with some acquisitions. We have done historically and we're going to we finished those in 2020, we wrap them up and those will continue going into 2021.
A lot of that is.
In line with our strategy of leading more with small cells and with fiber solutions and as we continue to push on that we do believe that thats more of a longer term impacts to our business and that when.
When we're looking at building fiber throughout the markets as Jay pointed out the top 25 markets top 30 markets to begin with that.
That that we want to lead with small cells and there may be cases, where we could come up with a situation, where we lead with fiber solutions. Because we think small cells are coming relatively quickly in the same places but for the most part is a small cell decision are we are wanting to.
Invest in that market for small cells.
Or not and if the answer is no then we're not going to lead with fiber solutions and in many cases. These were deals that were based on fiber solutions. So it is a longer term type of capital allocation decision were making there in terms of the second reason that we called out for why we have less capital intensity is an increase in the proportion of small cell nodes that are co location.
From where they had been historically as Jay pointed out it was about 70% to 80% anchor builds historically and this year, we're looking more like 60% anchor builds and 40% co location and because of that the capital intensity is coming down I would say that the remainder of our backlog looks more akin to the 70, 80%.
Anchor builds so thats not as long term.
Unless of course, we get some some bookings that would replace those co location nodes.
Which as you know are quicker to go into the two production just because we already have fiber and existing polls already so that would happen faster. So if we get some bookings that may change that but I would say right now in our backlog it looks more like what we've seen historically.
To your second question, we did make an investment in vapor Io, which is the edge compute company and you know on the on this topic I would say that the world is continuing to move towards wireless and if you look at the the amount of data traffic is as referenced as I referenced in my prepared remarks.
It is growing at an unbelievable pace and.
Edge computing becomes really important as.
As users and providers.
Yes.
Using those wireless networks are trying to figure out ways to reduce the latency in the network and lower the overall cost of delivering that that that data.
And.
Edge computing as a way of doing that but both moving compute power as well as as well as storage as close to the user as possible and that becomes increasingly important as industrial applications materialize, even beyond what we think of today is mostly consumer driven applications. So I think there is a lot of opportunity.
There. It also highlights the necessity of everything in the network being connected by fiber both small cells macro sites edge compute and I think I think at the mill or another indication of the necessity and importance of fiber in the next generation of wireless networks. So.
We're excited about the opportunity there we think we're well positioned in terms of the investment that we've made it doesn't have a meaningful impact today on any of our results nor do we expect that to be true in 2021, but it does give us a view towards the future and we're excited about the upside not just in our investment in edge confused but.
What what that.
What that portends for for the rest of the business and the increasing data traffic going across the wireless networks and then the investment required in order to get there.
Okay. Thank you very much.
We can now take our next question is from David Barden of Bank of America. Please go ahead.
Hey, guys. Thanks, so much for taking the question. So unfortunately, and I apologize if I missed this felt.
Dan just in terms of the guys at 21.
What if anything do you have from C band deployments.
In there.
And realistically.
Realistically could it be a contributor to the 21 outlet and then.
Second question on.
You know the one of your competitors signed the normal way with one of your major customers.
Recently.
Last quarter that company took.
The carrier contribution.
20 hours, so guidance entirely because that carrier was being very aggressive with respect to the willingness to steer business too.
Competitors like yourselves.
Is there anything about the second half of 20 or 2021 that might represent some kind of super normal contribution.
From a carrier.
That has fundamentally with one of your competitors that might shift business back.
Auction, how do you speak about.
That dynamic in the competitive marketplace.
Yeah. Thanks, David I'll take the first question on 22.
2021 outlook.
We don't give outlook according to specific spectrum bands or specific.
Customers, what we what we want to try to figure out what is the level of demand, that's coming and where do we think that the archer.
Our carrier customers are going to allocate capital in order to meet that demand I think that there is as you pointed out one of the important aspect that makes the U.S. market. So attractive is.
There's a lot of spectrum that has been purchased recently or will be purchased in the upcoming few months through see down to specifically that is laying salchow and not generating return and not meeting the demand from end users and that's what's driving the overall increase in tower leasing activity that we're going to see and we expect to see going into 2021.
We would anticipate that whoever ultimately owns that C band would want to deploy it at some point and whether that's in 2021 or beyond it will just add to our tower growth over time, just like any spectrum has before and were generally agnostic to which spectrum is being deployed we're looking for how is the ultimate end user demand going to be met through.
Deploying more spectrum densifying more sites building small cells going on additional towers, but there's nothing there's nothing specific or not specific in that for a C band appointed necessarily.
That to your second question you know I would describe the activity that we're expecting in 2021 to be to be normal levels of activity and as we look across the landscape of the carriers. They are all investing in the network and we think we'll benefit from that and I think the the.
The idea of growth in this business, just really big picture, if I step back and look at what's going on in the environment is.
We're going to topline revenue growth at a very attractive clip and that is translating as we've talked about in 2021 into a double digit dividend increase some some 11% and if I go backwards and think about what's happened over the last over the last four years. The most dividend increases we've grown the dividend.
From a dividend about 9% so in terms of the return of capital to shareholders. We've we've seen an acceleration in terms of out of that increase in dividends to the shareholder we're seeing tremendous growth on the on the top line side and the best part about it is we have a view towards the future.
Sure that looks like this is going to stay in place for an extended period of time and there are a lot of elements of it that say, there's going to be a really long runway of growth and so our business, which has historically been marked by really consistent investment among the carriers I think that that that investment trend is in place and.
Looks like there's a pretty long runway ahead of that continued investment by our customers and I'm pretty excited about where we're positioned in terms of capturing that and then translating it into a returning cash to our shareholders through the through the form of dividends and ER and then continuing to invest along the way and assets. We think can further that dividend growth.
Thanks Jay.
And we can now take our next question is from Colby Synesael of Cowen. Please go ahead.
Great. Thank you.
Lines of questioning why didn't just on small than getting song.
Yes.
He anywhere here a couple of <unk>, Yeah, you find good morning.
Good morning, just on small cells I like if you can give us the updated numbers for installing a backlog I think you said 20000 in backlog.
Backlog, which I guess sort of seeing another 5000 were installed in the quarter and that you would it I guess at this point I'd hate your 10000, Mark for installs to 2020, which was the previous guidance. Just curious can you just confirm that and also what is the expectation for installs in its 2021 guidance and then secondly.
Is there any risk to guidance for 2021 that you could go and signed into law with any one of your customers.
In 2021 that can result in accelerated churn.
On which you are currently showing in your 2021 guy that data today. Thank you.
You bet. So on your first question just to kind of square everybody away in terms of where we are on small cell nodes. We came into 2020 with about 40000 nodes on air.
We expect to exit 2000, 2020 with about 50000 on there and then we expect by the time, we get to the end of 2021 that we'll have about 60000 nodes nodes on air So similar levels of activity in 2020 and 2021.
It means we'll exit this year with about 20000 nodes roughly in the in the pipeline still to be still to be completed on your second question around around our 2021 outlook.
We gave a range because there is a number of different things that could obviously happen as we get into into the year and I guess you raise one specific area I wouldn't I wouldn't again comment on.
If a customer contracts.
But to the extent that there was a.
And the allowance that we were to make contractually with the customer on being able to exit a committed revenue that they have to us we would expect to have an equivalent value return back as a so as a part of any discussion that we would have so.
I would never say never to a theoretical question like that but the value would have to be there to us that wouldn't materialize and some some or some other form so I would look at the outlook that we gave to 2021 as similar to any other year that we would give outlook and we'll try to give a range of possibilities that fits.
Central upside that could help us.
Things go well and then the low end of the guidance if things Didnt go quite as well as we expected and we're trying to give you a balanced view of a number of pluses and minuses as we go into the year.
I mean, you, obviously know why I'm asking that question give and David.
David Guardians question, just a moment ago Bob.
About a particular company and you know my life, but but is there a situation where that extra value. If you will that you had an extract intent potentially allow customer to do that.
That would be actually.
And outer years, 22, 23 et cetera, and therefore, there can be some near term offsets.
Offsets, if you will but over the longer term still.
Well you'd want to get.
You know Colby I think the answering that in a theoretical is basically impossible. We are economic animals at heart and we run a massive capital investment base that we've.
That we've put together over over 20 plus years and our goal is to maximize the yield on that investment.
By by working thoughtfully with the customer to ensure that they have a compelling opportunity to go on the site.
And to be able to do that as expeditiously as we possibly can so there's a real value to our customers of sharing it and were aiming to maximize the value and the return on the on the assets and we hold our.
We hold ourselves out to be as flexible as we can be in accomplishing those two goals both offering a shared solution that is good for our customers and at the same time trying to maximize the return on the on the on the asset if if we can pick both of those boxes happy to happy to consider.
What makes the most sense, but in the theoretical really frankly impossible to to be any more specific than that.
Thank you Jay.
You bet.
We can now take our next question from Chicago.
Please go ahead.
Hey, so I have a couple on.
Sure tower or guidance with the 150 to 160 of the Utica Avenue that you've got achieving 2021.
Can you just talk about the cadence of that throughout the year are you expecting to exit at a.
At a higher level and then started outlets.
Yeah, it's pretty flat through the through the year.
But as typically the case, we generally see a little bit more activity in the back half of the only two in the front half there.
Got it thanks, and then I just have one follow up on.
Lower later waves. It's it's interesting that you guys are really bullish on it.
For small cells and also we've seen the rising talk about 2.5 times number of small cells.
This year relative to last year, but your deployments have remained pretty steady at around 10000, a year over this period.
Can you just comment on.
Whether you are seeing a bigger proportion of note millimeter wave applications in your backlog.
Now than maybe you were.
Six months ago, or a year ago and are you getting the sense that your backlog volumes.
All at some point increase enough to build up to 15000 nodes annually, which is what we have to you you sort of inspired chip a couple of years ago or.
Are you are you more of the of the sense that you reach a steady state build of around 10000 nodes for the foreseeable future. Thank you.
Yeah, I think as I was trying to reference in my comments I think whether it's industry estimates for the carrier commentary.
Would look like there are a number of signs of future growth of accelerating accelerating growth on small cells over the over the coming years and.
And I would just stepping back.
Stepping back away from some of the specifics of it but just looking broadly at what's happened in our industry when it whenever there's been a period of time, where there was a spectrum available.
Carrier through on that spectrum and had the capital to actually be able to invest to deploy that spectrum and then devices in the hands of consumers that could actually use that spectrum. Those three things when those three things come together, it's really good to be an infrastructure provider and.
And as I look at the millimeter wave.
Particular that spectrum.
I believe that is more suited towards the deployment of small cells than it is macro sites and the convergence of those three things sets up an environment and a tailwind to the business that I think is going to play out over time and go really well for us and anybody else in the in the third parties provision of a of small cells. So I think.
The overall pie is growing because of those drivers the spectrum capital and and the availability of devices to use that spectrum band I think our business is sitting right in the heart of that and so.
My mind, it's not a question of if this is going to happen if they're going to be small cells that are going to end up on on on the fiber. It's really more a question of when will it happen and I think as I referenced earlier and the conversations that we're having with with carriers really encouraging conversations around their deployment plans both in the <unk> and the.
In the near and longer term and I think that sets up well for the underlying assumptions that we have that when we build these systems will be able to add one tenet.
In addition to the anchor build over a over a 10 year period of time and a lot of the questions that you're asking there and the commentary that I made in my prepared remarks about millimeter wave that's really to the upside of how we thought about and assess kind of the investment of capital. So certainly see an environment, where there could be.
An acceleration and we would think we would benefit from that I think the business fits right in the heart of of a massive trend of growth that's going to happen in the U.S. over the coming decade.
Awesome. Thank you.
And we'll take two more questions more questions given the time.
Thank you, let's take our next question from.
Go ahead.
Hey, good morning, guys and great LCFS is what we see today.
Looking.
Nice to see also the dividend increase couple of questions here or from batch of Cobiz, Jay can you tell us how many.
Still on through third quarter due to go up from about 45000 in third quarter.
Oh, Yeah, Yeah Rick.
Well I would say right now is there's probably a little less than 50000 on air It did go up.
Went up in line with what we would have expected. So we're on track to what we thought was going to happen as Jay pointed out going from 40 to that.
Thousands beginning year to 50000 in the year, but yeah, we put we put some on air that just like what we expected and so we went live commentary last quarter was a little more than 45, what we say now is a little less than that.
And appreciate your comments earlier talking about capital expenses down.
It looks like also on prepaid rent received is going to be up so gross capex is down it looks like Capex goes down even more how should.
How should we think about what happens to prepaid amortization of prepaid rent a noncash item. It looks like that went up maybe 60 plus million from 2018 to 2020 are you taking to make up a little 50 million 21 that noncash organizations.
Yeah, that's exactly right Ricky got all those numbers I had about $60 million growth in prepaid going from in 2020, and we had about 50 million grows in prepaid going into 2021.
Okay and the final one for managers who's actually religion is on the sustaining capex side, but you guys were able to take out about 25 million in the 2020 guys on the update here and that 21 guidance is for the point that there's about 99 million how should we think about that long term 'cause 20.
Yes.
18, 2019 that was over 100 and 115, how should we think about.
So I'll be able to take the sustaining capex out and how should we think about long term trends.
Yeah, I think I'll take that in reverse a long term trend is in that you know $90 million to $120 million range is what we would expect sustaining capex to be on how we can take that out as we can be very diligent about how we care for our assets and try to run the business as efficiently as we possibly can in any given.
Period, but over time, there is some sustaining capital that is required to maintain the assets.
As you know, it's a pretty low number than the $100 million ish on their capital base that we have is a low number and it should be in that ballpark, but in any given one period we.
We can we can get really creative in how we think about that and what we wanted to do is to make sure. We are delivering is the best EPS growth, we possibly could both in 2020 in 2021, and that's what you're seeing out of us ending number.
Great. Thanks, guys have a good day.
Thanks, you too.
We can now take our final question from Matthew.
<unk>.
Hi, Thanks for that you're putting in you know maybe to build on some of the prior a small cell questions. You ask it that way, but you know that customer conversations running small cells are very encouraging.
It's been a while since you've had a real strong small cell bookings number to report what for.
How long would that sort of dichotomy have to process before we conclude okay. Maybe it's not just the lumpiness in booking into there is something else going on like if we got another year without the backlog being replenished would that change your confidence level in the outlook.
No I think obviously, we looked at a number of different factors as we think about the commentary that we made and the and the growing environment and an opportunity around the small cell side I think that business is going to be more forever Bible by a lumpy and chunky awarding of small cells.
It's very different than the tower business in terms of the way the customers Award award small cells, they're generally done on a market by market basis or at least of a significant portion of a sub market and in the tower business assets are generally leased a one at a time and that's not the way.
That's not the way small cells work, so I think Nick I would not.
Nick I would not look at the Lumpiness and Chunkiness of it as anything other than just that's what that's the nature of the nature of the business and I think it will I think it will stay that way and as I mentioned, the the tone of the conversations.
Privately is really encouraging but.
But I don't I don't think that that's the only thing.
That's that's the only thing that's encouraging as I look at this as I look at the broader landscape. The public commentary that the carriers are making around the need for small cells and the deployment of those small cells and then as I look on the innovation front in terms of as I mentioned in my caught my comments around what Apple is doing.
That is a significant amount of network deployment, that's coming in order to make those devices work to the to the fullest extent that they that they intend and ER and our business sits right in.
Right in the middle of that and I think we'll I think we'll benefit from it.
At the at the investment lines up with the with the use cases and the deployment of that spectrum.
Okay.
Would you characterize the tone of the conversations as being comparable to any back in 2018, when you signed a bunch of such a big deals.
I think it's always difficult to compare the nature of commerce conversations and 2018, there was a different scale of opportunity you know what there is today. So I think in 2018, we would have looked at it and said we're seeing early signs as a result of some of the award.
But probably not the total addressable market starting to materialize in the same way that we are today. So today the scale and opportunity that's out there because of the number of nodes with the carriers need is much larger in terms of scale than what it was in 2018.
That's the total addressable market and then the conversation that we're having around back to my previous comments around what fits our investment criteria that would be a smaller subset of the total totality of the conversation and what's available in the market and what we think fits our strategy and since the assets that we have.
So I would I would indicate that the scale of the conversations today is much larger than what it would have been in 2018.
Okay got it thanks Jay.
You bet.
Okay, well, thanks, everybody for joining the call. This morning, I know there were a few folks that we weren't able to get to feel free to follow up with the with US today, we're happy to happy to get back to you and try to answer the questions.
And we look forward to talking see you next quarter. Thanks, so much bye.
This concludes today's call. Thank you for your participation you may now disconnect.
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