Q3 2021 Crown Castle International Corp Earnings Call
Please standby.
Bye.
Good day, everyone and welcome to the Crown Castle third quarter 2021 earnings call today's call is being recorded and now at this time I'd like to turn the call over to Ben Lowe. Please go ahead.
Great. Thank you April and good morning, everyone. Thank you for joining us today as we discuss our third quarter 2000.
21 results.
With me on the call. This morning are Jay Brown Crown castle's, Chief Executive Officer, and Dan Schlanger Crown Castle's Chief Financial Officer.
To aid the discussion we have posted supplemental materials in the investors section of our website at Crown Castle Dot com that will be referenced throughout the call. This morning.
This conference call.
Forward looking statements, which are subject to certain risks uncertainties and assumptions and actual results may vary materially from those expected information.
About potential factors, which could affect our results is available in the press release and the risk factors sections of the company's SEC filings.
Our statements are made as of today October 20.
<unk> 2021, and we assume no obligations to update any forward looking statements.
In addition, today's call includes discussions of certain non-GAAP financial measures tables reconciling. These non-GAAP financial measures are available in our supplemental information package in the investors section of the company's website at Crown Castle Dot com.
<unk> like to turn the call over to Jay I, just want to mention that we will take as many questions as possible. Following our prepared remarks, but we will limit the call to 60 minutes. This morning, So with that let me turn the call over to Jay.
Thanks, Dan Good morning, everyone. Thanks for joining us on the call. This morning as you saw from our results yesterday, we remain on track to generate an anticipated 12% growth.
<unk> per share this year.
We expect to be at the high end of our long term growth target in 2022, with 8% <unk> per share growth being driven in large part by our expectation that towers core leasing activity will be approximately 50% higher in 2022, then our trailing five.
With an average.
And we increased our annualized common stock dividend by approximately 11% to $5 88 per share marking the second consecutive year of dividend growth that meaningfully exceeds our long term target.
Given that our dividend payout ratio has remained largely unchanged since 2000.
<unk> our dividend remains the best indicator of how we are performing both financially and operationally.
Our significant outperformance in 2021 combined with our forecast for 2022 enabled us to raise our dividend, 11% well above our stated goal for the second year in a row.
In essence, we've achieved three years of targeted dividend growth in just two years.
Since we established our common stock dividend in 2014, we have grown dividends per share at a compounded annual growth rate of 9% with growth ranging from 7% to 11% in each year.
For adding a little more detail to my some report points from the from the earnings release I wanted to comment on the other press release, we issued yesterday, where we announced our goal to be carbon neutral by 2025.
We aim to provide profitable solutions to connect communities and people and our carbon neutral goal builds on our commitment.
Before our strategy sustainably.
Our business model is inherently sustainable as shared solutions limit infrastructure in the communities in which we operate and minimize the use of natural resources.
Further to the point, our core value proposition since we began operating more than 25 years ago has centered around.
Our ability to provide our customers with access to mission critical infrastructure at a lower cost because we can share that infrastructure across multiple operators.
In addition, our solutions help address societal challenges like the digital divide.
In underserved communities by advancing access to education and technology.
To date, we have invested nearly $10 billion.
In towers small cells and fiber assets located in low income areas.
As a way of quantifying how our business model minimizes the use of natural resources, our business amidst just one tonne of cotwo per $1 billion of enterprise value.
<unk>, which is 90 times more efficient than the average company in the S&P 500 based on industry estimates.
Although we are proud of our limited environmental impact we are focused on making even more strides by reducing our energy consumption and sourcing renewable energy to help us achieve our goal of carbon neutrality.
<unk> by 2025.
We are excited about this announcement and look forward to continuing to find ways to help our communities and planet, while driving significant returns to our shareholders.
Turning back to our 2022 outlook.
We are benefiting from record record levels of activity in our tower business with our.
Years upgrading thousands of existing cell sites as a part of their first phase of <unk> build out.
Adding to the opportunity we are seeing the highest level of tower co location activity in our history with dish building a nationwide <unk> network from scratch.
I believe our strategy and unmatched portfolio of more than 40.
In towers, and approximately 80000 route miles of fiber concentrated in the top U S markets have positioned crown castle to capitalize both on the current environment and to grow our cash flows and dividends per share in the near term and for years to come.
We are focused on generating this growth while delivering the highest.
Risk adjusted returns for our shareholders by investing in shared infrastructure assets that lowered the implementation and operating costs for our customers, while generating solid returns for our shareholders.
To execute on this strategy, we are providing our customers with access to our 40000 towers and 80000 route miles of fiber helped them.
Build out their <unk> wireless networks, we are investing in new small cell and fiber assets that meet our disciplined and rigorous underwriting standards to expand our long term addressable market.
And we are identifying where wireless networks are going and investing early to position the company to capitalize on future opportunities.
Fertility as we've done with small cells edge computing and CBRE.
One of the core principles underpinning our strategy is to focus on the U S market because we believe it represents the best market in the world for wireless infrastructure ownership since it has the most attractive growth profile and the lowest risk.
And we believe.
This dynamic of higher growth and lower risk, we will continue into the future.
Which is why we expect our U S based strategy will drive significant returns for shareholders.
With that in mind, we have invested nearly $40 billion in towers small cells and fiber assets in the top markets that are all foundational for the development of future <unk> network.
Network, we believe our unique strategy portfolio of infrastructure assets and proactive identification of future opportunities provide a platform for sustained long term dividend growth as wireless network architecture evolves and our customers' priority shift over time.
Today, our customers are primarily.
We are focusing their investment on macro sites as towers remain the most cost effective way to deploy spectrum at scale and establish broad network coverage.
With our high quality towers concentrated in the top markets. We are clearly benefiting from this focus with an expected 6% organic growth for our tower segment in 2020.
Primarily.
And an expected 20% increase in tower core leasing activity next year when compared to these 2021 levels.
With history as a guide we believe the deployment of additional spectrum on existing cell site will not be enough to keep pace with the persistent 30%.
21, plus annual growth in mobile data traffic.
As a result, we expect cell site densification to remain a critical tool for carriers to respond to the continued growth in mobile data demand as it enables our customers to get the most out of their spectrum assets by reusing the spectrum over shorter and shorter distance.
When the current cell site upgrade phase shifts the Densification phase, we believe the comprehensive offering of towers small cells and fiber will be critical for our customers and provide us with an opportunity to further extend the runway of growth in our business.
While we expect the Densification phase of build out will drive.
Additional leasing on our tower assets for years to come we believe small cells will play an even greater role as the coverage area of cell sites will continue to shrink due to the density of people and therefore the density of wireless data demand.
With more than 80000 small cells on air or committed in our backlog high capacity fiber.
Fiber assets and the vast majority of the top 30 markets in the U S and industry, leading capabilities. We believe we are well positioned to deliver value to our customers as their priorities evolve driving meaningful growth in our small cell business.
Bigger picture when I consider the durability of the underlying demand trends, we see in the U S.
How well we are positioned to consistently deliver growth through all phases of the <unk> build out with significant potential upside in our comprehensive asset base as wireless networks continue to evolve our proven ability to proactively identify where wireless network architecture is heading and to be an early investor in solutions.
<unk> to help future networks, the deliberate decisions, we have made to reduce risks associated with our strategy and our history of steady execution.
I believe that Crown castle stands out as a unique investment that will generate compelling returns over time.
In the near term as I mentioned before we expect.
To deliver outsized <unk> per share growth of 12% in 2021, we expect to generate 8% growth in <unk> per share in 2022 at the high end of our long term growth target and supported by an expected 20% increase in towers core leasing activity.
And we increased our comments.
Our dividend by 11% for the second consecutive year.
Longer term, we believe Crown castle provides an exciting opportunity for shareholders to invest in the development of <unk> in the U S, which we believe is the best market for communications infrastructure ownership.
Importantly, we provide access to such attract.
Tractive industry dynamics, while providing a compelling total return opportunity comprised of a high quality dividend that currently yields three 5% with expected growth in that dividend of 7% to 8% annually and with that I'll turn the call over to Dan.
Thanks, Jay and good morning, everyone as.
As Jay discussed we delivered.
Comments on another great quarter of results in the third quarter, we remain on track to grow <unk> per share by an anticipated 12% this year.
We expect to be at the high end of our growth target in 2022, with 8% <unk> per share growth and we increased our quarterly common stock dividend by 11% for the second consecutive year meaningfully above our long term target growth.
Rate, while maintaining a consistent payout ratio.
We are excited about the outsized growth we are experiencing in the early stages of <unk> and we continue to believe our portfolio of towers small cells and fiber provides unmatched exposure to what we believe will be a decade long build out by our customers.
Turning to slide four of the presentation.
Levered, our third quarter results were highlighted by 8% growth in site rental revenues, 11% growth in adjusted EBITDA and.
And 13% growth in <unk> per share when compared to the same period last year.
Record tower activity level supported this strong growth generating organic tower growth of six 3% and higher services contribution.
Patient paired to the same period in 2020.
Looking at our full year outlook for 2021 and 2022 on slide five we are maintaining our 2021 outlook with site rental revenues, adjusted EBITDA, and <unk> growing 7%, 11% and 14% respectively.
For full year 2022, we expect.
Continuing investments in <unk> to drive another very good year for us with 5% site rental revenue growth, 6% growth in adjusted EBITDA and 8% <unk> growth.
Turning now to slide six the full year 2022 outlook includes an expected organic contribution to site rental revenues of 200.
<unk>, 5% to $285 million or.
Four 5% <unk>.
Consisting of approximately five 5% growth from towers, 5% growth from small cells and 3% growth from fiber solutions.
As you likely saw in our press release, when we refer to new leasing activity. We include the change in amortization of prepaid rent consisted.
<unk> with how we have discuss activity in the past.
To address feedback we've received to provide more detail around our expectations for future leasing for leasing activity. We are introducing new concept of core leasing activity, which excludes the impact of changes in prepaid rent amortization.
Core leasing activity is more indicative.
If current period activity, whereas changes in prepaid rent amortization also include activity from prior periods as prepaid rent received in those prior periods eventually amortized to zero over the life of the associated contract.
Although we have consistently provided disclosure on prepaid rent amortization by segment in our supplemental earnings materials.
We hope this new presentation format provides a cleaner way for investors to analyze our performance.
With that definition in mind, we expect 2022 core leasing activity of $340 million at the midpoint of our $350 million inclusive of the year over year change in prepaid rent amortization.
The 2022 expected core leasing.
<unk> includes a $160 million in towers, representing a 20% increase when compared to our 2021 outlook and an approximately 50% increase when compared to our five year trailing average.
$30 million in small cells compared to $45 million in 2021.
$150 million in fiber solutions.
Solutions compared to $165 million expected this year.
Turning to slide seven you.
You can see we expect approximately 90% of the organic site rental revenue growth to flow through to <unk> growth highlighting the strong operating leverage in our business.
As we discussed in July we expect to deploy an.
Active 5000 small cells in 2022, which is the same number we expect to build in 2021.
We expect discretionary capex to be approximately $1 1 billion to $1 2 billion in 2022 includes.
Including approximately $300 million for towers, and $800 million to $900 million for fiber similar to what we expect in.
An additional one.
This translates to $700 million to $800 million of net capex when factoring in the $400 million of prepaid rent contribution we expect to receive in 2022.
The full year 2022 outlook for Capex represents an expected 30% reduction in discretionary capex for our fiber.
2012 relative to full year 2022, when we deployed approximately 10000 small cells.
Based on the expected growth in cash flows for full year 2022, and consistent with our investment grade credit profile, we expect to fund our discretionary capex with free cash flow and incremental debt capacity without the need for new equity for the.
<unk> fourth consecutive year.
In addition, we believe our business and balance sheet are well positioned to support consistent <unk> growth through various economic cycles, including during periods of higher inflation and interest rates.
Our cost structure is largely fixed in nature as you can see with nearly 90% of the full year 2022.
Segment did organic site rental revenue growth to flow through to <unk> growth as I referenced earlier.
And we have taken steps to further strengthen our investment grade balance sheet that now has more than 90% fixed rate debt a weighted average maturity of more than nine years and a weighted average interest rate of three 1%.
In conclusion.
<unk>, we are excited about the outsized growth we are generating as a result of the initial <unk> build out by our customers, which is translating into back to back years of a 11% growth in our quarterly common stock dividend.
This dividend currently equates to an approximate three 5% yield which we believe is a compelling valuation given our expectation of growing the dividend seven.
7% to 8% per year, combined with our high quality predictable and stable cash flows.
Looking further out we believe our unique ability to offer towers small cells and fiber solutions, which are all integral components of communications networks provides significant optionality to capitalize on the long term positive industry.
Industry trends of network improvements and Densification and gives us the best opportunity to consistently deliver growth as wireless network architecture continues to involve to evolve and our customers' priorities shift overtime.
With that April I'd like to open the call to questions.
Thank you.
To ask a question.
<unk> simply press the star key followed by the digit one on your telephone keypad Asaf you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment once again.
<unk> at this time.
We'll pause for a moment.
And we'll first hear.
From Michael Rollins of Citi.
Thanks, and good morning.
Just curious where in my opinion.
Hi.
I was curious if you could unpack the leasing commentary in terms of like the activity levels relative to what's coming through the income.
<unk> and revenue in 'twenty, two and included in that would be.
Are you seeing an elevated backlog if some of the leasing from companies like dish just have a longer lead time and then the other part of that I noticed was it seemed like other customer revenue bounced.
So a couple of hundred basis points in <unk> from QQ and curious if that's also signifying some contribution from dish. Thank you.
You bet.
I'll take the Big picture question and Dan can walk through how it's flowing through the income statement.
One of the things that we.
<unk> made the comment I made the comment in the prepared remarks and was also in the press release.
The amount of leasing activity, we're seeing in the business is just unprecedented 50% above our historical five year average in terms of core activity is just remarkable a business that rarely has inflection points to see that kind of uplift.
Activity is just really unique.
It's been it's been 20 years since we've seen this kind of level of activity and I think largely that is occurring because of the backdrop that we have with the wireless carriers.
Among Verizon AT&T and T mobile all three of them are at a place where they're deploying network at.
At scale, both new sites as well as upgrading existing sites to <unk>. So that's a very healthy dynamic to have all of the existing carriers spending at a pretty healthy rate.
And just as an aside I would say, it's also really encouraging to us based on the commentary that they've made.
Jade and the Capex dollars that they've allocated towards this this is going to be a multi year activity. It's not as though the activity is just sort of going to going to wind down in calendar year 'twenty. Two so we feel like the backdrop for those three carriers is really good and likely to stay.
<unk> for an extended period of time.
And then on top of that as you referenced with dish on top of the three carriers. The legacy carriers deploying <unk>. We also have this new entrant, who is deploying our network from scratch and that activity is beginning in earnest in 2022. So obviously, we signed the agreement with them last year. They made a large commitment to us.
20000 sites and.
It's been impressive to watch as they've stands stood up that organization and gotten them themselves in a place where they can deploy network at scale and at speed and so I know our team employees listening to this call. This morning.
A lot of them are very very busy standing.
Standing up this new nationwide network for dish and so that is that is causing some of the other revenues in the mix to tick up a little bit I would also point out. In addition to kind of what you would think of as traditional wireless carriers. There are also a number of new business models that.
Any one of them, we're not having a meaningful.
<unk> uplift on tower leasing activity, but as a combined group.
Of others.
There are lots of businesses that are trying to figure out ways to deploy wireless network and they are using spectrum bands outside of the spectrum bands that are owned by the wireless carriers.
And that's contributing to our revenue growth and we think we think that will continue.
<unk> over time.
Yes, Mike I'll try to address the other part of your question, which is the activity levels versus what flows through into the income statement going into 2022 as you pointed out.
Theres always a bit of a lag time between activity and when we can see the revenue.
We don't start recognizing revenue until a lease.
Begun and that means that the site is up and running and able to produce and able to deploy the spectrum.
And.
What I can do at times is D link for a period of time activity from when we see the improvement in our income statement, but what I'll say is that.
When we look at 2022, we're really.
As I did by how that's going because as Jay had mentioned the.
Increase in activity is flowing through both in 2021, which has a 30% increase in core leasing tower activity over 2020, and then again in 2022, we're increasing again by 20% and as Jay mentioned those are huge numbers when.
Really excited our business. So it is flowing through our income statement, even with those delays.
Delays in from from activity to when we actually turn on a lease.
And the last thing I would point out is we've made this point before but with with specifically with dish.
Even though we signed a long term contract with them, we won't recognize revenue.
Youre talking until we have a lease which means we have a site that is capable of deploying spectrum in propagating that spectrum. So there will be time between the.
The activity levels and when that when that leasing activity hits, our income statement as well, but thats reflected in our 2022 outlook.
Thanks.
And next we'll hear from Simon Flannery of Morgan Stanley.
Great. Thank you good morning.
I noticed in the guidance you have non renewals stepping up a little year over year I Wonder if you could just go through some of your assumptions there.
<unk> business units.
And in particular on the T mobile sprint.
Sprint churn.
Is this sort of a worst case scenario do you expect these to be turned on and any updates on how you're addressing some of the future churn.
And any more clarity on perhaps some sort of a master lease agreement around that.
Simon I'll take the first part of that and I'll hand, it over to Jay for the longer term question with respect to the the churn in 2022 as you pointed out it is up a bit.
It's.
Part of that increase as we expect to be on the low end of our churn in 2021, which is around 1% or around 40.
$40 million or so in 2021 in our tower business going to about $60 million or one 5%.
In 2022, the majority of that incremental $20 million of churn is related to sprint sites.
And it would be consistent with what our disclosure has been in our supplement.
Yes, all earnings materials over time of what those sites look like and what could be at risk for 2022.
So we do think that's going to happen, which is why we have it in the in the outlook.
I wouldn't say, it's conservative or aggressive it's just our belief of how thats going to play out.
And with respect to the rest of the churn you can see that.
Supplement.
We are going to have.
Churn on our fiber solutions business is a bit down year over year from 2021 to 2022.
But we also have a corresponding reduction in new leasing activity on our fiber solutions business. So we think that business will continue to grow around 3%.
So that's how we're thinking about churn going into 2022.
Simon on the second part of your question longer term, we certainly intend to work with T. Mobile I don't have anything to report on this front, obviously, they've been clear about the need to achieve some synergies in their network as they go through the process of combining with sprint.
And rationalizing some sites, we think those are most likely to come on the site that we referred to two is dual residency meeting sites, where both T mobile and sprint are co located on the same site and.
We will work with them as they go through that process of achieving those synergies at the same time they need to port.
Towards the spectrum onto onto other sites and onto the legacy T mobile.
And so there's a large coordination work with them both in terms of achieving the synergies and also standing their network up and getting it ready for <unk> and so we're actively engaged in that I think we still have the view that over the long term the growth.
There's opportunities there are going to exceed that of any churn that we will realize.
And then obviously to help investors understand kind of the bookends. We've provided details in the supplement so that you can see the both the amounts of future leases as they come up for renewal and and the dates of those.
Of those renewals so.
But at the moment nothing to report other than continuing to we want to be a good partner with them and we will certainly help to facilitate the goals that they have around their network.
Great. Thanks, a lot.
Yeah.
Next we'll hear from Brett Feldman.
Feldman of Goldman Sachs.
Hi, Thanks, two questions you've made the point that there tends to be a lag between when you sign business and when it shows up on your P&L and I think that's also pretty true with regards to your capex, particularly in the small cell business there can be a pretty big lag between when youre deploying that.
That fiber when you're actually getting.
The leasing activity so with this being the second consecutive year, where your discretionary capex is at a lower run rate predominantly because of what's going on I believe predominantly because of what's going on with the node deployments is this deployment run rate of about 5000 that you have seen this year, probably what youre going to get next year until we get visibility into capex.
Moving higher so that would be the first question and then the second is why did you decided to go ahead and once again raised the dividend by more than the rate of growth in <unk> per share.
It certainly seems like you could also consider doing buybacks in years, where you think you have a little excess capacity.
And I was hoping you could maybe give some insight in terms of how you.
We're thinking about outsize dividend growth versus other forms of capital returns.
Absolutely.
Your first question.
You correctly characterized the nature of the Capex is coming down we're putting less nodes on air small cell nodes on air in 2021 similar level in 2022, so naturally the amount.
Mount of Capex would come down there is capex in those numbers related to nodes going into future periods.
We've had a lot of bookings in 2021 on the small cell side will be well north of a 15000 of new bookings in calendar year 2021, and we're getting started on building.
<unk> those nodes, while they wont come on until in all likelihood 2023 and beyond we've already begun work on that so there is a bit of a lag there in terms of capex per node and unit economics. All of that has basically stayed in line with what we've seen historically, so as we get through the soft cost of getting these notes permitted.
Cetera, then then we'll have a better sense of when they will come on air and then the bulk of the Capex is incurred.
We would expect to see some uplift in capex as we get into 2023 and the total number of nodes that we're deploying moves north of where we're going to see it in this calendar year and in 2022.
On the dividend question.
The reason why we raised it 11% this year.
Is a combination of both the outsized growth that we saw in calendar year 2021, and then where we think the guidance will be for 2022. So our philosophy around the dividend has been basically hold the payout ratio think of that as a percentage of <unk> per share to hold.
<unk> that payout ratio in that 75% to 80% of.
<unk> per share and to pay that out in the form of a dividend. So in essence, the the dividend raise this year is a combination of the outperformance the outperformance that we've seen in 2021 and raising the dividend to bring it back in line associated with that.
Permits in the calendar year, and then what we think the what we think the performance will be in 2022 and the operating business. So that's our goal and how we're how we think about sizing. It is just looking at <unk> <unk> per share for the next year, and then sizing the dividend dividend appropriately for that.
With regards.
Guards to the last part of your question around how do we think about share purchases, we're coming right in line here based on the growth with where we'll be at our targeted amount of leverage of about five times debt to EBITDA and we certainly as we have done historically want to put the capital to work at its highest and best use.
Our highest and best use to us as a risk adjusted return based on what we think the long term dividend per share will be and recently most recently the answer to that question has been answered largely by what we believe the benefit of small cells will be to the business long term of growing that dividend.
Dividend over the long term of maximizing the dividend per share to.
To the extent that as we move to a place where we're at our targeted level of leverage and where we.
We're creating additional leverage capacity and investment capacity.
We will continue to do that same same.
Same analysis and rigorously look at.
And think maximizes the return and uses up the <unk>.
Capital that we have available to us historically, we've done a lot of share purchases with that excess capital and leverage capacity and that's absolutely. What we test the returns again, so we'll have to see as we get into the future years around.
What's the opportunity around small cells is there an opportunity to invest there that meet that hurdle of highest and best use for the capital and.
Tests that always against the opportunity to buyback buyback shares. So you should certainly expect that points in time in the future that we will be buyers of our.
Our shares because.
Because that will be the highest and.
And best use and we'll use some of the capacity that we have to go into the market and buyback our shares.
Thank you.
Phil Cusick of J P. Morgan.
Hi, this is a national scale.
Near term outlook for 'twenty.
Turning to are you expecting any carriers to be more active or less active than they are currently at or near assume that they kind of continue at the current level of activity and I assume dish is already baked into those documents and another one that I had was how should the macro tower activity to be weighted in 2022.
Two is it somewhat backend loaded.
Thank you.
Yeah on your first question around the activity by carrier I don't want to speak to the specific deployment plans of our customers.
As I mentioned in the question I think that Mike.
The activity across all of the carriers as.
Elevated we're going to see we think we will see in 2020 to about a 20% increased activity as compared to 2021, and that's really coming across the board. So we're seeing elevated levels of activity from all of the carriers.
With regards to whether the year is backend loaded and we're going into.
Year with a lot of activity, that's currently underway and given the nature of the business, where we signed a lot of leases in the current year and the next year, we get the benefit of having all 12 months of leasing in that year.
<unk> up the ramp as we go through 2021, so I think youll see a similar ramping as we go through calendar year.
<unk> thousand and 22, but maybe not quite as back end loaded as what we've seen in past years, because a lot of that uplift in actual activity applications that will drive that leasing activity that we're going to see in terms of the numbers that Dan was walking through earlier and impact to the income statement a lot of that actual application and leasing activity is.
Actually occurring in this calendar year in 2021, so we've either got signed leases, where we have a lot of visibility to it which would indicate that it is not a backend loaded year, we're not counting on a big uplift in the second half of next year.
And Amir I'll just answer one last question you threw in there which is a dish included in our outlook. The answer is yes.
We have included the activity that we anticipate.
For all our customers in 2022.
Okay, great and if I may on the <unk>.
More sell side, how much in <unk>.
That activity, one timers, and what you're expecting for Q and Mike overall, we're kind of looking at the outlook for smaller.
So in 2022, Theres still a lot of that loss activity rollover into 2023 years should we be thinking about that differently.
Yes, there was there was a little bit, but not enough to be material to the results in the quarter.
Certainly as we talked about big picture the number of nodes.
We talked about this some last quarter.
The reason why we lowered the number of nodes that we're going to put on air in 'twenty, one and 'twenty. Two was the decision that the carriers made around where to put their capex dollars on equipment and they focus those those dollars towards macro sites and pushed to the right.
Right.
Delivery timing on small cells and so we're reflecting that in our in our outlook in terms of nodes committed there is no change in the number of nodes. So all it did was slide those nodes into into years 'twenty, three and 'twenty four and so we've got some work that we've gotten done that are ready to.
It's all those notes once equipment is delivered and we will see the benefit of that in 'twenty three 'twenty.
<unk> 24, but we didn't we didn't lose any of the nodes, we just pushed them out into future periods.
Thank you.
Thanks.
Next we'll hear from Colby <unk> of Cowen.
Hi, great. Thank you two questions one is.
Implied in your 8%.
<unk> growth for 2022 would be a step down in <unk> sequentially in the fourth quarter of this year.
To get to the midpoint effective leave your guidance, which is what your growth assumptions.
And also for next year.
I appreciate that I think sustaining Capex will go up but even if you go to the higher end.
Of your range, which you maintained it doesn't quite get you quite frankly low enough finance okay.
Keep that number low enough to get to that effectively 8% for next year are there any other items.
Our basic flagging that we should be mindful of going <unk> to <unk> that would take <unk> down to effectively get you to that midpoint for 2021, and then secondly, just as a follow up to the question that was just asked.
Is it fair to assume that you would anticipate seeing leasing of around 15000 small cells again this.
And really what we need to be sensitive to is really just how that rolls in or would you anticipate that meeting itself can be down as well this year. Thank you.
Yes, Colby I'll take the first part of that and hence J for the leasing question.
Youre right.
Everything you said about going into Q4, there is a step down in <unk>. It.
Year, and really driven by an increase in expenses and capital both the operating.
Operating expenses and sustaining capital that happens in the fourth quarter.
That has happened and plenty of times in our in our past as well.
Having said that it.
It will.
As you pointed out it will likely be towards the higher end of.
The range when we get them.
When we get when we end 2021, we will be at the higher end of our range we.
We don't move the range when we are going to still be within it. That's why we give a range. We don't want to continually move it but it will be likely be higher than the midpoint.
When we got into our sustaining capex that youre, referring to assist.
It has large packs being at the higher end.
Well sustaining capex will be but I mean, our.
<unk> per share will be higher than the mid point, most likely as it plays out in 2021.
Yes on your.
Colby on your second question around small cell nodes, let me just back up and.
To make sure I give the full picture.
In terms of what we're going to put on air meaning go through the operational process of building them and turning them up we think we'll do about 5000. This year calendar year 2021 and turned another 5000 on in calendar year 2022.
We'll.
And we put on air.
In terms of bookings.
Which would refer to a node that a carrier makes a commitment to us they sign a contract commit commit to a node.
And then we'll build it in future periods, our bookings in calendar year, 2021 will be well in excess.
That was 15000 nodes that we do in terms of bookings this calendar year and those will come on in future years as we get into calendar year 2022 will give you an update on where we think bookings will be at that point, but for calendar year 'twenty. One we think the number will be well in excess of 15000, which is.
By far the highest bookings year, we've ever had in our in our history on the on the small cell side and I think it.
It's interesting I think it just points to the conversation I was having a few minutes ago around the landscape that we have with the carriers. This is healthy in the environment with the carriers as we've ever seen long term commitment.
Yes.
On the capital side committed amounts by each of the legacy carriers and the build out of a brand new network and at the moment the mix that they have is heavily weighted towards <unk>.
Towards macro site.
But I think over time as we have seen in the past I think there will be some.
Some shift of that mix of total capital spend where a portion of it will go towards small cells and there will be less focused on on macro sites.
You can see that in the commitments that the carriers were making to us by.
Over 15000 small cell bookings this year that they are thinking about in future periods, that's going to take a significant.
Significant chunk of their capex in those future years that we would think would move away from macro sites and towards small cells and it may look more like what it did two or three years ago. When we saw a real slowdown on the macro site side and we're benefiting from an allocation of that capital towards small cells. So.
That's the benefit that we have in.
Our strategy of providing wireless networks to the carriers and will benefit if theyre focused on small cells, where we will benefit if they're focused on macro sites and over time. Both are just critically important to the way networks are going to be developed.
Great. Thank you.
Just a follow up are actually not follow up or separate question should we still think of the book.
Book to Bill for towers being roughly six months is that roughly kind of how you think about an average or has that number changed much.
I think thats, a pretty fair, that's a pretty fair average.
To the extent that we're doing amendments to existing sites, that's a really fair average.
In terms of extent that somebody is going on on a tower for the first time that average is probably a little closer to 12 months than it is six months.
And the zoning and planning process really unchanged, but.
Depends on the type of activity. If it's amendments were probably getting close to in that six to nine months range. If it's if it's a brand new.
New installation on an existing site, we're probably closer to 12 months.
Next we'll hear from David Barden of Bank of America.
Thanks, guys I appreciate.
Any opportunity to take some questions.
I guess I've got a couple the first one is maybe.
To then.
When looking at the kind of core leasing.
Macro tower revenue increment $1 55 to $1 65.
There's a lot of interest in kind of making sure we understood.
The percentage of that that is kind of.
Locked in within.
Holistic MLA guardrails.
And and the percentage that could conceivably.
Maybe be a little bit better than what your kind of initial expectation is depending on what we learn about carrier activity levels as we go into 2022.
Second question was.
I want to make sure I understand.
Based on the comments, you're making in your at the end of last year. We had 50000 small cells on air and 30000 in the committed backlog. That's 80000 in your opening remarks, you said you still have 80000.
On Air are committed but then you said, there's 15000 that we've build and when you bill sorry that you've booked.
James Here, which makes me think that that 80000 should actually 95000.
Am I wrong about that.
Yes, I'll take the second question and then Dan can take the first question.
The 15th obviously this year calendar year 2021, 15000 of the nodes that we booked as Verizon the big announcement.
Books that we made in January of this year. So it may just be a little bit of a timing difference between are you looking at the 80000 nodes at 12 31.
2020, or when we did fourth quarter earnings in the first quarter of this year I think so.
I'm, referring when I made my comments I'm, referring to total.
<unk> on air or in process of 80000 nodes.
In total.
Okay. So that's the same number.
The fourth quarter result, which was.
Alright.
Correct, correct and obviously, we're rounding to 5000 increments. So we're not we're not showing the movement.
<unk> as they move.
And the.
Anything less than 5000 increments.
Got it and so then just to follow up on that is.
So there really hasn't been any new.
Small cell.
Yes.
Bookings.
Outside of that.
Very initial part of the year.
So is there an expectation on your part that.
As people kind of pivot from the macro build.
And start to plan for that $23 24 timeframe that the bookings should kind of.
Come back.
Into next year.
Well there have been bookings.
Just not to the point where.
We're.
We're increasing the increment by 5000, so that there have been bookings this year and I think.
There will be so we'll be inexpensive just the Verizon commitment.
In the in this account in calendar year 2021.
Sure.
I do think based on zooming out a little bit and thinking about this.
Bigger picture standpoint, the second part of your question there I would affirm that as we get further into the end of this year and into next year, we would expect there to be more bookings.
Carriers are focused at the moment on macro sites and building those out but they're also having significant conversations with them about the requirements.
From what they're going to have around cell site density and we think that will drive a lot of activity towards small cells. So in periods beyond 2023 and beyond.
We will see an uplift to the total of number of nodes that both we havent bookings and then ultimately that we're putting we're putting on air.
As.
But there is a need that they have in the network once they've done this initial overlay of putting it all on macro sites.
Got it.
Okay. So Dave I'll take that first question around our core leasing on the towers, how much is in MLS.
When we look out into future periods.
<unk> 2022, we obviously take into account the agreements we have with our customers and as I think you're implying in the question. We have we have done.
As with <unk>.
Several of our customers at this point, but even within those agreements we have upside there not necessarily capped.
And therefore, what we try to do is come up with.
The amount of what we think the activity will be from each of our customers based off of what we know today have already been signed what we have a really good line of sight into going into next year and then what we think will happen in next year.
And when we come up with that when we came up with $1 55 to 165, that's our best guess.
And we think that activity will look like.
And how it will be monetize within our agreement, but I would say that there is there is always going to be some ability for that to be better or worse than what we expect if the activity is going to be better or worse than what we expect.
And.
As Jay has mentioned a few times we're really.
Excited about the level of activity going into next year that 155 to 165 as it is an increase over a really good 2021. So.
We're excited we feel good about what that activity level looks like.
And we will see how it plays out in terms of when our customers come to us and want to put more equipment on towers.
Great. Thanks, guys.
Yeah.
Yes.
Next telltale of Moffett Nathanson.
Hey, Thanks for taking my questions.
One on fiber solutions and one on small cells.
First as we think about the leasing for fiber solutions in 'twenty two versus.
Versus 'twenty, one is that decline just a function of lapping some COVID-19 driven capacity sales in 'twenty, one and what's causing that churn to come down a little bit.
And then on.
On the small cell front as we think about the potential timing.
For installing what you have in the backlog over the next few years.
While those nodes have.
El firm dates by which the carriers need to start paying for them or do they have flexibility to kind of keep deferring installations, if they choose what's the what's the dynamic there.
You bet on the on the first question.
We've talked about this for a long time, we think that the fiber solutions business.
Is going to operate at around a 3% annual growth rate and that's what we're seeing in calendar year 'twenty. One think we will see a similar level in 2022.
There was some impact.
During COVID-19, particularly in the early early months of 2021 and late 2020.
<unk>.
Proceeded with offices being closed, but honestly our business is because of the nature of large enterprises universities and government, which make up the bulk of the fiber solutions revenue that we do.
We were not impacted nearly to the extent that fiber companies, who are more focused on small and medium.
<unk> prices saw an impact so we didnt see a falloff as many of them did and then Conversely, as the economy started to open back up we just did not see as much of an uplift. So I would say similar business environment to what we see what we've seen the last the last couple of years, maybe a little.
The mineral better, but I think the growth is basically in line.
With what we've seen of about 3%.
Churn is down we think it will be down.
This is an area that I know our team has focused really hard on a part of it is making sure that we're.
Being thoughtful about the kind.
A little bit tumors that we pursue on the front end and then also as we manage the relationship as we get close to a contract renewal being thoughtful about how we handle those contract renewals.
And I think the team has done a really nice job and we've seen some benefit from from some of their work and we think we will we.
We will see more of that in 'twenty two.
And of course through the process of managing.
The renewals and the end of end of term on some of those contracts.
On your second question around small cell nodes in firm dates.
We talked a little bit I think Nick about this on the last quarterly call.
We made a and it should be viewed this week, we made an affirmative.
As we go in to work with our customers on pushing out these nodes into future future period, our contractual rights I think would have given us the ability to really pushed to <unk>.
These these notes to the point, where we could have handled them over and charged and charged rent to the carriers.
But we made the affirmative decision given the volume.
If tools come in our way and the reallocation of the dollars from the small cells to the macro sites. We made the affirmative decision to work with them and give them give them the ability to push out those states. So there may be circumstances that arise in the future, where we would not be willing to do that.
But this was an affirmative decision that we made based on managing.
<unk> that customer relationship and maximizing what we thought was the return the volume as I said before the volume and the and the revenues and cash flows all end up at the same place, but if we could maximize early some of the macro site revenues and work with the customers to give them an extension on when we turn the small cells on we thought that made good business.
<unk> sense and Thats why we why we did it but contractually we would have a right to do something a little different.
Okay got it thank you Jay.
You bet.
Next we'll hear from Matt nickname of Deutsche Bank.
Hey, Thanks for taking the question.
Managing that just.
Two if I could first maybe going back to a question that was asked earlier on the call interesting new entrants are maybe newer contributors.
To what extent are you seeing or may be anticipating contributions from either new cvr's deployments from cable or via fixed wireless broadband appointments from some.
Our entrants.
And then secondly on the topic of supply chain constraints I am just wondering.
It has that to any extent impacted customer behavior.
Either to date or have you embedded any more conservatism that some of these constraints may have in terms of customer activity next year.
Thanks.
Now on your first question that you called out a number of different items I would put all of those in a bucket and say, yes. All of those are helping CVR else's, helping cable's, helping others broadcast that is helping there are a number of areas that we're seeing.
Leasing demand for macro sites, and we think that will continue.
New into the future.
Didn't call it out as a material impact to our 2021 or 2022 leasing results, but at the margin. It does help and does drive the incremental incremental growth that we're talking about in site rental revenues.
I think given the amount of spectrum that there is outside of the hands of the carriers.
And the capital that is in some of those sectors in order to deploy wireless network I think on the longer term model. If you take a five or a 10 year view I think there is some meaningful leasing activity that's going to happen outside of what you'd think of as the legacy or traditional wireless carriers that will benefit macro and small micro sites.
While a small cells over time and you know.
As we start to see that we'll give you we'll give you more details around what those what those impacts are going to be.
On your second question around supply chain constraints.
Obviously, I think the whole world is filling the feeling the impacts of that much has been written about it.
We've.
As we closely with our customers on when they expect to receive equipment.
And the timing of that and then trying to make sure we lineup sites to be ready for them based on when the equipment is received.
They've done a nice job of working with their supply chains, and having equipment available to get <unk> networks launched.
In the in the timeframe that they expected so.
It's a coordination activity certainly our communication activity that our teams are having with their teams.
And thus far that dialogue has proven to be a.
Predictable.
<unk> indicator of when actual activity does happen on our site. So.
We've worked really watching it paying attention to it but that.
But feel pretty good about the fact that our outlook does assume the environment of constraints that are out there and and our leasing our leasing expectations are a function of the of the coordination and communication, we're having with our carriers on when equipment will be available.
Alright, Thanks Jay.
Ric Prentiss of Raymond James.
Good morning.
Morning Ric.
Couple of questions.
<unk> global wants the details and look forward to your guidance, obviously a big.
Long cash organizational cobalt will appreciate your focus on core wondering if it's possible when we do we'll supplement J code will help a lot.
The segment local multimodal snowfalls business model.
Get that information historical and going forward towers versus small cells.
This equals fiber solution.
Thanks for the suggestion and we will take a look at that.
Thank you Walter we'll have to break that out because it's so important ongoing bundles I'm glad you guys are focusing on the core side because that one.
Going forward cash flow.
Second one.
We're sitting on a couple of times, David and others often is there an update on a small cell nodes on air right now or is that also sort of <unk> 5000 vehicles.
Yes were just under 55000 that are on air today.
Okay.
About 25000 in the backlog.
Makes sense.
And then conceptually.
Augmentation of towers, so we get great.
Prepaid.
<unk> <unk> from wood.
I've been doing cable T mobile integrating sprint dish, putting <unk> on the network is there a thought that the tower augmentations spending needs to go up.
Alright to handle all of this a normal reimbursements could come up as well with neutral.
Yes, I mean that obviously could happen it depends on how we're going to work through with our customers and what that prepaid rent looks like and also.
Is impacted by what they want to put on which towers.
Typically speaking co locations come with more augmentation Capex then do the amendments so it really depends on how that all is going to play out.
And what we have going into <unk>.
Going into 2022 is.
Tower Capex is coming down slightly from.
Late 'twenty one.
But nothing all that meaningful so it's all activity based ultimately Rick and then where that activity ends up and how we can what we get back from our customers.
And that does fluctuate up and down over time.
One more quick one when we get someone else who's been any updated thoughts.
In building systems, there's been a lot of talk about private <unk> networks, and what the opportunity might be what are your thoughts as far as capital deployment back to Brad's question on what's the opportunity.
Acuity for private by gene editing and building systems.
Yes, the in building and I would put venues into this category too.
Five or.
Years ago, we.
We had talked about in building and venues and we saw some opportunities but relatively limited.
And that business has really picked up on the small cell side and we are seeing some really nice opportunities on in building and venues.
<unk>.
And seeing some healthy growth there the returns are.
<unk>, it's a place where we like to invest.
Certainly it falls into that category of the Densification comments that I was making earlier any.
Any place you see a densification of people with the growth in traffic that we're seeing really the only way to manage the network towards a viable solution is to is to go in and put in small cells.
And Thats true in the public right of ways and it's true in venues and in buildings. So the growth and the growth in traffic that we're talking about and in the deployment of these <unk> networks. This requires greater densification and building and venues are following the same pattern that we're seeing happen and right of ways.
Great. Thanks, I'll stay well.
Good night.
We can try to squeeze in two more two more callers before we before we drop off this morning.
Next we'll hear from Sam Badri of credit Suisse.
Hi, Hi, Thank you.
I wanted to.
Ask you about your 10 for.
For power.
That moved higher in the quarter and it comes along with a solid move in your rental revenue per tower is there any opportunity for accelerated tendency improvement given the <unk> and some of the other trends that you mentioned and as you see tenants go up.
Impact of free cash flow at this point.
Yes, we are seeing increased tenancy on the towers.
Historically, we've added about one tenant every 10 years roughly.
I think thats, a pretty good forecast for what we'll see over the over the long term, it's underpinning our 7% to 8% targeted growth in the dividend over time so.
I think we will.
I think that's kind of the path that we're on and as I made the comments earlier around the capital spending by the carriers in the environment that we're in I think we've got a good tailwind to continue to stay on that path of increasing tenancy of about 100 tenant.
Over over 10 years.
The unit economics of the business remain intact.
Tax and Dan Dan mentioned this in his prepared remarks, but we're dropping 90 90 cents of every dollar up at the organic site rental revenue line, we're dropping that all the way down to <unk> and.
It's a real credit to our team who has done a tremendous job of managing expenses and being.
Thoughtful about places, where we can take out cost in order to achieve that those very high incremental margins on incremental dollars of revenue and.
It's one of the beauties of our of our business model and certainly one we think we can continue to sustain and improve upon.
Got it.
One other follow up is does your guidance include any type of benefit from the infrastructure Bill that may be passed in the near future and then if.
If your guidance does not include how do you imagine the broadband budgeted spend.
<unk> to your business.
There is a path for that.
We have not anticipated any of that in our in our current forecast or guidance I think the most likely path.
<unk> benefit from that is indirect wouldn't necessarily expect that we will be a direct recipient of those federal funds, but the customers that use both our fiber or small cells and our.
It could absolutely be recipients of a federal funds that would then need to build network and as I made comments earlier, the most efficient way to deploy spectrum and deployed network is to share it and so our offering of infrastructure shared infrastructure lowers their cost and speed their time to.
Talent and so we certainly would expect the benefit indirectly.
As those federal funds become available in and broadband for all becomes built out.
Got it. Thank you later, maybe we can take one more sure absolutely April maybe we can take one more question.
Sure.
Question will come from Walter Piecyk of light shed.
Thanks, I can't believe Ric Prentiss to credit for the prepaid after all those types of annoyed schlanger with my prepaid questions over the years.
But I echo his comments, so thanks for including that now.
Just Jay.
From 10000 feet. When you have talked a lot about this kind of I mean, you haven't used the word but basically the pivot in the near term.
In terms of the focus on macro versus small cells and that at some point, it's going to come back and you've got these orders in hand, but like when you talk to Verizon or AT&T, it seems like or even T mobile Timothy.
The macro focus and the C band plans, even in terms of upgrading to massive mimo.
Is it two to three year process. So I'm just curious kind of your thoughts when do you think.
There will kind of be this pivot back to the small cells, where we'll see some some actual growth there.
I think some of it you can see in the thanks for the question Walter I think some of it you can see in just their activity with with US the commitment that they've made a 15000 small cell nodes as an indication of that theyre thinking about it in the near term planning horizon of what's there and what's going to be required in their network as they are going through the process.
Working on macro sites and then working on and then and then starting to infill and densify. The network and this is a pattern that is followed.
Saw this occur with <unk>, we saw it occur with <unk> wear and now we're seeing it with five G where the first step of deployment in the network as the curious go and touch all of the assets.
Assets that they're already on and upgrade those sites to the new technology and then once they get that overlay done then they come back and they really focus heavily on densification. So when we look at.
When we look at the way the networks are performing.
On terms of the sites that have already been.
Weighted and the usage the data usage on those sites from a technical standpoint, the capacity starts to get reached and therefore, they've got to turn that historically used they've got a self split they've got a reuse that spectrum over more site.
And the dynamic that we've seen in the market and I think this is reflective.
The nodes that we're booking now there's not other macro sites that they can use to sell split that spectrum. They are already on those macro sites and so they've got to figure out a way to densify the network and reuse the spectrum.
In places.
That are that are not sort of the traditional macro sites and we think that's where.
The real benefit on the small cell side, I think as we get into calendar years.
'twenty three and beyond I think we will really see that that movement, probably similar to what we saw at <unk> like we got to the point where in <unk>. We had we had added <unk> to all of the towers and then we saw significant activity on the small cell side.
As they upgraded.
To improve the network and densify <unk> using small cells. We think we'll see a similar thing on the on the <unk> side to an even greater extent.
Given the types of spectrum bands that are being used and the amount of increase in data traffic is just going to require more than macro sites.
We get the liver.
Okay, well I appreciate everyone. Joining this morning, thanks for the time and I do want to thank our team our employees who've done a phenomenal job navigating through the challenges of Covid over the last 20 plus.
<unk>.
And continuing to deliver for our customers. They are incredibly busy and have done a tremendous job for customers. So I want to say, thank you to them and and more to come on that front. So thanks, everyone for joining look forward to talking to you soon.
That does conclude today's conference. Thank you all for your participation you may now disconnect.
Months.
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