Q1 2022 Crown Castle International Corp Earnings Call
Please standby we're about to begin.
Good day and welcome to the Crown Castle Q1, 2022 earnings call Today's conference is being recorded.
At this time I'd like to turn the conference over to Mr. Ben Lowe Senior Vice President of corporate Finance. Please go ahead Sir.
Great. Thank you Cody and good morning, everyone. Thank you for joining us today as we discuss our first quarter 2022 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 will contain forward looking statements, which are subject to certain risks uncertainties and assumptions and the actual results may vary materially from those expected information about potential factors, which.
Could affect our results is available in the press release and the risk factors section of the company's SEC filings.
Our statements are made as of today April 21, 2022, and we assume no obligations to update any forward looking statements.
In addition, today's call includes discussions of certain non-GAAP financial measures tables reconciling. These non-GAAP financial measures are available in the supplemental information package in the investors section of the company's website at Crown Castle Dot com.
With that let me turn the call over to Jay.
Thanks, Dan and good morning, everyone. Thanks for joining us on the call as you saw from our first quarter results yesterday in our increased full year outlook the strength of the U S market continues to stand out.
We are seeing the benefits of a strong leasing environment as we support our customers' deployment of five G.
As a result, we expect to deliver another year of 6% organic tower revenue growth in 2022, once again, leading the tower industry in the U S.
I'm also excited about the progress our team is making to scale, our small cell capabilities to accelerate the pace of deployments from approximately 5000 nodes, we expect to deliver this year to more than 10000 per year, starting in 2023 looks.
Looking further out I believe our strategy and unmatched portfolio of more than 40000 towers and approximately 115000 small cells on air or under contract and 80000 route miles of fiber concentrated in the top U S markets have positioned crown castle to generate 7% to 8% growth in dividends per share for you.
Years to come.
Dan will discuss the financial results and increased outlook. So I'll concentrate my comments on our strategy to deliver the highest risk adjusted returns for our shareholders by growing our dividend and investing in assets that will generate future growth.
Consistent with our long held view, we remain focused on the U S. Because we believe it represents the best market in the world for wireless infrastructure ownership, when considering both growth and risk.
As you can see on slide three this strategy has produced tremendous results for shareholders with a combination of significant growth and a high quality dividend.
Since the establishment of the <unk> standards and the start of the associated network upgrade in 2017, we have delivered double digit annual <unk> per share growth, which when added to our approximately 3% dividend yield over that same time period generated returns of approximately 14% per year to our share.
Holders, which has led the tower industry over this time period.
Our growth has been driven by our customers investing $30 billion to $40 billion annually and their network with the deployment of more spectrum and cell sites to keep pace with the rapid growth in mobile data demand.
Because the market fundamentals are so compelling the U S market continues to attract an outsized amount of capital investment by network operators.
According to industry estimates wireless operators in North America are expected to account for more than 30% of global mobile network investment through 2025.
Which is staggering when you consider those same operators address less than 5% of the world's population.
This outside investment in the U S is understandable when you look at the fundamentals in the U S relative to other markets.
As you can see on slide four the amount of data consumed monthly per user and the ability for wireless operators to charge for that data consumption. Therefore, justifying further investment are significantly higher in the U S.
This slide illustrates the virtuous circle that has developed in the U S wireless market and that we believe is sustainable over the long term.
Over the last couple of decades U S carriers have invested hundreds of billions of dollars to develop wireless networks, which has created a platform for innovation and ubiquitous connectivity.
As a result of the quality of the network and the user experience U S consumers have used their wireless devices more and more.
And they have been willing and able to pay more for that improving mobile experience.
In turn U S curious if taken the higher cash flows generated from customers and invested in their networks and the cycle continues as evidenced by U S carriers investing more than $200 billion into their networks, including spectrum and capex over the last four years.
We believe we are best positioned to benefit from this virtuous cycle in the U S with towers small cells and fiber all of which are necessary for the deployment of <unk>.
With the three established network operators and a new entrant at scale and dish, all upgrading and developing nationwide <unk> networks the fundamentals in the U S market.
As positive as I can remember during my 20 plus years of Crown Castle.
We have invested more than $40 billion of capital to date in towers and more recently small cells and fiber that are mission critical for wireless networks to pursue this opportunity.
We are currently generating a 10% return on our total invested capital with the opportunity to increase that return over time as we add customers on our tower and fiber assets and grow our cash flows.
To that point, we are seeing significant demand for our infrastructure solutions with our customers upgrading thousands of tower sites for <unk>. While also preparing for the next phase of network Densification that will require tens of thousands of small cells as reflected in our record backlog of 60000 small cell nodes.
Importantly, we benefit from the superior growth trends, while being leveraged solely to the favorable dynamics in the U S wireless market.
As compared to international markets, we believe the U S. Not only has the best growth profile as I just discussed.
But it also has the lowest risk, resulting from a supportive market structure that incentivizes carriers to spend on improving their networks as they compete on network quality.
<unk> and less churn on our assets.
No exposure to loss of value from foreign currencies.
And social and governmental policies that are stable and supportive of improving connectivity and expanding broadband access.
Because we believe the U S has both greater growth potential and lower risk, we are focusing our investments solely in the U S.
We have an unmatched portfolio of assets that is producing growing cash flows by providing access to existing and new customers that are building <unk> networks, and we are investing in new small cell and fiber assets that our customers need for their wireless networks, which we believe increases our ability to capitalize on five <unk>.
<unk> growth trends.
As a result of these actions I believe Crown Castle offers shareholders a unique opportunity to benefit from the deployment and development of wireless networks in the U S. In the near to medium term, we expect to once again deliver the highest tower revenue growth rate in the U S with 6% organic growth.
And we are preparing for an acceleration in small cell deployments beginning in 2023 following the recent inflection in demand from our customers.
Longer term, we believe we are the only communications infrastructure.
<unk> positioned for the future of <unk> networks that will require network densification with small cells at scale.
By continuing to invest in small cell and fiber assets. We believe we will be able to extend the runway of 7% to 8% annual growth in dividends per share.
When I consider the durability of the underlying demand trends, we see in the U S that provides significant visibility into the anticipated future growth for our business. The deliberate decisions. We have made to reduce the risks associated with our strategy and our history of steady execution I believe Crown castle stands out as an excellent investment.
That will generate compelling returns overtime.
And with that I'll turn the call over to Dan before we take some questions.
Thanks, Jay and good morning, everyone.
Jay mentioned, we are encouraged by the continued high activity levels, we have experienced which are driven by our customers' <unk> upgrade and densification initiatives.
Starting with our first quarter results on page five we began the year on a very positive note with <unk> per share growth of 9% and adjusted EBITDA growth of 22% that were driven by strong demand from our customers.
As I mentioned last quarter, we are now reporting organic revenue growth exclusive of the impact of prepaid rent amortization or what we refer to as organic contribution to site rental billings.
In the first quarter, we generated 6% core organic revenue growth driven by more than 9% from core leasing activity and contracted escalators net of approximately 3% from non renewals.
Revenues were also positively impacted by approximately $15 million from items not expected to recur in 2022 with approximately $10 million in fiber solutions and the balance in towers.
Turning to page six I want to briefly walk through the increase to our full year 2022 outlook.
As a result of higher tower activity levels. We are experiencing we are increasing our expectations for site rental revenues by $40 million due.
Due to higher expected straight lined revenues as well as increasing the expected contribution from our services business by $20 million.
These changes result in a $60 million increase to adjusted EBITDA, while the outlook for <unk> remains unchanged because the higher straight line revenue does not contribute to <unk> and the additional contribution from our services business is offset by a $20 million increased and expected interest expense.
Resulting from higher interest rates.
Turning to page seven.
Back to your organic growth to site rental billings remains unchanged at 5% for the full year 2022.
Consisting of approximately 6% growth from towers, 6% growth from small cells and 3% fiber solutions growth.
Because organic growth to site rental billings as a new metric. We've included a comparison of this metric to our previous organic growth in site rental revenues on pages 10, and 11 of our supplemental materials.
Turning to the balance sheet, we finished the quarter with four eight times debt.
Adjusted EBITDA approximately nine years of weighted average term remaining.
Weighted average interest rate of 3% and 85% of our debt tied to fixed rates.
We expect our discretionary capex to be approximately one one to $1 $2 billion for the year were $700 million to $800 million on a net basis when factoring in $400 million of prepaid rent contributions from our customers.
We are managing the balance sheet. So we can continue to pursue investment opportunities consistent with our strategy that we believe will add to long term dividend growth, while reducing the overall risk profile of the business to further enhance the value created for shareholders over time.
With that in mind, we were able to opportunistically access the bond market during the first quarter to increase our financial flexibility, while locking in attractive long term cost of capital.
As a result, we finished the quarter with more than $3 billion of available liquidity under our credit facility and only $750 million of debt maturities over the next 18 months.
So to wrap up we have invested over $40 billion in mission critical network infrastructure assets in the U S to position ourselves to take advantage of the favorable growth and risk profile of the best market in the world for communications infrastructure ownership.
We are excited about the demand we're seeing across our shared infrastructure offering as our customers deploy <unk> at scale.
We expect to once again generate industry, leading organic tower revenue growth in the U S.
And we believe our comprehensive set of solutions across towers small cells and fiber, which are all necessary to build wireless networks will allow us to deliver on our annual target of 7%, 8% growth in dividends per share.
So with that Cody I'd like to open the call to questions.
Thank you if you'd like to ask a question. Please signal pressing star one on your telephone keypad.
Using a speaker phone. Please do you make sure that your mute function is turned off to allow your signal to reach our equipment. Once again that is star one if you'd like to ask a question take our first question from David Barden with Bank of America. Please go ahead.
Hey, guys. Thanks, so much for taking the questions.
So I guess the first one.
Jay since you called them out dish being a new carrier at scale.
Could you elaborate a little bit on what you mean, when you say that I think that when we look at the national carriers.
Each probably spending something on the order of 10 plus billion dollars on the <unk>.
Network in the next year or two I'm wondering if you could give us a picture of kind of how you see dish unfolding relative to them as a contributor to.
Potential growth.
Directionally in 2022, 23, and then just I guess a question Dan on the $15 million one timer you didn't call it out as a moving part in the <unk> guidance I think that's because maybe that one timer was was already included in your <unk>.
The outlook for 2022, when you said it I wonder if you could kind of elaborate a little bit more on on what it is and why it got called out now as opposed to not being called out previously thank you.
Good morning, Dave Thanks for the questions.
The first question around dish.
We have obviously seen a significant commitment from them.
To go on 20000 of our towers nationwide. So in terms of behavior. That's a significant number of our sites nearly half the sites that we have in the U S. They have a commitment to go on so.
That significant in terms of the scale of the commitment that they've made and then as we look at the activity that we're working on them with their certainly behaving as a company that we would expect would get to the nationwide coverage. So.
It's been a really long time in the U S than there has been a new nationwide deployment of the network from scratch and the activity that we're seeing from dish is consistent with their desire to build out nationwide.
Yes, David to address the second question on the $15 million onetime or nonrecurring in the first quarter as I mentioned in the prepared remarks, it's $10 million in the fiber solutions business and $5 million in towers.
It's related to network integration activities that are going on.
Around T mobile sprint.
<unk>.
Consolidation.
And we expected that.
To happen over the course of 2022.
And it is therefore included in our guide we just didn't expect it all to happen as quickly as it did and hit the first quarter and the reason we called it out now is.
We didn't want people to think that that was part of our.
Growth that could be annualized for the year and then look like our year was going to be better than we expected. It today. So we wanted to make sure everybody understood that while it was expected for the full course of the year. We didn't we didn't want it to be a first quarter event that would be recurring every every quarter and how people are thinking about 2022.
And Dan just a quick follow up.
If I was looking at that new leasing guide $2 30 to $2 70, now adjusted for the elimination of the amortization of upfront Capex.
Is that mid 0.2 50.
A good starting point for thinking about 2023 or does that 250, you have the 15 of nonrecurring stuff in it and so the reality is it's actually $2 35.
I think some of it is a good starting point for 2023, we have nonrecurring revenues in our business.
On a consistent basis.
So it's kind of a weird number, but but but.
Theyre, just small and so it's not something that we're going to call. It every time, we give the guidance. It's just in this particular case, we wanted to make sure that you understood that it was happened faster. So it didn't really impact overall, what 2022 is going to look like.
Okay. That's helpful. Thank you so much guys.
You bet.
Thank you we'll take our next question from Simon Flannery with Morgan Stanley .
Great. Thank you very much good morning.
That was a helpful chart looking at the U S in a global context.
Perhaps just layer in the impact of fixed wireless we saw some really good numbers.
T mobile earlier this week.
Have you seen any change in behavior from the carriers about maybe accelerating densification to address that opportunity.
And perhaps just a little bit more color on the capital raise and the comments about looking for incremental investment opportunities. How are you thinking about.
What are you going to be spending that on over the course of the year. Thanks.
Good morning.
On the first question around fixed wireless, we're certainly seeing the behavior of the carriers and they've talked publicly T. Mobile did this week as you mentioned.
About the opportunity there.
I would put that in the broader category of the speeds that we're seeing with <unk> and the very low latency opens up the opportunity for a vast variety of new applications and innovation and I think ultimately five G. This is this is where <unk> becomes so important as a platform for future investment and in order to.
To fully realize the value of that the applications have to comments of fixed wireless I think is one of those applications of using the <unk> spectrum that that's really pretty compelling again with the highest speeds and the low and the low latency of the.
Of the network and what it will be able to accomplish so.
It is a driver and I think as we talk about things like the need for fiber in the network.
As well as small cells network densification in order to get to that ubiquitous experience for the consumer is just critical and so we think we're going to be through a multi year growth and densification activity from the carriers as they build out <unk> and then densify the network based on the expected.
Growth in traffic, that's coming across that that network. So I think we're really well positioned for where they're headed and excited to see some of the early returns and applications that <unk> is enabling.
On your second question around our capital spend.
The thing that we do go through a really rigorous process internally of evaluating what we think the return on every dollar of capital is going to be and so we're focused.
As we've talked about in both standardized comments the majority of the capital spending at the moment is focused around fiber and small cells in particular as we're building small cells for the wireless carriers, we think it's going to remain in that category for a number of years.
A number of years to come.
And we're evaluating those opportunities to invest in fiber and small cells around what we believe the long term lease up will be for those assets. So picking the locations, where we have a carrier committed to go initially as our anchor tenant and then choosing to go into places, where we think theres going to be additional lease up and therefore addition.
Return on that capital that will ultimately drive returns to our shareholders much like what we've done in the tower business for years and years. So.
The way, we're thinking about the capital spending and the opportunity is it's growing and.
And we will update you on the scale of that in the years to come but as I mentioned in my comments.
Metro is there a new metros.
The majority of what we're doing now is still in the in the top 30 markets the NFL markets what.
What we see at the moment is mostly opportunities in the top 50 top 100 markets in the U S. As it expands beyond that we'll just have to look at what the returns are in those markets and what the opportunity for lease up is to determine whether or not it justified capital investment.
Great. Thanks, so much I mean, let me just let me let me hit on one of the questions. You asked on the capital raise itself I think you were trying to.
Equating that with investment opportunities.
Whenever we look at our balance sheet, we look at long term versus short term fixed versus floating all of those things. What we did earlier this year in the first quarter was term out some of the borrowings on our revolver by accessing long term capital at a fixed rate.
And now is.
And then part of that also was to pay down some debt maturities that were coming due in <unk>.
Next 12 to 18 months just to prepare ourselves for a rising interest rate environment not to prepare ourselves for incremental investments that we saw coming.
Great. Thank you.
Okay.
Thank you, we'll hear next from Matt nickname with Deutsche Bank.
Hey, guys. Thanks for taking my question.
So we've heard each of the national carriers I know they are investing very aggressively right now, but I think he chips telegraph capex declines either starting in 2023 or 24 or so.
With that in mind I'm, just wondering how you think about crown castle's ability to continue delivering on that 7% to 8% <unk> per share growth target over the next several years.
At least.
<unk> Capex cuts that are coming and then on the services strength that you called out and the increased outlook. This year. Just wondering if you can shed any light on whether its a single carrier that drove the upside or whether the strength is a little bit more broad based thanks.
Sure Good morning, Matt Thanks for the questions.
<unk>.
The Capex around network improvement I think I would step back and look at what has been invested by the carriers I made reference to the fact that over the last four years, they have invested over $200 million $200 billion.
And both capital spending for network deployment as well as the acquisition of additional spectrum.
That's about half and half roughly between investment and new spectrum and investment in Capex and most of that spectrum. That's been acquired it's been acquired.
Inside of the last 12 to 18 months, so theres a significant amount of investment that the carriers have made and spectrum.
And the absolute best environment for us as the infrastructure provider with the carriers as times when they have fallow spectrum, new spectrum and capital in order to deploy that spectrum and so as we look at the long term opportunities here for deployment.
Of additional network resources by the carriers, we think the environment sets up really nicely for an extended period of time and a long runway of growth and so when we look at our 7% to 8% growth in the in the dividend over the long term.
We're obviously looking at a number of a number of different scenarios as to how it plays out but the length of time that we believe it will take us the carrier build out five G is a very long period of time. So we think about it in terms of the.
Decades more than we think about it in terms of quarters or a year or two and so we think the environment sets up nicely for an extended period of time of us being able to to build on our dividend growth of 7% to 8% I will mentioned, we talked about this last quarter just briefly.
Here that we have in 2025, we have the tower churn of about $250 million related to the T Mobile agreement.
And so in that one year, we do expect that.
The 7% to 8%, we won't get all the way to 78% in that year, but other than that in the environment that we're in we think theres plenty of investment that will continue to run the network in order for us to be able to drive that 7% to 8% annually.
On your second question around services, it's broad based we're seeing an uplift in terms of activity around the tower business.
Across the board from all of our carrier customers.
As I mentioned in my comments the environment is very attractive with all three of them deploying.
And dish in addition to that so just.
Yes.
I wanted to clarify one thing Jay said $250 million in 2025 is 200, so before everybody starts to spin up on that it's $200 million in.
There has been no change since we announced it last time thanks, Dan.
Dan you took away the next follow up I had so great. Thank you.
I felt it coming back.
Yeah.
Thank you we'll take our next question from Ric Prentiss with Raymond James.
Thanks, Good morning, everybody.
Good morning, Rick.
Okay.
Appreciate more disclosure in the supplement on the prepaid amortization of prepaid rent.
History on page 18, it's an item I'm always interested in.
Two questions along those lines.
Obviously amortization of prepaid rent had grown from 19 to 'twenty to 'twenty, one we're expecting kind of flattish year over year from 'twenty one to 'twenty two.
It shows drops in 'twenty three 'twenty four 'twenty five 'twenty six I assume part of that is just you don't have new contracts coming in but are we thinking that the amortization of prepaid rent should dropdown into more like the 300 to 400 level or is there new business expected maybe they come in that would keep it up elevated.
Yes, Rick.
I'll take that.
First I'm glad that you like the new disclosure we do.
Try to respond when people give us some of that input and thats, what youre seeing with this.
<unk> were thrown in now.
We do get new business, and therefore get contributions from our customers that will add to prepaid rent amortization over time, it's just that we had so much of that historically, especially in our tower business that the amount rolling off is bigger than the amount that's being added on which is why youre seeing a reduction over time in prepaid rent amortization.
In those years that you're talking about we do not anticipate spending enough money in our tower business to make up for that in those years, just because the demand for the amount of increased activity on our towers isn't such that we would have that much capital.
But.
That I think is.
Ultimately a sign of a really good business that people are willing to pay for all of the upgrades. We did a long time ago and what Youre seeing now is a tremendous increase in the revenue and cash flow generation on the assets without any incremental capital going in which is why youre seeing the returns and yields on the tower business growing as fast as they are.
On a year over year basis.
Okay.
In light of no good deed goes unpunished any thoughts.
Breakout that amortization of prepaid rent then between tower and small cell fiber as you think about into the future to help us kind of model the different segments and their growth rates.
Yeah, and as you know we do it on an.
Actual basis to try to give you a lot of sense for what that is.
We as we've talked about now with the.
The concept of <unk>.
Billings as opposed to revenues and then putting the prepaid rent amortization enter into other you can get a lot of that information. We gave a lot of that information for the current year, we're not going to break it out for every year going forward.
Okay.
Related question. The prepaid rent received I think you called out you expect it will probably be about 400 million this year.
Any thoughts into the future just wanted to see if there were an actual forecast, but 18 and 19. It was more like 600 million now it's in the $400 million range any thoughts on where that might head over time. There's 400, a better number is 600 or better number as you think about what that contribution back to you might run out.
As Jamie mentioned earlier, a lot of the capital that we're spending right now is on our fiber and small cell business and therefore, a lot of the contribution is happening in that business as we ramp up.
Yes.
The nodes that will be putting on air we've talked about it will likely lead to an increase in the capital that's associated with that and I think that would potentially come with additional capital contributions. So I can't tell you that 400 is the right number or six hundreds right number because it's really going to depend on how quickly those that capital ramps up and how much we're going to get back from our customers.
But theres no set level that I would say is something that you can expect it's really tied to the amount of capital that we're spending to invest in our assets.
Okay, just one more for me Rick I know you have some.
Yeah go ahead Jay.
Yes, I was just going to I was just going to go back up to a 40000 foot level.
When we think about straight line straight line and the benefit of receiving some of the upfront capital from the customers and how we how we think about it.
That upfront capital from customers ultimately is in essence, offsetting our capex demand in any in any given year and one of the reasons why when we talk about the story.
And what we think the long term prospects of the business. We spent so much time talking about the dividend per share growth because we're looking at the cash flow capability of the entire enterprise over a long period of time and so.
As we think about managing capital investment of capital.
The questions that you're asking or in essence like an offset to the initial investment that we make and then we're thinking about what is that going to mean over a long period of time in terms of actual cash receipts in future periods and what are the impacts of that dividends and so.
We're providing the disclosure I think to try to help everyone reconcile from the financial statements through the metrics.
But as we talk about it and think about what the opportunity for return is we tend to go back all the way down to the bottom line of dividends because we think it's the best predictor of what long term shareholder value creation is.
And moves us away from trying to do all of the ins and outs.
Thanks, Great since we love cash we love returns, we love dividends last one quick one probably on me is the interest rate.
Update as far as interest expense up by $20 million versus.
Versus prior guidance, what's your assumption now baked into what do you assume interest rates are going to be that that trigger that or what was the delta that caused that change and obviously interest rates continued to be fairly volatile.
Yes.
The assumption is the forward LIBOR curve and what that impact really is the 15% of our debt is floating rate debt and how much that LIBOR curve impacts that 15%.
So when we gave guidance in October to now that LIBOR curve is up between 100 to 150 basis points.
Great that helps a lot. Thanks, guys continue to say well okay.
Thanks, Greg.
Thank you, we'll hear next from Jon Atkin with RBC capital markets.
Thanks, very much a couple of questions. One is you.
You you kind of.
Estimates.
We've seen revenues.
The straight line adjustment, you're kind of maintaining the guidance I just wondered.
What leads to kind of your parent ultimate some caution on the rest of the year for our site leasing and then the second question is.
As we think about fiber solutions. So ex small cell. So just kind of a classic fiber like tower in that in those sorts of revenue streams what are.
The how is that trending how is your outlook difference in terms of Finfet do you see greater opportunities for maybe areas, where you don't see it.
Okay.
Yes, John I'll take the first one I'm not sure I got the full extent of your question. So if I don't answer directly we just just ask it again.
But we kept the core leasing going forward.
Because we think that the demand in our business is going to be very similar to what we anticipated in October the beat in the first quarter was mostly due to those nonrecurring items, which is why we called them out if you remove that from the tower business.
The growth in site rental billings was around 6% for the quarter and Thats what were expecting for the year. So I don't think there is.
Change in that at all and it will result in.
Got it similar growth in the tower business going forward as the year lays out does that answer your question.
Yeah.
20 percentages aside but looking at the volume to get dollars of the amount that you beat and even if you were to include the one time or is it seems like that would flow through to your outlook going higher but absent straight line adjustments Youre outlook stayed the same so.
Dollars not percentages I might be nitpicking here, but it does appear that implicitly the guidance.
Get more cautious.
Yeah actually I think the guide is not cautious we're really excited about the level of activity that we see coming in and the growth that we're seeing in our business and what we've talked about is <unk>.
Industry, leading growth in the tower business.
We don't guide on a quarterly basis. So it's hard to reconcile to the number you are talking to.
And the reason we don't guide at a quarterly basis is that we really do think about this business as Jay talked about in terms of decades not quarters. So the best we can get to as about a year.
And what we're what we're seeing again is just a robust level of robust level of activity, that's leading to tower leading growth.
And where we.
We actually don't don't feel like its conservative we feel like it's a really good.
Outlook going into 2022, and we're maintaining it because we see that activity level continuing.
Yes.
On your second question Don around.
I'm sorry did you want to ask another question on that.
Yes, no no Thats fair point, and then I was going to listen to you sorry to interrupt. Please go ahead.
Good morning, Jeff on your second question around what we're seeing from our fiber solutions standpoint, we continue to think that we will grow that business in and around that 3% level on a year over year basis.
We've seen good opportunities in this space and.
I feel like the team has done a done a great job.
And to run that business, well and it creates a great base of assets as we've seen for us to be able to add small cells to those to those assets and so back to my comments earlier around the way that we think about capital spending.
That fiber investment that we've made both in terms of acquisitions as well as what we built.
Is based on what we believe will be future lease up for small cells.
And the activity that we've won thus far as well as the activity that we see the carriers investigating that will lead to future business. We believe it looks like the assets are really well positioned for that business is performing well and the opportunity for lease up is intact.
Anything and then lastly, any thing.
And they'll lanes to sort of call out as.
As things kind of roll off or.
Yeah, just just anything in general around dental AIDS that you've announced in the past we should be.
Thanks, a lot that might change in the future.
There is nothing to call out in the quarter.
Or that we believe will be.
And the guide for 2020.
Right. Thank you.
Okay.
Thank you we'll take our next question from Nick del Deo with Moffett Nathanson. Please go ahead.
Hey, good morning, guys.
Jay you mentioned in your prepared remarks that scaling your small cell deployment capabilities to get from 5000 nodes a year or 210000, plus in the coming years as real area of focus for you guys.
Can you talk about sort of the specific steps you need to take any areas you need to beef up to buildup that deployment capability and maybe comment a bit on the degree to which any associated costs are baked into your 2002 outlook.
Sure Good morning, Nick.
Part of the scaling activity frankly has us going ahead and doing work in this year for for note that we will turn on next year and so it is a reference to the activity that's ongoing while the notes won't turn on in calendar year 2022, the work that we need to do in order to prepare to turn them on in 'twenty. Three is under is already underway.
And we feel good about our ability to to get above that 10000 nodes in 2023 and for years beyond that we believe generally speaking.
The scale of folks that we have in the organization are sufficient to meet the backlog that we have currently.
Should that grow beyond and accelerate even further we would have to revisit the cost structure, but in general we believe the cost structure as laid out in the guidance is sufficient to handle that level of volume.
Okay. Okay, Great and then you have a prepaid rent question kind of follow up and what Rick was asking about earlier.
When do you typically receive prepaid rent for small cells relative to the on air date and did a large small cell contracts, you've signed or the past year or so at contemplate prepaid rent contributions consistent with history I'm just trying to understand how prepaid rent for these new nodes is going to flow through your financials as the installation cadence picks up.
And generally speaking the prepaid rent would be received.
In and around when they when they are installed so when we're counting them on air in the metrics that we're giving you the prepaid rent would come in commensurate with that.
In terms of how we structure the recent agreements and what we're seeing we haven't seen any change in the pricing.
The way that we've we've transacted with with carriers keep in mind that generally these things are priced on a return basis and.
And we've seen the pricing hold over the many years that we've been in the business now.
The pricing and the new note that we've recently contracted is consistent with that.
Okay, great. Thanks, Jay.
You bet.
Yes.
Thank you we'll take our next question Michael Rollins with Citi.
Thanks, and good morning.
Two questions if I could the first in the past.
So the team has outlined.
Tower locations skewed more irby.
And that would be with vantage for co location, whether it's Steve.
E band or dish deployments I'm just curious if you can give us an update on how that might be playing out through your financial performance in your leasing performance and if there's a way to quantify.
The advantage for <unk>, whether it's timing.
Sure.
And then just a separate topic.
You have fiber you have towers is there.
They're a path for crown to take a more aggressive and active role in building out metro datacenters or Oran hubs to go after.
Carrier's cloud enterprise for this emerging.
Mobile edge.
<unk> opportunity.
Sure. Thanks for the questions Mike on your on your first question I think the activity as it has historically whenever there is an upgrade to a new technology. It tends to the dollars tend to be spent in the areas that are the most densely populated in the U S. First.
And we've certainly seen that trend.
And as <unk> has started to be deployed I think thats one of the reasons why we have industry, leading tower revenue growth at 6% I also think it's indicative of what we're going to see on the small cell side of the vast majority of the investment that we've made in fiber and small cells has been in those top 30 markets in the U S.
The locations, where we believe the vast majority of the capital will be going.
For the Densification efforts at least in the near to medium term.
And over the long term, we think those assets much like towers have in those urban areas. The investment will skew towards that urban urban activity and future Densification. So with some of the best assets are in those dense urban areas. We think we will see a similar thing with fiber and small cells that we've seen historically with towers.
And are experiencing as we move into <unk> already with.
The tower footprint.
On your second question.
We certainly believe that there's an opportunity around the edge data centers and and have positioned ourselves several years ago with our investment in vapor to take advantage of that opportunity.
I would put that in the category of that as an upside case for us if data traffic gets to the point, where edge data centers become a meaningful component of the overall wireless network.
An upside case, and our investment in small cells and fiber.
We did not underwrite that in our base case, nor are we underwriting at day to day as we invest in fiber and small cells, but if you're a believer that ultimately there is going to be so much data traffic in the network with these metro Datacenters for edge data centers are going to be necessary for wireless we're going to be in the upside outcomes for our small cell and fiber.
And so we're certainly positioned well for that opportunity and and I would say today. It seems more probable that that's a likely outcome than what we would've said several years ago, but it's not in our base case underwriting we think about what the growth and returns will be on the on the on the assets, but there are certainly some signs as referenced earlier.
Some of the questions and the question around <unk>.
Fixed wireless that would suggest maybe that opportunity is growing and becoming more likely and I would start first with the benefit we're going to get out of fiber and small cells. As a result of that and I think we're really well positioned vis vis the fiber and our investment in vapor to benefit if we get all the way to the upside cases, where.
Such data centers are necessary and critical components of the wireless networks.
Thanks.
Thank you, we'll hear next from Phil Cusick with JP Morgan.
Hey, guys.
A summary, and I apologize because this year this already but as you think about the activity through this year do you expect activity to be ramping through this year. It sounds like it and then do you think that can be maintained next year or.
Or are there other carriers that are certainly going to be coming down do you expect thank you.
Bill.
As we think about any given year and I think we've talked about some on the call as we've tried to point to some of the onetime items in the first quarter and we think about the guidance and the outlook on an annual year over year basis, because we think it's the best way to look at the business as we get further into the back half of the year, maybe we can be a little bit more descriptive about the ramp in activity and what we're seeing.
Its falling into the first half versus the second half of the year.
But in general this is shaping up to be a pretty normal year in terms of the way the activity is loaded into a into a calendar year.
I don't want to really get into giving guidance for 2023.
We typically or historically have done that in October and we would expect to do that again this year. So.
We're two calls away from giving you an outlook for 2023.
Alright, guys. Thank you.
Thank you we'll take our next question from Sami Badri with credit Suisse.
Hi, Thank you very much for the question.
Could you provide any color on what level of activity that may be falling outside of your MLA structures with the carriers.
I mean, there's always some of this activity that were doing that that will fall outside of the outside of the MLS structures.
Talked about this a little bit last quarter.
Carriers historically as we've worked with them will give us a base level of commitment or areas that they know for sure that they are they're going to deploy.
But there is always activity.
It has been historically always activity that has fallen beyond and outside of those those agreements. So.
That's probably not going to get to the place where we reconcile that down to the agreements versus what we're actually seeing but there is activity that falls outside of that both on the tower business, the small cell business as well as as well as the services business. So we have we have more activity than we contemplated as we talked about this continued to.
Growth has gone into this calendar year and.
We're excited about what the implications are to our to our results for the year.
And then some of these mlps were signed quite a bit quite some time ago. When you look at 2022 and 2023.
Is it becoming increasingly likely that there is a lot of business activity that falls outside of these MLA structures that.
The majority of the investment community actually thought was going to be more in scope to the MLS is there kind of.
Okay has there been a big change or at least something incremental than what a lot of maybe.
People internally at Crown has had thought and has seen.
I think I want to be careful again, we'll talk about 2023 guidance as we as we get into <unk> and as we get into October .
Broadly, though if you look at what's happening.
In terms of demand for <unk> networks, the devices being available in the way consumers are using film.
The benefit of lower latency and higher speeds are driving more traffic.
And we think that is a trend that we will see continue for multi multi years into the future and it's what gives us confidence that our 7% to 8% growth in the dividend is going to continue for periods beyond just the just the near term so we.
We think we've positioned ourselves in a place where we own the assets that are going to be necessary for that fiber deployment with with both towers and small cells.
And certainly see opportunities that could drive beyond our 7% to 8%, 7% to 8% growth.
But we will wait till we get through those periods to start to give you more specific guidance around when when and if that activity shows up.
Got it thank you.
Thank you we'll take our next question from Walter Pie check with my Chin.
Thanks, Jay I wanted to go back to your comments on.
<unk>.
What do you call it I guess.
The traditional enterprise fiber fiber solutions I guess is what you're.
Call it.
And you talked about 3% growth but.
It looks like growth was more elevated in the first quarter.
Can you talk about.
Kind of what the components are there and are you just basically being conservative in terms of your 3% growth outlook or is my math just wrong.
Good morning, well your math is not wrong, we were elevated in the first quarter again, we give the guidance on an annual basis based on the timing of certain things the ins and outs that happen over the course of the year, we mentioned last quarter that as a part of some of the integration work, we would expect about $10 million of churn in that.
In the back half of the year, so that will have an impact on.
How the business runs for the balance of the year and we'll bring it bring it back into.
A little bit lower.
So.
That'll be that'll be in the back half of we think it'll be kind of mid year or back half of the year as we spoke to last last quarter, but.
All in all the businesses performing as we would expect in and around that 3% growth and importantly, it becomes kind of a base return in yield on that fiber asset that upon which we can add small cells. So.
Proud of the team and how they've done managing the business and most importantly in terms of what drives the return on that asset over the long term. Obviously the small cells has started to show up in significant scale and using that same fiber asset will drive the returns and the yield on the asset.
The only other thing it seems like that.
Sorry go ahead.
No No go ahead go ahead.
The only thing I would add is that the.
$10 million of one time that we talked about in fiber solutions hit in the first quarter. If you back that out I think thats, probably gives you a better baseline from which to do the math that you are talking about and see what the growth rate looks like and you will see that that is closer to around that 3% than what just on the on the face of it the numbers look.
Like for the first quarter.
Got it and then.
When you just look at that business just a qualitative question.
Are you seeing any interest from fiber overbuild versus that like smaller guys private equity funded or venture funded.
But are looking for some of your strengths in order to take fiber to the home is that has that been an element of your business that you've seen yet that's been picking up or is different than historically.
I would say there are some opportunities where we can use our fiber backbone for some of those builds that would go into places that would not be corridor. Our business. We have seen some of those opportunities and have captured some of those there.
They are tangential really to the places where we would have fiber for government enterprise universities that kind of the core of our fiber solutions business or the places where we would typically be building small cells, but our network can be a backbone component of the build into the into more rare.
Identical areas and we've seen some of those opportunities.
Great. Thank you.
Thank you we'll take our next question is from Greg Williams with Cowen.
Great. Thanks for taking my questions first one just on small cells and that Capex next year.
How many new nodes are you building in 2023 and 2020, you mentioned the 5000 installs and in the 10000, plus install but how many new actual physical nodes versus.
Colocation on existing nodes second.
Second question is just on.
Your MLA structure in particular is it.
Is concerned with Verizon.
They are accelerating their C band deployment, it looks like a beauty category might come in a little sooner.
Will you be able to recognize incremental revenues and EBIT from that RF instruction on the MLA, where where that sort of spend and that sort of higher activity is already baked in.
On your first question the notes that we'll put on air in 'twenty, two and 'twenty, three or a mix of anchor build and co locations.
<unk>.
Yeah.
We will get into as time passes we'll continue to give you the capex update.
Both this calendar year end 2023, but I think for planning purposes. You should you should think about as a mix of activity is what we have done historically.
And we've talked about this in prior quarters, but we would expect capex to ramp as we're ramping towards higher higher volume of activity.
One other thing and I think you understand the straight from the way you asked the question, but when we're talking about we're not making we're not distinguishing note that are the anchor built node versus the co located node, we would refer to both of those the initial node as well as the co located node as a small cell node. So those 5000 would be a mix of both.
<unk> and <unk> and co located notes when we talk about 5000 in 2022 and more than 10000 in 2023.
On your second on your second question around the MLP structure and the activity that we're seeing that's probably a level of detail beyond what we want to go in terms of discussing the way customers are thinking about their builds and activity.
Generally I'll refer to my prior comments around there is a significant amount of committed activity over multi years that we have from our customers and we believe there will be activity beyond the committed levels that we'll see from the carriers as they build out their build out their <unk> networks.
Operator, let's take maybe one more question.
Okay. Thank you we'll take our final question from David Guarino with Green Street.
Thanks.
Crown Castle as mentioned in the last month of that expressing interest in our <unk>.
Our portfolio in India, and I know you probably don't want to comment on market remarks, which is fine but could you maybe talk about the here team underwrite International acquisition internally and then also if you could just share your openness to international expansion. If that's changed at all in the past few quarters.
Thanks for the questions David.
I think I'd refer you to the comments that I made at the opening of the call. We are focused solely on the United States and the opportunities that we see in the U S. We believe it has the most attractive growth profile in the world as well as the lowest risk.
And for the reasons that I laid out at the beginning of the call.
We think the vast majority if not all of our investment will be will be allocated here to here in the U S.
The growth prospects of <unk> are being deployed are incredibly attractive and believe the returns from that investment of capital or just going to be terrific for shareholders. So we think it's the best places in the world to be putting capital and investment and believe that the dynamics of the U S market because of.
The virtuous cycle that I was referring to.
Consumers are willing to pay for it.
The operators are continuing to invest the capital and greater way.
They have a lot of spectrum to continue to do that so I think we're looking at multiyear growth in the U S with with lots of opportunity. So we're focusing the capital whether it be for builds or acquisitions.
We're focused solely in the solely in the U S market. So thanks for the questions and thanks for everyone. Joining US did you have a follow up.
Okay. Thanks, everyone for joining the call this morning.
Just want to say, thank you to our team.
Who've done a terrific job as we launched off into 2022 here well done in the first quarter and look forward to catching up with all of you.
Balance of the year proxy.
Thank you and that does conclude today's conference. We do thank you all for your participation and you may now disconnect.
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