Q3 2022 American Tower Corp Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by welcome to the American Towers third quarter 2022 earnings conference call.
As a reminder, today's conference call is being recorded.
Following the prepared remarks, we will open the call for questions.
If you'd like to ask a question. Please press one then zero.
I'd now like to turn the call over to your host Adam Smith Senior Vice President of Investor Relations. Please go ahead, Sir good morning, and thank you for joining American Tower's third quarter 2022 earnings conference call.
We have posted a presentation, which we will refer to throughout our prepared remarks under the Investor Relations tab of our website Www Dot American tower Dot com.
On this morning's call Tom Bartlett, our president and CEO will discuss current technology trends and how we are positioned to benefit from continued wireless technology evolution and.
And then Rod Smith, our executive Vice President and CFO and Treasurer will discuss our Q3 2022 results and revised full year outlook.
After these comments, we will open up the call for your questions.
Before we begin I'll remind you that our comments will contain forward looking statements that involve a number of risks and uncertainties.
Samples of these statements include our expectations regarding future growth, including our 2022 outlook capital allocation and future operating performance.
Our collections expectations associated with Vodafone and idea in India the <unk>.
<unk> transaction and the expected value in future investment activities of our U S data center business.
Our expectations regarding the impacts of COVID-19.
And any other statements regarding matters that are not historical facts.
You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward looking statements.
Such factors include the risk factors set forth in this morning's earnings press release those.
Those set forth in our Form 10-K.
For the year ended December 31, 2021 as updated in our upcoming Form 10-Q for the nine months ended September 32022.
And in other filings, we make with the SEC.
We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call to reflect subsequent events or circumstances.
With that I'll turn the call over to Tom.
Thanks, Adam Good morning, everyone.
As is typical for our third quarter call. My comments today will center on the key technology trends, we're seeing across the wireless landscape.
How are distributed tower portfolio is positioned to benefit from next generation network deployments and generate sustained resilient growth despite ongoing macroeconomic volatility.
Actually I'll provide an update on the core side portfolio of assets, our latest view on the evolution of the mobile age and the progress we are making in advancing our edge strategy, which aims to leverage our distributed tower and land assets in combination with our interconnected data center portfolio to drive incremental value as network technology.
<unk>.
Since the start of 2019 <unk> spectrum auctions, mainly in the mid band are collectively driven over $155 billion in purchase price proceeds across our served markets.
These acquisitions have large swaths of new spectrum. It kicked off what we believe will be at least a decade long period of network investments aimed at delivering on the promises of <unk> faster and lower latency applications.
We anticipate this will result in $5 billion of incremental annual customer capex spend in the United States on average as compared to the levels, we saw throughout the <unk> cycle.
Additionally, in the U S. The visibility we gain through the comprehensive MLA as we've put in place with AT&T T mobile dish and most recently Verizon supports our expectation that these investments will drive the near term acceleration in organic new business growth and a sustained level of elevated tower active.
Over a multiyear period.
As we saw during the rollout of <unk>, we expect this investment cycle to play out in two broad phases. The first being a coverage phase through each carrier's prioritize upgrading their existing footprint to maximize the percentage of the population, having five G access and begin to benefit from the cost.
Patience is associated with their network technology upgrades.
Over the last year, we've seen carriers, leveraging our presence in nationwide scale to efficiently and aggressively upgrade equipment on our sites.
Here in the United States and in several markets across our international footprint to meet those five <unk> build out objectives.
And the second phase as consumers adopt advanced <unk> enabled mobile devices and applications carriers will invest in additional capacity to the network densification to facilitate increased mobile data consumption and optimized customer experiences.
We saw this second phase play out after <unk> was launched in the United States around 2010.
By coupling the provision of higher bandwidth speed and improve network capabilities with the proliferation of advanced smart connected devices with improved user interfaces.
<unk> unleashed innovative applications, such as video streaming mobile gaming as well as industry redefining applications, such as mobile enabled ride sharing and transportation the.
The introduction of these new data intensive applications contributed to an annual consumption growth rate of nearly 50% from 2013 to 2018, requiring carriers to meaningfully invest in the densification of their networks.
Similarly, we expect our customers <unk> networks anticipating delivery times are five to 10 times lower latency and increase download speeds of up to 100 times to further unlock new capabilities facilitate consumer and enterprise innovations enable use cases that will necessitate further proliferation of connected.
<unk> and drive higher network throughput.
Consider emerging augmented and virtual reality technology as an example.
Video streaming exploded, primarily because of the advancements achieved through four G driving extended densification investment in order to provide users with adequate network quality.
Currently video streaming bandwidth requirements range from a few megabits per second to about eight megabits per second for HD and up to 25 Megabits per second for four K, depending upon the resolution eventually working to 50 and closer to 100 Megabits per second for 8-K videos depending.
Depending on compression schemes and the device requirements looking ahead to the theoretical Max specs for potential future applications of mixed reality, we would expect multiple gigabits per second again that is gigabit with a G.
Compared to <unk> five G will offer enhanced resolution rapid refresh rates real time raw bit streams with low latency and provide three times more bits per hertz spectrum efficiency in the <unk> mid band.
Even when factoring in all of these benefits, we believe rapid mobile data consumption growth along with the shorter propagation characteristics of mid band spectrum.
Will necessitate a massive five E amplification phase of network investments.
Later than what we realized in <unk> as a result, we expect this future capacity phase to support sustained growth in our tower business.
At the same time, we expect the applications driving these densification efforts to present, new neutral host infrastructure opportunities aimed at minimizing latency and reducing traffic burdens on middle mile networks.
This is a good segue into a discussion about our core site data center activity and the progress we're making in advancing our strategy to support these networks of the future.
While the tower business, certainly remains healthy and staggered deployments of network generation rollouts across our geographically diverse footprint provides a solid runway for growth over the next decade, we remain focused on identifying new opportunities for value creation through the platform expansion pillar of our stand and deliver strategy.
A key element of this pillar is identifying new opportunities to leverage our portfolio of communication assets and our capabilities in managing and Redeveloped and distributed real estate to provide new multi tenant neutral host infrastructure models that support the demands of next generation networks and applications.
As we previously communicated the most apparent opportunity of scale that we see over the next decade is that of the mobile edge, which ultimately solidified our decision to acquire core sites at the end of 2021.
We still believe this acquisition further positions us to take advantage of the emerging digital transformation enabled by <unk>.
Having now own core side for more than three quarters, we couldnt be happier with the performance, we're seeing across the business and the use cases, driving leasing activity, which we expect to serve as growth catalysts well into the future.
Importantly, we are extremely encouraged by the consistently positive customer feedback on this acquisition.
Customers continue to view core site is a strong operator in hybrid it solutions provider with a high quality ecosystem.
Under the American tower umbrella can now provide more predictable scalability and future incremental value through our combined platform capabilities and expertise.
So far in 2022 core side has achieved solid new business volumes are reflection of the strong demand for the company's interconnection and cloud on ramp rich ecosystem, where over 80% of revenues are derived by customers with a variety of interconnections to at least five different and independent customers.
This strong demand demonstrates the differentiated value proposition and resiliency of these strategically located and well integrated assets.
We are pleased to see strong new business volumes from enterprises prioritizing digital transformation to the implementation of hybrid it solutions, leading to migrations from an on premise data centers to Colocation data centers in major metros.
We're also encouraged to see accelerating demand from leading digital platforms seeking to extend compute functionality closer to their users to enable automation collaboration and address latency sensitive applications and early indicators supporting our edge evolution thesis.
Critical to core sites interconnection rich ecosystem value proposition is its open cloud exchange platform or <unk>.
<unk> provides <unk> customers with quick scalability and represents an essential element as we seek to extend the ecosystem to more distributed points of presence as the edge develops.
Today through this automated layer two Ethernet software defined networking platform, we connect our customer communities within and between our U S data centers and we can have cloud providers to core sites nationwide portfolio.
We continue to invest in improving the platform features and building out the functionality and reach to enable high performance hybrid architectures more quickly and securely and at a lower total cost of operation than alternative solutions.
More recently, we launched layer three enhanced network services, including virtual routing cloud connect peering to service providers and cloud to cloud connectivity to leading cloud providers. These.
These enhanced functionality simplify an enterprise's network hardware and management resources at a lower total cost of ownership.
Through continued innovation over time of course any division is to provide customers with a single port access to their entire digital supply chain, which we will also expect to be leveraged and extended as they distributed interconnected edge ecosystem develops over time.
While the distinctive characteristics of core size portfolio, including its enhanced capabilities afforded to associates platform represent the critical attributes and advancing our edge strategy. We also see tremendous value in core sites development pipeline of.
Of course, I'd continues to execute on opportunities to redeploy their cash flow towards high yielding development project as customers require additional scale across our footprint and consequently over 20% of our datacenter development under construction is now pre leased.
We also recently announced the acquisition of a purpose built data center in Southern Florida M I, too, which will be connected to our existing Miami facility, expanding and strengthening our southeastern footprint, where we have also integrated our legacy data centers in Atlanta, and Orlando into the core site ecosystem.
As we look further out we expect workloads to become even more distributed and localized.
Therefore, we see the importance of interconnection hub like core site, increasing as customers look to future proof their digital businesses to secure flexible and scalable solutions, enabling agile interoperability as businesses shift to more customized hybrid multi cloud environments and importantly required.
Extended edge computing presence to support evolving low latency applications.
In terms of the mobile edge is emerging as a critical area in the convergence of wireless and wireline networks over the past year. Despite <unk> deployments in the U S continued at a rapid pace, we've seen elevated emphasis from select wireless carriers with respect to their edge compute strategies in the forging of partnerships with cloud and enterprise.
Technology platforms to better prepare for the network demands in the future.
We see all of this is incremental data points in support of our vision for forthcoming demand at the edge and our view much like the adoption of the shared tower model. This digital ecosystem over time will be most efficiently provision to a distributed neutral host multi tenant interconnected edge infrastructure model.
<unk> the capital intensity and total cost of ownership among Msos cloud landline and enterprise players and critically facilitating a seamless universal customer experience for end users.
Our tower portfolio, coupled with our U S. Datacenter business represents a distributed portfolio of real estate with accessibility to robustly interconnected core network and native access to cloud on ramps. We believe the combination of these platforms will be critical as data processing extends from the core to the edge.
With that migration more distributed and localized points of presence along with trended costs and low latency considerations will become essential overtime, providing American tower in core sites with the potential to win across multiple edge layers.
To date, our team has identified over 1000 sites within our existing U S tower portfolio that we see as shovel ready candidates for mobile edge deployments based on location parcel footprint land control and existing fiber and power access.
Over the next several months, we plan to break ground on our first one megawatt edge facility and an owned tower site to build upon our understanding of market demand and customer requirements design, a blueprint that can be rolled out at scale is the HD ecosystem develops and demonstrates the differentiated value proposition that American tower and core.
Syed can offer potential customers.
As always any future development will go through our disciplined approach to evaluating the market opportunity and economic returns of edge deployments at scale.
As well as an evaluation of the best way to finance future deployment, which could potentially include strategic partnerships financial sponsors or both.
In short the strategic partnerships emerging between the Msos and cloud service providers, the evolution of latency driven edge leasing activity within our core site portfolio and our interactions with the architects of the low latency networks of the future have only strengthened our conviction that the edge will represent a meaningful opportunity to drive incremental.
Value to our assets over the long term.
Although this architecture will take time to develop American tower's positioning itself as a critical future provider and partner for cloud <unk> and enterprise customers as wireless and wireline network convergence accelerates over time.
In the meantime, we will seek opportunities to advance our learnings, including through the development of an edge application incubator and our participation in various trials and edge industry forums.
We are proactively taking the necessary steps to understand emerging trends network requirements and customer needs all aimed at strengthening our option to win at the edge over the long term.
In closing demand for wireless connectivity continues to grow across the globe, where despite the dynamic challenges. We've all navigated over the past several years the need for reliable wireless and broadband access has been elevated in importance as a means to advance global economies and the populations they serve.
With carriers aggressively deploying their valuable spectrum assets, we will begin to realize the true capabilities of <unk> and with that we expect to see new innovations that will change the way we live for the next decade and beyond.
Our effort to build scale across our global footprint of macro tower assets for over the past two decades combined with our continuous focus on platform expansion and innovation hedge position American tower to support our customers in meeting the continued acceleration in mobile data demand, while leading the way in the development of new.
For your models that will be essential in meeting the needs of applications of the future and drive incremental value on our assets overtime.
With that let me turn the call over to Rod to go through our third quarter results and updated full year 2022 outlook Rod.
Rod.
Thanks, Tom.
Good morning, and thank you to everyone for joining today's call as you heard from Tom We are very encouraged by the technological trends that we believe will drive continued secular growth in the industry and a long runway of growth for American tower.
Before I walk through the details of our Q3 results and revised outlook I'll first touch on several key trends and developments from the quarter, including the evident strength of leasing demand across our footprint and renewed collections volatility in India.
First we continue to see <unk> and <unk> investments driving strong demand across our footprint, which translated into solid gross leasing growth in the quarter and we expect this trend to continue and further accelerate particularly in the U S. As we approach 2023.
We complemented sequential growth in organic leasing with nearly 1600 newly constructed sites internationally.
Earnings on average low double digit returns on day, one driven by those same trends. Additionally demand for hybrid it solutions optimally suited for our U S data center portfolio remains healthy. This resulted in another strong quarter of leasing results fueled by digital platforms and the continuation of enterprises move.
Their it infrastructure from on premises to interconnection rich co location facilities with direct cloud access such as core site.
Next we closed on stone peaks initial $2 $5 billion investment in our U S data center business in August , which was upsized by another $570 million after quarter end at the same valuation in terms.
This further highlights the differentiated characteristics and value of the core site portfolio, while establishing a partnership through which we will execute on our U S data Center strategy.
Also we signed a new comprehensive MLA with Verizon at the end of August which is expected to allow Verizon to efficiently accelerate their <unk> network deployments over a multiyear period.
This agreement is yet another data point illustrating the fundamental long term criticality of our portfolio as our customers seek to leverage our scale and capabilities to rapidly deploy nationwide <unk> and further provides tangible evidence that our U S business should have a solid runway of growth over the next several years.
Additionally, we executed a new multi market MLA with Airtel Africa, our largest customer in the region under this new long term agreement, we secured attractive terms across our existing Nigeria, Kenya, Uganda in Niger portfolio.
Along with a contractually committed attractive build to suit pipeline to support Airtel Africa as <unk> deployments among other opportunities.
Importantly, with Airtel Africa, we share a focus on advancing wireless connectivity in a sustainable manner, which is represented in this agreement through a commitment to deploy low carbon sites and expand our digital communities program.
Our agreements with both Verizon and Airtel Africa, two of our largest customers is the latest demonstration of the value our global scale and operational capabilities as a company both end markets and across borders can unlock to provide mutually beneficial solutions for American tower, and our partners with that I'd like to take a moment to address some.
Uncertainty related to collections arising out of our India operations and how this event has affected our results for Q3 and revised outlook for 2022.
In Q3 collections from Vodafone idea or V. I L fell short of our billings and the customer has also communicated an expectation for that trend to continue through the balance of this year.
As a result, we found it prudent to take certain reserves associated with vio in Q3 and against the anticipated Q4 billings shortfall in our revised guidance.
Consequently, our full year expectations now include approximately $95 million in additional revenue reserves about half of which was booked in Q3.
It also includes the removal of a $30 million bad debt reversal that was assumed in our prior guidance.
Together. These result in a reduction in adjusted EBITDA in attributable <unk> of $125 million.
At this time, our revised outlook for net income does not assume any additional impairment charges associated with the goodwill and intangibles that we currently have on the books associated with Vil as the shortfall in cash flows is being viewed as temporary it.
It should also be noted that vil did express a commitment to revert back to 100% payment at the start of 2023 and repay outstanding past due balances, which could potentially provide an opportunity to reverse certain reserves, we've taken in the future.
<unk> has also laid out a set of strategic steps that we will closely monitor on its path to more stabilized inconsistent payments, including the conversion of its AGR interest into equity held by the Indian government. However, until then we expect continued uncertainty and collections for vil and have reflected those risks in our REIT.
<unk> outlook in the meantime, we are actively working with <unk> on the path forward, which could potentially include converting a portion of its existing AAR into optionally convertible notes, which we believe can better secure our receivables we will incorporate new developments that unfold over the next several months into our guidance for two.
'twenty three on this February call.
With that please turn to slide six and I'll review, our Q3 property revenue and organic tenant billings growth as.
As you can see our Q3 consolidated property revenue of $2 6 billion increased by over 10% and over 14% on an FX neutral basis as compared to the prior year period.
Growth was primarily driven by solid organic leasing execution on our international Newbuild program and contributions from our U S data center business, partially offset by headwinds of approximately 2% associated with revenue reserves taken in India during the quarter as discussed and another 2% from sprint related churn.
<unk>.
Moving to the right side of the slide you can see we achieved consolidated organic tenant billings growth of two 6% for the quarter.
In the U S and Canada as expected net organic growth was slightly positive at <unk>, 3%, including a sequential step up in gross organic new business to $38 million.
A meaningful acceleration from $31 million in Q2, and our highest quarter since Q1 of 2020.
As we have indicated throughout the year. We expect this acceleration to continue into Q4 and even further in 2023, where a large portion of our growth will be contractually committed through our comprehensive MLA.
Escalators were two 8%, which consistent with last quarter were impacted by certain timing mechanics within our mla's, though for the full year, we expect escalated to command right around 3% consistent with historical trends.
This growth was offset by the impacts of sprint churn, which continues to drive over 4% of negative headwinds year over year and will step down in Q4 as the largest tranche of contractual sprint churn will have lapped in our year over year growth metrics.
On the international side organic growth was six 1% starting with Europe , we saw growth of 6%, which is now at a more normalized level with telsey, it's largely in the prior year base in Africa, we generated organic tenant billings growth of six 8% modestly higher than prior expectations due to some.
Delays in anticipated churn now pushed to later in the year.
Growth also included another strong quarter of gross organic new business standing at seven 5%, putting Africa on track for its best organic new business year on record and continuing past quarter trends, we saw a strong organic leasing activity complemented with an active newbuild program constructing just over 200 <unk>.
<unk> sites in the quarter as we see <unk> coverage and Densification initiatives continue to drive strong topline growth in returns on our capital deployments across the region.
Moving to Latin America organic growth was eight 2%, which includes approximately nine 7% from escalations growth through organic new business in Escalations was partially offset by another quarter of elevated churn primarily associated with certain decommissioning agreements, which we expect to <unk>.
Other accelerate in Q4 as highlighted on previous earnings calls.
In APAC, we saw organic growth of one 9% in line with our expectations, which comes alongside a continuation of solid newbuild activity with 1200 sites constructed during the quarter.
Turning to slide seven.
Our third quarter, adjusted EBITDA grew nearly 6% or over eight 5% on an FX neutral basis to over $1 6 billion with strong revenue growth and cost controls, partially offset by the negative impacts of Vodafone idea revenue reserves and sprint related churn together, representing approximately 6% headwinds to <unk>.
Growth.
Adjusted EBITDA margin was 61, 5% down 170 basis points year over year, driven by the lower margin profile of newly acquired assets. The conversion impacts of Vodafone idea of reserves and sprint churn along with higher pass through revenue, resulting from fuel costs.
Moving to the right side of the slide.
Attributable <unk> and attributable <unk> per share decreased by approximately three and 5% respectively with each including a 3% headwind associated with FX.
Growth was meaningfully impacted by the Vodafone idea reserves and sprint related churn combining for an over 8% offset to otherwise strong and resilient performance across our global operations.
Let's now turn to our revised full year outlook, where I'll start by reviewing a few of the key high level drivers.
First performance remains solid across our portfolio as demand for wireless connectivity and the rollout of next generation networks are fueling strong new business volumes across our regions.
Together with the straight line benefits from our recently executed Mla's along with pass through increases primarily related to power and fuel, we're raising our property revenue and adjusted EBITDA guidance for the year.
Second we have revised our FX assumptions using our standard methodology, which has resulted in outlet the outlook headwinds of $45 million $22 million and $13 million for property revenue adjusted EBITDA and consolidated <unk>, respectively.
Finally.
And as noted earlier, we have incorporated approximately $125 million in incremental reserves relative to our prior outlook associated with Vodafone idea.
This includes $95 million in revenue reserves split between Q3, and Q4 and the removal of our previous assumption for incremental bad debt reversals of around $30 million.
As I mentioned Vodafone idea has communicated its intention to resume full recurring payments in 2023. However at this time, we believe these adjustments to be appropriate for the current year.
With that let's discuss the details of our revised full year expectations as.
As you can see on slide eight we are raising our property revenue outlook by $70 million at the midpoint. This outperformance includes straight line upside of approximately $65 million, primarily associated with our recently executed Verizon and Airtel Africa, Mla's and $77 million and higher pass through revenue driven by fuel costs.
Along with various nonrecurring benefits, including accelerated decommissioning related settlements in Latin America, which we now expect to total approximately $85 million for the full year.
Our guidance raise was also supported by recurring revenue upside across several of our segments, helping to contribute to some modest revisions to our organic tenant billings growth outlook, which I'll touch on shortly.
This outperformance was partially offset by the $95 million in incremental revenue reserves related to Vodafone idea and $45 million in FX.
Moving to slide nine you will see our organic tenant billings growth expectations.
While we are reiterating our prior outlook on a consolidated basis and for the U S and Canada as well as APAC segments, we are slightly revising our expectations for International Europe , Latin America and Africa.
For international we are raising our organic growth to approximately six 5% up from approximately 6% previously in Europe , we have adjusted our organic growth expectations to greater than 8% from approximately 9% in our prior outlook, where we expect new business commencements to shift further into 2020.
<unk>.
In Latin America, we are increasing our organic growth expectations to greater than 7% up modestly from approximately 7% and our prior guidance, reflecting a continuation of the CPI linked escalation benefits in the region.
In Africa, we are increasing our organic growth expectations to greater than 7% up from approximately six 5% in our prior guidance, reflecting the delays, we're seeing an anticipated churn as I mentioned earlier.
As a reminder, in Latin America, and Africa, consistent with prior assumptions, we anticipate consolidation driven churn events to drive a sequential decline in growth as we exit the year, resulting in what we expect to be approximately 4% and five 5% organic tenant billings growth in Q4 <unk>.
<unk> with.
With some carryover impacts as we head into 2023.
Lastly, in the U S and Canada, where we are reiterating our prior organic growth outlook, we expect to see Q4 organic tenant billings growth of around 4% with further improvement in 2023, backstopped by the contractual visibility afforded through our comprehensive MLA as with the Baker III.
Carriers plus dish.
Moving to slide 10, we are raising our adjusted EBITDA midpoint by $30 million as compared to our prior outlook, where we're seeing a high conversion of property revenue outperformance delivered through prudent cost controls and continued elevated services volumes, providing meaningful upside as compared to our previous expectations.
These benefits are partially offset by the $125 million associated with incremental reserves assumed for Vodafone idea as previously discussed along with $22 million in FX.
Turning to slide 11, we are lowering our attributable <unk> guidance by $40 million or <unk> <unk> on a per share basis. This adjustment is attributable to the Vodafone idea reserves, we have taken which is translating into approximately 27 per share of downside offsetting what was otherwise very strong performance across our.
Business, which represented approximately <unk> 20 per share outperformance on an FX neutral basis.
Moving to slide 12, let's start by taking a look at our capital deployment expectations for the year, which are slightly updated compared to our prior outlook and continue to reflect our focus on driving sustained <unk> per share growth and shareholder returns.
Within our capital deployment plan, we are reiterating our expectations to dedicate approximately $2 7 billion.
Subject to board approval towards our 2022 dividends.
With regard to Capex, we are reducing our total mid point by $45 million with redevelopment decreasing by $35 million in startup decreasing by $10 million. The result of some timing adjustments in savings as compared to our prior plan. We continue to assume the construction of approximately 6500, new sites globally and roughly.
$300 million towards our U S data center business largely associated with development spend.
As we've highlighted.
Delighted in the past, we continue to generate exceptional returns through our discretionary Capex program, which remains largely financed through the redeployment of locally generated cash flows.
We view our ability to allocate nearly $1 8 billion towards accretive high yield projects as a strategic benefit after years of building scale and credibility with our global customer base in a compelling way to further build scale and drive accretion for years to come.
Finally, although we have not incorporated into our revised guide I'd like to highlight that with the additional capacity. We currently have as we outpace our Delevering plan, we expect to Opportunistically restart our share buyback program given recent market performance and the strong fundamentals, we anticipate in our business over the long term.
<unk>, we see this as a great opportunity to further drive shareholder value, particularly against other forms of capital deployment in our current line of sight.
Moving to the right side of the slide I'd like to take a moment to review the progress we've made since the start of the year to shore up our balance sheet and liquidity positions, particularly in light of the market volatility and unprecedented rise in rates occurring over the past several months.
As you recall, we closed the core site acquisition, using our bank facilities and term loans temporarily moving our leverage to six eight times and our floating rate exposure to 31% at the end of 2021.
Since that time and against the challenging backdrop, we have strategically termed out short term borrowings through common equity private capital and senior unsecured note offerings all at solid terms in pricing today, our leverage stands at five five times ahead of plan with floating rate exposure of around 20%.
In line with our long term target.
Looking ahead, we continue to believe this profile is appropriate given the predictable and contractual nature of our cash flows while providing us exposure to pre payable debt, which offers us financial flexibility as we execute on our delevering path and access to the typical low rate short term curve. In addition, a meaningful portion of.
Our floating rate debt is euro denominated, which provides us a natural hedge in diversified capital structure, while also offering pre payable debt at terms more competitive than those currently available in the U S.
Although we anticipate 2023 as it appears today, we will present certain growth challenges stemming from the current rate environment, we feel comfortable with our proven approach to balance sheet management.
This includes our ability to manage our upcoming 2023 maturities, where we expect our diversified sources of capital and solid liquidity position to provide near term financing flexibility, allowing us to opportunistically access the markets against a healthy and constructive backdrop in short we believe our investment.
<unk> balance sheet and the longstanding policies, we've established position us well to navigate various economic cycles, including the challenges we're all facing today.
And although we may see certain growth headwinds in the near term, we believe our investment grade credit rating and continued access to diversified sources of capital coupled with our focus on maintaining robust liquidity will serve as a more meaningful competitive advantage over the next several years.
Finally on slide 13, and in summary, we had a strong Q3 across our global business with solid operating performance accelerated leasing and resilient demand even in the face of a challenging economic backdrop.
During the quarter the long term critical nature of our portfolio of assets and positioning to drive sustained and compelling growth was further highlighted through key customer agreements with Verizon and Airtel Africa in the closing and subsequent upsizing of our stone peak partnership in our U S data Center business.
Although we will likely experience some growth pressure in the near term associated with the continued rise in interest rates, we see our investment grade balance sheet liquidity and diversified sources of capital as a key competitive advantage as we execute on our growth strategy over the next decade and beyond.
With that I'll turn the call back over to the operator for Q&A.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press one that that P&L on your telephone keypad you may withdraw your question at any time by repeating the command of one them they're all.
Your first question comes from the line of Simon Flannery Morgan Stanley . Please go ahead.
Thank you good morning, Tom It was good to hear your discussion about the opportunity. There is from five GM, particularly from capacity additions as well as a favorable comments around near term and medium term U S leasing trends.
Can you square that with the <unk>.
Capex trajectory at the likes of Verizon and T mobile, where they're expecting a significant step down I know, it's not a one for one relationship but how do you expect.
This drove off because I think there's a sense here that there will be some deceleration as we have seen sort of in Pryor.
<unk> cycles, so whats the whats the offset to those lower capex numbers.
And having seen the trends from the carriers for many many years I mean, there is always volatility.
Volatility in their overall spend.
It will largely be a function of device penetration and application development.
That will require the further densification that we believe in the.
In their deployment as well.
So it's not a not it's not a kind of a one for one type of a.
I think our relationship with where our overall growth and also keep in mind that with our agreements that we have in place. We have these these broad comprehensive agreements with really locked in a lot of that revenue growth for us and so you know 70% to 80% of our revenue growth we have tremendous visibility into.
As a result of those master lease agreements and.
And I would expect.
The carriers as I said to be investing in their markets that demand develops and I would expect given the benefits of five G that each and every one of us are going to be using significantly more.
Levels of <unk>.
Of spectrum, if you will over over time, so they said, it's not a one for one our MLA do give us that kind of visibility and and overtime I would expect the higher levels of Capex being spent on <unk> just as we saw in <unk> versus <unk>.
Great. Thanks, a lot.
You bet.
Our next question comes from the line of David Barden Bank of America. Please go ahead.
Hey, guys. Thanks, so much for the question.
Two if I could the first.
Rod just digging into the biggest moving part in the guidance. The Vodafone idea relationship I guess two pieces to that one is is theres been a lot of press about them versus say bharti.
Yes.
And maybe trying to renegotiate.
Tower rates to quote unquote soften the.
The impact on costs and then.
Could you kind of talk about what you're willing to give on that front and then also you talked about converting your accounts receivable to notes I mean, historically towers have never been impacted by bankruptcies.
How was converting accounts receivable to notes a better option.
Yeah.
Kind of continuing the way you are as a tower company with your counterparty there and then I guess the last piece maybe Tom.
On capital allocation the conversation about buybacks I'm sure is welcome but theres been a lot of conversation over the last two years about amc's ambitions in Europe .
And scaling there and Theres, obviously, some pretty big deals.
And I think that obviously cost of capital is a huge issue your equity where it is is an issue could you categorically rule in or rule out.
What your position on expanding in Europe is right now thanks.
Hey, good morning, David already Yeah, Rod why don't you start and take the first couple and then I'll take the third.
Yes that sounds good morning, David Thanks for the question I Hope you're doing well thanks, Rob regarding.
Regarding India and Vodafone in kind of their current situation their desire to renegotiate some MLA as I don't want to get into too many of the terms and conditions.
Certainly not want to talk about things that haven't happened yet in the future, but I can tell you they are in and our predicament with their balance sheet, which everyone knows about there's been a lot of press regarding that so.
They're looking for a number of.
Things from us in terms of supporting them discounts may be one of them. We will certainly talk about that with them kind of over time.
I don't want to get into the details in terms of what we may or may not be willing to do if we were to provide any kind of a desk, but just run through our churn.
<unk> would be in our guidance I don't expect any changes to our organic tenant billings guidance for this year.
Allocation of renegotiation.
So.
And if anything changes next year, we will update you for next year I guess shifting David to the note we did convert 200.
While we have the option to convert $200 million of our existing accounts receivable. This is not a new investment into voter I want to make sure that that's clear.
This thing accounts receivable that's on the balance sheet, we have signed an agreement where this $200 million could become convertible note, but that is contingent on some conditions happening in India.
Both in the government converting their near term interest in that I think everyone is aware of that are.
Playing out so that has to happen first and if that does happen then we could convert $200 million of our existing accounts receivable.
Into a convertible note. The reason that's interesting to US number one is it helped shore up boat.
A little bit it basically.
Moves the accounts receivable and lets say, an MLA default into more of a financial instrument. It helps them get some equity and maybe some additional debt on their books. So we want to support them and help them. During this difficult time. So that certainly is one reason the other thing having this note. It does have predefined payment timeframe, which is a little bit.
More certain than what you might see in typical accounts receivable is hanging on the balance.
And then we also have the option at our option that converted to equity, which is another way for us to liquidate.
Favorable balance so I think it increases our flexibility it increases it increases the probability in the near term to convert it to cash and that's really the reason we're interested in doing it so and it helps voting so all those things we didn't.
We really looked at it and it makes a lot of sense for us and I think it makes sense.
Terms of unwilling or willingness to support them.
And then I guess, Dave just regards here.
Last question on Europe and Asia.
The opera opportunistic buyback program that Rod job first of all with regards to our calcium asset base and integration.
We're really very pleased with what we've experienced over the last year I mean, you've seen the growth rates and the success that we've had there.
And the relationship that we've actually built with Telefonica. So you know that.
It's all gone incredibly well with regards to further scaling we do have a sizable build to suit program that we are.
In the midst of and we see even more built to suit opportunity.
Coming forward I think particularly in Germany.
With regards to further M&A, we stepped away really just due to the seller's expectations of a value.
There's just a significant delta between the bid and the ask at this time now over time that May change Theres, just a lot of volatility economically.
So you all know around the world and so there's just a significant amount of space between the bid and the asking so we've really stepped away from those.
Those we're always asked to participate in them and so you always see in the media that American tower is doing this or that.
But but yeah.
Oh, and I know you well know that we're incredibly disciplined in terms of how we look at valuation.
And given the terms and conditions of some of these transactions as well as your expectations are from a pricing perspective, we just don't see the value creation.
And those opportunities at this time and as I said, maybe that will change over time I would hope over the next 12 to 18 months you might see some some change there, but right now not and so we're going to continue to knock the socks off the organic growth.
Working with our customers in the region.
Drop in our build to suit program, which has been an incredibly terrific way for us to be able to grow inorganically within the business as Rod said at some very attractive.
Yields and and really support our customers in the market and and enjoy the growth that way.
Perfect. That's helpful color. Thank you, both Tom and Ross. Thank you.
Thanks, Ed.
Yes.
Our next question is from Greg Williams Cowen. Please go ahead.
Great. Thanks for taking my questions I have two one is how.
How much of the raise in guidance.
$142 million straight line was related to the Verizon MLA, if any and second one is just dovetailing off of the M&A discussion.
What is your appetite for M&A, that's not power related and how do we think about augmenting your data centers, we've heard possible.
Is your data centers.
Triste or even U S fiber and I'm just curious of your thoughts thanks.
Hey, Rod why don't you take the first one then I'll take the second.
Yeah. Thanks, Thanks, Gregg for the question. So the straight line increases that you see in our in our outlook here, we have an increase of straight line of about $65 million built into our property revenue grew.
That's really split between the new Verizon deal as well as the deal over in.
In Africa, with Airtel Africa, I don't want to break down that in too much detail and give you the piece parts, but it's really those two deals that makeup right.
And Gregg with regards to M&A on the datacenter side, you know as we said all along we are very focused on developing the U S market I mean of course I just got a terrific presence in the United States and with our tower portfolio here in the United States, we wanted to be able to enjoy the benefits of the core site activity as I highlighted in Israel.
Highlighted itself, but also really be able to bring together. This overall notion that we have in terms of developing.
Edge capability that will be realizing out at the sites themselves at our tower sites themselves and so when you're when you're seeing all this again noise about buying data centers and things outside of the United States. That's not what we're looking that's not where our focus is and if you take a look at the capital that's being spent on the business because we.
Do have a fair amount of development going on within the D C within that within core site within the data center activity.
It's largely driven just from the cash flows that the business is generating so that at the end of the $2 million to $300 million.
We're investing back into the data center business in terms of providing more capability going forward not just in our <unk> X platform, but also in in space.
Itself.
It is just being driven by the 300 plus million dollars of <unk> that the business is generating itself. So U S is our chessboard as we speak relative to our data center activity.
Okay. That's helpful color. Thank you both.
Okay.
The next question is from <unk> Levi.
<unk> from UBS. Please go ahead, great. Thank you can you provide a little bit more color on the carrier activity that youre seeing in Europe , given the macro backdrop I think some carriers are pulling back on Capex. How do you think this will drive it.
If you go out into next year and another question on <unk>. So I know, we'll get a full guidance next year, but a lot of moving parts going into 'twenty, three with U S accelerating but higher interest costs and FX can you can you provide a general view on your expectations for handsets off into next year. Thank you.
Yes, Thanks, Brady I'll give you a quick update on on Europe . Here. So we are seeing really strong growth in Europe as you as you've heard us talk about consistently throughout the balance and the activity is really split across the markets and across the area. So we're seeing good activity.
With all the carriers there I don't want to talk.
Bulk carrier.
The carrier, but I will just call out that we are seeing 101 begin to build our data. We are beginning to see leasing activity, we certainly expect that ramp up.
Towards the later part of this year and be much more meaningful contributor.
Next year. The one thing we will see we are pulling back our guide a little bit in Europe , but organic tenant billing growth that really is just a delay in terms of timing on some certain leases that we have in our pipeline, we're seeing that kind of shift out a little bit into Q later into Q4, and even some of the things later into Q4 shifting into into next year. So that's really what youre.
What youre seeing from from that perspective, and remind me the second part of your question was.
Yeah into 'twenty three.
If you have a general guidance that you expect that pressure to grow double digits, how should we think about 'twenty.
Yeah, I think I mean, I think you should think about 'twenty three is a challenging year for us I think everyone knows that interest rates are rising.
Rapidly here, probably more rapidly than most people expected as we head into the end of this year that is a noticeable material headwind for us in the <unk> line heading into <unk>. So that will be a challenge that certainly will take us off the bar are targeting <unk> growth I don't want to get into too many specifics.
But I think you guys have probably enough information to kind of work the numbers and when you look at the the rate of increase interest line for us with the with the.
The interest rates rising that'll.
That'll be that'll be a challenge when we get the other challenge for next year is the timing of equity raise will have the full new equity to $10 million here.
And are running in the numbers next year with early and half of this year. So the comp there is.
<unk>.
It is a difficult comp from that perspective, I do think when you get out to 'twenty four and beyond we are seeing really good.
Our leasing revenue and around the globe, particularly in the U S. You've heard us say we're salary.
<unk> of new business from Colocation and amendment activity.
That acceleration continues we expect to end this year very strongly coming in very close that $150 million of co location new business.
In the U S and where we're seeing that accelerate into next year on a run rate basis, which is also underpinned by our long term MLA.
We have really high visibility into next year. So we expect to see a meaningful step up in U S. Colocation and amendment revenue into next year and that puts us firmly on track for our long term, particularly to the U S organics.
Growth averaging 5%.
From 'twenty three out to 'twenty seven and that includes some impact from the churn, which is about 100 basis points, so without that you'd be at about 6%. We're firmly on track to that beginning next year and going forward that nice acceleration that strong demand we're seeing in the U S.
Got it thank you.
Thank you.
The next question is from Michael Rollins of Citi. Please go ahead.
Thanks, and good morning.
I'm just curious as you're looking out over the next 12 to 24 months can you frame just some of the friction points around.
Whether it's market consolidation that youre seeing or some of the structural issues for maybe things that customers are working through and just how to think about the magnitude and timing of those headwinds maybe relative to some of the other things that you've noted around the build.
Shoot opportunities and the organic improvement in demand.
And Michael Let me, maybe I'll I can start with that right. I mean, that's kind of an open ended question. There you have.
When you start to think about what's going on around the world I think the backdrop here is still the technology right and the backdrop is still the demand for broadband wireless.
We've seen it through several technology cycles, and that's really driving.
The ongoing capital that all of our.
Customers are looking to commit.
Over over the next several several years and so that provides I think a real stable platform.
For growth and as Rod kind of went through all the numbers, we're seeing that right and we're seeing <unk> being deployed in more and more markets.
We've seen the growth rates accelerate here in the United States, we expect that to continue into 2023, you've seen the strong growth coming from.
Many of our other markets.
Well, particularly in Europe and Africa.
Really a lot of significant activity going on in the market.
You've also seen our customers.
Aligning themselves more closely with US you know these longer term strategic master lease agreements that we put in place. The one that we've talked about with Verizon and the other one that we've talked about with Airtel. I mean, these are long term contracts with with well capitalized companies.
Companies.
There are still spot of churn that we have going on in the market.
A lot of activity in Latin America, with some consolidation, particularly in Brazil, and Mexico that that rod kind of walked through and and and so we will see a heightened level of churn in.
In Latin America over the next 12 to 18 months, we've seen some consolidation going on.
In Africa, but then again, we've been able to really largely worked through.
All of that churn and still you know.
<unk> increased the growth in each one of those those markets. So I don't see any.
Mix shifts.
You will over the next 12 to 18 months, Yeah. We are in a in a rising interest rate environment.
We're in an inflationary.
Time around the world. The good news is that we have long term contracts and those very high inflationary markets. We've got escalators that are based on CPI and inflation in those those areas.
The other element I think within our businesses, we're well diversified so while we are perhaps taking a a market that might be growing slower and in other markets.
L B.
Increasing the growth and so it's offsetting some of the shortfall.
You might see in other markets I mean, we've talked about this in the past that our carriers invest kind of like a sine wave right I mean, its heavy investment and then they it's less investment as they're tuning their network and then it's a higher investment we continue to see that we've seen that through <unk>, we will see that <unk>.
Our customers aren't going to be building the networks before they see the demand and so that's going to be a function of device penetration is going to be a sign of application development.
Talking about the two phases you will know this in terms of network deployment first getting the coverage and then we're going to see further densification and cell splitting as aircraft as their customers.
Our are utilizing the network and with higher band spectrum, we're going to see an even increase level of densification, just because of the propagation characteristics of all of the bands.
I do think that you know.
Kind of a long rambling answer for you, perhaps but but I mean, the core is the underlying technology and they desire.
For our customers and their countries themselves and their citizens.
Really be able to significantly increase their overall usage in wireless data and so as a result that provides.
I think a real kind of protection for us, particularly when we're looking at these long term agreements.
Hey, Michael This is Robert I think that hopefully that answers your question.
Yeah, and Michael I'll, just add that in terms of the churn in the near term one thing that you will see is our churn rates are actually coming down from Q3 to Q4 so globally.
In our two 6% Q3 organic tenant billings growth it was about 5554.
Percent that was cancellations, our churn that's going to step down to about 4% in Q4, which will end up driving our organic tenant billings growth for Q4 up from that mid twos up to over well over four.
Certainly, which is which is really good and that $4. Four in Q4 is what helps us drive that 3% for the full year and in the U S. Youre seeing that churn drop in the U S. So the good news here is where we're through the big bulk the initial bulk of sprint churn youre going to see organic tenant billings growth for Q4 in the U S at around 4%.
Which will be getting us back to where we really want to be a longer term and then the international markets. We do have some as Tom was saying some churn event. Some elevated churn those churn events will be temporarily temporary as certain countries go through a little consolidation, but you will see from Q3 to Q.
Q3 to Q4 churn will step up by about 100 basis points.
Going from about a little under five to up into the fives churn in the international markets and the only thing I'd call out specifically is in Latin America, you will see that's where a bulk of that temporary churn will begin to hit. So you will see a step up in our churn rates in Latin America going from about 5% in Q3 up to a little over.
8% in Q4, and that's all the normal churn that too that we've all talked about that you guys know is coming some of that will persist into next year as well, particularly in Latin America.
That's helpful color. Thank you.
You bet. Thanks, Michael.
And our next question is from the line of Ric Prentiss Raymond James. Please go ahead.
Good morning, everybody.
Eric Good morning, Hey, Hey, one follow up on a couple of questions.
Following up on Simon's question about Capex.
If we think about the U S. As part of the reason maybe you guys are so confident that the U S. Leasing goes up in Portugal, and then it goes up and accelerating liquidity through possibly to do with timing.
Horizon MLA.
When you were getting contracts from dish and that the visibility that you talked about Tom just trying to think of as some of this that it's very visible to you is really kind of more timing related.
Well, yeah, I mean, Rick absolutely as I mentioned.
Simon given kind of the MLP structure, we have in place.
Kind of irrelevant in terms of that capital spend.
From our perspective, right I mean, because we already have the kind of the the rates and the pricing kind of locked in for a long term period now having said that when I when I back up I also believe that that capital is going to be spent over time and that could be a timing issue as well.
It's all a function of customer demand and application development.
And device penetration and so when you have those.
All locked in and you're going to see our customers.
Physically spending on their networks, because they have to you're not going to want to see any decline in quality of service and so theyre going to want to meet this demand and stay healthy and stay ahead of the curve is as they traditionally have and so but from a from an A&P perspective, you're exactly right timing is not that relevant to us just because of the construct of the agreements that we have.
And place.
Right.
We're not seeing any air pocket out there that's been some of the concern in the marketplace because of high interest rates are because we are in place and maybe it turns into a recession is on the U S side with the carrier spend with you. It's no we haven't we have not.
Okay last question from me just follow up on some of David's questions.
The stock buyback what would trigger that is or what else has to happen to trigger the stock buyback.
Obviously, it will require some funding that back onto the interest rate side.
Second question with that is what is your $570 million upsizing from some people kind of expected and the Guy who is also.
Well you know I mean from from our standpoint, and then I'll, let rod step in here.
We continue to look at the opportunities to Delever as well as to look at supporting our our equity.
And given the movements candidly in the equity.
There are some opportunities there too to be able to generate some value and and so it'll be a balance between the two we talked about M&A.
And M&A kind of given the delta between the bid may ask a kind of around the world.
I think that's less of a focus candidly at this point in time and so we'll look at our NAV and we will look at it versus our share price and we'll as we always have look at the kind of the most attractive ways of being able to drive <unk> per share.
Yeah, and Rick maybe I would add to that just from a leverage standpoint, we ended the quarter here at five five times Levered post. This that's the Cortina acquisition were as high as six eight.
I'll, just remind you and everyone else we have.
We did start out higher than our target leverage range, which is three to five times, we work through plans with the rating agencies to Delever.
Painting, our investment grade credit rating that is critical to us that's very important we take leverage very seriously. That's why we've been able to de.
Delever as quickly as we have gone down from that $6 eight to $5. Five I'd also tell you that the five five is is we're comfortably lower than the Delevering plan that we've agreed with the rating agency so that puts us in a pretty good position.
The plans that we've agreed with the rating agencies did not contemplate or include the $570 million. So that's additional capacity that we have to either further delever well well ahead of the Delevering plan or we can put it to use in different way.
So that's all we'll be that's what we'll be looking at when you think about the $570 million from something that is in our guidance in terms of the the mechanics and the way it runs through our numbers, but it's important to point out that it is a benefit when it comes to our ability to Delever and then of course, when we think about what we do with that capacity or any other capital capacity that we have.
Available to us, we will always put a care buyback up against our own internally generated net asset value of the company and what we look at in terms of the share value. We're also balancing the analysis around the cost of.
Of that end and how we drive better <unk> per share accretion either paying down our revolving credit lines, our buying back shares. So theres a lot of math as you know that goes in that.
We expect to be flexible and opportunistic as we evaluate what we do with our capital and I do think that Youll you you could see US do both continue to delever at a at a furious pace as well as buyback some shares when we think that's appropriate.
Makes sense, thanks for that extra color say, while it goes.
Thanks, Rick.
And we have a question from the line of Matt Nicolai.
Which bank. Please go ahead.
Hey, guys. Thanks for squeezing me in here, just one housekeeping and one broader question on the housekeeping side, maybe just to go back to the stone peak.
$570 million raised how does that impact the <unk>.
Minority adjustment I think it's been about 50 million typically between consolidated and proportionate F. I was just wondering how that may change.
In light of the incremental funding from stone peak and then secondly, I think you've kind of answered this in terms of.
The U S, but I'm wondering more broadly as you think about tighter financial conditions stronger U S. Dollar weaker foreign currencies is that weighing at all on any international customers or regions investment plans, just given some of the lower presumable purchasing power as they head into 2023.
Yeah.
Rob do you want to cover the M&A question and I can.
Yes.
Yes, so we took in another $570 million.
From us from stone peak as a and.
An additional investment into our core side business.
The original investment of $2 5 billion gave them basically.
We are.
<unk> ownership of about 22 almost 23%.
Of the business there and then with the additional 570 adaption of pop up.
<unk>, 28% to 29% ownership.
And that is for the pieces of those investments that are actually equity from day. One you may recall some of our disclosures there are some pieces.
The investments that are preferred which will convert to equity their mandatory converts over a four year period. So they will convert to equity when that happens then their ownership will jump up from the 28 to 29 and up to about 36% the way to think about the semi impacts here when you get to Q4 hit the run rate youre going to see about 150.
The Q4 exit run rate from the European.
Minority and then you'll see about $60 million or so for the stone peak minority interest that will all run through kind of the minority interest section on these preferred notes that we have with stone peak, you'll see another $45 million that'll be interest that will run through the interest line.
But you want to keep that in mind.
So that puts us at a run rate of about a little over $200 million of M. I as we exit Q4, 200 or 210 Mil.
And Matt on the second question, you know relative to the impact of what's going on around the world.
On our customers outside of the United States, you know interestingly enough we.
Haven't seen anything of significance that would give me a sense, if theyre going to be slowing down on their build programs.
Around the World now you know who knows what that might look like going into 'twenty, three and the end to end of 'twenty four.
But you know they have the same.
Some level of energy that we've seen over the last 12 to 18 months now where we are also protected just because of the diversification of markets and diversification of customers and so as a result of that we are actually able to.
You kind of avert a particular issue in one area or another and also keep in mind is that as I mentioned in my remarks that our.
Customers have spent I've spent almost $160 billion on on spectrum.
And so they they don't they want to monetize that $160 billion in and be able to get out into the market as fast as they possibly can so you know where we are seeing you know as I said, they continued kind of robust.
Deployment of capital in the markets.
And we continue to support them and we see also a again a lot of build to suit activity in the market as well, which is also an indication of their willingness and ability to spend.
That's great. Thank you both you.
You bet Thanks, Matt.
And our final question comes from the line of Phil Cusick Jpmorgan. Please go ahead.
Hi, This is Richard for Phil just wanted to follow up in Latin America, you're expecting a little bit higher churn will that impact any new activity or can you still see new activity growth continue through there.
Despite the higher churn and then also on the services side. It remains pretty solid are you seeing anything.
Changing the trajectory of the services business or do you think youll continue to stay pretty steady.
Brad why don't you take those two.
Yes sure. Thanks, Tom Richard I think when you talk about Latin America, we are expecting higher levels of churn, but pretty consistent levels of of kind of that growth.
New bids and we're also complementing that with higher levels of escalator, which are driven by <unk>.
A local CPI in the region so.
Those two things are pretty solid, we'll see where inflation goes and how the trajectory of our escalator in that region may change over time, but there is.
Solid kind of consistent new activity.
In Latin America. Despite the fact that there is a little consolidation churn happening in some of the some of the markets there.
And then when it comes to services wherever and another great year in services, we're going to be up in the mid two hundreds and we raised our guidance at the gross margin level by about $20 million. So we are going to be in that mid 200 <unk>.
Range for services revenue that continues to come through at really nice margins in the mid $50 50, 455% at the gross margin level. So our services business has.
Performing exceptionally well and has proven to be very resilient and that is because the U S carriers continued to be very active.
I'm not going to guess in terms of where it's going to go in coming years, but to the extent that the activity levels stay high we will continue to see really solid.
Hi services level Theres, a chance that could pull back as the timing of activity from the carriers kind of ebb and flow from quarter to quarter. So we'll see what happens next but we're going to be up in the mid two hundreds this year in services. All the carries are active and we're maintaining really healthy margins in the mid fifties.
Great. Thank you.
Thanks Richard.
And that concludes our question.
Great. Thank you everyone. If you have any questions. Please feel free to reach out to the Investor Relations team.
Have a great day.
And ladies and gentlemen that concludes our conference today. Thank you for your participation and for using AT&T Conferencing service you may now disconnect.
We're sorry your conferences ending now please hang up.