Q1 2023 Crown Castle International Corp Earnings Call
Okay.
Good morning, everyone and welcome to the Crown Castle first quarter 2023 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please they know a conference specialist by pressing the star key followed by zero.
After todays presentation.
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I'd like to turn the floor over to Ben Lowe Senior Vice President of corporate Finance. Please go ahead.
Great. Thank you, Jamie and good morning, everyone. Thank.
Thank you for joining us today as we discuss our first quarter 2023 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 actual results may vary materially from those expected.
Information about potential factors, which could affect our results is available in the press release and the risk factors sections of the company's SEC filings.
Our statements are made as of today April 20th 2023, 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.
So with that let me turn the call over to Jay.
Thanks, Dan and good morning, everyone. Thanks for joining us on the call. We continue to see positive underlying demand trends. It's five G has developed across the U S.
<unk> first quarter results that were in line with our expectations and no changes to our 2023 outlook.
As we discussed in the press release, we expect our near term results to be impacted by a combination of the sprint network rationalization and a higher interest rate environment, which will result in minimal dividend growth in 2024, and 2025, despite strong projected underlying growth throughout our business.
Looking past these discrete items, we believe our strategy will allow us to deliver on our long term target of growing dividends per share at 7% to 8% per year.
Our strategy is to grow revenues on our shared infrastructure and invest in new assets that will generate additional future growth.
By executing this strategy, we aim to deliver the highest risk adjusted returns by consistently returning money to our shareholders through a growing dividend.
This strategy is underpinned by the durability of the underlying demand trends, we see in the U S.
Growth in our business has consistently been driven by our customers investing in their networks with the deployment of more spectrum and cell sites to keep pace with the rapid growth in mobile data demand.
The need for substantial investment in networks has persisted from two G through <unk>.
Slide four focuses on wireless capital spending since the early days of <unk> to support mobile data demand that has increased by a factor of 62 times since 2011.
While industry wide capital may vary year to year, particularly as new spectrum is acquired wireless capital spending throughout the deployment of <unk> was relatively consistent averaging approximately $30 billion per year.
During this time priority shifted back and forth between acquiring new spectrum and deploying that spectrum with the addition of new cell sites.
With both being essential for our customers to keep up with the increasing data demand.
With our shared infrastructure model, we have helped our customers to maximize the benefits of these investments by lowering the cost of deployment.
This value proposition has allowed us to generate significant growth in our towers business throughout the <unk> rollout.
And we added to that growth with investment in small cells, which began to play a critical role in helping our customers keep up with the increasing demand in the later stages of four G.
Each new generation of wireless technology has provided expanded capacity for connectivity and over time. It also created a platform for innovation that expanded how we use and rely on our mobile devices driving ever increasing demand for data and connectivity.
As a result, we expect our customers network and investment in the <unk> era to exceed what they spent deploying <unk>.
Since we are still in the early innings of <unk>. We believe these positive underlying demand trends with some port our ability to sustain at least 5% organic tower revenue growth and continued acceleration in our small cell business.
In the first two years of five G deployment at scale, we led the industry with organic tower growth of greater than 6%.
Additionally, we believe our current small cell backlog provides line of sight into doubling our on air nodes over the next several years, which we expect will drive double digit small cell revenue growth beginning in 2024.
Looking at how our overall strategy is performing since we established our long term dividend per share growth target of 7% to 8% per year. In 2017, we've delivered 9% compounded annualized dividends per share growth, returning $12 billion or 20% of our current market capitalization.
To our shareholders over that period, and we have been able to deliver these results while limiting our risk by focusing on the U S, which we continue to believe is the best market in the world for wireless infrastructure ownership.
Over the long term the durability and scale of wireless data growth in the U S combined with our unmatched opportunity to benefit from the likely decade long five G development gives us confidence in our ability to deliver on our long term target of growing dividends per share of 7% to 8% per year.
We believe this growth paired with a dividend that currently yields about 5% provides the potential for shareholders to compound double digit total returns over a long period of time and with that I'll turn the call over to Dan.
Thanks, Jay and good morning, everyone. The.
The continued development of <unk> has extended the positive operating trends in our business into this year and positions us to deliver another year of solid growth.
The results for the first quarter were in line with our expectations and our full year 2023 outlook is unchanged highlighted by an expectation for 5% organic tower revenue growth and accelerating small cell activity with the addition of 10000 nodes during the year.
Turning to our first quarter financial results on page five we generated nearly six 5% organic growth in site rental buildings or 3% when adjusted for the impact of the spread cancellations.
The organic growth in site rental billings contributed to 3% growth in site rental revenues, 1% growth in adjusted EBITDA and 2% growth in <unk>.
As we discussed last quarter, we expect the sprint cancellations result in some movements in our financial results that are not typical for our business.
Our expectation for the full year impact from sprint cancellations remains unchanged with non renewals of approximately $30 million and accelerated payments of $160 million to $170 million.
During the first quarter, we received $48 million and accelerated payments related to sprint cancellations within our fiber solutions business offset by $2 million of non renewals.
We expect the majority of the remaining $110 million to $120 million and accelerated payments to occur in the second quarter and as a result, we continue to expect the second quarter to represent the high watermark for adjusted EBITDA and <unk> in 2023.
Turning to page six our full year 2023 outlook remains unchanged and includes site rental revenue growth of 4% adjusted EBITDA growth of 3% and <unk> growth of 4%.
When adjusting for the full year impact of the sprint cancellations. We continue to expect organic site rental billings growth of approximately 4%, which consists of 5% growth in towers, 8% growth in small cells and flat site rental billings and fiber solutions.
Turning to our financing activities over the last several years, we have purposely managed our balance sheet consistent with our aim to deliver the best risk adjusted returns to shareholders.
As a result, we believe our strong investment grade balance sheet is well positioned to support our future financing needs with leverage in line with our target of approximately five times net debt to adjusted EBITDA.
$5 billion of available liquidity under our revolving credit facility.
85% fixed rate debt.
Our weighted average maturity of eight years and less than 10% of total debt maturing maturing through 2024.
Our discretionary Capex outlook for full year 2023 also remains unchanged with gross Capex of one four to $1 5 billion.
Approximately $1 billion net of expected prepaid rent.
So to wrap up we remain excited by the opportunities we see to lease our existing tower and fiber assets, while also deploying capital to expand our portfolio with additional assets that we believe will extend our growth runway and position us to deliver on our long term dividends per share growth target of 7% to 8%.
And with that Jamie I'd like to open the call to questions.
Ladies and gentlemen at this time well begin the question and answer session to ask a question you May Press Star and then one on your Touchtone telephone if.
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Our first question today comes from Simon Flannery from Morgan Stanley . Please go ahead with your question.
Great. Thank you very much and good morning.
I could start with leasing.
You've talked about reiterating guidance that implies a nice acceleration in leasing over the course of the year or perhaps you could just update us on how you expect that to track over the next several quarters and what gives you confidence at this point that you will hit those guidance numbers and then secondly, pulling back a bit about you talked about small cells doubling over the next few years, you'll see a lot of different <unk>.
<unk> out there about the addressable market. The total demand for small cells 510 years out I know you've talked a lot about that in the past, perhaps you could just update us what you think the time is for you and others over time. Thanks.
Good morning Simon.
On the first question.
Feel good about where we are in the year from a leasing standpoint, the first quarter as we mentioned as Dan and I mentioned in our comments came in in line with what we expected for the first first quarter. Obviously, we have the great benefit in the vast majority of our business for both towers and small cell small cell of a long visibility cycle.
And so have a pretty good view as to when we'll see that revenue growth over the balance of the year. We think this year will ultimately be a year that's level loaded for the most part from first half to second half, which is a little different than kind of our historical experience. If we go back over the last 20 <unk>.
Ours are so in most years, we would see somewhere between 35% and 40% of the total year's activity in the first half of the year and then the balance of it in the second half and we think this year's a little bit more level loaded between first half and second half of the year. So.
Good start to the year pleased with where we're at and visibility as suggested by our numbers that were unchanged for revenue growth from from prior guidance.
Coming in as expected and the pipeline looks like it's shaping up as we would've expected. When we originally gave guidance last stock last October .
On your second question around small cells.
The big driver here as we saw in.
I mentioned this in my comments with <unk>.
Certainly you have seen a significant amount of site densification that frankly towers, just can't can't serve that need for Densification of the network. We saw that at the end of <unk> and both I think in terms of the number of small cells that we've seen thus far in <unk> commitments from the from the carrier.
<unk>.
As well as the conversations that we're having about what is to come in the future suggests that that opportunity is significantly more than what we saw during the <unk> era. So you know I don't know whether it's a.
And we're going to see a double or are we going to see a quadruple from here I think time will tell but certainly the trajectory of that business would suggest we're going to see a growing total addressable market.
And then the portion of that that will be interesting to us will will be a combination of those opportunities that fall on the assets that we already own and improve the yield on those assets.
The co location, which is we've seen even thus far in the early.
Early commitments that we've seen out of our customers and <unk>.
And then the portion of further expansion beyond there will come down to whether or not we think it meets the rigorous test that we put through each of our capital expenditures as to whether or not the returns are such that they are appropriate and will drive long term.
Growth in our dividend and and drive a good good outcome for equity equity holders based on the returns of those and we'll just have to see how it plays out.
Great and so you are still focused on that core of what is it 20 key markets.
Yes, the vast majority of the activity, thus far as it related to the where we own our fiber is in the top 30 markets. We've seen some activity outside of that and certainly believe that the carriers will build and need to build small cells beyond the top 30 markets in the U S. Probably all the way out to the top one.
Wondered and beyond and our willingness to play there will again come down to what are the what do we believe are the return opportunities there and if we think its highest and best use then we'll we'll continue to follow the carriers there.
But we'll have to we'll have to wait and see at that opportunities develop.
Great. Thank you.
Our next question comes from Brett Feldman from Goldman Sachs. Please go ahead with your question.
Thanks for taking the question I was hoping we could talk a little bit about what's going on in the market for fiber solutions and you know a lot of investors think of this as being one of your more economically sensitive business lines. So I was hoping you could maybe talk a bit about what the market environment.
And the demand funnel looks like and then just if we look at the leasing activity, which I know is a year over year metric.
At $19 million in the quarter, that's obviously pretty far below the run rate you would have to be at for the remainder of the year to get into your guidance range is that merely a year over year comp dynamic that gets easier or do you have visibility into a pickup in leasing as you move into the second quarter in the back half. Thank you.
You bet good morning, Brett.
On your first question.
The vast majority of our business comes from government education and medical.
That's the big driver of our solutions business as well as large enterprise, we have not historically seen that business be as sensitive to economic movement.
Small and medium businesses tend to have much more volatility and sensitivity to economic movements. Those are not our customer base that we serve in our business.
Very focused on the types of customers the activity that we've seen thus far in the calendar year as well as when we look at the pipeline for the balance of the year. It looks in line with the expectations that we gave last last October .
First quarter comp is difficult and part answer to your second question, but also following on from the first question.
For comparison in the first quarter of 2022 had the benefit of about $10 million of out of run rate activity in it. So when you compare that to the current quarter you need to adjust for that to get kind of an apples to apples comparison.
We think based on the pipeline that both we expect to build as well as where we sit now that by the end of 2023 as we exit the year, we'll be back in line with kind of our expectation of being able to grow that business at about 3% at the at the revenue line.
And all the growth in data not just wireless data growth and data, which suggests kind of our core markets and core customer segments. We will continue to need additional services and that our fiber is well placed to be able to capture that opportunity.
Thank you.
Our next question comes from Michael Rollins from Citi. Please go ahead with your question.
Thanks, and good morning.
Curious just going back to the <unk>.
Leasing activity can you give us an update.
In terms of what Youre seeing from some of the newer tenants like dish on your site and how that relationship is progressing.
Good morning, Mike.
We don't we don't like to speak to individual customers in terms of the activity that we're seeing.
I think as we've said many times about dish, we have seen them behave in a very consistent way with desiring to build a nationwide network. Our teams are doing everything that we can to help them get sites on air and get them Theyre quickly additions made a very significant commitment to us.
In terms of the number of sites necessary for their network and a financial commitment around that.
And so we're committed to doing everything we can to help them get those those sites on air broadly beyond the.
The carriers that are deploying nationwide networks, we're continuing to see.
The space that we refer to as verticals, we're seeing that vertical space continues to develop and there are a number of companies that are looking at wireless wireless plays and they need access to our infrastructure in order to deploy either licensed or unlicensed spectrum.
Those tend to be more market by market decisions and and we've got a team focused on capturing as much of that opportunity.
There is and so good about the longer term opportunities, it's not it's not so much meaningful in our short term results, but we think over the next decade as <unk> is deployed that it's another way that spectrum will be used to meet the growing growing data minutes that are happening from a wireless standpoint, and we will see a number of opportunities.
And our business to capture some of that some of that growth both on the tower side as well as small cells.
And when you look at the guidance ranges, particularly on tower leasing activity for 2023 can you remind us.
What are the things that can go incrementally right to put you at the higher end of the range versus some of the factors that could.
Appreciate your the lower end of the range.
When it comes to towers.
Have pretty long visibility in the majority of our revenue growth is contracted as we look at 2023, so but by this point of the year, we have pretty good view as to where we're going to come out from a from a tower standpoint.
And things that we would see positively or negatively.
Mike might affect a little bit of our run rate as we go into 2024, but are unlikely to have a material impact.
In calendar year 2023, so.
We'd have to update you as we get into end of the year.
The biggest drivers. This is always the case in the business the biggest drivers over the long term are the investment of the.
The carriers of improving their network.
And in cycles, where they're upgrading.
They are now upgrading to <unk>. The biggest driver is the number of sites that they go out and upgrade from in this case <unk>.
Shows up in the form of amendments on our existing site and then as the <unk>.
The adoption cycle happens and devices Gibson get into the hands of consumers that enabled <unk>, we would expect densification to be required we're still in the early stages as I mentioned in my comments of the deployment of <unk>, which means the majority of the activity that we're seeing would still be amendments to existing <unk>.
<unk> and upgrading those sites to <unk> and and then we will get into the next phase in the coming years as we start to see more site Densification, which will be a combination we believe for both towers and small cells, the big driver, though as minutes of use and.
That trend line appears to be really healthy and.
The carriers have acquired a significant amount of spectrum over the last several years for <unk> and our business is about putting that spectrum to work and getting it getting it deployed the best indication of what our future growth will be.
Thanks.
Our next question comes from Brendan Lynch from Barclays. Please go ahead with your question.
Great. Good morning, Thanks for taking the question maybe two on the dividend.
You suggested it's going to be below your 7% to 8% target for the next couple of years I'm wondering if you're at the lower end of your Capex guidance would you be more inclined to raise the dividend to hit your target range or potentially use the available cash for buybacks.
Good morning, Brendan Thanks for the question.
Think about the business.
Step back Big picture and talk about how we think about capital allocation.
Our goal is to distribute virtually all of the cash flow that we produced in the business to shareholders.
We think that that's the best way to operate the business because we think it drives the most value for shareholders over the long period of time and it creates a lot of discipline internally about how we think about capital allocation. It makes the capital scarce and in order to make investments, we need to come to the debt market or to the equity market and our.
Basically the debt market to make the case for why these investments should be should be made and that scarcity of resources I think create good discipline around capital capital allocation. So.
We start with the with the view that we're going to distribute all of the cash flow. So the amount of capital that we spend whether it goes a little up or a little down really does not impact how we think about the dividend. So my comments around.
The minimal dividend growth and below our target for 2000, 22024, and 2025 relate to the two discrete items that we highlighted in the press release and Dan and I mentioned in our comments around the rationalization that's ongoing in the sprint network and the <unk>.
Increase of the interest rate environment.
Between those two items over the next over 2024 and 2025 as we've given you guidance that that that would suggest the number that's in the neighborhood of $350 million.
Headwind that we're that we're facing over those over those two years. So that's the reason why we're giving you some view as to the dividend, we're giving you both the numbers in our view and then where the cash flow comes up we'll will ultimately determine how we how we set the dividend.
Okay, great. Thank you.
Just one other capital related question.
$750 million maturity in July you've got a good deal of.
The balance sheet flexibility at this point.
What are you thinking about in terms of delevering or refinancing or.
Potentially.
Just using the capacity of the revolver.
Yes, Brandon.
I'm going to take the stages to take a step back just talk about how we think about the revolver and our balance sheet in general.
We have a $7 billion revolver and the reason for that is when we have sized the revolver, we want to look out for the next.
18 months or so and ensure that we have liquidity that is sufficient to pay for any upcoming debt maturities plus any capital expenditures, we would we would need to run the business.
The thinking behind that is that there are times when the debt capital markets shut down and we don't want to be caught in a position, where we will be have to access a really bad market.
And in order to pay off our our maturities or spend our capital.
So with $5 billion remaining on that revolver.
<unk> on what the market is of how we're going to refinance the $750 million maturity will either utilized the revolver for what it was in place for which is to take advantage of that liquidity.
In this case, what would happen would be a bad debt market would keep us out of the debt markets or if the debt markets are really good we might access them in order to.
Refinance the maturity or pay down or reduce the borrowings on our revolver. So that's a decision we make all the time, depending on what the debt market looks like and what we think is coming in terms of our maturities and capital expenditures, but like I said, we feel really good about this because we've spent the last several years trying to manage our balance sheet. So that we would.
Not be caught accessing a.
Dislocated debt market or.
<unk>.
And in a position, where we have too much debt that is necessary to be refinanced in any given year, which is why the total the weighted average maturity life has been so important to us over the last several years. We're at eight years. The reason that we've been focused on that number is so that we don't get caught with any one stack of maturities in one year that would cause us some difficulty in refinance.
So when you put it all together.
It depends on the debt markets, but we feel really good about our opportunities and the flexibility we've put into the business.
Great. Thanks for the color.
Our next question comes from Greg Williams from TD Cowen. Please go ahead with your question.
Great. Thanks for taking my questions just back on the tower leasing guide you are messaging confidence on hitting the $1 35 to 145 range.
You mentioned that a lot of it is baked in with the MLA is can you give us a finer point on how much of that some of your peers have noted that.
80% to 90% of their guide as MLA as baked in I was wondering if you are at similar levels.
I was asking about the mix of your new leasing and whats.
Whats Colo versus amendment leasing and I'm, just trying to figure out when we're going to move on from coverage mode. Two densification mode and subsequently more colo spending thanks.
Good morning, Greg.
On your first question.
At this point in the year laying aside customer commitments that we've received at this point in the year. The time to the time required from application and approved application and known lease Amendment. If you will as you're asking the question to when it's actually on air.
That generally takes kind of six to nine months. So by the time, we're at at the end of end of April of any given year.
We have really good visibility as to what we're going to put on air in that calendar year, just from a timeline standpoint so.
As we mentioned in our commentary the majority of our our revenue growth is contracted we were in that position in October of last year. Today, we not only have the majority of that contracted but we also have visibility to where where those applications are on the specific sites that theyre going on.
And we're all diligently working in order to get them on on air So the impact to our numbers at this point from from movements, one way or the other either to the positive or to the negative is relatively limited just because of our longer term or longer term.
Visibility.
I don't know if that.
Answers kind of both of the the way Youre thinking about your question there but.
The visibility that we have and food.
We feel really good about where we are for the balance of this year both in terms of.
The.
The applications, we've received to date as well as.
As well as the contracted revenues.
On the on the second part of your question more specifically to our amendments and new leases.
I mentioned this earlier in one of my answers but.
We're still at a point in time in the deployment cycle, where the majority the vast majority of the activity is.
<unk> two existing leases.
That has been true and as is true in typical technology upgrade cycles of the past, we're finding that to be true in <unk>. So the vast majority of the activity that we've seen thus far and we would expect really frankly in this calendar year, it's going to be more amendment driven.
And then as they touched once it gets to the point, where they touch the vast majority of their existing sites with <unk> upgrades to <unk> then we'll start to see the shift towards first time installs on new sites in order to densify the network.
And that work.
Has begun you can see some of that in small cells, which is probably the best place to see that discrete activity.
Those for the most part are infill sites, where they're increasing the density of the network in order to improve.
Improve the <unk> network that is delivering for consumers.
The only thing I would add to that Greg is that the one difference there is that dish is mostly or almost all co locations that didn't have anything else. So.
Jay is talking about probably excludes dishes as an outlier, but probably went without saying, but I said it anyway.
Got it thanks for the color.
Our next question comes from Matt <unk> from Deutsche Bank. Please go ahead with your question.
Hey, guys. Thank you for taking the questions just two if I could first on small cells any incremental color you can share on the backlog.
<unk> of the nodes in the backlog.
That are either Colo relative to maybe newer sort of greenfield builds and then on leverage there was some allusions to this before but you've obviously got benefits this year to EBITDA from the sprint termination payments and some of the accelerated amortization of prepaid rent in 2025, you obviously have the loss of $200 million of.
Sprint tower rents that turns off so I'm just wondering in the context of those headwinds how do you think about leverage the next two years.
<unk> to that five turn sort of target we've talked about as a more maybe long term.
Level. Thanks.
I'll, let Dan take the second question on the first question around the backlog of nodes.
We have two significant.
Customer agreements that we've previously announced 35000 nodes from T mobile and 15000 nodes from Verizon.
In the case of the T. Mobile 35000 nodes, we were specific that the that the majority of those vast majority of those we're going to be co located on existing fiber and.
So those would all of them almost all of those would be co locations.
And the Verizon agreement, it's a combination of co locations and.
And first time installs.
The activity that we're undertaking in the business both in calendar year 2024.
And over the frankly, the next couple of years as we finish up the backlog is going to be a pretty healthy mix of co location and driving the yields on the existing assets that we have and at the same time, we're talking to customers about future projects that may expand the footprint that we have and we will put those through the rigorous process of analysis.
Making sure that we think there is there's good returns over time and that it's a good allocation of capital that will drive those returns and.
But in the in the short to medium term here as we build up the backlog, it's going to be more weighted towards co locations and then first time.
Yes.
On the leverage point.
I think everything you said is true and the way, we think about our leverage as we want to maintain leverage that's close to our target of five times net debt to EBITDA, which we were this quarter.
But that number does fluctuate as we've seen over the course of the last several years that number can be a little bit below a little bit above and we believe that our long term growth of the business allows us to grow into that additional leverage that we will take on to pay for the Capex as Jay was mentioning earlier and keep us at around that five times debt to EBITDA, but if there is any.
One year that were a little bit above I think were okay. We have some flexibility there as long as we have a plan over time to to get back to close to our leverage target. That's how we've managed it for the past five years and I believe that will be very similar to how we will manage over the next five years.
That's excellent. Thank you both.
Our next question comes from Ric Prentiss from Raymond James. Please go ahead with your question.
Thanks, Good morning, everybody.
Good morning, Rick.
Couple of questions I think in the past update us maybe on what percent of your sites do you think the carriers have touched.
As far as getting <unk> mid band deployments, so kind of an aggregate number as you kind of blend together the different schedules that measure carrier customers.
Yes, we think we're a little north of 50% of development across all of the carriers.
Okay, and obviously it varies by carrier.
Exactly.
As we think about obviously you mentioned you've got a significant financial commitment I think it was for 20000 sites whats the timeframe with that 20000 sites was was contemplated to be included on our financial commitments.
It was a 15 year agreement that we signed with them and.
Rick we.
We gave that number we talked about the number of sites and a 15 year commitment that they were making to us.
We don't get more specific than that because we were careful about guarding their deployment plans. So it's a 15 year commitment.
That theyre, making to us.
Maybe the other point that's important is obviously the timing of the cash flows have impacts as we think about.
The guidance that we give around organic tower revenue growth that would be a component of that.
So our view of our ability to both deliver the 2023 numbers that are in our outlook.
As long as well as the longer term commentary that both Dan and I have made around being able to be able to grow at 5%.
At the tower line.
A part of that commitment that they've made plays into our view of that over the longer term.
Okay.
Thank you.
Sorry, Rick I was just going to add I think you understand that the contract as Jay was alluding to it gives us a minimum contractual payment that grows over time as well regardless of how many sites. There on so they have the opportunity to go on up to 20000 of our size, but not an obligation to do so and our view has been that that provides us a tremendous amount of value because.
We want them on as many sites as possible.
For us because we believe that this is a long term network investment and the more sites were on more sites. We can grow on going forward, but also it provides us an opportunity to be very early on in the planning of that network and understanding what theyre going to do and I think that Thats just a good relationship for us to have so it's not just the 20000.
This is important it's the minimum contractual payment that goes along with those up to 20000 sites that can go.
Makes sense.
Your supplement it looks like T mobile, maybe it's 38% of our revenue T and Verizon here in the high <unk>.
Almost 20% since <unk> called out is it safe to assume that this is not yet a 10% type customers.
Yeah.
Not necessarily.
Well that chart is there to give you a general view, but we have a lot of customers that aren't called out specifically and this is just wanted to do a lot of customers that aren't called out specifically.
Okay, well take some questions and then I'll wrap it up obviously non cash amortization of prepaid rent.
Flat from 'twenty, two 'twenty three feels like a more attributable to towers is probably coming down the mountain sugar levels of small cells is going up.
Can you just kind of confirm that and then as we think about the 24 supplement.
Talking about amortization noncash amortization of prepaid won't could drop by more than 200 million. If theres no more prepaid rent put in how has that dropped kind of attributable to how much drops in towers versus small cells.
Yes.
So.
The way you characterize where we are in prepaid rent and this year. It is true the tower number will come down about $50 million and it will be offset primarily by small cells, which is generally because of the cancellation payments accelerates some of that prepaid rent to get us back to about flat on prepaid rent amortization going forward as we've talked about a lot of those.
Tables are not projections there just as we sit today is statically what would happen and we believe we will continue to add capex and.
And generate additional prepaid rent amortization as we get reimbursement for our customers for that Capex over the course of the year.
But as you mentioned like in 2023, the drop off will be more likely to happen in towers with an acceleration in small cells to offset that drop off in towers.
Okay very good.
These guys say well.
You too.
Our next question comes from Nick del Deo from SBB Moffett Nathan. Please go ahead with your question.
Hey, good morning, guys. Thanks for taking my questions.
First one on fiber solutions I was wondering if you could talk about any changes you may be seen in the in the competitive environment for fiber solutions.
I think some of your large competitors are reorganizing internally and maybe taking some more aggressive steps to try to grow the cable guys are pushing in that direction, a little bit so any observations there and the degree to which you're observing and responding to change or or or not seen change even would be helpful.
Sure Good morning, Nick.
I mentioned this in the earlier question, but our fiber solutions business is.
Poke solution that we offer that has a very unique customer set that we pursue it's largely focused around government education and medical.
<unk>.
And we.
We don't pursue medium and small medium and small businesses.
A lot of the changes that we've seen whether it's economically driven or as you mentioned.
Driven by broader macro environment.
Matters.
More subject to competition.
There have been obviously in that in that space. The number of changes, we haven't really seen a big change in the environment.
For the core customers that we pursue.
<unk>.
So we think our fiber brings a really compelling solution in terms of our ability.
To identify where their data travels.
And to provide a bespoke solution for them.
<unk>.
And.
Have seen underlying outside of kind of the onetime items that we mentioned in the comments I've seen that business grow at a pretty steady pace and think we will by the end of this year returned back to kind of our 3% target.
Growth in the business.
Okay. Okay.
Sure.
I think our team has done a really good job navigating some really difficult supply chain challenges over the last several years.
And it has not impacted our results, which is a real credit to the team as to how well they've navigated through that and worked with our customers.
I would say is as you mentioned the more challenging thing for us has been navigating through municipalities.
Both from a utility standpoint, as well as a permitting standpoint.
The moat and protection around the business is significant and that makes the initial deployment of these these technologies in this infrastructure.
Very long cycle and very difficult to do.
<unk>.
I'll mention it again, but really proud of the team in terms of how they've learned to work at the local level.
To.
Preserve the aesthetic that's desired in the community, which is always a really key point of the deployment of this technology.
And then work with what's needed for our customers and I think that's the that's the sweet spot for us and how we how we make money or our customers view us as an opportunity to lower their cost of deployment by by delivering a shared asset and then us being able to deliver that that asset that shared solution on a timely.
Line that is faster than <unk>.
Any other solution would provide and in order to do that we've got to be good both on the supply chain side, but we've also got to be good on the permitting side and getting getting both power and the ability to deploy at those sites in order to be able to deploy the network for our customers.
Okay got it thank you Jay.
Our next question comes from Jonathan <unk> from Royal Bank of Canada. Please go ahead with your question.
Thanks, very much couple of questions on small cell ramps that you're talking about.
What are what are the implications for discretionary capex going forward because youre up this year.
Year on year basis, and then given the potential.
Opportunities that you see going forward, maybe just review with us the directionality for that trend.
<unk>.
Capex discretionary.
Hey, John .
I think you're alluding to as the number of nodes increases capex generally increases as well what you can see this year, though following on what Jay was talking about earlier around co location is that even though we're doubling the number of nodes, we're putting on air we're only increasing our capex by a little over 10% on a net basis.
In our fiber business. So you can see that the impact of co location can have a pretty substantial impact on the on the magnitude of the change of Capex on a year over year basis compared to the magnitude of the change of the nodes. So we don't we can't give specific guidance on what we believe will happen in 'twenty four and beyond on small cell because we don't understand everything that is.
Go into those numbers, yet, but generally speaking as we add more nodes will add more capex. So the trajectory would be up a bit.
And the timeframe to get a note on air I think you've talked about 24 to 36 months and any any changes in.
And that in that.
Sort of co location cycle time, and no deployment, Tom what we've shared in the past.
John we haven't seen any movement in that most of the vast majority of the nodes are still following falling into that 24 to 36 month cycle.
And then two more quick ones.
The MLA question that you alluded to.
If we're entering into an environment, where a lot of the operators for various reasons it kind of.
Hits or are about to hit that a medium term milestones for mid band spectrum deployments and overlays.
If we do enter a period of kind of takeaway growth.
What what commentary can you provide.
Mike.
Would you say, what the revenue growth Ratably go down or to the MLA.
Perhaps providing downside protection.
That would be interesting and then the last one I'll kind of throw it on slide 3% growth number.
What products are you seeing demand for that underlie that growth assumption is it number of connections around dark fiber.
Wavelengths, so you've talked about bandwidth as a driver.
Is it more maybe more dark and infrastructure type products that are driving that growth or is it more.
The network traditional network products that are driving growth assumptions provided.
Sure.
On your first question around longer term growth for towers.
The MLA, obviously give us some portion of that future growth as contracted until we have visibility towards that and we also have beyond the contracted amount we have the opportunity to make that even more beyond the contracted growth as.
As the carriers deploy network.
And our long term view is that we can grow tower revenues at.
At around 5% organically over the long period of time, which drives our assumption of being able to return to 7% to 8% dividend.
Dividend growth.
I think.
It's probably one of those times as people start to.
Think about where we're at in the cycle as we're past the first couple of years with deployment of <unk>.
Our industry has faced during the deployment years of <unk> and then two five <unk> and <unk> and <unk> and now we're at five <unk>, where people wonder whether the the early spending.
Of a technology cycle is over.
After the carriers have acquired some spectrum and started to deploy sites.
And I think past cycles have.
Indications and a teacher of the future would indicate that more investment will come over a long period of time.
And it will take as I mentioned in my comments, it will probably take a full decade.
We deployed five G.
And as we look at the growth in minutes of use is the best indicator of that.
Deepness of that curve is not flattening out in terms of consumer behavior in fact, the curve steepening.
As the devices are used more and there is only two ways to deliver that.
To deliver that.
Increased need for capacity in the wireless network, it's either through additional.
It's either through additional spectrum in the hands of the carrier.
Or or sites and our experience has taught us that both are necessary.
<unk> will need will have some some spectrum that they have not deployed to date.
As they deploy that spectrum will get the benefit in our revenue growth numbers.
And then additional density will be required and our infrastructure will benefit from that.
As we look at each of those cycles from <unk> to three <unk> to four and $4 <unk> and each of those cycles as I mentioned in my comments. It's resulted in more capex over the era over the period of time that the network was deployed.
It certainly is stacking up that way as we look at the early part of <unk>. We think ultimately the capital spend on <unk> is likely to be more than what we saw in <unk> and.
So.
One of the great things about our business as we think about it and are able to think about it over a long term long term commitments from our customers and the deployment cycles are long so.
Our goal is to ensure that we're providing the infrastructure at an appropriate cost to the customers and we're focused on deploying it as quickly as we can for them and and then the tailwind of demand from the consumer ultimately drives the need for our infrastructure.
We're as excited today about what <unk> is going to mean for this business over the next decade as we've done in past technology cycles until really comfortable about where our growth is.
On your second question around the products for fiber.
I would say very similar to what we have in the mix today not much changed combination of.
New logos.
Our sales team is doing a good job.
Of reaching out to and capturing that sit on the fiber plant that we already have in the ground and leveraging that fiber to drive yields.
And the products that we're offering there the same products that we've been offering.
Combination of wavelengths and dark fiber.
And some of that is driven in your question. Some of it is driven by increased growth in the need.
Some of it is driven by the movement of data towards the cloud certainly is the driver of that.
That business.
And probably those two factors just the overall amount of data being created as well as movement of data to the cloud are probably the two fundamental drivers of the growth that we're seeing in that business and then as we're expanding to new logos across across the fiber that we already own.
Thank you very much.
And our next question comes from Brandon Folkes from Keybanc capital markets. Please go ahead with your question.
Great. Thank you for taking the questions two if I could Jay I think you had mentioned bookings not really having a big impact on growth. This year I think that's pretty understandable I think what I'd like to hear if you guys could characterize what bookings are looking like in terms of new lease applications and how that's been trending on a.
A year over year basis.
Year to date, I'd be trending lower or higher compared to the changing core leasing that we've seen.
And then Dan a question on the guidance.
If we look at the guide for towers, I think it was $140 million in core leasing and for fiber.
125, just given where you guys started this year and I think Jay commented that it was more of a level loaded year for lease how do you get to where you expect to be by the end of the year given the run rate at the beginning of the year was so much lower than what would be needed to hit the guide. Thanks.
Yes, Brandon Thanks for the questions on the on your first question and I'll, let Dan take the second one.
We've seen the activity from the carriers to be consistent with with our expectation that we'll be able to grow revenue on the tower side at 5% per annum. So the bookings that we've seen.
It's relevant to that and I would even expand the bookings.
Include the conversations that are ongoing that will lead to future bookings.
Those conversations those activities that view of their of their network and the need would be consistent with our view that we'll be able to grow tower revenues over the long term at about 5%.
Yes, I'm, taking the second question on the on the new leasing as Jay mentioned before that the level loaded comment that we made is that this year will not have in the tower business.
<unk> first half second half dish.
Difference.
As much as our previous year's half it doesn't mean that every quarter is going to be exactly the same our business does operate with a little bit of variability and I think we saw some of that in the first quarter, but it doesn't give us any reason to believe that our full year guidance won't come true. So everything that we've talked about we still have a lot of confidence in our ability to deliver on the tower business.
Yeah.
On the fiber side as Jay mentioned there is there is one thing that just a comparison period of the first quarter of 'twenty two to the first quarter 'twenty three is that the first quarter 'twenty two had $10 million of out of period bookings in it. So if you if you.
Normalized for that the bookings growth, we look a lot more in line with our longer with our full year guidance.
But we also said through the year that we knew that the back half of 'twenty two had a little less activity, which is driving the flat.
Fiber solutions growth in 2023, and that that activity would pick up through the year, which is why when we exit the year. We believe we'll be back to the 3% revenue growth. So we do expect some increase in activity in the fiber business to be able to reach our $125 million of new leasing activity forecast or.
2023.
Understood. Thank you.
Okay.
Okay.
Our next question comes from David Barden from Bank of America. Please go ahead with your question.
Hey, guys. Thanks, so much.
I guess two questions just first a little question Dan on fiber.
<unk> fiber services expenses, which jumped up about $10 million, even as the revenue kind of new organic revenue came down 10 million could you kind of give us a sense as to whether.
That's a jumping off point for the rest of the year or there were some other moving parts in that and then Jay just a second question I wanted I wanted to kind of just pushed back a little bit on the <unk>.
Minutes of use theory, which is that consumption is a driver of of capacity.
<unk> and <unk>.
They are correlated but consumption grows because people are using their phones at night in the morning and <unk>.
Capacity demand is really a function of that one second in the day and the one sector and the one cell that carriers need to anticipate will expand in.
In applications that consume data the biggest ones video maps those sorts of things they work at.
Lowering the required capacity because it.
It expands the addressable market globally to networks that don't have the kinds of capacity that the U S has so.
Absence.
Incremental applications development.
Passenger requirements actually shrink through time, so so what how do you kind of address that bear market concern that there.
There are no new applications and and the only new application really that people talk about is maybe private networks for for enterprise and maybe that is the big opportunity for the tower companies, but I was wondering if you could kind of like elaborate a little bit more on that because we are having that conversation a lot. These days. Thank you.
Sure.
Dan you want to take the first question and then ill.
No it really quick.
There is some seasonality in the business Dave.
When we pay some some specific things so the $10 million increase is not something that you could annualize for the year, we believe that the growth in expenses will be similar to the growth in the revenues.
Thanks, Dave on your second question I think you do draw on an important point and certainly my comments are not intended to.
<unk> set an expectation that our topline revenue growth would track at the growth rate of minutes of use.
Minutes of use are growing north of 30% per year.
I think the point that I'm trying to make is directionally that suggests.
Pointing out that the carriers have done a really good job over time and device manufacturers have done a good job as well as application developers have done a good job of trying to figure out a way to use that spectrum as efficiently as possible.
And some portion of the growth in minutes of use has been solved through spectral efficiency.
Whether thats applications as you mentioned or improvements in the technology, which has certainly happened and that is significant if you go back and look at where we were even in a <unk> world. The spectral efficiency today and <unk> has many many times more efficient than what it was in <unk>, but that <unk>.
Does not negate the need for continued growth in the in the network infrastructure and the density.
Of that network.
I think that would point to two things.
As the specific driver to go a layer deeper than just the tailwind of growth in minutes of use.
The first is where is where are those minutes of use consumed.
And as we look at network deployment in the places, where we have I think a pretty unique view from a small cell standpoint.
Our small cells are going in places, where there's already tower infrastructure.
And significant tower infrastructure, that's providing overall coverage in a market.
But the growth in minutes inside of an area that today is covered by a tower site the growth in minutes of use drives a need for additional infrastructure inside of the coverage range of a particular tower.
And.
In order to maintain the spectral efficiency of the tower the carriers have to offload some of those minutes.
The small cells and and that improves the overall network experience for the consumer.
I think all of US have had the experience where we look down at our phone we have four or five bars, and we still get the spinning wheel of death.
Of not being able to connect and ultimately small cells are solving that that challenge and the growth in minutes of use.
It drives the need for that so that would be one area that I would point to the second thing I would point to is the innovation that the platform creates and I think this is incredibly important to so ultimately where we go I think the question that you asked around what is the killer application, what it's going to be necessary with the with this technology trend.
These are the same questions that we asked and <unk>.
We used to just talk on these devices and.
There was seemingly no need for two and a half G to give us access to internet searching capabilities.
And we've found ways to use the devices in greater ways. I believe the same thing will be true in <unk> that the innovation in the platform that <unk> creates will spur additional innovations and additional uses and there won't be any one killer application that drives the need.
But it will be a <unk>.
The 2% of applications and uses for the devices that will that will drive the need and spur future growth beyond even what we're seeing today. So.
The combination of those two things gives us a lot of confidence that we will benefit from the growing minutes of use and the carriers also will continue to do what is good for them are finding efficient ways to utilize that spectrum in and to some degree finding ways to limit their need for additional sites and spectrum.
And the combination of good for them and good for US ultimately is good for US we want our customers to be healthy.
And provide a good propositions for the consumers and we want to see minutes of use growth.
Thanks, Steve.
Maybe we will take our operator, maybe if we could take one more question.
Our final question today comes from Walter <unk> from <unk>. Please go ahead with your question.
Okay.
Thanks.
Two questions first one on the dish 15 year contract.
If theres a change of control or sale or at least at the underlying spectrum, you still get the minimum payments.
Walter Thats, a level of detail of our customer contracts, we wouldn't we wouldn't get into.
Okay, and then on the fiber solutions.
The 2000 20 million 19 million I guess.
If you back out.
Yes.
Youre still walk from $35 19, so I now would like towers and fiber.
It's really just execution on bookings contracts whatever.
Executing on its fiber solutions.
The same thing, meaning that like I think a lot of us are having a hard time seeing that drop off to 19 from 35 last year, which backs out the tab and the <unk> and the 30 plus in the quarter.
Quarters like this.
Getting to the ramp to get you to the 125, so it might be helpful to give like qualitatively is it the same type of visibility that you have in towers.
And fiber solutions. Thank you.
Yes.
I think the.
The one thing that might be a little different than what you. Just expressed is the 19 of growth you would have to amend by $10 million because what happened was $10 million you pull out of the previous year, which means the growth from Q1 to the growth 22 to <unk> 23 was actually 30 or 29 not 19.
So you can't just back it out of the new leasing activity from the previous quarter, you've got to back it out of the run rate revenue at that point to show what the growth would have been and that gets you much closer to the growth that we're talking about for the full year and we have visibility as we've been talking about to the extent to what Jay was speaking to earlier, we do have visibility to that.
<unk> level, increasing over time, but I don't think its such a large leap that it would be.
Not understandable to an external party to say, okay. It makes sense that <unk> could be 35 or something like that we've seen those types of quarters in the past and as we grow through the course of the year. We believe we will get more activity as as data demand continues to grow for the reasons Jay expressed earlier.
That'd be very helpful. That's very helpful kind of just do one quick follow ups. So the $1 25, if we're just doing the simple math on that are we using 19 is the number are we are we should be 100125 should we should be using 29 is the number that adds up to the $1 25.
Got it.
What's the second part of your question just zooming out from the specific numbers in the in the year and you alluded to kind of the difference between towers and.
Small cells and maybe fiber solutions.
Obviously those businesses are different our fiber solutions business is more transactional.
And so we don't typically see multiyear commitments from our customers.
In the same way that we do from a tower small cell, meaning for future business. Obviously, there are multiyear contracts and commitments when we sign but we don't have multiyear visibility as to what the revenue growth is going to be so it's more transactional in nature and we have a shorter timeline of visibility of what that growth is going to be.
We feel good as Dan and I have mentioned in a couple of answers to a couple of different questions. We feel good about where our guidance is and where we expect the year to fall.
But if you were looking for differences among kind of our business lines. Certainly there is a difference in terms of the number of months of visibility that we would have and then also the the more transactional nature of that of that fiber solutions business.
Understood. Thank you.
Well, thanks, everybody for joining the call. This morning, and thanks to our team who continue to do a really good job executing.
Appreciate all you're doing for our customers to keep up the great work. Thanks, everyone. We'll talk soon.
And ladies and gentlemen, with that we'll end today's conference call and presentation. We thank you for joining you may now disconnect your lines.