Q1 2023 American Tower Corp Earnings Call
As a reminder, today's conference call is being recorded.
During the prepared remarks, we will open the call for question if you'd like to ask a question. Please press. One then zero on your device I would 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 first quarter 2023 earnings conference call.
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We have posted a presentation, which we have referred 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 provide an update on our U S tower and datacenter businesses.
And then Rod Smith, our executive Vice President CFO , and Treasurer will discuss our Q1 2023 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.
Examples of these statements include our expectations regarding future growth, including our 2023 outlook capital allocation and future operating performance.
Our collections expectations associated with Vodafone and idea in India.
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 set forth in our Form 10-K for the year ended December 31, 2022 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 and thanks to everyone for joining us this morning as.
As is customary for our first quarter call. My comments today will focus on our U S business, which is principally comprised of our tower and datacenter platforms, which made up 55% of our consolidated property revenue and 64% of our property operating profit in the first quarter of 2023.
With regard to our tower platform. The secular tailwind that has supported outstanding growth will be the last two decades remain consistent.
Every year U S wireless subscribers consume more mobile data to a growing number of devices and applications, requiring faster speeds and lower latency performance.
As a result of the increasing levels of data being consumed our customers are deploying more equipment on our towers to meet that demand.
In addition, and more than ever before our customers are utilizing multiple bands of spectrum to deliver those high quality ubiquitous levels of service and.
In 2022 U S carriers deployed around $40 billion in network capital to provide nationwide <unk> services in mid band spectrum.
This record level of activity is reflective of the first major wave of the typical investment cycles, we've seen over the last 20 years during which carriers amend existing sites to provide initial coverage and capacity with the new technology and harvest benefits from core network enhancements and spectral efficiencies in.
Previous cycles. These initial peaks have typically been followed by periods of moderation in overall spending driven in part by reductions in spend on core upgrades fiber and other infrastructure assets.
However, we've historically seen tower spend remain in focus as our customers look to support continuous growth in mobile data consumption and provide market, leading network quality and reliability and we would expect more of the same over the <unk> cycle.
In 2023 while we're still in the relatively early stages of the overall five G rollout, we continue to see customers, making significant investments into their networks as part of their broader coverage initiatives, having yet to invest in densification at scale.
These investments into adding and modifying equipment on our sites, which we've monetized through our MLA is driving 5.6% organic growth in Q1 or nearly 7% absent the impacts of sprint churn our strongest quarter since Q1 of 2020 and for the full year, we expect to her.
Third and $20 million in year over year growth contributions from co locations and amendments a record for our U S business.
Looking out over the next several years, we see an environment that is supportive of continued strong performance in the U S is the <unk> investment cycle progresses, and Densification occurs at American tower, we have underwritten this expectation into a comprehensive MLA that underpin our expectation to deliver average annual organic.
Growth of at least 5% or 6%, excluding the sprint churn over the next five years, which closely mirrors. The six 2% average organic growth we experienced between 2016 and 2020.
Further industry estimates suggest total monthly mobile data consumption that will require increased speed and lower latency is set to grow at a compounded annual rate of above 20% over the next five years, which we expect to be driven by continuous increases in mobile network utility irrespective of potential.
Impacts from any one category of new applications.
As a result, we believe our customers' networks will need to provide at least two times the network capacity. They have today in three to four years or roughly three times today's capacity as we approach the end of the decade.
Overtime, we expect our customers to meet this demand to continue network upgrade and Densification initiatives spectrum re farming and the deployment of <unk> on new spectrum.
In this context, we believe our portfolio of over 43000 sites is optimally positioned to serve our customers across the balance of the <unk> cycle with significant capacity to accommodate additional equipment and new tenancies, even beyond where it's been contractually locked in today.
As we've done historically, we anticipate leveraging our best in class internal processes to generate incremental efficiency in the business and higher levels of service for our customers with both resulting in increasing conversion of our topline growth to F. F. L. Three.
Through a combination of organic growth and M&A, we've added nearly $2 $4 billion in annual property revenues to our U S and Canada segment since 2014.
Paired with less than $60 million in incremental SG&A expense or roughly 2% of the corresponding revenue growth. This prudent approach to cost management operational efficiency has helped to drive operating profit margin expansion in the segment by roughly 400 basis points over the period.
Going forward given the benefits of our established scale demonstrated ability to maximize the operating leverage potential inherent to our model and concerted efforts to further drive cost efficiencies at every level of the organization, we see a tremendous opportunity for capacity utilization of our existing assets to drive high margin growth.
And expanding returns on invested capital as the five G landscape continues to mature.
Now with respect to our core site U S data center platform, we are equally excited about the prospects for value creation.
Increasingly complex digital business demands required hands infrastructure performance and flexibility core side serves as an optimal nexus, where the cloud service providers service integrators networks and enterprise customers inter operate to propel their business initiatives forward, we continue to see customers landing and expanding.
With core side, because it provides native access to key cloud service platforms, and a diverse ecosystem, which allows them to serve their customers in a way that is flexible scalable and that drives growth and efficiency in their businesses.
This is reflected in the continued strength of core sites leasing results interconnection growth driven by both existing customers and new logos as well as the ability to drive pricing solid renewal rates and generate industry leading returns.
We also recognize that we're still in the early stages of a broader digital transformation and movement each year datacenter workloads and compute instances continue to grow at a rate of approximately 12% and the vast majority of all new IP architectures deployed into cloud and hybrid environments are core site is uniquely positioned to.
Support.
Additionally, we continue to expect to generate long term growth from enterprise digital transformations and hybridization as organizations face workload management challenges they require the operational optionality agility and critical interconnection capabilities that are of course, a datacenter platform offers.
Importantly, the absorption of this type of demand drives incremental value to our interconnection ecosystem and further builds on the momentum behind the core side flywheel and the value. We can provide our customers. So we see a long tail of opportunity to continue growing and scaling our campuses and we had the added benefit.
But being able to prudently select opportunities that are accretive to our ecosystem.
As a result, we'll continue to invest cash flows generated in the datacenter segment back into the business provide our customers incremental confidence and a long runway for growth with core site and generate highly attractive returns.
Meanwhile, our teams continue working to develop solutions that leverage our combined communications real estate platforms to position American tower, as a leading infrastructure provider for the networks of the future and create incremental value for our customers and shareholders alike.
In summary, our foundational U S tower in datacenter platforms are set to deliver continued growth and strong returns. We believe that the long term secular tailwind the differentiated high quality nature of Volcker U S tower portfolio in our datacenter interconnection platform the value proposition they represent for our customers.
And the seasoned high talented teams managing them uniquely positions American tower to create significant incremental value for the industry and our shareholders for many years to come.
With that I'll hand, the call over to Rod to discuss our Q1 results and expectations for the balance of the year.
Rod.
Thanks, Tom Good morning, and thank you for joining today's call as you saw in our press release, we are off to a solid start to the year with performance exceeding our initial expectations across many of our key metrics.
Before diving into the results and our revised outlook for 2023, I'll start with a few highlights from the quarter.
First despite ongoing macroeconomic volatility strong demand trends continue to drive favorable leasing and growth across our global footprint, which is a testament to the resiliency and stability of our business.
In Q1, we posted consolidated organic tenant billings growth of over 6% our highest rate since 2017 and in over 300 basis point acceleration as compared to Q1 of 2022.
This includes growth through co locations and amendments of over 5% our highest in three years as carriers continue to leverage our leading macro tower portfolio to aggressively roll out their networks to meet customer demand.
Organic leasing growth was further complemented by another quarter of strong new build volumes as we continue to leverage our scale and capabilities to attract accretive development opportunities from our leading customers across our international business. Finally, we had another record quarter of leasing from core site continuing the momentum from.
What was a record breaking 2022 and exceeding our initial underwriting plan.
Complementing our solid top line trends, our focus on cost management combined with the inherent operating leverage in the tower model drove margin expansion of approximately 270 basis points as compared to Q1 of last year to 63, 7% with the benefits being more noticeable given the absence of material M&A.
Going forward, we will continue to manage our business with cost discipline maximizing the profitability of our strong reoccurring organic growth profile.
Next we accessed the debt capital markets successfully issuing $1 $5 billion in unsecured notes and $1 $3 billion in secured notes at attractive terms proceeds from these offerings more than covered our Q1 maturities and the remainder together with the proceeds from various strategic initiatives, including <unk>.
The sale of the Mexico fiber business were used to pay down floating rate debt as a result, we've reduced our floating balance by nearly $800 million year to date now representing slightly over 20% of our debt structure.
We will continue to evaluate opportunities to further manage this balance over the course of the year.
Finally, we continue to have constructive discussions with potential investors as we assess strategic options for our India business. We remain focused on executing an outcome that maximizes value and optimizes, our global portfolio mix and the risk adjusted return profile for American tower and its stakeholders.
As we move forward, we will keep our investors informed of any new developments.
With that please turn to slide six and I'll review, our property revenue and organic tenant billings growth for the quarter.
As you can see Q1 consolidated property revenue growth was over 4% and approximately 7% on an FX neutral basis over the prior year period.
This included U S and Canada property revenue growth of over 4% international growth of over 3% or nearly 9%, excluding the impacts of currency fluctuations.
And approximately 10% growth in our U S data center business.
In the quarter, we benefited from accelerated decommissioning related settlements in Latin America totaling approximately $39 million, partially offset by Vodafone idea or V. I L revenue reserves of approximately $33 million, representing a modest improvement to payment trends as compared to the second half of 2010.
Two.
Moving to the right side of the slide organic tenant billings growth was a significant contributor to our overall revenue growth standing at six 4% on a consolidated basis, which as I mentioned was our highest quarter since Q3 of 2017.
In our U S and Canada segment organic tenant billings growth was five 6% and nearly 7% absent sprint related churn, including a record quarter of Colocation and amendment growth contributions of nearly $60 million in nearly 65% increase as compared to the growth reported in Q1 of 2020.
Two <unk>.
Growth modestly exceeded our expectations driven by some delays in churn, which we still anticipate to occur in the year into a lesser extent new business upside.
Similarly, our international operations experienced improvements across nearly all reported segments generating organic tenant billings growth of seven 5% and over 180 basis point acceleration from Q4 of 2022, which includes the benefits of CPI linked escalator commencements.
Across various contracts.
Africa generated its highest quarter on record with organic tenant billings growth of 12, 1%, including escalator contributions of over 10% and a continuation of solid new business of nearly 7% growth in the quarter benefited from some delays in previously communicated carrier consolidation.
Driven churn, which we still expect to occur in the year.
Turning to Europe , we saw growth of eight 2%, including over 6% from Escalations, demonstrating our ability to monetize on CPI linked escalators across the vast majority of our portfolio in the region and.
In Latin America, we saw growth of six 1%, which includes relatively consistent escalator and new business growth, partially offset by the continued elevated churn as we've highlighted on past calls.
Churn in the quarter was favorable relative to our initial expectations as the decommissioning events have been slightly delayed to later in the year Lastly in Asia Pacific We saw growth of three 4% demonstrating steady improvement over the past three quarters. This growth acceleration was mainly driven by co location and <unk>.
<unk> contributions as carriers ramp up five <unk> deployments.
Organic tenant billings growth was further complemented by the construction of over 1300 sites in the quarter, representing our 11th consecutive quarter of exceeding 1000 sites, primarily in Africa in Asia Pacific as carriers continue to invest in their network coverage and densification needs across the regions.
Initial returns remained solidly in the double digits with Q1 constructed site, yielding nearly 14% on day one.
Turning to slide seven adjusted EBITDA grew nearly 9% to approximately $1 $8 billion or nearly 10% on an FX neutral basis for the quarter.
Mentioned in my opening remarks, adjusted EBITDA margin demonstrated an approximately 270 basis point improvement year over year to 63, 7% and still in over 190 basis point improvement when normalizing both periods of the IL related revenue and bad debt reserves in India. This margin expansion.
<unk> was achieved through our continued focus on cost controls, allowing for approximately 100% conversion of revenue to adjusted EBITDA growth again on a normalized V I L basis, and driving cash SG&A as a percent of total property revenue down by approximately 50 basis points year over year to approximately $7.
1% for the quarter.
Moving to the right side of the slide attributable <unk> growth was one 5%, while roughly flat on a per share basis, which includes financing cost headwinds of around seven 5% and nine 5% against attributable F O and attributable <unk> per share growth, respectively, primarily driven by the rise in <unk>.
It's over the past year.
Let's now turn to our revised full year outlook.
As mentioned earlier, we had a strong first quarter outperforming our initial expectations across the majority of our key metrics. While we are excited about the results to date in the sustainable demand trends that underpinned our performance, we've largely kept core in full year assumptions consistent to our prior guide given our early position in the year and some of the.
<unk> benefits I alluded to earlier.
This approach for our Q1 guidance is relatively consistent to past years. This also includes our assumptions around V. I L related revenue reserves, which we held at $75 million for the year.
As noted earlier, we did record approximately $33 million in V. I L reserves in Q1 with the guide implying an improvement for the duration of the year, notably in the back half.
This assumption is supported by certain factors that we've considered in our risk assessment, including the customers' contractual obligations for 2023, our latest conversations with V. I L management, where they've committed to meet these contractual obligations in a demonstrated improvement in payments by the customer in Q1 relative to.
In the second half of 2022.
Key updates to our revised outlook includes the impacts from the recent sale of the fiber business in Mexico together with the upsides from FX derived using our standard methodology and several small adjustments below EBITDA at the attributable <unk> level with that let's dive into the numbers turning to slide eight we are reducing our expectations.
For property revenue by approximately $20 million versus our prior outlook driven by $45 million related to the sale of the fiber business in Mexico, partially offset by $25 million associated with the positive impact of FX.
Moving to slide nine we are reiterating our prior outlook expectations for organic tenant billings growth across our regions and will continue to assess the positive momentum coming from our strong first quarter as we work further into the year.
Moving on to Slide 10, we are reiterating our adjusted EBITDA outlook with a decline of approximately $25 million related to the Mexico fiber sale offset by $25 million from positive impacts of FX.
Turning to slide 11, we are raising our expectations for <unk> attributable to common stockholders by $20 million at the midpoint and approximately five <unk> on a per share basis, moving the midpoint to $9 65 per share.
Updates to our expectations aside from FX include the cash adjusted EBITDA reduction driven by the Mexico fiber sale offset by favorable net interest in part due to the use of the sale proceeds to pay down debt and some cash tax savings on an isolated basis, the Mexico fiber sale resulted in a <unk>.
$15 million declined to attributable F F O as compared to our prior outlook midpoint.
Moving on to Slide 12, I'll review, our balance sheet and capital allocation priorities for 2023.
Beginning on the left side of the slide our capital allocation priorities for 2023 remain consistent with our prior outlook, which includes approximately $3 billion towards our common dividend subject to board approval, representing 10% growth year over year on a per share basis. In addition, our capex outlook mid <unk>.
<unk> remained unchanged across all categories and support our initial plans to construct approximately 4000, new sites across our international footprint.
Moving to the right side of the slide and as I highlighted earlier, we further strengthened our investment grade balance sheet in the first three months of the year extending our average maturity profile for nearly six years, while reducing our floating rate debt balance to slightly over 20%. Additionally, we closed the quarter with net leverage of approximately five.
Two times well on track towards our deleveraging target of three to five times consistent with our past remarks, we remain focused on driving shareholder value through our growing dividend and accretive Capex program, while strengthening our balance sheet through deleveraging maximizing liquidity managing a diver.
First pool of capital sources, and an ongoing assessment of market conditions to potentially further term out floating rate debt and extend our maturity profile.
Turning to slide 13, and in summary, Q1 was another strong quarter across our business with incremental steps taken towards strengthening our balance sheet.
Underpinned by sustained demand trends across our global footprint, our leading portfolio of communications infrastructure assets generated accelerating leasing growth, while our capabilities as an operator and partner continue to afford us opportunities to deploy accretive capital towards high yielding development projects. We believe we are well positioned.
<unk> to drive compelling growth supported by attractive secular trends across our global footprint.
And deliver solid returns to our shareholders over the long term.
With that operator, we can open the line for questions.
Thank you once again for questions. It's one and then zero and you can't remove yourself from queue at any time by repeating that one zero command will go to the line of Brett Feldman. Please go ahead.
Yeah. Thank you so much for taking the question.
I was hoping I could ask about some background on the sale of the Mexican fiber asset what led to that was that something you are actively shopping or was there an inbound that came there and then if we maybe just take a higher level approach to this you gave us an update you're considering and evaluating a potential equity sale of sale on the India business you just sold a piece of your Max.
<unk> business are you undertaking a broader portfolio rationalization strategy and.
And if it is the case or even if it was just India, where you would pull some additional proceeds and how do we think about applying those proceeds, especially now that you are getting close to the high end of your target leverage range. Thank you.
Yeah, Hey, Brett I'll I'll start and Rob can also obviously add on here.
You know we look at every one of our assets and our markets are repeatedly.
We continually are looking at.
Where are the best rates of return that we can drive.
Are there better places for us to reallocate capital.
And so this is just an ongoing process that we do internally. We also do it with our board.
Every year as well.
And the the business that we've had in the fiber business that we've had in our in Mexico. We've had for several years. It was really part of our kind of our initial innovation and platform extension approach and a piece of that particular business was just a business that we could generate the kinds of reach.
Turns on that we had expected.
And we felt that it would be in better and better and it could be in better hands with somebody who a broader scale in the marketplace and so as a result of our kind of ongoing review.
It was a business that we have actively marketed over the last several months.
And this is consistent with how we're thinking about even a market like India.
As we've talked about in the past and it goes through that same kind.
Kind of disciplined approach that we have and we look at okay. In each given market again like Andy is there a better place to be able to reallocate some of that capital or invest in a in a in.
Other products and services and so that's.
The process that we're going through right now and Raj and I talked about it on the last call.
With you all.
And well look to as we did with the fiber I mean, our goal from a balance sheet perspective is to delever as we've talked about right.
Right now and we use those proceeds from the fiber sale to do just that and we will continue to look at kind of delevering the balance sheet.
Really over the over the next 12 to 18 months until we get into a spot that we're really comfortable with.
Hey, Brian if I can just add a couple of points. There. Thanks for the question you know you see in our quarterly numbers here, we got our leverage down to five 2% and of course as Tom said, we did use the proceeds from the fiber business.
Pay down debt not just to delever, but two.
To actually reduce our exposure to floating rate debt, which we did and we're down around that 20% number and that really shows our commitment to our investment grade balance sheet.
This environment looking to Delever, that's definitely top of the list when it comes to capital allocation once you get beyond pain.
Paying the dividend and the dividend growth that we have and will continue to focus on delevering the business until we get down within our target range of three to five times and we're also.
Continuing to focus on reducing our exposure to floating rate debt. So within our policy now right at about 20%, but we're gonna be looking at that and working to try to reduce that exposure on the floating rate side, even more than.
Then add in the coming quarter, so youll see its pretty active in that space.
Great. If you don't mind, a quick follow up question I mean, just being at five two turns which is so close to the high end of your range. It doesn't seem like it would take 12 to 18 months to get into that target range and so is the right interpretation of that statement to say that in this environment all things being equal you would likely just continue to delever and particularly to pay down floating rate debt.
Absent something thats highly compelling, meaning you may drift below five times and closer to three if that's just the case.
Yes, absolutely right.
Youre exactly right and.
Now, whether we would go back down to three times could be a bit of a bit of a stretch, but clearly we want to get sub five and as Rod said, we really do want to lessen the exposure to the floating rate debt that we have on the balance sheet.
Thank you Brent one thing it.
One thing that I'll just to alert you to is don't be surprised if you see the five float back up a little bit even maybe a five three in the coming quarters before you see it trending back down that'll just be a function of kind of where our EBITDA, our quarterly annualized EBITDA might end up landing, but that should not make you think that our commitment to delevering is isn't as strong as we're suggesting it is.
Because it is but you may see it float back up just a touch before you see it come back down.
Alright, thanks for that color.
Thank you we'll go next to the line of Simon Flannery with Morgan Stanley .
Good morning. This is Landon park on for Simon Thanks for taking the questions.
I'm wondering if we can start on the data center side, you mentioned the another record bookings quarter for our core side can you maybe provide any more color. There in terms of what youre seeing in the market and where that demand is coming from in and on the data Center side can you give us an update on your edge data center.
Jack that you were trying to to get built out this year to start scaling on that front.
Yeah sure. Let me start and then Rob can continue or I can add to it to continue continuation of what we saw in 2022.
The demand for them.
Or are they kind of the digital infrastructure that we have just continues to be strong throughout the throughout the country and.
Really nice balance between.
Enterprise accounts between <unk>.
Operators as well as being the cloud so the pipeline remains really healthy.
And we've been able and have taken advantage of the opportunity to capture some some strong pricing actions.
Throughout the throughout the year, particularly as we really continue to drive all the interconnection growth. So we're really pleased with what the team has done with the types of business that they've generated.
And and it really result in again, a really strong Q1, and we continue to have really strong expectations for the business going forward with.
With regards to kind of all of the edge work, we continue to work internally on identifying particular locations where.
We can actually drive a mag or two Meg of of our power. We have in a number of sites that are shovel ready at this point and and we're looking to to move on them. We continue to have conversations with.
All of the service operators as well as the Hyperscale and all the all the cloud players to continue to move forward and figure out that value proposition that we think can be a profitable one for all of us and so as we've said it's still early stages of it.
But we continue to remain really excited about the ultimate opportunity.
And just one follow up on that where are you at in terms of the design phase for that sort of edge data center that you guys were hoping I think to design this year and it's something that can be scaled.
Quarterly going forward.
From a design and engineering perspective, we really have the specs.
Really well laid out.
Such that as I said before we're shovel ready on a couple of locations to start to deploy it and so the teams know exactly what it's gonna look like of identified who the vendors are that are going to be providing a lot of the resources and the pieces of it.
And so we're really far along on the overall design.
What is the cost per megawatt look like for those for that design.
You know I don't know that I want to get into at this point in time, when we're ready to roll it and and deploy it we can get more we'll give more specifics as to the overall economics.
Understood. Thanks for taking my questions.
You bet.
We'll go next to the line of Ric Prentiss with Raymond James.
Thanks, Good morning, everybody.
Eric.
Right.
Hey, My follow up on Bretts question is a little bit on the Mexico fiber sale.
Let's go deeper into what lessons that you learned there.
I think you were hoping to see some small cell, but is it just that the fiber business is dramatically different.
The power business and small cell portfolio, but what what specifically did you learn and then I've got a U S vessels.
Rick it's consistent with some of the experiences candidly that we've had in the past in the business and we thought we might be able to do things differently and unique that particular asset came with tens of thousands of sites in Mexico City.
Which was also a very interesting to it and remains very interesting to us and we still have the rights to those particular assets.
As our customers deploy and densify.
In region, nine or in Mexico City itself, but while we continue to learn on the retail side, just how difficult it is.
To be able to provision circuits and make money providing.
<unk> services to enterprise accounts.
And then just how competitive it is in and the SLA that go along with them how difficult it is to be able to maintain them.
And a very profitable manner.
A tremendous amount of competition.
In the marketplace and so as a result, it just made sense for us to put those particular capabilities in the hands of somebody that just does that 24 seven.
And hopefully that they you know they they will find more success there, but it's consistent with what we see in the fire business.
And all of our markets, including the including the U S.
We think that Theres really an opportunity for fiber is when you're bringing it to the tower.
That's kind of a slam dunk for us because that's obviously improving the capability and the capacity of a particular site, but when we start to get into the retail aspects of it. It's just such a competitive capital intensive low margin opportunity that it just made sense for us to move out of it.
All of this debt environment, good to reduce your floating rate and save some interest.
Right on the U S and the U S side.
Can you update us as far as.
In aggregate what.
What kind of percent of your towers do you think have been touched with mid band spectrum.
By the carriers.
And we've heard a lot of talk that private networks are growing slowly, but starting to ramp but that's some of the carriers are willing to see private networks before we'd get to the edge. So I'm just trying to gauge in the U S where we're at as far as mid band touches and what Youre seeing on private networks.
Yeah.
Yeah, Rick it's still in that kind of that 50% range.
We're a bit higher some are a bit lower but in the aggregate it's at that 50%.
<unk> I think that have been touched it again, it's largely been coverage. There is some pockets of densification going on still largely amendment driven if you will in terms of getting that are ubiquitous coverage under on a nationwide.
So.
You know the carriers all remain active.
As Rod mentioned, the overall capital spend we expect it to be lower.
In 23 versus 22.
But as you well know our comprehensive MLA as really protect this firm from that type of volatility if you will.
And so while the carriers may spend at different levels and in a consolidated basis slow down a bit.
As would be expected in 'twenty three we really are protected from it.
On the private side, Yeah. There is a lot more dialogue going on and candidly relative to private networks, I mean, I won't say, it's a surge of deployments.
But I do see our our sales teams entering into different types of conversations with carriers and enterprises looking at deploying kind of private <unk> types of networks. We have some that we're experimenting with and deploying I think theres more to come on that but.
But clearly five G. I think plays a will play a significant role in developing that aspect of the market.
Great well, hopefully continued growth here and everyone stay well.
Thanks, Rick.
We'll go next to the line of Michael Rollins with Citi.
Thanks, just following up on the.
Domestic leasing environment.
Curious how much of the leasing strength is coming from outside of the big three national wireless carriers and what's the sensitivity performance both for 'twenty three as you look out to your multi year guidance.
That activity from these others, which could include dish were to significantly increase were significantly decrease.
And if I could just throw in a second question the common theme from some of the.
Market by market commentary with a delay of churn.
So just curious if theres more to unpack and what's causing those delays in certain markets.
And if those delays.
<unk> health the 'twenty three outlook and just be something.
We should be conservative in terms of a possible headwind for part of 2024.
Hey, Michael Good morning, Thanks for joining and thanks for the question.
You've talked about in the past we are seeing an acceleration in the leasing environment in the U S. In terms of our numbers and specific the incremental revenue that we're seeing from new business coming from co locations and amendments. So we had a really strong quarter in Q1 in the U S. We booked about $60 million of incremental collocation and amendment revenue.
That's well on track to achieve our $220 million target for the year, which is a nice step up over last year, which was about 100 and $150 million. So that's the acceleration that we're seeing that is primarily coming.
From the primary carriers the big three certainly and this is also a contributor in that and I think you know in most everyone on the call knows that we have holistic deals with the carriers.
In the U S environment, so not that we will go through any specifics with with how they work carrier by carrier, but what it does is it.
It has our revenue contracted in there. So we have about 90% of our revenue and revenue growth for this year fully contracted and there is no variability in that so we feel really good about that and then when you look at the long term going out through 2027, you've heard us talk about that 5% on average Ot OTB G in the.
We have about 75% visibility out over that long period of time.
The underlying revenue as the revenue growth. So we feel really good about that but the vast majority of that activity is baked.
Big three plus dish certainly we have kind of this other category with some broadcasters some local independent radio companies and other people that use our towers like government agencies and they always contribute a key there and theyre kind of in the range that they've always been at but the vast majority really is.
The big guys in the U S. When you think about churn we did have delays in churn, which helps support our growth rates for.
For the for the quarter. So we're up to about six 4% our churn came in at about three 4% for the quarter in the places where it's noticeable slight improve.
Improvement in the U S because of of churn, but that's not the biggest piece of it is probably more drop dropping down into Latin America within our overall guide for Latin America, we had eight percentage points.
And for churn.
That is primarily coming from two big carriers, Telefonica, which everyone knows what's happening with Telefonica in Mexico as well as Oi.
Down in Brazil.
Oil represents about 2%.
Within that 8% and what's happening is just a delay so we fully expect that churn.
For the Telefonica churn as well as the oil churn to kind of catch up here during the year, that's why you're not seeing a change to our organic tenant billings outlook for the full year. So we do expect to kind of catch up with that so we will take the positive benefits for Q1, and we're still a kind of being realistic and maybe a little conservative in terms of keeping our organic tenant.
<unk> growth.
But that's really where it is we also have elevated churn in Africa with Chelsea down in South Africa, and even Eric L. T go over in Ghana.
And again, we're not changing our full year outlook with just the timing is moving around just a bit.
Thanks.
Thank you we'll go next to the line of Matt nickname with Deutsche Bank.
Hey, guys. Thank you for taking the questions just two if I could first on India. If theres any more color you can give her updates in terms of.
Where that process is and when you may expect to have that resolved and then maybe the dovetail on the prior question. Obviously this year has been impacted by interest FX Some V.
V I L reserves.
As we kind of move past that.
Is high single digit type a F F O per share growth, maybe a more viable aspirational target to consider in 2024 onwards or are there other maybe headwinds we should be contemplating as we start to roll the calendar. Thanks.
Hey, Nick Good morning, Let me hit the India process first and then I'll jump into the next question. So.
We are running a process as Tom and I have talked about here on this call and the prior call. Its very similar to the process. We we walk through when we sold an equity stake in our data center business in the U S as well as the.
Europe joint venture that we did so we've gone out to.
The top couple does then a highly professional large investors that are in the infrastructure space our goals remain the same.
Okay.
The other trains.
Transactions, we did really which is a partner to our sale of the equity.
<unk>, a very strong investor that understand the space that can help run the business has government connections have carrier connections all those sorts of things so bringing more than just capital, but also a willingness and some experience to be.
Strategic partner in the business so that process continues.
I'd say at this point.
Got.
It's progressing and and we've got the list work down from the full couple thousand to a smaller list here still.
Still very active and I think we'll figure out where we had and what that transaction might look like in the coming quarter. So there'll be more to update you on probably in the next call, but we'll be patient, we'll be opportunistic as we kind of work through it and we will see.
<unk>.
What are the opportunities there look like and when we decide what we're going to do we'll have the best interest of the shareholders in mind of course, and as well as employees and the customers there in India, but it's a very similar process that we've.
Gone through before.
When you think about the jumping into the next question here in terms of <unk>.
You know, we have <unk> <unk> per share growth and our guide here.
A little less than zero, so a negative growth rate and I'll, just remind you that the headwinds there as you highlighted it was really the financing interest cost, but also the issuance of the shares that we did middle of last year to help finance the core site business as well as FX. So we are seeing roughly an 8% headwind for the.
We are around the financing.
Including the spike in interest rates, we're seeing about a 1%.
Headwind roughly on an FX and the V. I L reserve that were taking that that $75 million that we talked about that represents about a 2% headwind as well. So when you put all that together the core underlying business is in fact growing in that 8% to 9% range. This year, so and we think that deal.
Like a pretty good place for us.
So to the extent that we drive 5% organic tenant billings growth in the U S. We drive a little bit higher organic tenant billings growth in our international markets, we complement that with another 100 basis points or so with new with new bills.
We expand margins as we dropped down through the P&L and then we deploy capital in a prudent way, we certainly think that upper single digit growth rate is achievable now with that said there are a few things that could still.
B items that we need to watch that the IL situation as it is a situation. That's ongoing that we continue to need to watch we don't know exactly where interest rates will go somewhere we're certainly being prudent and trying to reduce our exposure to floating rate debt ahead of refinancings and reduce refinancing risk and this year, we've already issued just under three.
Billion.
New.
Of new bonds, new new notes and that removes the refinancing risk from 'twenty three entirely now we're beginning to look at 24.
To remove that but you put all that together.
Together, one is interest rates cooperate if FX kind of hangs in there, which we're seeing favorability in the spot rate so that kind of trending in a good direction. If we startup the vil kind of India volatility than upper single digit certainly is achievable in this business, we've got a great portfolio of assets and a lot of really good places.
And we've got customers that are.
That are actively leasing the site. So we feel really good about the core performance of this portfolio.
That's great. Thanks, a lot.
Youre welcome.
We'll go next to the line of David Barden with Bank of America.
Hey, guys.
Hey, guys. Thanks, so much for taking my questions.
So two if I could so first one for rod.
I just want to make sure I understand this vodafone idea situations. So when we came out of the second half.
And you gave guidance for 2023, you said that you assumed that the collections rate would be roughly equivalent to the second half run rate for 2023.
And that number was and then you change to cash accounting method, maybe 70%, 80% of what you expected would would be realized.
And yet then you said today that you're actually in the first quarter had better than expected collections. But then you also made a provision which was almost half.
The reserves that you expected for the whole year. So I don't know if I understand how all that's working so if you could kind of help us through that and how it all works that'd be super helpful. And then the second piece would be Tom.
Dish.
You know stock is hitting a 24 year low.
Bonds are yielding 20% to 30% for the next three years.
In a distressed position.
And there's a lot of questions I field from people about kind of.
How.
Comfortable you feel with your contractual relationship how does that.
Contribute to growth and then for those of US who who maybe aren't as grizzled as some of US veterans how do you think.
If a bankruptcy emerged in the wireless space, how would that work you know in this day and age.
Hey, David Good morning, I'll take the first one on <unk>. So the the collections rate that we're seeing in Q1, if not better than our expectation it's right in line with our expectation we expect the level of collections that we had in Q1 to continue into Q2 is kind of the the way we're the way we're thinking about.
<unk>.
I'm not sure if I heard all the detail in your question, but I'll try to clarify for you that collections rate that we experienced in Q1 is slightly better than what we experienced in Q4 of last year and what we experienced in Q3 of last year. So that's where we talk about the improvement in terms of the collections front.
Vodafone, it's really the first half of this year, let's say compared to the last half of last year. The other part of your question I think it kind of leads into what's happening later in the year and we do expect an improvement in collections.
From Vodafone as we enter into the second half of this year.
And so that's kind of where we're where we're where we're looking and we talked about are quite frequently. We have you have seen we've seen that the government converted their equity that does.
Kind of clear the way a little bit for voted to work on their balance sheet to potentially raise equity and debt and we gathered that theyre working aggressively on that.
You may have seen a new board appointment over in India. We thank God that we think that's a really good fact as well and.
And we do believe that both the management is committed to and capable of increasing their payments to us in the second half of the year and that's reflected in our outlook. So that's kind of how those bits and pieces work most of the $75 million.
<unk> that we have and there will be will be booked and realized in the first half of this year.
Got it.
Dave with regards to dish.
They remain.
Every active in the market.
They are investing throughout the throughout the country to meet all of their FCC.
Requirements.
There.
Has always been a good partner.
I have a lot of faith in their leadership team there in terms of being able to.
<unk> developed a network and drive.
<unk> that may make sense for them.
So you know from.
From our perspective, there there there had been a very strong player in a very strong partner I'm not going to speculate on bankruptcies and all the other types of things.
Candidly, but just to let you know that I believe that they are really strong leadership team really smart.
And being I think very intelligent in terms of how they're building out their network.
Tom if I could just follow up.
I think that there is a spectrum of relationships.
Tower companies have with their summer activity related some are kind of.
Minimum take rates with with <unk>.
Contractual escalators and such and I think that you are in the latter camp is that fair to say.
I mean, we've been we've been working with dish for a number of years in terms of helping them.
Look at the engineering of the other network and in building out their network and I would say that R. R.
Our U S leadership team has had a I think a really strong relationship with them right out of the gate.
Can't speculate on other types of relationships with some of the other tower codes.
But but we've been really comfortable with the relationship.
And how it's been built over over the years and I think that there is a mutual respect for between both both entities.
Got it alright, thanks, guys I appreciate it.
Thanks, David.
Yeah.
We'll go next to line of Bahia Levy with UBS.
Great. Thank you can.
Can you can you talk a little bit about how you will approach M&A, there seems to be a number of portfolio.
It was available in some of the Asian markets that you don't currently have a presence and maybe some in Europe .
You could just talk about your interest in how you would prioritize portfolio growth.
The next couple of years that'd be great and the second question, maybe just specifically in Europe .
What are you seeing in terms of the carrier activity and if there was any update on how one on one as contributing to your growth.
They decided to grow the MBA now are out should we expect any impact on your growth outlook. Thank you.
Hey, good morning, Thanks for the thanks for the question so regarding M&A. Our view today is consistent with where it's been in the last couple of the last few months certainly the last couple of quarters.
Which is in this environment given what's available in kind of the the.
The differences that we see.
In pricing between private tower sales than let's say public tower equities, along with some terms and conditions that of course are important when you look at portfolio by portfolio and region by region, we continue to.
Look at the pipeline and in our evaluation and Theres nothing in there that we see that's compelling at the moment nothing in there that we see that wood.
Require us or prompt us to make any kind of a move. So then we settle back in and we're firmly committed to our capital allocation approach share going forward.
One of the things that.
Helps guide us as the uncertainty around rates and ensuring that we're reducing our leverage to getting back below our five times in a prudent amount of time also reducing that floating rate exposure, making sure. We're aggressively managing interest rates, along with providing a dividend and a growing dividend to our shareholders. So when you look at the totality.
We have opportunities available, we're fully committed to the dividend and dividend growth next we allocate capital to our capital programs. Our internal programs. What we build towers were built around 4000 this year around the globe.
Those come in at very high day, one NOI yields roughly mid teens, 14% is the number for the for Q1. So we feel that that that's really good. We're also allocating some capital within our capital number for this year towards core site in the mid three hundreds so let's call it $360 million.
So and as we've discussed that's kind of within their their cash flow generation you know they produce EBITDA or gross margin, let's say in the mid four hundreds so where we're comfortably kind of reinvesting their cash flow back into there.
We have <unk>, they continue to satisfy the customers and keep up with the with the rest of the demand that we experienced last year in the first quarter.
Of this year.
Highlight again.
So the folks on the call here that our capital program. This year slightly below last year not materially below but they are slightly below and that's kind of a function of our capital for.
Our balance sheet, and reducing leverage and reducing our floating rate exposure.
When you think about Europe .
Europe and in Asia, like we would want to be larger and we think that market is very constructive for us. We do think there are some interesting portfolio there but.
But nothing that we've seen yet in terms of terms and conditions and pricing and all of the different pieces lining up where it would need to be and we don't expect that to happen anytime soon but over the next.
Several years, let's call. It two to five years in Europe is a place where we could be active in looking at different portfolios. We are we think there's really good backdrop in and with that said if we don't buy anything in Europe , We've got a really good portfolio and feel good about our position there.
And when you think of Asia.
Sure.
We spent a lot of time in the last couple of years looking at different transactions in Asia, and again, nothing kind of lined up and met our criteria. We're very disciplined when it comes to pricing terms and conditions counterparty.
And also country evaluations and things like that will continue to be disciplined.
And I do think you'll see us be very committed to balance sheet, reducing leverage reducing floating rate debt and not active in any major way in M&A in the near term.
And then maybe in Europe . The other thing just to hit your other question, we were seeing good activity across Europe .
Sure.
When you think about Germany, and kind of the central point that drove one on one is just beginning to ramp up their network build and a full greenfield fiber build so we're seeing a little bit of revenue activity from that but we're excited to support them in their endeavor to build out a network there and we do think that we'll see more activity with them.
In the second half of this year and certainly in years.
In years to come but then when you think about France, and Germany, and Spain across the board. We think there's a really good backdrop, a good set of Counterparties and carriers there for us to support.
And we feel really good about the growth rates and our position within those markets.
Guided to when.
When we did the <unk> transaction that we would be achieving mid singles.
Organic tenant billings growth, we've been above that since we acquired the portfolio in Michigan, where again looking at upper single digits in that 7% to 8% range, which is a really nice place where benefited from the activity that we're seeing from.
From the carriers in terms of the leasing we're also benefited from the contract terms, where we have uncapped escalators in Germany and in Spain, which is very helpful. And then we're seeing very low churn rate.
Again, because of the demand that we see from the carriers to build out networks and also the way the contracts work that we've been able to negotiate so we feel really good about our position in Europe , we feel really good about our ability to support the carriers endeavors to build out networks in Europe , and we think there are some good things to come in Europe .
Very helpful. Thanks, a lot.
Welcome.
Thank you we'll go next to the line of Brandon <unk> with Keybanc capital markets.
Great. Thanks for getting me in I guess, when we look at the U S. What are you seeing Chicago line 60 million I think it was a record for the company ever.
Are we at the point, where that Colo number is peaking and just because if we look at the midpoint of the guide to 'twenty.
Implies some deceleration and then can you just help us just refresh us in terms of how your master lease agreements work in terms of the UC provided to your customers I guess my understanding is in year one.
Of those contracts is typically the highest you see contribution in that those generally fall off as the term of the contract extent, but I was hoping you can help explain it for us. Thanks.
Yeah. Good morning, Brandon. Thanks for the question. So you are correct in terms of the.
The organic new beds, the incremental new bids we get from co locations and amendments that $60 million number.
Do see that as a at the peaks of the for the year, but with that said it'll be we expect that number on a quarterly basis to be between 50 and $60 million for the next three quarters for the full year. So it's not as though we're going to see a big drop off it is it is pretty linear.
And the way things work so.
You will see it drift down a little bit and that is kind of a function of.
The timing of the MLA and the use right fees I don't want to get into too much detail about the contracts and the way the contracts work, but you can have timing differences here, where you have use rate fees that step up in a in a certain quarter theyre, mostly front end loaded.
And then you also have the ability to get additional revenue over and above that which can be more variable kind of throughout the throughout.
Throughout the quarter I would say that that the $220 million that we're seeing this year. There is kind of a function there with the MLA is in kind of some of the transition period that we had kind of moving in and out of different MLA, but that does help support that number a bit so.
I wouldn't be surprised if that number is a little bit lower next year.
But with that said, we're still seeing kind of the acceleration of.
Of that revenue is kind of as we entered the beginning of this year and again it will taper off on a quarterly basis, but we will hit will hit the $220 million for the full year that again is up almost 50% from the $1 50 that we that we hit last year and we continue to feel really good about everything that we see and work on in terms of the U S business.
Being in a strong position to achieve 5% organic tenant billings growth on average out over the time period through 2027.
Great. Thank you.
Youre welcome.
And we have time for one more question that will come from the line of Eric <unk> of Wells Fargo.
Great. Thanks for squeezing me in maybe just.
Just quickly touching on the datacenter business, obviously content.
You're going to perform well, maybe you could talk about the.
The accelerated growth Youre seeing there and kind of disaggregated between this new leasing and then also pricing we've heard that supply is really historically tightened datacenters in a lot of operators are conditions continuing to push rents and then you made a comment I think that youre seeing some pockets of densification in certain markets. Maybe you could talk about how you think the cadence of that.
Evolves over the next few years, especially as some of the.
Some of the mid band spectrum upgrades amendment revenues start to taper off in the next couple of years. Thank you.
Hey, Eric Thanks, Good morning, Thanks for joining the call. So we're very excited about the data center business that we have I think you've heard us say in the past that it is a it's a differentiated set of assets.
To the extent that it's a cloud rich facilities multiple cloud on ramps and lots of the facilities that we have their network then and.
Lots of enterprise customers in there and that really means there's a lot of interconnection people come into these facilities for those multiple cloud on ramps and to interconnect with everyone else the cloud the networking companies and the other enterprise companies that is helping drive this record growth that we've seen so as we've talked about we saw record new bids for.
Core site through the full year of 2022, we also saw that a continuation of that where we had a record new best performance for Q1 kind of quarter over quarter, perhaps from prior year I should say from Q1 of last year so that at.
That strong performance certainly is continuing that resulted in a 10% revenue growth year on year for that business that is higher than what we underwrote that business, where we've talked about it kind of upper single digit 6% to 8% economic growth in that set of assets. That's the way we underwrote it and we outperformed last year, we've got a really.
Good start this year, maybe that 10% thinks back a little bit, but we should be solidly in the upper single digit growth rate.
Within our underwriting targets for that business. We're also seeing really strong growth in interconnection revenue up about nine 5% and that's really key because that really represents what these what these customers are doing within our facilities and why they're there.
And it makes the revenue that we have a lot more.
Durable dependable and sticky because they've got this these relationships with other enterprise customers and into all these networking company. So.
That is a really good fact, we're also increasing prices within that market being sensitive to customers as well, but also trying to drive growth in that in that business and making sure. We're getting the value that these assets are.
Are contributing to our customers. So we continue to see cash mark to market increases.
A 3% to 5% range, 3% to 4% range, which is.
Which is going well, we have escalators and lots of our contracts that we generally see a 3% escalator kind of in our underlying contracts. The churn rate continues to be in the mid single digits in that business in the in the six 5% range well within our 6% to 8% target and.
And our maintenance Capex is right within our target range of about 2% of revenue runs an between 20 and $30 million a year. So we're really pleased with the way that the team is running that business in a way those assets are performing for us and quite frankly, what those assets do for our customers, which they are really important.
Asset for the customers and we're continuing at a gross margin thats almost 60.
60%, so we couldn't be more thrilled with the performance of the data center business and in the future outlook quite frankly, and the optionality that those assets provide us when you think about the edge and potentially connecting those assets into our towers and into edge compute facilities closer to our customers base.
Radios on the wireless side, but also closer to network companies as well as enterprise customers that are scattered throughout the U S. So that.
That business in the future outlook, there is really strong.
Yeah.
Yeah.
Great. Thank you may think.
Well thank you.
Great. Thank you everybody for joining today's call. If you have any questions. Please feel free to reach out to myself or the investor relations team. Thanks, everyone.
Yes.
Thank you and ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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