Q3 2023 Crown Castle International Corp Earnings Call
Speaker 1: Good morning and welcome to the Crown Castle third quarter 2023 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded.
Good morning, and welcome to the Crown Castle third quarter 2023 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by the route.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw from the question queue. Please press Star then two please note. This event is being recorded.
Speaker 1: I would now like to turn the conference over to Chris Hinson, VP of Corporate Finance and Treasurer. Go ahead.
I would now like to turn the conference over to Chris Hansen VP of corporate Finance and Treasurer. Please go ahead.
Thank you Kate and good morning, everyone.
Speaker 2: Thank you for joining us today as we discuss our third quarter 2023 results. With me on the call this morning are Jay Brown, Crown Castle's Chief Executive Officer, and Dan Schlinger, Crown Castle's Chief Financial Officer.
Thank you for joining us today as we discuss our third 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, Dave.
Speaker 2: To aid the discussion, we have posted supplemental materials in the investor section of our website at crowncastle.com that will be referenced throughout the call this morning.
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.
Speaker 2: 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.
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.
Speaker 2: Information about potential factors which could affect our results is available in the press release and the risk factor sections of the company's SEC filing.
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.
Speaker 2: Our statements are made as of today, October 19, 2023, and we assume no obligation to update any forward-looking statements. Thank you.
Our statements are made as of today October 19th 2023, and we assume no obligation to update any forward looking statements.
Speaker 2: In addition, today's call includes discussions of certain non-GAAP financial measures.
In addition, today's call includes discussions of certain non-GAAP financial measures.
Speaker 2: Tables reconciling these non-GAAP financial measures are available in the Supplemental Information Package in the investor section of the company's website at crowncastle.com. With that, let me turn the call over to Jay.
Reconciling these non-GAAP financial measures are available in the supplemental information package in the investors section of the company's website at Crown Castle Dot com.
With that let me turn the call over to Jay.
Speaker 3: Thanks, Chris, and good morning, everyone. Thanks for joining us. Our third quarter results continue to demonstrate our ability to generate consistent growth in the face of changes in the industry environment, allowing us to maintain our full year 2023 outlook for revenue, adjusted EBITDA, and AFFO.
Thanks, Chris and good morning, everyone. Thanks for joining us our third quarter results continued to demonstrate our ability to generate consistent growth in the face of changes in the industry environment, allowing us to maintain our full year 2023 outlook for revenue adjusted EBITDA and <unk> base.
Speaker 3: Based on the multi-year strength of our business model, we are confident in our ability to grow our dividend beyond 2025, once we get past the sprint related turn. Therefore, we are committed to maintaining our dividend in 2024 in the midst of the impacts from the non-recurring sprint cancellations and lower contributions from service.
Based on the multiyear strength of our business model, we are confident in our ability to grow our dividend beyond 2025, once we get past the sprint related churn there.
Therefore, we are committed to maintaining our dividend in 2024 in the midst of the impacts from the nonrecurring sprint cancellations and lower contributions from services.
Based on the timing of these headwinds we expect the low point of <unk> to occur during the first half of 2024 before returning to growth in <unk> in the second half of next year and beyond.
Speaker 3: Based on the timing of these headwinds, we expect the low point of AFFO to occur during the first half of 2024 before returning to growth in AFFO in the second half of next year and beyond.
Speaker 3: Demand for our assets has consistently been driven by our customers and investing in their networks to keep pace with the rapid growth in mobile data.
Demand for our assets has consistently been driven by our customers in this investing in their networks to keep pace with the rapid growth in mobile data demand.
Speaker 3: Through our shared infrastructure model, we have helped our customers maximize the benefits of their investment by lowering the cost of deploying net.
Through our shared infrastructure model, we have helped our customers maximize the benefits of their investment by lowering the cost of deploying networks.
Speaker 3: Networks that have significantly improved our ability as consumers to connect with the people and the world around us.
Networks that have significantly improved our ability as consumers to connect with the people and the world around us.
Speaker 3: The combination of persistent data-demand growth and our ability to provide low-cost shared infrastructure solutions has enabled resilient underlying growth for us throughout generational upgrades and across macroeconomic cycles.
The combination of persistent data demand growth and our ability to provide low cost shared infrastructure solutions has enabled resilient underlying growth for us throughout generational upgrades and across macroeconomic cycles.
Speaker 3: Our full year, 2020 for Outlook, demonstrates the benefits of complementing our tower business with a leading portfolio of small cells and fiber.
Our full year 2024 outlook demonstrates the benefits of complementing our tower business with a leading portfolio of small cells and fiber.
Speaker 3: As our customers increasingly focus on 5G network densification so that they can meet the needs of their end users, we expect the total demand for our diverse portfolio of assets to increase.
As our customers increasingly focus on five G network Densification, so that they can meet the needs of their end users. We expect the total demand for our diverse portfolio of assets to increase.
Speaker 3: For towers, we expect to generate organic revenue growth of 4.5% in 2024.
For towers, we expect to generate organic revenue growth of four 5% in 2024.
Speaker 3: For small cells, we expect a generate organic growth of 13%. Driven by around $60 million of core leasing activity, as we increase new nodes from 10,000 in 2023 to 14,000 in 2024.
For small cells, we expect to generate organic growth of 13% driven by around $60 million of core leasing activity as we increased new notes from 10000 in 2023 to 14000 in 2024.
Speaker 3: And for fiber solutions, we expect continued acceleration of leasing activity combined with a lower churn to generate organic growth of 3%.
And for fiber solutions, we expect continued acceleration of leasing activity combined with a lower churn to generate organic growth of 3%.
Speaker 3: Excluding the impact of spring cancellations, the combination of organic revenue growth across our business is expected to generate consolidated organic growth of 5% in 2024, up from 4% in 2023.
Excluding the impact of sprint cancellations, the combination of organic revenue growth across our business is expected to generate consolidated organic growth of 5% in 2024 up from 4% in 2023.
Speaker 3: While our growth remains robust, we know we need to continue to get better. Therefore, we continue to simplify, streamline, and centralize our business processes and operations, which will reduce our long-term costs and improve our customer experience.
While our growth remains robust we know we need to continue to get better. Therefore, we continue to simplify streamline and centralize our business processes and operations, which will reduce our long term cost and improve our customer experience.
Since announcing the restructuring plan in July we have reduced our workforce and achieved $105 million of annual run rate savings.
Speaker 3: Since announcing the restructuring plan in July , we have reduced our workforce and achieved 105M dollars of annual run rate savings.
Speaker 3: Having completed that plan, we have identified additional opportunities to drive further efficiency.
Having completed that plan, we have identified additional opportunities to drive further efficiencies, including a plan to move to move approximately 1000 employee positions from several locations nationwide to a centralized location by the end of the third quarter 2024.
Speaker 3: including a plan to move approximately a thousand employee positions from several locations nationwide to a centralized location by the end of the third quarter, 2024.
The strong organic growth and improved operating leverage from the actions we continue to take to reduce costs supports our maintaining our current annualized dividend $6 26 per share.
Speaker 3: The strong organic growth and improved operating leverage from the actions we continue to take to reduce costs supports are maintaining our current annualized dividend of $6.26 per share
Speaker 3: As reflected in our results and outlook, our differentiated strategy to invest in and build an unmatched portfolio of assets diversifies our sources of growth.
As reflected in our results and outlook, our differentiated strategy to invest in and build an unmatched portfolio of assets Diversifies our sources of growth.
Speaker 3: are 40,000 hours, 115,000 small cells on air and under contract, and 85,000 route miles of fiber concentrated in the top US mark.
Our 40000 towers 115000 small cells on air and under contract and 85000 route miles of fiber concentrated in the top U S markets make us well positioned to capitalize on long term growth and data demand, regardless of how carriers deploy spectrum and densify their networks.
Speaker 3: Make us well-positioned to capitalize on long-term growth in data demand, regardless of how carriers deploy spectrum and densify their network.
Speaker 3: At the beginning of 5G, our customers move quickly to the ploy record amounts of newly acquired spectrum. This drove record...
At the beginning of five <unk>, our customers move quickly to deploy record amounts of newly acquired spectrum.
This drove record tower activity levels as.
Speaker 3: As the initial surge and tower activity ended, our small cell growth is accelerating, as customers shift focus to densifying portions of their networks that have experienced the most traps.
As the initial this initial surge in tower activity ended our small cell growth is accelerating as customers shift focus to densify portions of their networks that have experienced the most traffic.
Speaker 3: In 2024, we expected a record 14,000 small cell notes. Our ability to capture the accelerating growth in small cell demand is driven by the assets and core capabilities that we have built as the largest operator of shared infrastructure in the United States.
In 2024, we expect to deploy a record 14000 small cell nodes.
Our ability to capture the accelerating growth in small cell demand is driven by the assets and core capabilities that we have built as the largest operator shared infrastructure in the United States.
Speaker 3: Our 85,000 route miles of fiber include high strand counts and heavily populated areas where the density of data demand is the highest, which makes them the most desirable locations for small cell deployments. We are a highly...
Our 85000 route miles of fiber include high strand counts in heavily populated areas, where the density of data demand is the highest which makes them. The most desirable locations for small cell deployments.
We are a highly reliable operator of that fiber network with fiber goes offline small cells go offline and for our wireless customers network quality and reliability are paramount.
Speaker 3: If fiber goes offline, small cells go offline. For our wireless customers, network quality and reliability are paramount.
Speaker 3: We have a world-class team of network operators and engineers that ensures our network is designed to mitigate the impact of any outage and is capable of fixing these outages quickly and efficiently.
We have a world class team of network operators and engineers that ensures our network is designed to mitigate the impact of any outage and is capable of fixing these outages quickly and efficiently.
Speaker 3: We have also developed expertise in navigating the permitting processes with multiple municipal organizations.
We have also developed expertise in navigating the permitting processes with multiple municipal organizations regulatory agencies and utility companies across hundreds of disparate local markets each with a unique set of regulations and stakeholders.
Speaker 3: regulatory agencies and utility companies across hundreds of disparate local markets, each with a unique set of regulations and stakeholders.
Speaker 3: This expertise allows us to navigate the difficult process of building small cells in the markets across the United States.
This expertise allows us to navigate the difficult process of building small cells and the markets across the United States.
Speaker 3: Finally, we are consistently finding ways to build small cells and fiber more efficient.
Finally, we are consistently finding ways to build small cells and fiber more efficiently.
Speaker 3: These efficiencies allow us to provide the most cost-effective and reliable network solutions for CUS.
These efficiencies allow us to provide the most cost effective and reliable network solutions for customers.
Speaker 3: We look to deliver the highest risk-adjusted returns for our shareholders through continuously building on the core capabilities that I just mentioned that generate unique value in the businesses we own and operate.
We look to deliver the highest risk adjusted returns for our shareholders through continuously building on the core capabilities that I, just mentioned that generate unique value in the businesses, we own and operate.
Speaker 3: These capabilities reduce the overall cost of deploying and operating communications now.
These capabilities reduce the overall cost of deploying and operating communications networks, which becomes even more compelling for our customers in times of increasing capital costs.
Speaker 3: which becomes even more compelling for our customers in times of increasing capital.
Speaker 3: of course higher capital costs impact us as well. Our disciplined approach to capital allocation means that as our cost of capital increases, so must the returns we require from our investments.
Of course higher capital cost impact to us as well.
Our disciplined approach to capital allocation means that as our cost of capital increases so must the returns we require from our investments we are continuously evaluating the expected returns of all of our investments against the rising cost of capital and other potential investment opportunities, including repurchasing our own.
Speaker 3: We are continuously evaluating the expected returns of all of our investments against the rising cost of capital and other potential investment opportunities, including repurchasing our own share.
Shares.
Speaker 3: Consequently, we allocate capital to whatever we believe will generate the highest long-term return.
Consequently, we allocate capital to whatever we believe will generate the highest long term returns.
Speaker 3: Being disciplined to allocators of capital means that we appropriately adjust the scale and economics of our investments based on changes in technology, customers, and macroeconomic conditions.
Being disciplined allocators of capital means that we appropriately adjust the scale and economics of our investments based on changes in technology customers and macroeconomic conditions.
It doesn't mean that we stop investing.
Speaker 3: We apply a consistent rigorous approach to pursue opportunities that generate superior, expected returns for their given level of risk.
We apply a consistent rigorous approach to pursue opportunities that generate superior expected returns for their given level of risk.
Long term value is created when we invest in those opportunities.
Speaker 3: long term value is created when we invest in those opportunities.
Speaker 3: We have a long history of success in towers built on investing through various macroeconomic cycles. And we believe the small cell business is another great example of how we can build a business where our unique capabilities drive sustainable advantages that can grow significant long-term value.
We have a long history of success in towers built on investing through various macroeconomic cycles and we believe the small cell business is another great example of how we can build a business where our unique capabilities drive sustainable advantages that can grow significant long term value.
In 2024.
Speaker 3: We plan to capitalize on these opportunities, resulting in approximately 1.2 billion in discretionary capital expenditures, net-of-customer contributions, with 1.1 billion in our five or second.
We plan to capitalize on these opportunities, resulting in approximately $1 2 billion in discretionary capital expenditures net of customer contributions with $1 1 billion in our fiber segment.
Speaker 3: This capital is supporting the acceleration of expected 10,000 nodes in 2023 and 14,000 not only by 2500 nodes in 2024.
This capital is supporting the acceleration of expected 10000 nodes into 2023 and 14000 nodes in 2024.
Speaker 3: reflecting a 40% increase in new nodes with only a 20% increase in...
Reflecting a 40% increase in new nodes with only a 20% increase in capital.
Speaker 3: As we expect more than 50% of the nose to be co-location.
As we expect more than 50% of the nodes to be co location notes.
Speaker 3: We expect to fund this with discretionary CAPEX in 2024 without issuing X.
Importantly, we expect to fund this with discretionary capex in 2024 without issuing equity.
Speaker 3: Compared to 2022, this means that we expect nodes deployed in 2024 will be up three times, while fiber cap-X is only up-
Compared to 2022. This means that we expect nodes deployed in 2024 will be up three times, while fiber capex is only up 30%.
Speaker 3: Again, reflecting increasing co-location on our existing F.
Again, reflecting increasing co locations on our existing assets.
Speaker 3: The co-location and increasing yields on multitimic systems continue to be similar to the development of the tower business over the last 25 years.
Co location and increasing yields on multi tenant systems continued to be similar to the development of the tower business over the last 25 years.
Speaker 3: There is one more item I wanted to discuss. As you saw on the release, Dan will be departing Crown Castle next March.
There is one more item I wanted to discuss as you saw on the release, Dan will be departing Crown Castle next March.
Speaker 3: While he's not leaving for another 5 plus months, I wanted to take the opportunity to thank him for the contributions that he has made to the company over the last seven years.
Not leaving for another five plus months I wanted to take the opportunity to thank him for the contributions that he has made to the company over the last seven years.
Speaker 3: He has been integral to the growth of our business and strategy.
He has been integral to the growth of our business and strategy. We are benefiting from the work. He has led to increase the duration and predictability of our balance sheet and he has developed a strong finance team.
Speaker 3: We are benefiting from the work he has led to increase the duration and predictability of our balance sheet, and he has developed a strong phoneme.
Speaker 3: We will wish them all the best in his next endeavors. We have begun a search to find his replacement and will be considering both internal and external cancer.
We will wish him all the best in his next endeavors, we have begun a search to find his replacement and we'll be considering both internal and external candidates.
Speaker 3: As a wrap up, we believe below point for ASFO will be in the first half of 2024 as we work through the non-recurring sprint cancellations and the services headwind.
As I wrap up we believe the low point for <unk> will be in the first half of 2024 as we work through the nonrecurring sprint cancellations and the services headwinds.
Speaker 3: that I mentioned earlier. The consistent growth of each of our lines of business driven by persistent growth and data demand gives us confidence and our ability to fund our capex budget in 2024 without issuing equity, to maintain our current dividend in 2024 and to pursue sustainable dividend growth beyond 2025. And with that, let me turn the call over to Dan. you're
That I mentioned earlier, the consistent growth of each of our lines of business driven by persistent growth in data demand gives us confidence in our ability to fund our capex, but capex budget in 2024 without issuing equity to maintain our current dividend and 2024.
And to pursue sustainable dividend growth beyond 2025.
And with that let me turn the call over to Dan.
Good morning, everyone.
Thanks for the kind words, Jeff.
Speaker 2: I just wanted to start by saying how grateful I am for having the opportunity to work at Crown Castle last seven years. It's a great company and I continue to strongly believe it is pursuing a strategy that will generate significant value for Cheryl.
I just wanted to start by saying, how grateful I am for having the opportunity to work at Crown Castle last seven years, It's a great company and I continue to strongly believe it is pursuing a strategy that will generate significant value for shareholders as a large release for me shareholder I am excited to see that strategy play out over the next several years and look forward to the company's continued success.
Speaker 2: As a large release for me, shareholder, I'm excited to see that strategy play out over the next several years and look forward to the company's continued.
Speaker 2: Turning to the results, our third quarter was in line with expectations and demonstrated the resiliency of our business.
Turning to the results our third quarter was in line with expectations and demonstrated the resiliency of our business.
Speaker 2: With our customers transitioning beyond the initial surge in 5G deployments, we were able to deliver 4% conflated organic growth in the quarter, including nearly 4.5% organic growth in towers, and accelerating growth in small cells and fiber.
With our customers transitioning beyond the initial surge in <unk> deployments, we were able to deliver 4% consolidated organic growth in the quarter and clearly, including nearly four 5% organic growth in towers and accelerating growth in small cells and fiber solutions.
Speaker 2: Following third quarter results, we updated our outlook for 2023 to reflect the impact of our expected net income of approximately $110 million of charges related to our restructuring plans announced in July , as well as a $100 million reduction in power cap tax. All other items remain unchained.
Following third quarter results, we updated our outlook for 2023 to reflect the impact of our expense on our expected net income of approximately $110 million.
Of charges related to our restructuring plans announced in July as well as a $100 million reduction in tower Capex.
Unknown Executive: Good morning and welcome to the Crown Castle 3rd quarter, 2023, Arding's conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
All other items remain unchanged as shown on page five.
Speaker 4: Moving to our 2024 outlook, there are three significant issues that are negatively impacting.
Moving to our 2024 outlook there are three significant issues that are negatively impacting our results.
Speaker 4: First, the $165 million of Sprint cancellation payments we have received in 2023 will not recur in 2024.
Unknown Executive: After today's presentation, there will be an opportunity to ask questions to ask a question you may press star then one on your touch tone phone to withdraw from the question, please press star then two. Please note this event is being recorded.
First the $165 million of sprint cancellation payments, we have received in 2023 will not recur in 2024.
Speaker 4: Second, we will see a combined $240 million reduction to our straight line adjustment in amortization of prepaid rent, both of which are non-cash items. And lastly, a combination of exiting the construction services business and lower tower activity levels causes a reduction of approximately $55 million in our service.
Second we will see a combined $240 million reduction to our straight line adjustment and amortization of prepaid rent both of which are noncash items and lastly, a combination of exiting the construction services business and lower tower activity levels causes a reduction of approximately $55 million in our services gross margin.
Kris Hinson: I would now like to turn the conference over to Chris Hinson, VP of Corporate Finance and Treasurer. Please go ahead. Thank you Kate and good morning everyone.
Chris Hinson: Thank you for joining us today as we discuss a third quarter, 2023 results with me on the call this morning or Jay Brown, Crown Castle's Chief Executive Officer and Dan Schlanger, Crown Castle's Chief Financial Officer. Today the discussion we have posted supplemental materials in the investor section of our website at crowncastle.com that will be referenced throughout the call this morning.
Speaker 4: Due to these impacts, our 2024 outlook shows year-over-year declines in site rental revenues of $140 million, adjusted EBITDAB $260 million, and AFFO of
Due to these impacts our 2024 outlook shows year over year declines in site rental revenues of $140 million adjusted EBITDA of $260 million and <unk> of $275 million.
Chris Hinson: 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 factor sections of the company's SEC filings. Our statements are made as of today, October 19, 2023, and we assume no obligation to update any forward looking statements. In addition, today's call includes discussions of certain non-gap financial measures. Tables reconciling these non-gap financial measures are available in the sub supplemental information package in the investor section of the company's website at crowncastle.com.
Excluding these headwinds our strong organic growth across each of our businesses contribute $220 million to 2024, adjusted EBITDA, resulting in $65 million of <unk> growth.
Speaker 4: strong organic growth across each of our businesses contributes $220 million to 2024 Adjusted EBITZOT, resulting in $65 million of anthropogra.
Turning to page six looking ahead, we expect attractive revenue growth trends to continue with consolidated organic growth accelerated from 4% in 2023% to 5% in 2024 as we are seeing an increase in demand for our small cell and fiber assets.
Speaker 4: Looking ahead, we expect attractive revenue growth trends to continue, with consolidated organic growth accelerating from 4% in 2023 to 5% in 2024, as we are seeing an increase in demand for our small cell and fiber apps.
Speaker 4: Contributing to our organic growth is $305 to $335 million of core leasing, an increase of $30 million at the midpoint compared to 4-year-20-2.
Contributing to our organic growth is $305 million to $335 million of core leasing and increase of $30 million at the midpoint compared to full year 2023.
Jay Brown: With that, let me turn the call over to Jay. Thanks Chris and good morning everyone. Thanks for joining us. Our third quarter result continues to demonstrate our ability to generate consistent growth in the face of changes in the industry environment, allowing us to maintain our full year 2023 outlook for revenue, adjust to the EBITDA and AFFO. Based on the multi-year strength of our business model, we are confident in our ability to grow our dividend beyond 2025, once we get past the sprint related turn.
Speaker 4: Our 2024 consolidated core leasing of $329 million at the mid.
Our 2024 consolidated core leasing of $320 million at the midpoint.
Speaker 4: Include to $110 million from towers compared to $130 million in 2023.
<unk> $110 million from towers compared to $130 million in 2023.
Speaker 4: $60 million in small sales compared to $35 million.
$60 million in small cells compared to $35 million in 2023, and $150 million and fiber solutions compared to $125 million in 2023.
Speaker 4: and $150 million in fiber solutions compared to 125 million in 2020.
This year over year increase in core leasing resulted in an increase in organic contribution to site rental billings, excluding the impact of sprint cancellations of $265 million at the midpoint or 5%, which includes four 5% from towers, 13% from small cells and a return to 3% growth in fiber.
Speaker 4: This year over year increase in core leasing results in an increase in organic contribution to site rental billings, excluding the impact of sprint camps.
Jay Brown: Therefore, we are committed to maintaining our dividend in 2024 in the midst of the impact from the non-recurring sprint cancellations and lower contributions from services. Based on the timing of these headwinds, we expect the low point of AFFO to occur during the first half of 2024 before returning to growth in AFFO in the second half of next year and beyond. Demand for our assets has consistently been driven by our customers and this investing in their networks to keep pace with the rapid growth in mobile data demand.
Speaker 4: of $265 million at the midpoint, or 5%, which includes 4.5% from towers, 13% from small cells, and a return to 3% growth in fiber.
Yeah.
Speaker 4: The organic growth is offset at site rental revenues by the non-cash decreases in impact of the front cancellations I referenced earlier, along with an additional $10 million a sprint cancellation related small cell churn.
The organic growth is offset as site rental revenues by the noncash decreases and impact of the sprint cancellations I referenced earlier, along with an additional $10 million of sprint cancellation related small cell churn.
Speaker 4: This is primarily related to approximately 5,000 nodes that were terminated midway through 2023, which creates a rollover effect.
This is primarily related to approximately 5000 nodes that were terminated midway through 2023, which creates a rollover effect in 2024.
Jay Brown: Through our shared infrastructure model, we have helped our customers maximize the benefits of their investment by lowering the cost of deploying networks. Networks that have significantly improved our ability as consumers to connect with the people and the world around us. The combination of persistent data demand growth and our ability to provide low cost shared infrastructure solutions has enabled resilient underlying growth for us throughout generational upgrades and across macroeconomic cycles. Our full year 2024 outlook demonstrates the benefits of complementing our tower business with a leading portfolio of small cells and fiber.
Turning to page seven we are delivering this increase in organic contribution to site rental billings with a limited increase in expenses of only 2% or $45 million at the midpoint.
Speaker 4: Turning to page 7, we're delivering this increase in organic contributions to site rental buildings with a limited increase in expenses of only 2% or $45 million at the mid-
Speaker 4: which benefits from $35 million of savings related to the restructuring we announced in
Which benefits from $35 million of savings related to the restructuring we announced in July .
Speaker 4: When combining this $35 million expense reduction in 2024, with the $30 million we expect to achieve in 2023, and $40 million of cost savings embedded in the 2024 change in service,
When combining this $35 million of expense reduction in 2024 with a $30 million. We expect you to achieve in 2023 and $40 million of cost savings embedded in the 2020 for change in service margin. The total annual run rate savings from our restructuring program is expected to be $105 million.
Speaker 4: The total annual run rate savings of our restructuring program is expected to be 105.
Speaker 4: Inclusive of the $40 million decrease in costs and the impact from exiting the installation service
Inclusive inclusive of the $40 million decrease in costs and the impact from exiting the installation services business, we expect services margin to be $65 million to $95 million in 2024.
Jay Brown: As our customers, increasingly focused on 5G network densification so that they can meet the needs of their end users, we expect the total demand for our diverse portfolio of assets to increase. For towers, we expect to generate organic revenue growth of 4.5% in 2024. For small cells, we expect to generate organic growth of 13% driven by around $60 million of core leasing activities. As we increase new nodes from 10,000 in 2023 to 14,000 in 2024.
Speaker 4: We expect services margin to be $65 million to $95 million in 2024.
Margins as a percentage of revenue in our services business are expected to improve from approximately 25% in the third quarter of 2023 to nearly 50% by the end of 2000 2024, as we phase out installation services activity and benefit from our cost reduction initiatives.
Speaker 4: are expected to improve from approximately 25% in the third quarter of 2023 to nearly 50% by the end of 2020-24 as we phase out installation services activity and benefit from our cost reduction initiatives.
Moving to interest expense, we expect an increase of approximately $105 million at the midpoint as we fund our 2024 investments with incremental debt.
Speaker 4: We expected increase of approximately $105 million at the midpoint as we fund our 2024 investments with incremental
Speaker 4: When forecasting interest expense, we assume a cost of borrowing implied by the current rate environment slightly above 6% to fund our 2024 capitol.
When forecasting increased interest expense, we assume our cost of borrowing implied by the current rate environment slightly above 6% to fund our 2024 capital requirements.
Jay Brown: And for fiber solutions, we expect continued acceleration of leasing activity combined with a lower churn to generate organic growth of 3%. Excluding the impact of spring cancellations, the combination of organic revenue growth across our business is expected to generate consolidated organic growth of 5% in 2024, up from 4% in 2023.
Speaker 4: Our 2024 ASFO growth excluding the impact of the sprint cancellations and outsize non-cash movement.
Our 2024 <unk> growth, excluding the impact of the sprint cancellations and outsized noncash movements, which more closely reflects the underlying growth of the business is expected to be $40 million to $90 million.
Speaker 4: which more closely reflects the underlying growth of the business is expected to be 40 to $90 million. With contracted long-term power leasing agreements, a back-
With contracted long term tower leasing agreements a backlog of 60000 small cell nodes and a largely fixed cost structure, we have visibility into this underlying growth continuing over a multi year period, providing a solid foundation both for our current dividend and four our expectation of returning to sustainable dividend growth after 2020.
Jay Brown: While our growth remains robust, we know we need to continue to get better. Therefore, we continue to simplify streamline and centralize our business processes and operations, which will reduce our long term costs and improve our customer experience. Since announcing the restructuring plan in July, we have reduced our workforce and achieved $105 million of annual run rate savings. Having completed that plan, we have identified additional opportunities to drive further efficiencies, including a plan to move approximately 1,000 employee positions from several locations nationwide to a centralized location by the end of the third quarter of 2024.
Speaker 4: We have visibility into this underlying growth continuing over a multi-year period, providing a solid foundation both for our current dividends and for our expectation of returning to sustainable dividend growth after...
Five.
Speaker 4: As our wireless customers increasingly expand their 5G network investment focus to include both coverage and densification, we are seeing a growing number of value creating investment.
As our wireless customers increasingly expand their <unk> network investment focus to include both coverage and Densification, we are seeing a growing number of value creating investment opportunities in.
Speaker 4: And as Jay already mentioned, our 2024 discretionary capital program is $1.5 to $1.6 billion, or $1.1 to $1.2 billion, net of $430 million a prepaid
And as Jay already mentioned, our 2020 for discretionary capital program is one five to $1 6 billion.
Or one one to $1 2 billion net of $430 million of prepaid rent received importantly, we believe we can fund these investments without issuing equity in 2024.
Speaker 4: Importantly, we believe we can fund these investments without issuing equity in 2024.
Speaker 4: We recognize the collected impact of the reduction in non-cash items and the Sprint cancellation payments not recurring in 2024. Results in our leveraged ratio exceeding our target of five times net debt.
Jay Brown: The strong organic growth and improved operating leverage from the actions we continue to take to reduce costs supports are maintaining our current annualized dividend of $6.26 per share. As reflected in our results and outlook, our differentiated strategy to invest in and build an unmatched portfolio of assets diversifies our sources of growth. Our 40,000 towers, 115,000 small cells on air and under contract, and 85,000 route miles of fiber concentrated in the top US markets, make us well positioned to capitalize on long-term growth and data demand, regardless of how carriers deploy spectrum and densify their networks.
We recognized the collective impact of the reduction in noncash items in the sprint cancellation payments not recurring in 2024 results and our leverage ratio exceeding our target of five times net debt to EBITDA. However, we expect our durable cash flow growth to organically reduce our net debt to adjusted EBITDA ratio overtime to levels in line with our <unk>.
Speaker 4: However, we expect our durable cash flow growth to organically reduce our net debt to adjust the da ratio over time to levels in line with our investment grade credit profile. As we have seen our business do on multiple occasions through our investment rates.
<unk> grade credit profile as we have seen our business due on multiple locations throughout our investment grade history.
Speaker 4: Since transitioning to investment grade in 2015, we have intentionally to strengthen our balance sheet to mitigate risk by extending our weighted average maturity from five years to eight years, decreasing the percentage of secured debt from 47% to seven.
Since transitioning to investment grade in 2015, we are intentionally strengthened our balance sheet to mitigate risk by extending our weighted average maturity from five years to eight years decreasing the percentage of secured debt from 47% to 7% and increasing the percentage of fixed rate debt from 68% to 86%.
Speaker 4: and increasing the percentage of fixed rate debt from 68% to 86%
Jay Brown: At the beginning of 5G, our customers move quickly to deploy record amounts of newly acquired spectrum. This drove record tower activity levels. As the initial surge and tower activity ended, our small cell growth is accelerating, as customers shift focus to densifying portions of their networks that have experienced the most traffic. In 2024, we expected to deploy a record 14,000 small cell nodes. Our ability to capture the accelerating growth in small cell demand is driven by the assets and core capabilities that we have built as the largest operator shared infrastructure in the United States.
Speaker 4: Further, we ended the quarter with approximately $5 billion of availability under our revolving credit.
Further we ended the quarter with approximately $5 billion of availability under our revolving credit facility and only $750 million of debt maturities occurring through 2020 for providing us with ample liquidity to fund our business for the foreseeable future.
Speaker 4: And only $750 million of debt materities occurring through 2024, providing us with ample liquidity to fund our business for their foreseeable.
Speaker 4: To wrap up, the underlying growth of the business remained solid and the contracted agreements we have in place provide line of sight and continued to continued underlying growth over a multi-year.
To wrap up the underlying growth of the business remains solid and the contracted agreements we have in place to provide line of sight and continued into continued underlying growth over a multiyear period. We believe this growth provides a stable foundation for our current dividend and the ability to continue to pursue our value creating investments in 2024 without issuing equity.
Speaker 4: We believe this growth provides a stable foundation for our current dividend and the ability to continue to pursue our value-creating investments in 2024 without issuing it.
Longer term.
Speaker 4: Our unparalleled domestic portfolio of tower, small cell, and fiber assets provides unique access to a growing number of opportunities with superior risk adjusted returns, which we believe will create value for our shareholders and increase our long-term total shareholder research. With that,
Our unparalleled domestic portfolio of tower small cell and fiber assets provides unique access to a growing number of opportunities with superior risk adjusted returns, which we believe will create value for our shareholders and increase our long term total shareholder return.
Jay Brown: Our 85,000 route miles of fiber include high strand counts and heavily populated areas where the density of data demand is the highest, which makes them the most desirable locations for small cell deployments. We are a highly reliable operator of that fiber network. If fiber goes offline, small cells go offline, and for our wireless customers, network quality and reliability are paramount. We have a world-class team of network operators and engineers that ensures our network is designed to mitigate the impact of any outage and is capable of fixing these outages quickly and efficiently.
With that I'd like to open the call to questions.
Speaker 1: We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using the speaker phone, please pick up your handset before pressing.
We will now begin the question and answer session.
Question You May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing.
Speaker 5: To withdraw from the question, can you please press pardon to?
To withdraw from the question queue. Please press star two.
Sure.
Speaker 5: The first question is from Simon's library of Morgan Stanley . He's go ahead.
The first question is from Simon Flannery of Morgan Stanley . Please go ahead.
Jay Brown: We have also developed expertise in navigating the permitting processes with multiple municipal organizations, regulatory agencies and utility companies across hundreds of disparate local markets, each with a unique set of regulations and stakeholders. This expertise allows us to navigate the difficult process of building small cells in the markets across the United States. Finally, we are consistently finding ways to build small cells in fiber more efficiently. These efficiency allow us to provide the most cost-effective and reliable network solutions for customers.
Speaker 6: Great, thank you and good morning and down all the best for the future. We're great working with you. I guess you've got one more call with us.
Great. Thank you and good morning.
And John all the best for the future have a great working with you I guess, you've got one more call with us.
Speaker 6: Perhaps we could start just talking about leasing activity and the guidance expectations.
Perhaps we could start just talking about leasing activity in the <unk>.
<unk> expectations. It seems like it's a pretty tricky year I know, you're always guide before your peers, but we've got a lot of moving parts with the <unk> capex cycle kind of winding down here. So could you just characterize when you set your guidance for next year, particularly on Power's How're you.
Speaker 6: It seems like it's a pretty tricky year. I know you always guide before your peers, but we've got a lot of moving parts with the 5G, CapEx, cycle kind of winding down here. So could you just characterize when you set your guidance for next year, particularly on towers, how you characterize the current activity and the expectations for next year in terms of what we expect to see from the major carriers and from the likes of dish.
Arcturus the current activity and the expectations for next year in terms of what we expect to see from the major carriers and from the likes of dish does that is it is there less visibility than in prior years and has that caused you to perhaps chesapeake.
Jay Brown: We look to deliver the highest risk-adjusted returns for our shareholders through continuously building on the core capabilities that I just mentioned that generate unique value in the businesses we own and operate. These capabilities reduce the overall cost of deploying and operating communications networks, which becomes even more compelling for our customers in times of increasing capital costs. Of course, higher capital costs impact us as well. Our disciplined approach to capital allocation means that as our cost of capital increases, so must the returns we require from our investments.
Speaker 6: Does that, is there less visibility, say, than in prior years? And as that calls you to perhaps just be somewhat conservative?
What conservative and then.
Speaker 6: You talked about the leverage being above trend, are any kind of ability to sell assets, anything that you might be looking on the strategic side, and also any opportunities on the M&A side, given some of the strategic moves by some wireless carriers out there. Thank you.
You talked about the leverage being above trend or any kind of.
Ability to sell assets or anything that you might be looking on the strategic side and.
Also any opportunities on the M&A side given.
Some of the strategic moves by some wireless carriers out there. Thank you.
Speaker 3: Sure, good morning Simon. I'm your first question around leasing activity. The Tower Guide for 2024 assumes a similar level of activity to what we've seen in the second half of 2023. So underlying our view is basically a consistent level of activity as the surge, the initial activity from 5G.
Jay Brown: We are continuously evaluating the expected returns of all of our investments against the rising cost of capital and other potential investment opportunities, including repurchasing our own shares. Consequently, we allocate capital to whatever we believe will generate the highest long-term returns. Being disciplined to allocators of capital means that we appropriately adjust the scale and economics of our investments based on changes in technology, customers, and macroeconomic conditions. It doesn't mean that we stop investing.
Sure. Good morning, Simon on the first question around leasing activity. The tower guide for 2024 assumes a similar level of activity to what we've seen in the second half of 2023, so underlying our view with basically a consistent level of activity.
Serge the initial activity from <unk> came to an end during the first half of the year.
Speaker 3: came to an end during the first half of the year. We saw the level of activity stabilized and we think that carries into calendar year 24.
Saw the level of activity has stabilized and we think that carries into calendar year 'twenty four.
Speaker 3: I think we have good visibility around that. Much of the work given the nature of the business, we go into the year with the significant portion of that revenue already contracted and we have good visibility as to when we think it will actually come online. So I would characterize our visibility.
I think we have good visibility around that much.
Much of the work given the nature of the business. We go into the year with a significant portion of that revenue already contracted and we have good visibility as to when we think it will actually come online.
Jay Brown: We apply a consistent rigorous approach to pursue opportunities that generate superior expected returns for their given level of risk. Long-term value is created when we invest in those opportunities. We have a long history of success and towers built on investing through various macroeconomic cycles, and we believe the Small Cell Business is another great example of how we can build a business where our unique capabilities drive sustainable advantages that can grow significant long-term value.
I would I would characterize our visibility.
Speaker 3: from a reported results standpoint, pretty similar to what we've seen historically. And feel like that level of activity is sustainable over the long term as the carriers continue to upgrade, the sites that they're already on, with 5G equipment and as well as densify the network using towers that they're not currently on.
From a reported result standpoint pretty similar to what we've seen historically and and feel like that level of activity is sustainable over the over the long term as the carriers continue to upgrade the sites that they're already on with <unk> equipment and as well as densify the network.
Using towers that are not currently on.
Speaker 3: As I noted in my comments, we think that we will see and have seen a shift.
As I noted in my comments.
Jay Brown: In 2024, we plan to capitalize on these opportunities, resulting in approximately 1.2 billion in discretionary capital expenditures, net of customer contributions, with 1.1 billion in our five or second. This capital is supporting the acceleration of expected 10,000 nodes in 2023 and 14,000 nodes in 2024. Reflecting a 40% increase in new nodes with only a 20% increase in capital, as we expect more than 50 percent of the nodes to be co-location nodes.
We think that we will see and have seen a shift.
Speaker 3: and a focus from the carriers that they start to use small cells to a greater degree to densify their network.
And our focus from the carriers as they start to use small cells to a greater degree to densify their network. So our view is based on a pretty holistic view of the way the carriers, we're thinking about there about their networks as we as we wrap up 2023 and get into 2000 and.
Speaker 3: So our view is based on a pretty holistic view of the way the carriers are thinking about their networks as we wrap up 2023 and get into 2024 and feel good about the organic growth that we're showing on both segments they're related to the wireless.
24, and feel good about the organic growth.
That we're showing in both in both segments there related to the wireless carriers.
Speaker 3: On the second question around the lever trend as Dan mentioned in his comment
On the on the second question around the leverage trend as Dan mentioned in his comments.
Jay Brown: Importantly, we expect to fund this with discretionary CAPEX in 2024 without issuing equity. Compared to 2022, this means that we expect nodes deployed in 2024 will be up three times, while fiber CAPEX is only up 30 percent, again, reflecting increasing co-locations on our existing assets. The co-location and increasing yields on multi-tenant systems continue to be similar to the development of the tower business over the last 25 years.
Speaker 3: Obviously with some of the headwinds that we talked about in our comments, it's going to cause the leverage to tick up a bit. That's happened in the past and we would expect over time that we'll see good, good growth in the business that will allow us to, to de-lever back down and get back.
Obviously with some of the headwinds that we talked about in our comments.
It's going to cause the leverage to tick up a bit that's happened in the past and we would expect over time that we'll see good good growth in the business that will allow us to delever back down and get back.
Speaker 3: at levels that are where our target would be. So the headwinds will create some uplift around that leverage ratio and then we think over time we'll be able to bring it back down, bring it back down in line.
At levels that are where our target would be so the headwinds will create some uplift around that leverage ratio and then we think overtime, we'll be able to bring it bring it back down and bring it back down in line.
Speaker 3: On your the last part of your question around you know ways to to manage the business and and M&A and other things I would you know I don't think there's anything specific that I would comment on but just generally the way we think about running our business
On your the last part of your question around ways to manage the business and in M&A and other things.
Jay Brown: There is one more item I wanted to discuss, as you saw on the release, Dan will be departing Crown Castle next March. While he's not leaving for another five plus months, I wanted to take the opportunity to thank him for the contributions that he has made to the company over the last seven years. He has been integral to the growth of our business and strategy. We are benefiting from the work he has led to increase the duration and predictability of our balance sheet, and he has developed a strong finance team.
I would you know I don't think Theres anything specific that I would comment on but just generally the way we think about running our business.
Jay Brown: We will wish him all the best in his next endeavors. We have begun a search to find his replacement and will be considering both internal and external candidates.
Speaker 3: is there are three ways that we view we can create long-term, shareholder value. The first way is to add additional revenue to the assets that we own. That organic growth comes at great incremental returns. And the second way is we can invest in more assets that we would extend. We believe would extend the runway of growth into the future. And then the third way is to lower the cost of capital.
Is there are three ways that we view, we can create long term shareholder value. The first way is to add additional revenue to the assets that we own.
That organic growth comes at great incremental returns.
And the second waves, we can invest in more assets that we will that would extend we believe would extend the runway of growth into the future and then the third way is to lower the cost of capital. We think all three of those are ways of driving long term shareholder value and we are constantly working on all three of those.
Speaker 3: You think all three of those are ways of driving long-term shareholder value and we are constantly working on all three of those. What's unique about the current environment that we're in is that oftentimes in periods of disruption, more opportunities arise. And I made reference to that in terms of the capital costs of our customers can create opportunities for us to invest capital that can drive returns over the long term.
Jay Brown: As I wrap up, we believe below point for ASFO will be in the first half of 2024 as we work through the non-recurring sprint cancellations and the services headwinds that I mentioned earlier. The consistent growth of each of our lines of business driven by persistent growth and data demand gives us confidence in our ability to fund our CAPEX budget in 2024 without issuing equity to maintain our current dividend in 2024 and to pursue sustainable dividend growth beyond 2025.
What's unique about our about the current environment that we're in is that oftentimes in periods of disruption more opportunities.
Ross and I made reference that to that in terms of the capital cost of our customers can create opportunities for us to invest capital that that can drive returns over the long term that also happens sometimes around the way assets are priced and so us being really thoughtful about how we can create value on those those three.
Speaker 3: That also happens sometimes around the way assets are priced. So us being really thoughtful about how we can create value on those three fronts. And we are not always looking at those opportunities and I would say in periods of disruption.
Dan Schlanger: And with that, let me turn the call over to Dan. Good morning, everyone, and thanks for the kind words, Jay. I just wanted to start by saying how grateful I am for having the opportunity to work at Crown Castle last seven years. It's a great company, and I continue to strongly believe it is pursuing a strategy that will generate significant value for shareholders. As a large, at least for me, shareholder, I'm excited to see that strategy play out over the next several years and look forward to the company's continued success.
And we.
We are we are not always we are always looking at those opportunities and I would say in periods of disruption. Our experience has been that oftentimes there are some pretty unique opportunities that arise and so we'll continue to.
Speaker 3: Our experience has been that oftentimes there are some pretty unique opportunities that arise and so we'll continue to
Speaker 3: to work on all three, growing the revenues on the existing assets, looking for opportunities for new assets, and then trying to find ways to lower our cost capital.
Work on all three growing the revenues on the existing assets looking for opportunities for new assets, and then trying to find ways to lower our cost of capital.
Great. Thanks, a lot.
You bet.
Dan Schlanger: Turning to the results, our third quarter was in line with expectations and demonstrated the resiliency of our business. With our customers transitioning beyond the initial surge in 5G deployments, we were able to deliver 4% consolidated organic growth in the quarter, including nearly 4.5% organic growth in towers and accelerating growth in small cells and fiber solutions. Following third quarter results, we updated our outlook for 2023 to reflect the impact of our expected net income of approximately $110 million of charges related to our restructuring plans announced in July, as well as a $100 million reduction in power tactics. All other items remain unchanged as shown on page 5.
Speaker 1: The next question is from Michael Rollins of City. Please go ahead.
The next question is from Michael Rollins of Citi. Please go ahead.
Speaker 7: Thanks and good morning. Also, I've spent my best wishes to Dan as well.
Thanks, and good morning.
Elsewhere.
Best wishes to Dan as well.
Speaker 7: questions that I could today. The first one is, as you're just describing returns, curious if you can give us an update on how the returns for small cells.
Two questions if I could today. The first one is as you are.
Describing returns curious if you can give us an update on how the returns for small cells.
Speaker 7: growth is now accelerating, how those returns are pacing versus your expectation. And if you're seeing any difference in pricing on a per-node basis, relative to the current portfolio. And then just, and then you're seeing any difference in pricing on a per-node basis, relative to the current portfolio.
As the growth is now accelerating how those returns are pacing.
Versus your expectation and if youre seeing any difference in pricing on a per node basis.
Relative to the current portfolio.
And then just drilling.
Drilling down into.
Speaker 7: the earlier question on assets. Do you have a significant amount of non-core assets or non-core ground leases? And can you possibly unpack?
The earlier question on assets do you have a significant amount of non core assets or non core ground leases and can you possibly unpack.
Dan Schlanger: Moving to our 2024 outlook, there are three significant issues that are negatively impacting our results. First, the $165 million of sprint cancellation payments we have received in 2023 will not recur in 2024. 2nd, we will see a combined $240 million reduction to our straight line adjustment in amortization of prepaid rent, both of which are non-cash items. And lastly, a combination of exiting the construction services business and lower tower activity levels causes a reduction of approximately $55 million in our services for this market.
The size if you have any of that given the.
Speaker 7: size if you have any of that given the recent press report.
Recent press reports.
Speaker 3: Sure, on the first question around returns for small sales, we continue to see really attractive returns in our small-cell business. And the amount of co-location that we're seeing both in 2023 and 2024 and the economics of those incremental ads, well, and excess of 20%.
Sure on the first question around returns for small cells. We've continued to see really attractive returns in our small cell business and the.
The amount of co location that were seeing both in 2023, and 2024 and the economics of those incremental.
<unk> well in excess of 20% is.
Speaker 3: is encouraging. As we have seen systems develop, we continue to be initial returns going to those second, that second tenant, we get into the low double digit returns. And as we get to the third tenant, we're high teams low 20% from a system standpoint.
Dan Schlanger: Due to these impacts, our 2024 outlook shows year over year declines in site rental revenues of $140 million. Adjusted EBITDAW of $260 million, and AFFO of $275 million. Excluding these headwinds, the strong organic growth across each of our businesses contributes $220 million to 2024 Adjusted EBITDAW, resulting in $65 million of AFFO growth.
As encouraging.
As we have seen systems develop we continue to be initial initial returns go into those second that second tenant we get into the low double digit returns and as we get to the third tenant we're high teens low 20% from a system standpoint given.
Speaker 3: Given the quantity of notes that I talked about in my comments both that we're seeing in 23 as well as when we go into 24
Given the quantity of notes that I talked about in my comments, both that we're seeing in 'twenty three as well when we go into 'twenty four.
Dan Schlanger: Turning to page 6, looking ahead we expect attractive revenue growth trends to continue with consolidated organic growth accelerating from 4% in 2023. To 5% in 2024, as we are seeing an increase in demand for our small cell and fiber assets. Contributing to our organic growth is $305 to $335 million of core leasing, an increase of $30 million at the midpoint compared to full year 2023. Our 2024 consolidated core leasing of $320 million at the midpoint, includes $110 million from towers compared to $130 million in 2023.
Speaker 3: and half of those nodes being co-locations, we're seeing the multi-tenant systems track those expected returns. And so it's still really good about where those are going. As we think about pricing,
And half of those nodes being co location.
Seeing the multi tenant systems track those expected returns and so.
Really good about where those are going as we think about pricing.
Speaker 3: We have always priced the business based on folks on return.
We have always priced the business based on focused on returns so theres not a unlike towers, where there is there is more of a national pricing occur.
Speaker 3: So there's not a, unlike towers where there's more of a national pricing across assets, a small field is different.
Cross asset a small cells is different the small cells is priced based on the required returns based on the cost to build systems and so in areas where the.
Speaker 3: Small sales is priced based on the required returns based on the cost of the build systems. And so in areas where the costs are higher, the pricing follows. And that has had some uplift in it as a result of some of the inflationary pressures that have been in the environment. And so that does affect the pricing and we're able to lift pricing associated with that in order to maintain and grow the returns associated with the system.
Dan Schlanger: $60 million in small cells compared to $35 million in 2023, and $150 million in fiber solutions compared to $125 million in 2023. This year over year increase in core leasing results in an increase in organic contribution to site rental billings, excluding the impact of sprint cancellations of $265 million at the midpoint. Or 5%, which includes 4.5% from towers, 13% from small cells, and a return to 3% growth in fiber solutions. The organic growth is offset at site rental revenues by the non-cash decreases in impact of the sprint cancellations I referenced earlier, along with an additional $10 million of sprint cancellation related small cell churn. This is primarily related to approximately 5,000 nodes that were terminated midway through 2023, which creates a rollover effect in 2024.
The costs are higher at the pricing follows and that has has had some uplift in it as a result of some of the inflationary pressures that have been in the environment and so that does affect the pricing and we're able to lift pricing associated with that in order to maintain and grow the returns associated with the cyst.
Speaker 3: And so we've seen the business develop as we would have expected.
And so we've seen the business developed as we would've expected on the second question around.
Speaker 3: On the second question around non-core assets and potential size there.
<unk> non core assets and potential size there.
Speaker 3: I don't think we have a lot of non-core assets inside the portfolio of assets, but one of the things that I would say is
I don't think we have a lot of non core assets.
Inside the portfolio of assets, but.
One of the things I would say is the ground lease ground leases you specifically referenced ground leases. We have over time brought a significant portion of ground leases on balance sheet by acquiring the ground leases. We also extend ground leases for very long periods of time were down north of.
Speaker 3: The ground leases, you specifically reference ground leases.
Speaker 3: We have over time brought significant portion of ground leases on balance sheet by acquiring the ground leases. We also extend ground leases for very long periods of time. We're now north of...
Dan Schlanger: Turning to page 7, we are delivering this increase in organic contributions to site rental billings with a limited increase in expenses of only 2%, or $45 million at the midpoint, which benefits from $35 million of savings related to the restructuring we announced in July. When combining this $35 million expense reduction in 2024, with the $30 million we expect to achieve in 2023, and $40 million of cost savings embedded in the 2024 change in service margin, the total annual run rate savings of our restructuring program is expected to be $105 million.
Speaker 3: 30 years of duration in our ground-least portfolio. And so we have the opportunity, we see the opportunity obviously to go out and push ground leases in terms of duration for over very long periods of time.
30 years of duration in our in our ground ground lease portfolio and so we have the opportunity.
We see the hub.
We have the opportunity obviously to go out and push ground leases in terms of duration for over very long periods of time and.
Speaker 3: And we may choose to do that off balance sheet or on balance sheet. So I would put that in the category that could be an opportunity for us to lower the cost of capital, depending on how we think about it.
And we may choose to do that off balance sheet or on balance sheet. So I would put that in the category.
It could be an opportunity for us to lower the cost of capital depending on how we think about it in order to run the business sufficiently the key is do we have control both in terms of the cost of that activity and then do we have control in terms of certainty of being able to maintain the asset and add additional revenue.
Dan Schlanger: Inclusive of the $40 million decrease in cost and the impact from exiting the installation services business, we expect services margin to be $65 million to $95 million in 2024. Margins as a percentage of revenue in our services business are expected to improve from approximately 25% in the third quarter of 2023 to nearly 50% by the end of 2024 as we phase out installation services activity and benefit from our cost reduction.
Speaker 3: In order to run the business efficiently, the key is do we have control both in terms of the cost of that activity, and then do we have control in terms of certainty of being able to maintain the asset and add additional revenue? So the financing decision really just comes down to what's the lowest cost of capital, and we're always looking for opportunities to try to figure out the way to do a cheap, that lowest cost capital across the asset.
The financing decision really just comes down to what's the what's the lowest cost of capital and we're always looking for opportunities to try to figure out the way to achieve the lowest cost of capital across the asset.
Dan Schlanger: International Initiatives. Moving to interest expense, we expected an increase of approximately $105 million at the midpoint as we fund our 2024 investments with incremental debt. When forecasting interest expense, we assume a cost of borrowing implied by the current rate environment, slightly above 6% to fund our 2024 capital requirements. Our 2024 AFFO growth, excluding the impact of the sprint cancellations and outsize non-cash movement, which more closely reflects the underlying growth of the business, is expected to be $40 to $90 million.
Thank you.
Speaker 1: The next question is from Nick Delbio of Moffit, Nathanson, please go ahead.
The next question is from Nick del Deo of Moffett Nathan. Please go ahead.
Speaker 8: Hey, good morning. Thanks for taking my questions. First, to continue on the capital allocation theme, in the past, you generally argued that the returns you see from small cells, I guess, fiber more generally, we're so far ahead of what you could get from repurchases that repurchases really weren't in your considerations set. Guess how would you describe that relationship today? Are repurchases starting to look more interesting versus fiber or are other uses of capital?
Good morning, Thanks for taking my questions.
First to continue on the capital allocation theme.
In the past you've generally argued that the returns you see from small cells I guess five or more generally we're so far ahead of what you can get from repurchasing repurchases really werent in your consideration set I.
I guess, how would you describe that relationship today.
Repurchases, starting to look more interesting versus fiber or <unk> or other uses of capital.
Dan Schlanger: With contracted long-term power leasing agreements, a backlog of 60,000 small-cell notes, and a largely fixed cost structure, we have visibility into this underlying growth continuing over a multi-year period, providing a solid foundation both for our current dividend and for our expectation of returning to sustainable dividend growth after 2025. As our wireless customers increasingly expand their 5G network investment focus to include both coverage and densification, we are seeing a growing number of value creating investment activities.
Speaker 3: Good morning, Nick. Obviously the move downward in the stock price and the yield associated with it while we've maintained a long term.
Good morning, Nick.
Obviously, the move downward in the stock price and the yield associated with it while we've maintained a long term view.
Speaker 3: view that will return after we get through 2025 that we'll be able to return to growing organic growth.
View that will return after we get through 2025 that will be able to return to growing organic growth in line with our with our targets, obviously that becomes a more attractive investment at lower lower prices.
Speaker 3: in line with our with our targets. Obviously that becomes a more attractive investment at lower lower prices.
Speaker 3: As I mentioned in my comments, what's also true is there's a growing, we believe, growing demand and focus by our carrier customers.
As I mentioned in my comments. So it is also true is.
Dan Schlanger: And as Jay already mentioned, our 2024 discretionary capital program is $1.5 to $1.6 billion, or $1.1 to $1.2 billion net of $430 million a prepaid rent received. Importantly, we believe we can fund these investments without issuing equity in 2024.
There is a growing we believe growing demand and focus by our carrier customers for the assets.
Speaker 3: for the assets around small cells. So it absolutely affects the way we think about the incremental projects that we take on because we're always thinking about things as what is the opportunity cost or the potential opportunity returns that we could pursue by choosing one path over another path.
Around small cells and so it absolutely affects the way we think about the incremental projects that we take on because we're always thinking about things is what is the opportunity cost or the potential opportunity returns that we could pursue but by choosing one path over another path and our.
Dan Schlanger: We recognize the collective impact of the reduction in non-cash items, and the sprint cancellation payments not returning in 2024 results in our leverage of ratio exceeding our target of 5 times net debt to EBITDA. However, we expect our durable cash flow growth to organically reduce our net debt to adjust the EBITDA ratio over time to levels in line with our investment grade credit profile, as we have seen our business do on multiple occasions through our investment grade history.
Speaker 3: And our consistent approach has been over a long period of time to do that, to compare things like repurchasing shares or investing in assets. So as the stock price has moved, it does adjust how we think about opportunities and it will continue to...
Our consistent approach has been over a long period of time to do that to compare things like repurchasing shares or investing in assets. So as.
As the stock prices has moved it does adjust how we think about opportunities and it will continue to do so.
Okay.
Speaker 8: You know, maybe turning to the employee relocation plan that you just was last night, it seems to reflect a pretty meaningful, you know, philosophical change in how you manage the company, at least right now, outsiders perspective. I guess, why do you think a more centralized approach is better now? You know, has something changed in terms of, you know, your ability to better manage the business in a more centralized way than you once were, or am I kind of overthinking it?
Dan Schlanger: Since transitioning to investment grade in 2015, we have intentionally strengthened our balance sheet to mitigate risk by extending our weighted average maturity from 5 years to 8 years, decreasing the percentage of secured debt from 47% to 7%. We are increasing the percentage of fixed rate debt from 68% to 86%.
Maybe turning to the employee relocation plan that you disclosed last night.
And it seems to reflect a pretty meaningful.
Philosophical change in how you manage the company.
At least right outside his perspective.
Why do you think a more centralized approach is better now.
Any change in terms of your ability to better manage the business in a more centralized way then you once were or am I or my kind of what we're thinking.
Dan Schlanger: Further, we ended the quarter with approximately $5 billion of availability under our Revolving Credit Facility, and only $750 million of debt materities occurring through 2024, providing us with ample liquidity to fund our business for their foreseeable future.
I don't think youre over thinking it.
Speaker 3: We are constantly looking at ways to run our business more efficiently. And so as we have come, come off of the peak of 5G activity, one of the things that we looked at as we were evaluating what's the right sizing of the organization, one of the things that we thought was necessary was to reduce the number of employees in the business, which we did that in the July and completed that work over the last several, the last several.
We are constantly looking at ways to run our business more efficiently.
Dan Schlanger: To wrap up, the underlying growth of the business remains solid, and the contracted agreements we have in place provide line of sight and continued into continued underlying growth over a multi-year period. We believe this growth provides a stable foundation for our current dividend, and the ability to continue to pursue our value creating investments in 2024 without issuing equity. Longer term, our unparalleled domestic portfolio of tower, small cell, and fiber assets provides unique access to a growing number of opportunities with superior risk adjusted returns, which we believe will create value for our shareholders and increase our long term total shareholder reserve.
And so as we have come.
Come off of the peak of five <unk> activity one of the things that we looked at as we were evaluating what's the right sizing of the organization one of the things that we thought was necessary was to reduce the number of employees in the business, which we did that in the July .
And completed that work over the last several the last several months. The second part of it is how can we run the business more efficiently in terms of our processes and business operations and so the view that we took on that front is that by centralizing things, we can reduce long term cost of operating our business.
Speaker 3: The second part of it is how can we run the business more efficiently in terms of our processes and business operations? And so the view that we took on that front is that by centralizing things we can reduce long-term costs of operating our business.
Speaker 3: and we can get to the place where we can deliver for our customers more quickly and more efficiently. So improving the customer experience, which we believe will do both the reducing our long-term cost of operating the assets, but also give us an opportunity to potentially increase the revenue that we can deliver for customers by delivering for them more quickly.
<unk>.
Kris Hinson: With that, Kate, I'd like to open the call to questions. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing. 13. To withdraw from the question, Q, please press start and two.
And we can get to the place where we can deliver for our customers more quickly and more efficiently.
So improving the customer experience, which we believe will do both.
Reducing our long term cost of operating the assets, but also gives us an opportunity to potentially increase the revenue that we can deliver for customers by delivering for them more quickly.
Simon Flannery: The first question is from Simon Flannery of Morgan Stanley. Please go ahead. Great.
Speaker 3: I think that's just the way you should always be running the businesses. Looking for ways to reduce the costs run it more efficiently. And as we've looked at the activity that we believe will occur for the business over the long term, we believe this reformatted business will be the best way to run the business. But both from a cost standpoint and then give us opportunity for additional revenue.
I think thats just the way you should always be running the business is looking for ways to reduce the costs run it more efficiently and as we've looked at the activity that we believe will occur for the business over the long over the long term. We believe this this reformatted business will be the best the best way to run the business both from a cost standpoint, and then give us opportunity for additional revenue.
Jay Brown: Thank you and good morning and Dan, Dan, all the best for the future. We're working with you. I guess you've got one more call with us. Perhaps we could start just talking about leasing activity and the guidance expectations. It seems like it's a pretty tricky year. I know you always guide before your peers, but[inaudible] throughout the leverage being above trend, are any kind of ability to sell assets, anything that you might be looking on the strategic side and also any any opportunities on the M&A side given some of the strategic moves by some wireless carriers out there.
Overtime.
Speaker 8: Any, just one quick fall on that. Any risk of an operational hiccup given all the changes taking place or do you feel like you have that pretty well buttoned down?
Okay.
Just one quick follow up on that and any risk of an operational hiccup given all the changes taking place or do you feel like you have that pretty well buttoned down.
Speaker 3: I wouldn't say there's never there's ever a place where there isn't the opportunity for a hiccup so we've got to be disciplined operators of the asset.
Well I Wouldnt say theres never there is ever a place where there is the opportunity for a hiccup. So we've got to be disciplined operators of the assets and.
Speaker 3: and run the business thoughtfully. And we intend to do that. I have a great deal of confidence in our team and our ability to do that. The restructuring plan that we announced in the press release yesterday.
And run the business thoughtfully and we intend to do that.
Have a great deal of confidence in our team.
And our ability to do that.
The restructuring plan that we announced in the press release yesterday.
Speaker 3: affects about 25% of our employees.
Affects about 25% of our employees.
Speaker 3: And so I'm confident that the plans that we have in place to work through that they'll do well. The 80% that are unaffected, I believe today are hard at work and doing what you would expect in terms of delivering on the business. So it's something we got to watch and certainly manage and we have a plan internally to do that. Okay, thank you.
And so I'm confident that the plans that we have in place to work through that they'll do well the 80% that are unaffected.
Jay Brown: Thank you. Sure. Good morning, Simon. I'm your first question around leasing activity. The tower guide for 2024 assumes a similar level of activity to what we've seen in the second half of 2020. 23 so underlying our view is basically a consistent level of activity as the as the surge, the initial activity from 5G came to an end during the first half of the year. We saw the level of activity stabilize and we think that carries into calendar year 24.
I believe today are hard at work and doing what you would expect in terms of delivering on the business. So it's something we got to watch and certainly certainly manage and we have a plan internally to do that.
Thank you Jay you.
You bet.
The next question is from Jonathan Atkin of RBC capital markets. Please go ahead.
Speaker 1: Next question is from Jonathan Adkin of RBC Capital Markets. Please go ahead.
Speaker 9: Thanks a couple questions. We say no equity issuances. Does that include not drawing on the ATM and then more broadly on the financial side? Wonder what your updated thinking would be about the pace that's given and growth beyond 2025 from your vantage point right now.
Thanks, a couple of questions.
When you say no equity issuance does that include not drawing on the ATM and then more broadly on the financial side.
Jay Brown: I think we have good visibility around that much of the work given the nature of the business. We go into the year with a significant portion of that revenue. Already contracted and we have good visibility as to when we think it will actually come online. So I would I would characterize our visibility from a reported result standpoint pretty similar to what we've seen historically and and feel like the that level of activity is sustainable over the over the long term as the carriers continue to upgrade the sites that they're already on.
Wondering what your updated thinking would be about the pace of dividend growth beyond 2025 from <unk>.
At this point right now.
Speaker 4: Yeah, John , I'll thank the first one on the ATM. Yeah, it means that we're not going to be issuing equity even under the ATM. Yeah.
Yes, John I'll take the first one on the ATM.
It means that we're not going to be issuing equity.
Even under the ATM.
Beyond 2025.
Speaker 3: I would look at the business and say based on the characteristics that we see for organic revenue growth and our long-term forecasts for where we think the carriers are going to invest.
I would look at the business and say based on the characteristics that we see for organic revenue growth and our long term forecast for where we think the carriers are going to invest to continue to build out <unk>, which is going to take the better part of the decade, we expect.
Jay Brown: With 5G equipment and as well as densify the network using towers that they're not currently on. As I noted in my comments, we think that we will see and have seen a shift and a focus from the carriers as they start to use small cells to a greater degree to densify their network. So our view is based on a pretty holistic view of the way the carriers are thinking about their about their networks as we as we wrap up 2023 and get into 2000 and and 24 until good about the organic growth that that we're showing in on on both in both segments.
Speaker 3: to continue to build out 5G, which is going to take the better part of the decade we expect.
Speaker 3: We see organic growth in AFFO returning to that targeted level of 7 to 8%. And so feel good about the underlying demand drivers of where we're going to get there. And then as we get closer to that date, we can talk more specifically about what we think the growth rate will be in 2026.
We see organic growth and <unk>, returning to that targeted level of $7, 7% to 8% and so feel good about the underlying demand drivers of where we're going to how we're going to get there and and then as we get closer to that date. We can we can talk more specifically about what we.
I think that the growth rate will be in 2026, but the underlying demand drivers in that.
Speaker 3: But the underlying demand drivers, and as we look at it today, look to be healthy and intact, and we think those are sustainable. And as we get through these headwinds over 2024 and 2025, that we'll get back to a targeted level of growth in our AF.
We look at it today look to be healthy and intact and we think those are sustainable and as we get through these headwinds over 2024, and 2025 that will get back to our targeted level of growth in our in our <unk>.
Jay Brown: They're related to the to the wireless carriers. On the on the second question around the leverage trend as Dan mentioned in his comments. Obviously with some of the headwinds that we talked about in our comments. It's going to cause the leverage to tick up a bit. That's happened in the past and we would expect over time that we'll see good good growth in the business that will allow us to to deliver back down and get back at levels that are where our target would be.
Speaker 9: And then, laughing for my side, just on the core, fiber business, X small cells, what are the types of trends you're seeing from the demand, customer renewals, price ceiling, and so forth?
And then lastly from my side, just on the core fiber business.
Ex small cells, what are the types of trends youre seeing in terms of demand customer renewal pricing and so forth.
Sure two big trends that are affecting that as we've gone through the calendar year and move past the churn events that we've been talking about we've seen.
Speaker 3: Sure, two big trends that are affecting that, as we've gone through the calendar year and moved past the turn events that we've been talking about, we've seen the net growth come back in line with where we expected to get, we still think we're gonna exit this year at about 3%.
Jay Brown: So the headwinds will create some uplift around that leverage ratio and then we think over time we'll be able to bring it bring it back down bring it back down in line. On your the last part of your question around you know ways to to manage the business and and MNA and other things. I would you know I don't think there's anything specific that I would comment on but just generally the way we think about running our business.
Both.
We've seen the net growth come back in line with where we expected to.
We still think we're going to exit this year at about 3% you.
Speaker 3: You could see in our guide for next year that we're on pace to get, we believe will be on pace to get the next year's level of growth by the time we exit this year.
You can see in our guide for next year that we're on pace to get we believe will be on pace to get to next year's level of growth by the time, we exit this year. The two trends that we're seeing is both an uplift on the on the core leasing side. So we're seeing more activity from both new logos and in <unk>.
Speaker 3: The two trends that we're seeing is both an uplift on the core leasing side, so we're seeing more activity.
Jay Brown: Thomas, is there are three ways that we view we can create long-term shareholder value. The first way is to add additional revenue to the assets that we own. That organic growth comes at great incremental returns, and the second way is we can invest in more assets that we would extend. We believe would extend the runway of growth into the future. And then the third way is to lower the cost of capital.
Speaker 3: from both new logos and an opportunity to continue to sell to the logos that we're already selling to. We also see a reduction in churn.
Opportunities continue to sell to the logos that we're already selling too we also see a reduction in churn.
Speaker 3: Our team has undertaken a number of really thoughtful activities over the last couple of years.
Our team has undertaken a number of really thoughtful activities over the last couple of years that are starting to bear fruit and that results in a reduction in churn and so both in the both on the on the top as well as the reduction in churn.
Speaker 3: that are starting to bear fruit and that results in a reduction in churn.
Jay Brown: We think all three of those are ways of driving long-term shareholder value, and we are constantly working on all three of those. What's unique about the current environment that we're in is that oftentimes in periods of disruption, more opportunities arise. And I made reference to that in terms of the capital costs of our customers can create opportunities for us to invest capital that can drive returns over the long-term. That also happens sometimes around the way assets are priced.
Speaker 3: And so both on the top as well as the reduction in churn is leading to that 3% growth that we see next year. The more macro drivers of that business.
<unk> is leading to that 3% growth that we see we see next year the more macro drivers of that business are healthy as.
Jay Brown: And so us being really thoughtful about how we can create value on those three fronts. And we are not always we are always looking at those opportunities. And I would say in periods of disruption our experience has been that oftentimes there are some pretty unique opportunities that arise. And so we'll continue to work on all three, growing the revenues on the existing assets, looking for opportunities for new assets, and then trying to find ways to lower our cost of capital.
Speaker 3: are healthy as data demands not only for wireless which we've talked a lot about on this call.
Data demand not only for wireless, which we've talked a lot about on this call, but also for connectivity on a wireline basis those growth drivers continue to be healthy the movement of enterprises towards moving data to the cloud and off premises continues to create opportunities for for that business. We think.
Unknown Executive: Great. Thanks a lot.
Speaker 3: but also for connectivity on a wire line basis. Those growth drivers continue to be healthy. The movement of enterprises towards moving data to the cloud and off premises.
Speaker 3: continues to create opportunities for that business. We think those trends are intact, especially for the customer base that we serve. Our fiber business primarily serves large enterprises. We have very little exposure to it.
Those trends are intact, especially for the customer base that we serve.
Our fiber business, primarily serves large enterprises, we have very little exposure to medium and small businesses and we don't do anything direct to consumer on the large enterprise side.
Speaker 3: Medium and small businesses and we don't do anything direct consumer
Speaker 3: On the large enterprise side, we've seen those trends towards off premises and
We see those trends towards off premises and and.
Speaker 3: and movement to the cloud to be sustainable drivers that are going to drive growth for a long period of time and then we're continuing to be thoughtful about how can we make those revenues strange more sticky.
And movement to the cloud to be sustainable drivers that are going to drive growth for a long period of time and we're continuing to be thoughtful about how can we make those those revenue streams more more sticky.
Michael Rollins: The next question is from Michael Rollins of City. Please go ahead. Thanks and good morning. I also want to send my best wishes to Dan as well. Two questions that I could today. The first one is you're just describing returns. Curious if you can give us an update on how the returns for small sales as the growth is now accelerating, how those returns are pacing versus your expectation. And if you're seeing any difference in pricing on a per-node basis relative to the current portfolio.
Great. Thank you very much.
Speaker 1: The next question is from Rick Prentice of Raymond James. Please go ahead.
The next question is from Rick Prentiss of Raymond James. Please go ahead.
Speaker 10: Thanks, good morning, everyone, and Dan, enjoy getting to know you over these last seven years.
Thanks, Good morning, everyone and enjoy.
Enjoyed getting to know you over these last seven years.
Yeah, Thanks, Rick detail.
Speaker 10: I want to start on the dividends side. Y'all know I really like looking at cash more than the AFFO reported metric. But it looks like the midpoint of 24 AFFO.
Yes.
I wanted to start on the dividend side, you all know I really like what kind of cash more than <unk>.
Reported metric.
And it looks like the midpoint of 24 <unk>.
Michael Rollins: And then just drilling down into the earlier question on assets. Do you have a significant amount of non-core assets or non-core ground leases? And can you possibly unpack the size if you have any of that given the recent press reports?
Speaker 10: 3 billion and five, 305 and that amortization of prepaid rent and non-cash on you talk about it was about 423 million that kind of implies that a cash AFFO number would be more like ballpark 2.6 billion versus dividends might be like 2.7 billion and I think of that correctly and in one other ways are there the kind of bridge that get to working cap or other ways to get to that kind of how you pay the cash is tampering agates but tomorrow pieces their way they will make a
$3 billion in 5305.
<unk>.
That amortization of prepaid rent and noncash you talk about it was about $423 million that kind of implies that a cash flow number would be more like ballpark $2 6 billion versus dividends might be like $2 7 billion.
Looking at that correctly in what other ways are there to kind of bridge that get to working capital or other ways to get to that kind of how you pay the cash dividend.
Jay Brown: Sure. On the first question around returns for small sales, we've continued to see really attractive returns in our small sell business. And the amount of co-location that we're seeing both in 2023 and 2024 and the economics of those incremental ads, well, and excess of 20 percent, is encouraging. As we have seen systems develop, we continue to be initial returns going to those second, that second tenant, we get into the low double digit returns.
Speaker 4: So Rick, I was thinking, yes, you're thinking about that correctly. Looking at our AFFO, taking out the prepaid rent amortization to get to a...
So.
I would say, yes, youre thinking about that correctly looking at our <unk>, taking out the prepaid rent amortization to get to a <unk>.
Cash level makes sense as a shorthand way to do so and that number is going to be below our dividend at the midpoint. When we look at 2024, and we believe as Jay pointed out.
Speaker 4: cash level make sense as a shorthand way to do so. And that number is going to be below our dividend at the midpoint when we look at 2024. And we believe as Jay pointed out throughout his comment.
Throughout this.
Speaker 4: is that given that we think that we're going to be returning out to growth in past 2025, that it made a lot of sense to keep the dividend where it is, and we can fund that dividend in all sorts of different ways. We don't have an liquidity issue of trying to figure out where the cash comes from, what we have is what we'll do is we'll continue to pay out the dividend, and then as the organic growth in the business continues to increase over the course of next several years, we feel really comfortable with the trajectory of that dividend.
Comment is that given that we think that we're going to be.
Turning out to growth and past 2025, and it made a lot of sense to keep the dividend where it is and we can fund that dividend all sorts of different ways.
Jay Brown: And as we get to the third tenant, we're high teams, low 20 percent from a system standpoint. Given the quantity of notes that I talked about in my comments, both that we're seeing in 2023, as well as when we go into 24, and half of those nodes being co-locations. We're seeing the multi-tenant systems track those expected returns. And so it's still really good about where those are going. As we think about pricing, we have always priced the business based on focused on returns.
No not a liquidity issue I'm trying to figure out where the cash comes from what we have is what we'll do is we'll continue to pay out the dividend and then as the organic growth in the business continues to increase over the course of the next several years, we feel really comfortable with the trajectory of that dividend over time.
Speaker 10: And a couple of times I think Jay mentioned maintain the dividend in 24 obviously it's a board decision, but should we assume This the intent is to maintain the dividend in 25 as well and to dance point there's other ways to pay it if it catches short
Okay.
And a couple of times I think Jay you mentioned and maintain the dividend in 'twenty four obviously, it's a board decision, but should we assume this.
The intent is to maintain the dividend of <unk> 25, as well and to Dan's point Theres other ways to pay it if cash is short.
Jay Brown: So there's not an unlike towers where there's more of a national pricing across assets. But a small sales is different. The small sales is priced based on the required returns based on the cost of the build systems. And so in areas where the costs are higher, the pricing follows. And that has had some uplift in it as a result of some of the inflationary pressures that have been in the environment. And so that does affect the pricing and we're able to lift pricing associated with that in order to maintain and grow the returns associated with the systems. And so we've seen the business develop as we would have expected.
Speaker 3: Yeah, we obviously were set in a dividend policy for 2024, so I don't want to get ahead of ourselves and start talking about 25, but philosophically, the reason why we're referencing the low point is to help give you a view of this multi-year work through that we've got with the consolidation of Sprint and some of the headwinds that we've been facing. As you kind of referenced and walk through the math there as the gap.
Yeah, Rick obviously, we're setting the dividend policy for 2024, so don't want to get ahead of ourselves and start talking about 25, but philosophically. The reason why we're referencing the low point is to help give you a view of this multi year work through that we've got with the consolidation of <unk>.
Sprint and some of the headwinds that we've been facing.
As you kind of referenced and walk through the math there is the gap.
Speaker 3: In essence, what we're saying is we expect that gap to be smaller in 2025 than it is in 2024.
In essence, what we're saying is we expect that gap to be smaller in 2025 than it is in 2024.
Speaker 3: So historically, as we've looked at the business, what we've done is sized up the cash flow generation of the business and we've paid out to shareholders in the form of the dividend, the cash generated by the business in any given year. That's how we've set our...
So historically as we've looked at the business. What we've done is sized up the cash flow generation of the business and we've paid out to shareholders in the form of the dividend the cash generated by the business in any in any given year. That's how we've set set our dividend.
Jay Brown: On the second question around non-core assets and potential size there. I don't think we have a lot of non-core assets inside the portfolio of assets. But one of the things that I would say is the groundly, specifically reference ground leases, we have over time brought a significant portion of ground leases on balance sheet by acquiring the ground leases. We also extend ground leases for very long periods of time. We're now north of 30 years of duration in our ground lease portfolio.
Speaker 3: As we got into this period of time, which we believe is an anomaly in the business, the consolidation of the carriers, and work through the headwinds associated with more of the macroeconomic changes, what we tried to do was look through those specific events that we were seeing on the horizon and look out beyond those events and try to figure out where do we think the cash flow generation of the business would be as the business normalize?
As we got into this period of time, which we believe is an anomaly in the business the consolidation of the carriers and worked through the headwinds associated with more of the macroeconomic changes what we tried to do was look through those those specific events that we were seeing on the horizon and look out.
Beyond those events and try to figure out where do we think the cash flow generation of the business would be as the business normalized as we look through that our view was it made sense to maintain the dividend in 2020 for the.
Jay Brown: And so we have the opportunity to go out and push ground leases in terms of duration for over very long periods of time. And we may choose to do that off balance sheet or on balance sheet. So I would put that in the category that could be an opportunity for us to lower the cost of capital depending on how we think about it. In order to run the business efficiently, the key is do we have control both in terms of the cost of that activity.
Speaker 3: As we look through that, our view was it made sense to maintain the dividend in 2024.
Speaker 3: The gap will be the widest between that dividend payout and the generation of cash in the business in the first half of 24. And then it will close as we go to the second half of 24 and then into 25 and get beyond that. And we believe we'll return to a growth period of time once we get past 2025.
The gap will be the widest between that dividend payout and the generation of cash in the business in the first half of 'twenty four and then it will close as we as we go to the second half of 'twenty, four and then into 'twenty five and get beyond that and we believe we will return to a growth period of time once we get past 2020.
Jay Brown: And then do we have control in terms of certainty of being able to maintain the asset and add additional revenue. So the financing decision really just comes down to what's the lowest cost of capital. And we're always looking for opportunities to try to figure out the way to achieve that lowest cost capital across the asset. Thank you.
Speaker 3: So we're in essence looking through these movements in these events and trying to and try to to assess the dividend of the level that we could maintain in 24, the gap between the current level of dividend and the cash generation will be smaller in 25 and then we'll return to growth, we believe, in 2000.
So we're in essence looking through these movements.
And these events and trying to.
And tried to set the dividend at a level that we could maintain in 'twenty for the gap between the current level of dividend and the cash generation will be smaller in 'twenty five and then we will return to growth we believe in 2026.
Speaker 10: Okay, thanks. Another question on my side on the small sales. I think you mentioned there were 5,000 nodes decommissioned in mid-23 from the sprint. Was that within second quarter, there's more of those to be decommissioned? Sorry, in third quarter, assume we've done with it. And the 14,000 nodes were in 24. Is that a gross or net number, are they almost the same?
Okay. One other question on my side on the small cells.
Nick Del Dio: The next question is from Nick del Dio of Moffitt, Nathanson, please go ahead. Hey, good morning. Thanks for taking my questions. You know, first to continue on the capital allocation theme. You know, in the past, you generally argued that the returns you see from small cells. I guess five or more generally.
You mentioned there were 5000 nodes decommissioned in mid 'twenty three from sprint was that within the second quarter or are there some more of those to be decommissioned.
Sorry in third quarter assume we're done with it and the 14000 nodes for 24 is that a gross or net number or they almost the same.
Jay Brown: But we're so far ahead of what you can get from repurchases that repurchases really weren't in your considerations that is how would you describe that relationship today? You know, are our repurchases starting to look more interesting versus fiber or rather uses a capital? Good morning, Nick. Obviously the move downward in the stock price and the yield associated with it, while we've maintained a long term view that will return after we get through 2025 that we'll be able to return to growing organic growth in line with our targets.
Speaker 3: On the 5,000, most of those have come out at this point, which is why you saw our total nodes and contracted nodes come down from 120,000 to 115,000. That's reflective of the churn. So most of those have worked their way through. The number for 2024 when we talk about 14,000.
On the 5000, most there is a little bit of movement. Most of those have come out at this point, which is why you saw our total nodes and contracted nodes come down from 120000 to 115000, that's reflective of the churn. So most of those have worked their way through the.
The number for 2024, when we talk about 14000 gross and net are the same. So we don't expect any meaningful churn in 2024 of small cell nodes so that.
Speaker 3: Gross and net are the same. So we don't expect any meaningful turn in 2024, a small cell note. So there's no offset there that you need to be made.
Jay Brown: It's obviously that becomes a more attractive investment at lower, lower prices. As I mentioned in my comments, but it's also true is there's a growing, we believe, growing demand and focused by our carrier customers for the assets around small cells. And so it absolutely affects the way we think about the incremental projects that we take on because we're always thinking about things as what is the opportunity cost or the potential opportunity returns that we could pursue by choosing one path over another path.
There is a there's no offset there that you need to be made aware of.
Speaker 4: In the 10 million sprint churn and the 24 guidance is that basically in us it's kind of a half year then of the 10 million reflective Yeah, it basically is exactly the roll over of this year's churn hitting
And then the 10 million sprint churn in the 'twenty four guidance is that basically in essence kind of a half year then.
The $10 million reflective.
Yeah, It basically exactly as the rollover of this year's churn hitting 2024.
Speaker 10: And that gets back to that first half, versus second half kind of concept. That's a contributing factor to second half being better than. Yes. Yeah.
That gets back to that first half versus second half kind of a concept that is a contributing factor in the second half being better than.
Yes.
Great. Thanks, so much again best wishes.
Thank you.
Speaker 3: The next question is from David Barden, a Bank of America. Please go ahead. Hey guys, thanks for taking the question. Just a couple in the small cell side, Sue, Jair Dan.
The next question is from David Barden of Bank of America. Please go ahead.
Jay Brown: And our consistent approach has been over a long period of time to do that, to compare things like repurchasing shares or investing in assets. So as the stock price has moved, it does adjust how we think about opportunities and it will continue to.., to do so. Okay.
Hey, guys. Thanks for taking the questions.
Just.
A couple on the small cell side so.
Sure Dan.
With a 40% step up in the rate of no deployment.
Speaker 4: step up in the rate of no deployment, you know, it's happening at a time when you're kind of shrinking the organization. What has to happen, how does that happen to kind of make that step up? Because it's larger than we've kind of seen you guys do before. And then the second question related is, is should we assume that this is kind of the new normal, both in terms of discretionary catbacks and in terms of kind of no deployments for the foreseeable future? Or is this more of an anomaly and kind of more like the 10,000
It's happening at a time when youre kind of shrinking the organization, what what has to happen how does that happen.
Jay Brown: You know, maybe turning to the employee relocation plan that you just was last night, it seems to reflect a pretty meaningful, you know, philosophical change in how you manage the company, you know, at least right now, outsiders perspective. I guess, why do you think a more centralized approach is better now? You know, has something changed in terms of, you know, your ability to better manage the business in a more centralized way than you were or am I kind of overthinking it?
Make that step up because it is larger than we've ever seen you guys do before and then.
Second question related is is is should we assume that this is kind of the new normal both in terms of discretionary capex and in terms of kind of node deployments for the foreseeable future or is this more of an anomaly and kind of more like the 10000 node.
Speaker 4: Node, you know, 1.2 billion discretionary cash cap access is more than norm. Thanks.
$1 2 billion in discretionary cash Capex is more of the norm.
Speaker 3: But come more in a day. On your first question, the changes that we made in terms of reduction of staffing happened almost exclusively on the tower side. And what we were adjusting the internal costs related to were both in the services business on the tower side as well as on the tower operating side. And those were adjusted based on the volume of activity that we saw for tower leasing.
You bet good morning, Dave on.
Jay Brown: I don't think you're overthinking it. We are constantly looking at ways to run our business more efficiently, and so as we have come, come off of the peak of 5G activity, one of the things that we looked at as we were evaluating what's the right sizing of the organization, one of the things that we thought was necessary was to reduce the number of employees in the business, which we did that in the July, and completed that work over the last several months.
On your first question the changes that we've made in terms of reduction of staffing happen almost exclusively on the tower side and.
And what we were adjusting the internal costs related to where both in the services business on the tower side as well as on the tower operating side.
Those were adjusted based on the volume of activity that we saw for tower leasing and the movement from those peaks of five <unk> down to the levels that we.
Speaker 3: and the movement from those peaks of 5G down to the level set. We think we're going to deliver both in the second half of 23 and then as we go into 2000 and 24. As we...
Jay Brown: The second part of it is how can we run the business more efficiently in terms of our processes and business operations? And so the view that we took on that front is that by centralizing things, we can reduce long-term costs of operating our business, and we can get to place where we can deliver for our customers more quickly and more efficiently, so improving the customer experience, which we believe will do both reducing our long-term cost of operating the assets, but also give us an opportunity to potentially increase the revenue that we can deliver for customers by delivering for them more quickly.
We provided both we think we're going to deliver both in the second half of 'twenty three and then as we go into 2024.
As we think about resources on the small cell side believe our team and the growth in both use of technology.
Speaker 3: about resources on the small cell side. Believe our team and the growth in both use of technology.
Speaker 3: and refining some of the processes and making ourselves more successful at navigating through municipalities, which I talked about in some of my comments.
And.
Refining some of the processes and making ourselves more successful at at navigating through municipalities, which I talked about in some of my comments I don't see a significant need for us to add additional resources to our to our fiber segment as we as we tackle this significant increase in the amount of amount of nodes are.
Speaker 3: I don't see a significant need for us to add additional resources.
Speaker 3: to our five or segment as we tackle this significant increase in the amount of notes.
Speaker 3: Our team has been preparing for this and one of the benefits of the long lead time that we have in that business is we can be really thoughtful about.
Team has been preparing for this and one of the benefits of the long lead time that we have in that business as we can be really thoughtful about making sure. We plan to work and an engaged to work in and as well as looking for ways to do it more efficiently team has done a really good job of that so the job shrinkage in the.
Jay Brown: I think that's just the way you should always be running the businesses, looking for ways to reduce the costs run it more efficiently, and as we've looked at the activity that we believe will occur for the business over the long over the long term, we believe this reformatted business will be the best way to run the business, both from a cost standpoint and then give us opportunity for additional revenues over time.
Speaker 3: making sure we plan the work and engage the work and as well as looking for ways to do it more efficiently.
Speaker 3: Team has done a really good job of that. So the job shrinkage and the reduction of costs has really not come from that segment of the business and I believe we're prepared to deliver.
<unk> of cost is really not come from that segment of the business and I believe were prepared to deliver.
Speaker 3: the growth that we're talking about without material changes to the cost structure on the up.
The growth that we're talking about with without material changes to the cost structure on the upward side.
Jay Brown: Okay, any risk of an operational hiccup given all the changes taking place, you feel like you have that pretty well buttoned down? Well, I wouldn't say there's never a place where there isn't the opportunity for a hiccup, so we've got to be disciplined operators of the assets and run the business thoughtfully, and we intend to do that. I have a great deal of confidence in our team and our ability to do that.
Speaker 3: On your second question around the discretionary catback.
On your second question around the discretionary Capex.
Speaker 3: You know, it's hard to give you a really long-term forecast about that because we haven't paired that with what do we think the demand is going to be in the amount of activity. At a given level of activity that's similar to what we're doing in 2024, I would say yes, we would expect the CAPEX to be in and around that level with that's the level of activity that we're operating.
It's hard to give you a really long term forecast about that because we.
We havent paired that with what do we think the demand is going to be in the amount of activity.
At the at a given level of activity that similar to what we're doing in 2020 for I would say, yes, we would expect the capex to be in and around that level. If that's the level of activity that we're operating with.
Jay Brown: The restructuring plan that we announced in the press release yesterday affects about 25% of our employees, and so I'm confident that the plans that we have in place to work through that they'll do well. The 80% that are unaffected, I believe today, are hard at work and doing what you would expect in terms of delivering on the business. So it's something we've got to watch and certainly manage and we have a plan internally to do that.
Speaker 3: or continuing to see the business move and navigate towards a greater percentage of co-location.
We're continuing to see the business move and navigate gave towards a greater percentage of of co location nodes.
Speaker 3: Those returns, as I mentioned to an earlier question, have come in at levels that we expected them to come in at. So we're seeing the multi-tenant model, multi-tenant systems deliver returns that we're in line with expectations. And then as we go out a long way, our view is generally that the carriers are gonna need more small cells than what they're currently taking today as they densify the 5G network.
Those returns as I mentioned to an earlier question have come in at levels that we would expect we expected them to come in and out. So we're seeing the multi tenant model multi tenant systems deliver returns, though that were in line with expectations.
Jay Brown: Okay, thank you, Jay. You bet.
And then as we go out a long way our view is generally that the carriers are going to need more small cells than what they're currently taking today as they densify. The <unk> network and we believe that Densification will continue as consumers use the network to an even greater degree so the total addressable.
Jonathan Atkin: The next question is from Jonathan Adkin of RBC Capital Markets. Please go ahead. Thanks, a couple of questions.
Speaker 3: And we believe that densification will continue as consumers use the network to an even greater degree.
Jonathan Atkin: We say no equity issuances. That includes not drawing on the ATM and then more broadly on the financial side. Wonder what your updated thinking would be about the pace that's given and growth beyond 2025 from your vantage point right now. Yeah John, I'll thank the first one on the ATM. Yeah, it means that we're not going to be issuing equity even under the ATM. Beyond 2025 I would look at the business and say based on the characteristics that we see for organic revenue growth and our long term forecasts for where we think the carriers are going to invest to continue to build out 5G which is going to take the better part of the decade we expect.
Speaker 3: So the total addressable market and the need for small cells, we believe, will have upward...
The market and the need for small cells. We believe we will have upward upward.
Speaker 3: upward trends on it and as those upward trends come I think it creates the opportunity for us to put investment opportunities.
Upward trends on it and as those upward trends come I think it creates the opportunity for us to put investment opportunities back through that rigorous process that I that I talked about in my comments around.
Speaker 3: Back through that rigorous process that I talked about in my comments around.
Speaker 3: Do these investments in those more in particular markets that have opportunity in them, do they make sense for us relative to other alternative?
Do these investments in those smart in particular markets that may have opportunity in them do they make sense for us relative to other alternatives and we'll just have to see how that unfolds to see whether it makes sense for us to pursue those or not.
Speaker 3: And we'll just have to see how that unfolds to see whether it makes sense for us to pursue those or not. Got it.
Jonathan Atkin: We see organic growth in AFFO returning to that targeted level of 7 to 7 to 8% and so feel good about the underlying demand drivers of where we're going to get there and then as we get closer to that date we can talk more specifically about what we think the growth rate will be in 2026. But the underlying demand drivers and as we look at it today look to be healthy and intact and we think those are sustainable and as we get through these headwinds over 2024 and 2025 that we'll get back to a targeted level of growth in our AFFO.
Got it thanks, so much.
You bet.
Speaker 1: The next question is from Greg Williams of Collins. Please go ahead.
The next question is from Greg Williams with Cowen. Please go ahead.
Speaker 7: Great, thanks for taking my questions. Just echoing the comments or Dan, wish you all the best, and thank you for the support. Just the first question is on the higher cost for 24, it's that it's up to 30, 60 million, even after the 35 million cost savings, and just wondering if you can break out for peace parts there, if it's ground-based escalation, et cetera.
Great. Thanks for taking my questions just echoing the comments or Dan I wish you all the best and thank you for your support just the first question is on the higher costs were 24, it looks like it's up $60 million, even after a 35 90 cost savings and I was wondering if you can break out the piece parts there its ground lease escalations etcetera, and then the second question.
Speaker 11: And then the second question is just on the comments around the small cell returns, you're saying it's just as good as powers on a multi-canons system basis. So is there any update to lease off rates in small cells? As we think of that, these are the decours.
On the comments around the small salary turns youre, saying its just as good as towers on a multi tenant system basis. So is there any update you can lease up rates in small cells. As we think out of that is the peak hours. Thanks.
Speaker 4: Yeah, thanks, Greg. Appreciate the comments. And then I'll start with the first question on higher costs in 2024. You hit on a bunch of them. So the major cost increases that we experience, we do outgroundly, under our towers, is the single largest line item.
Yeah. Thanks, Greg I appreciate the comments and then I'll start with the first question on higher costs. In 2024, you hit on a bunch of them. So the major cost increases that we experienced.
Jay Brown: And then lastly for my side just on the core fiber business X small cells what are the types of trends you're seeing from the demand customer renewals price even and so forth. Sure two big trends that are affecting that as we've gone through the calendar year and moved past the turn events that we've been talking about. We've seen the net growth come back in line with where we expected to get we still think we're going to exit this year at about 3%.
We do have ground leases under our towers is the single largest line item that we.
Speaker 4: have in our P&L on the expense side. And those ground leases increase at about 3% per year in cost.
Have in our P&L.
The expense side and.
Those ground leases increase at about 3% per year in cost that has to be baked in secondly, we like every other company is faced with are faced with increasing cost for labor for people, who work here people were hiring because the cost of people is going up with inflation.
Speaker 4: That has to be baked in. Secondly, we like every other company is faced with, or are faced with increasing costs for labor for people who work here, people who are hiring because the cost of people is going up with inflation. And then lastly, we had some one time savings in the back half of 2023 that won't occur going into 2024, which show a little bit more of an increase also. When you add those things up, you get to the type of costs increases, increases you are just.
Jay Brown: You could see in our guide for next year that we're on pace to get we believe will be on pace to get the next year's level of growth by the time we exit this year. The two trends that we're seeing is both an uplift on the core leasing side so we're seeing more activity from both new logos and an opportunity to continue to sell to the logos that we're already selling to.
And then lastly, we had some onetime savings in the back half of 2023 that won't occur going into 2024 would show a little bit more of an increase also when you add those things up you get to the.
The type of cost increases you were just referencing.
Speaker 3: Greg, on your second question around the returns, small cells have then historically continued to be and our view would be will continue to be.
Greg on your second question around the returns.
Jay Brown: We also see a reduction in churn our team has undertaken a number of really thoughtful activities over the last couple of years that are starting to bear fruit and that results in a reduction in churn. And so both in the on the top as well as the reduction in churn is leading to that 3% growth that we see next year. The more macro drivers of that business are healthy as data demand not only for wireless which we've talked a lot about on this call but also for connectivity on a wire line basis.
Small cells have been historically continued to be in our view would be we will we will continue to be.
Speaker 3: initially and with the first co-located tenant and the second co-located tenant on a particular system, actually better than what we've seen historically from towers. When we put capital into the ground for small cells,
Initially and with the with the first.
Co located tenant in the second co located catered tenant on a particular system actually better than what we've seen historically from towers.
When we put capital into the ground for small cells. We are at about double the initial yield on invested capital. So what we are with towers.
Speaker 3: We are at about double the initial yield on invested capital to what we are with towers.
Speaker 3: whether those towers were acquired historically or built.
Whether those towers were acquired historically.
Or built.
Speaker 3: Our initial returns are more than double what a tower is.
Our initial returns are more than double what a tower is when we get to the second tenant on a small cell system. We're in the low double digit range.
Jay Brown: Those growth drivers continue to be healthy. The movement of enterprises towards moving data to the cloud and off premises continues to create opportunities for for that business. We think those those trends are intact especially for the customer base that we serve our fiber business primarily served large enterprises. We have very little exposure to medium and small businesses and we don't do anything direct consumer on the large enterprise side. We see those trends towards off premises, and movement to the cloud to be sustainable drivers that are going to drive growth for a long period of time, and we're continuing to be thoughtful about how can we make those revenue streams more sticky?
Speaker 3: when we get to the second tenet on a small cell system
Unknown Executive: Great, thank you very much.
Speaker 3: We're in the low double digit range, generally with towers in order to get to those kind of yields, as you can see in the supplement.
Generally with towers in order to get to those kind of yields as you can see in the supplement.
Speaker 3: We're well over two tenants in order to get to low double-digit yields on invested capital
We're well over two tenants in order to get to low double digit yields on invested capital and then when we get to a third third tenant on our system.
Speaker 3: And then when we get to a third, third tenet on a system, we're high teens low 20% yield.
We're high teens low 20% yields you can see some of that in the disclosure that we gave last quarter around some markets.
Speaker 3: You could see some of that in the disclosure that we gave last quarter around some market.
Speaker 3: that we've been in for a long period of time and have a significant number of multi-tenant systems in some places where we've got the three tenants.
We've been in for a long period of time and have a significant number of multi tenant systems in some places where we've got the three tenants we get to very attractive returns that would exceed those of even towers. Historically. So we're at the early stages of co location. So it's we're not multi tenant across the entire system, yet, but we do believe over time.
Speaker 3: We get the very attractive returns that would exceed those of even towers historically.
Speaker 3: We're at the early stages of co-location, so we're not multi-tenant across the entire system yet, but we do believe over time.
Rick Prentiss: The next question is from Rick Prentiss of Raymond James, please go ahead. Thanks, good morning everyone, and Dan, I enjoyed getting to know you over these last seven years. Thanks, Rick.
Speaker 3: like towers over 25 years of adding tenets.
Like towers over 25 years of adding tenants will continue to see.
Speaker 3: We'll continue to see growth in those returns and yields.
Growth in those.
And those returns and yields.
Dan Schlanger: Me too. I want to start on the dividend side. Y'all know I really like looking at cash more than the AFFO reported metric, but it looks like the midpoint of 24 AFFO, 3 billion and 5, 305, and that amortization of pre-paid rent and non-cash on it, you talk about it, it was about 423 million, that kind of implies that a cash AFFO number would be more like bought all part 2.6 billion versus dividends might be like 2.7 billion.
Speaker 3: and believe over time, this business on the small cell side will continue to trend towards what we've seen in towers and will create a significant amount of shareholder value over time as we've been able to.
Believe over time this busy.
On the small cell side will continue to trend towards what we've seen in towers and will create a significant amount of shareholder value over time as we've been able to build assets in the best markets in the United States, those with dense populations and a lot of data demand and believe as the carriers.
Speaker 3: Build assets in the best markets in the United States, those with dense populations and a lot of data demand and believe as the carriers densify the network, the assets that we have are going to result in a lot of co-location over many years.
Densify the network the assets that we have are going to result in a lot of co location over many years and that will consistently drive increases in yields and growth and value creation for equity holders.
Speaker 3: and that will consistently drive increases in yield.
Speaker 3: and growth and value creation for equity holders. numbers.
Dan Schlanger: Am I thinking of that correctly? And in what other ways are there the kind of bridge that gets to working cap or other ways to get to that kind of how do you pay the cash dividend? So Rick, I was thinking about that correctly, looking at our AFFO, taking out the pre-paid rent amortization to get to a cash level makes sense as a shorthand way to do so. And that number is going to be below our dividend at the midpoint when we look at 2024, and we believe as Jay pointed out throughout his comments, is that given that we think that we're going to be returning out to growth in past 2025, that it made a lot of sense to keep the dividend where it is, and we can fund that dividend in all sorts of different ways.
Great. Thank you.
Speaker 1: The next question is from Matt McNam of Georgia Vege. Please go ahead.
Next question is from Matt Mcconnell of Deutsche Bank. Please go ahead.
Speaker 12: Hey guys, thanks for taking a question. Two quick ones. First, on AFFO per share growth, maybe if you can help us think through the moving parts, driving the expectation for second half AFFO per share in 24 to be better than the first half as it improved these things, is there anything on the cross-ride in terms of ramp up of savings to be cognizant of?
Hey, guys. Thanks for taking the question.
Two quick ones first on <unk> per share growth, maybe if you can help us think through the moving parts driving the expectation for second half ASF all per share in 2000 and for it to be better than the first half is it improved leasing is there anything on the cost side in terms of ramp up of savings to be cognizant of.
Speaker 12: And then secondly, on services, if you could just help us think through a progression from the call at 25% range in the third quarter, so around the 50% exit rate by the end of next year. Is that linear, is that more of a stair step higher? Just had to think about the path.
And then secondly on services if you could just help us think through the progression from the call. It 25 ish percent range in the third quarter to around the 50% exit rate.
Dan Schlanger: We don't have a liquidity issue of trying to figure out where the cash comes from, what we have is what we'll do is we'll continue to pay out the dividend, and then as the organic growth in the business continues to increase over the course of next several years, we feel really comfortable with the trajectory of that dividend over time. Okay, and a couple of times I think Jay mentioned, maintain the dividend in 24, obviously it's a board decision, but should we assume this intent is to maintain the dividend in 25 as well, and to dance point, there's other ways to pay it if cash is short.
By the end of next year is that linear or is that more of a stair step higher.
So think about the path there.
Speaker 4: Yeah, Matt, on the first question on what's driving second half, it's really a combination of just normal kind of seasonality in our business, which we didn't see in 2023 and called out in 2023. It's a return more to how that works in 2024 and our business typically works in the second half of the year, a bit better than the first.
Yeah, Matt on the first question on what's driving second half, it's really a combination of just normal kind of seasonality in our business, which we didn't see in 2023 and called out in 2023, It's returned more to how that works in 2024, and our business typically works in the second half of the season bit better than the first.
Speaker 4: In addition to some of the turn events that Rick was mentioning, we kind of hit the first half of the year, not the second. And so we think that all of that added up would lead to the low point in AF foe being in the first half of 2024.
In addition to some of the churn events that Rick was mentioning we have kind of hit the first half of the year not the second.
And so we think that all of that added up would lead to the low low point in <unk> being in the first half of 2024.
Dan Schlanger: Yeah, obviously we're setting the dividend policy for 2024, so I don't want to get ahead of ourselves and start talking about 25, but philosophically, the reason why we're referencing the low point is to help give you a view of this multi-year work through that we've got with the consolidation of sprint and some of the headlines that we've been facing. As you kind of referenced and walk through the math there of the gap, in essence, what we're saying is we expect that gap to be smaller in 2025 than it is in 2024.
Speaker 3: Matt, on your second question, I'm assuming you're referring to the margins in the business, is that the question that you're asking?
Matt on your second second question Im assuming youre, referring to the margins in the business is that is that the question that you're asking the extraction of the margins yes. Okay.
Speaker 3: the extension of the margins. Yeah, okay. The current margins and there will be some bleed over this into the beginning of 2024 and around the 25% range.
The current margins and there will be some bleed over into the beginning of 2024 and around the 25% range has to do with our exit of the construction services those would be the project management services that historically, we performed to help our customers install on the assets that we that we have.
Speaker 3: has to do with our exit of the construction services. Those would be the project management services that historically we performed to help our customers install on the assets that we have. Those, the margins in that business are much lower than the margins that we have on a go-forward basis, the services that will perform on a pre-installation, pre-construction.
Dan Schlanger: So historically, as we've looked at the business, what we've done is sized up the cash flow generation of the business, and we've paid out to shareholders in the form of the dividend, the cash generated by the business in any given year, that's how we've set our dividend. As we got into this period of time, which we believe is an anomaly in the business, the consolidation of the carriers and work through the headwind associated with more of the macroeconomic changes, what we tried to do was look through those specific events that we were seeing on the horizon and look out beyond those events and try to figure out where do we think the cash flow generation of the business would be as the business normalized.
<unk>.
The margins in that business are much lower than the margins that we have on a go forward basis. The services that will perform on a on a pre installation preconstruction for for our customers. So what you're really seeing is a mix change over the course of the year as the legacy business ramps down and goes away.
Speaker 3: for our customers. So what you're really seeing is a mixed change over the course of the year as the legacy business.
Speaker 3: ramps down and goes away and the business that we will continue to perform on a long-going
And the business that we will continue to perform on a long going for.
Speaker 3: for the foreseeable future, the margins on that business are better. So you're seeing that in the guide. And by the time we get to the second half and next year, virtually all of those legacy services that will no longer be performing will have been moved out of.
For the foreseeable future the.
The margins on that business are better so you're seeing that in the guide.
But by the time, we get to the second half of next year virtually all of those legacy services that will no longer be deep performing we'll have.
Dan Schlanger: As we look through that, our view was it made sense to maintain the dividend in 2024. The gap will be the widest between that dividend payout and the generation of cash in the business in the first half of 24, and then it will close as we go to the second half of 24 and then into 25 and get beyond that, and we believe we'll return to a growth period of time once we get past 2025.
Have been moved out of the results.
Speaker 3: That's great. Thank you. Thank you. You bet, Matt. Thanks. Operator, we can take one more question.
That's great. Thank you Matt.
Dan Schlanger: We're in essence looking through these movements in these events and trying to set the dividend at a level that we could maintain in 24, the gap between the current level of dividend and the cash generation will be smaller in 25, and then we'll return to growth we believe in 2000.
You bet Matt.
Operator, we can take one more question.
Speaker 1: Okay, the final question is from Brandon Nistel of Keyband Capital Markets. Please go ahead.
Okay. The final question is from Brandon <unk> of Keybanc capital markets. Please go ahead.
Speaker 13: Great, thank you for taking the question. Dan, thanks a lot for all your help. We'll do a last several years and best luck. Hope you guys could unpack the tower leasing sort of both through 3Q and 24. You've always talked about sort of the contracted nature of this business, you know, but out of year over your base is leasing went down roughly 40%.
Great. Thank you for taking the question Dan. Thanks, a lot for all your help over the last several years.
Dan Schlanger: 1026. Good, that's clear.
Best of luck.
Hoping you guys could unpack the tower leasing sort of bolster <unk> and 24, you've always talked about sort of the contracted nature of this business.
But on a year over year basis leasing went down roughly 40%.
Speaker 13: So I was hoping you could sort of unpack the drivers from like a sequential or a year over year standpoint. And then talk about sort of your first half or second half expectations for power leasing in 24. And secondly, I was hoping you could unpack the turn that you've guided to the 155 million just from a power fiber and small cell side and then the one off turns from the remaining sprint cancellation.
So I was hoping you can sort of unpack the drivers from Mike a sequential or year over year standpoint, and then talk about sort of your first half versus second half expectations for tower leasing in 'twenty four and secondly, I was hoping you could unpack that the churn that you've guided to the 155 million just from a tower fiber fiber.
Dan Schlanger: Okay, thanks. Another question on my side on the small cells. I think you mentioned there were 5,000 nodes decommissioned in mid-23 from Sprint. Was that within second quarter? There's more of those to be decommissioned. Sorry, in third quarter, assume we've done with it. And the 14,000 nodes were in 24. Is that a gross or net number, are they almost the same? On the 5,000, there's a little bit of movement. Most of those have come out at this point, which is why you saw our total nodes and contracted nodes come down from 120,000 to 115,000.
And small cell side than the one off charges from the remaining sprint cancellation.
<unk>.
Speaker 3: Sure, I'll take your first question, and Dan can walk through the numbers on the second question. As Brandon, as we came to our tower leasing guide for 24,
Sure I'll take the first question and Dan can Dan can walk through the numbers on the second question.
As Brendan as we came to our tower leasing guide for for 24.
Speaker 3: We looked at the activity that we were seeing from the customers and embedded in that activity, about 85% of what's in the guide for 2024. At this point is contracted. So there is some amount of rollover of activity that we'll see in this calendar year where the tenant goes on the tower this year and then shows up for a full 12 months in calendar year 24. There is...
We looked at the activity that we're seeing from the customers and embedded in that activity about 85% of what's in the guide for 2024 at this point is contracted so there is some amount of rollover of activity that we'll see it in <unk>.
Dan Schlanger: That's reflective of the churn. So most of those have worked their way through. The number for 24, when we talk about 14,000, gross and net are the same. So there is no offset there that you need to be made aware of. In the 10 million Sprint churn and the 24 guidance, is that basically a message kind of a half year of them of the 10 million reflective? Yeah, it basically is exactly. It's the roll over of this year's churn hitting 2024. And that gets back to that first half, versus second half kind of concept. That's a contributing factor, the second half being better than. Yes.
Unknown Executive: Great.
Unknown Executive: Thanks so much again.
This calendar year, where the tenant goes on the tower this year.
Unknown Executive: Best wishes.
And then shows up for a full 12 months in calendar year 'twenty four.
Unknown Executive: Thank you.
There is by definition about 15% that we've got still got to go get in calendar year 'twenty for that we don't have line of line of sight too.
Speaker 3: by definition about 15% that we still gotta go get in calendar year 24 that we don't have line of sight too.
Speaker 3: And our view has been as we came off of the peak of 5G that there is absolutely going to be a needed addition to tower sites of our carriers investing to add additional equipment to build out 5G. We're not done with 5G and they're not done with macro sites. So that activity will continue and it's
And our view has been as we came off of the peak of five <unk>.
There is absolutely going to be.
Needed.
Needed addition to tower sites of our carriers investing to add additional equipment to build out <unk>, we're not done with <unk> and they're not done with macro sites. So that activity will continue and it's based on the conversations that we've had with them the activity that we've seen and the work that we see ahead.
David Barden: The next question is from David Barden, a bank of America. Please go ahead. Hey guys, thanks for taking the questions.
Speaker 3: based on the conversations that we've had with them, the activity that we've seen, and the work that we see ahead still believe that there's good activity on the macro tower side, feel good about where the guidance is, and feel good about where we'll be not only in 24, but in the years beyond, as the towers are still...
Jay Brown: Just a couple on the small cell side, Sue, Jair Dan, you know, with a 40% step up in the rate of no deployment, you know, at happening at the time when you're kind of shrinking the organization, what has to happen? How does that happen to kind of make that step up? Because it's larger than we've kind of ever seen you guys do before. And then the second question related is, should we assume that this is kind of the new normal, both in terms of discretionary catbacks, and in terms of kind of no deployments for the foreseeable future? Or is this more of an anomaly and, you know, kind of more like the 10,000 node, you know, 1.2 billion discretionary catbacks is more than norm.
Still believe that there is good good activity on the on the macro tower side feel good about where the guidance is and feel good about where we will be not only in 'twenty four but in the years beyond.
As the towers are still it's still the most efficient way to deploy network capacity and so to the extent that macro tower sites can solve the need the cures. We believe will continue to prioritize those assets and in the portfolio and we'll continue to see good growth in towers for a long for.
Speaker 3: still the most efficient way to deploy network capacity. And so to the extent that macro tower sites can solve the need, the curers we believe will continue to prioritize those assets.
Speaker 3: and in the portfolio and will continue to see good growth in towers for a long period of time. So we've reset our expectations from where we were at the peak of 5G, but feel good about where we are from this point.
Long period to period of time, so we've reset our expectations from where we were at the peak of five G. But feel good about where we are from this point at this point forward.
Jay Brown: Thanks. Good morning, Dave. On your first question, the changes that we made in terms of reduction of staffing happened almost exclusively on the tower side. And what we were adjusting, the internal costs related to were both in the services business on the tower side, as well as on the tower operating side. And those were adjusted based on the volume of activity that we saw for tower leasing and the movement from those peaks of 5G down to the levels that we provided both, we think we're going to deliver both in the second half of 23.
Speaker 4: And the second question on the 155 million dollar turn.
Yeah, and the second question on the $155 million or churn.
Speaker 4: On the tower side, it's going to be a very similar turn in 24 to what we've seen in 23, which is on the low end of our 1 to 2%. So in the $30 million range of turn on tower.
On the tower side is going to be very similar churn in 2004 to what we've seen and what we think we will see in 'twenty, three which is on the low end of our 1% to 2%. So in the $30 million range of churn on towers and small cells. Similarly, very similar to 'twenty three will be about 1% of our towers or small cells.
Speaker 4: So I'll tell you similarly, very similar to 23.
Speaker 4: be about one percent of our small cells. So without as long as you take out the spread cancellations. And fiber solutions, as Jay mentioned, we believe the churn is coming down from closer to 10% in 23 to around 9% in 24. So in the neighborhood of 115 million when you add all those up, maybe 120. So in the add all those up, you get to about $155 million total of churn.
So without as long as you take out the spread cancellations and fiber solutions as Jay mentioned.
We believe that churn is coming down from closer to 10% and 23 to around 9% and 24.
Jay Brown: And then as we go into 2004, as we think about resources on the small cell side, believe our team and the growth in both use of technology and refining some of the processes and making ourselves more successful at navigating through municipalities, which I talked about in some of my comments, I don't see a significant need for us to add additional resources to our fiber segment as we tackle this significant increase in the amount of nodes. Our team has been preparing for this and one of the benefits of the long lead time that we have in that business is we can be really thoughtful about making sure we plan the work and engage the work and as well as looking for ways to do it more efficiently, the team has done a really good job of that.
So in the neighborhood of $115 million when you add all those up maybe 120. So when you add all those up you get to about $155 million total churn.
Great. Thank you for taking my questions.
Speaker 3: You bet. Well, thanks everyone for joining the call this morning. Appreciate the continued support. We look forward to seeing and talking with you soon. And I just want to thank our team broadly for all the work that they have done to deliver the results for 23 so far. We've got a good quarter ahead of us to finish out the year. And then excited about the opportunity to continue to grow the business as we get into 2024 and beyond. Thanks for joining. We'll talk.
You bet well thanks, everyone for joining the call. This morning. Appreciate the continued support and we look forward to seeing and talking with you soon and just want to thank our team broadly for all the work that they have done to deliver the results for 'twenty three so far we've got a good quarter ahead of us to finish off the year and then excited about are the opt.
Attunity to continue to grow the business as we get into 2024 and beyond thanks for joining and we'll talk soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker 1: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Jay Brown: So the job shrinkage and the reduction of costs has really not come from that segment of the business and I believe we're prepared to deliver the growth that that we're talking about without material changes to the cost structure on the On your second question around the discretionary CAPEX, it's hard to give you a really long-term forecast about that because we haven't paired that with what do we think the demand is going to be in the amount of activity. At a given level of activity that's similar to what we're doing in 2024, I would say yes, we would expect the CAPEX to be in and around that level if that's the level of activity that we're operating with.
Jay Brown: We're continuing to see the business move and navigate towards a greater percentage of co-location those. Those returns, as I mentioned to an earlier question, have come in at levels that we expected them to come in at. So we're seeing the multi-tenant model, multi-tenant systems deliver returns that we're in line with expectations. And then as we go out a long way, our view is generally that the carriers are going to need more small cells than what they're currently taking today as they densify the 5G network.
Jay Brown: And we believe that densification will continue as consumers use the network to an even greater degree. So the total addressable market and the need for small cells, we believe, will have upward trends on it. And as those upward trends come, I think it creates the opportunity for us to put investment opportunities back through that rigorous process that I talked about in my comments around do these investments in those more in particular markets that make have opportunity in them. Do they make sense for us relative to other alternatives. And we'll just have to see how that unfolds to see whether it makes sense for us to pursue those or not.
David Barden: Got it. Thanks so much. You bet.
Gregory Williams: The next question is from Greg Williams of Collins. Please go ahead. Great. Thanks for taking the last questions. Just echoing the comments or Dan wish you all the best and thank you for the support.
Dan Schlanger: Just the first question is on the higher cost for 24 seconds up 30 to 60 million even after 35 million cost savings. And just wondering if you can break out for piece parts there, if it's groundless escalation, et cetera. And then the second question is just on the comments around the small cell returns. You're saying it's just as good as powers on a multi-can system basis. So is there any opportunity to release off rates in small cells as we think are that these of each hours.
Dan Schlanger: Thanks. Yeah, thanks, Greg. Appreciate the comments.
Dan Schlanger: And then I'll start with the first question on higher costs in 2024. You hit on a bunch of them. So the major cost increases that we experience. We do have ground leases under our towers as a single large line item that we have in our PNL on the expense side. And those ground leases increase at about 3% per year and cost. That has to be baked in. Secondly, we like every other company is faced with our face with increasing costs for labor for people who work here, people are hiring because the cost of people is going up with inflation.
Dan Schlanger: And then lastly, we had some one time savings in the back half of 2023 that won't occur going into 2024 would show a little bit more of an increase also. So we add those things up to get to the type of costs increases you were just. Referencing.
Dan Schlanger: Greg, on your second question around the returns, small cells have been historically continue to be and our view would be will continue to be initially and with the first co-located tenant and the second co-located tenant on a particular system, actually better than what we've seen historically from towers. When we put capital into the ground for small cells, we are at about double the initial yield on invested capital to what we are with towers, whether those towers were acquired historically or built, our initial returns are more than double what a tower is.
Dan Schlanger: When we get to the second tenant on a small cell system, we're in the low double digit range, generally with towers in order to get to those kind of yields, as you can see in the supplement, we're well over two tenants in order to get to low double digit yields on invested capital and then when we get to a third tenant on a system, we're high teens, low 20% yields. You could see some of that in the disclosure that we gave last quarter around some markets that we've been in for a long period of time and have a significant number of multi-tenant systems in some places where we've got the three tenants, we get the very attractive returns that would exceed those of even towers historically.
Dan Schlanger: We're at the early stages of co-location, so we're not multi-tenant across the entire system yet, but we do believe over time like towers, over 25 years of adding tenants, we'll continue to see growth in those returns and yields, and believe over time, this business on the small cell side will continue to trend towards what we've seen in towers and will create a significant amount of shareholder value over time as we've been able to build assets in the best markets in the United States, those with dense populations and a lot of data demand and believe as the carriers densify the network, the assets that we have are going to result in a lot of co-location over many years, and that will consistently drive increases in yields and growth and value creation for equity holders.
Unknown Executive: Great, thank you.
Matthew Niknam: The next question is from Matt McNam of Deutsche Fed. Please go ahead. Hey guys, thanks for taking a question. Two quick ones. First, on AFFO for share growth, maybe if you can help us think through the moving parts, driving the expectation for second half AFFO for share in 24 to be better than the first half, is it improved the thing? Is there anything on the cost side in terms of ramp up with savings to be cognizant of?
Matthew Niknam: And secondly, on services, if you could just help us think through the progression from the call of 25-ish percent range in the third quarter to around the 50 percent exit rate by the end of next year, is that linear, is that more of a stair step higher? Just how to think about the path there? Thanks. Yeah, Matt, on the first question on what's driving second half, it's really a combination of just normal kind of seasonality in our business, which we didn't see in 2023 and called out in 2023.
Matthew Niknam: It's a return more to how that works in 2024 and our business typically works in the second half of the year, a bit better than the first. In addition to some of the turn events that Rick was mentioning, we kind of hit the first half of the year, not the second, and so we think that all of that added up would lead to the low point in AFFO being in the first AFFO in 2024.
Matthew Niknam: Matt, on your second question, I'm assuming you're referring to the margins in the business, is that the question that you're asking? The extension of the margins? The current margins, and there will be some bleed over this into the beginning of 2024 and around the 25% range, has to do with our exit of the construction services, those would be the project management services that historically we performed to help our customers to install on the assets that we have.
Matthew Niknam: Those margins in that business are much lower than the margins that we have on a go-forward basis, the services that will perform on a pre-installation, pre-construction for our customers. So, what you're really seeing is a mixed change over the course of the year, as the legacy business ramps down and goes away, and the business that we will continue to perform on a long going for the foreseeable future. The margins on that business are better, so you're seeing that in the guide, and by the time we get to the second half of next year, virtually all of those legacy services that will no longer be performing will have been moved out of the results. That's great. Thank you very much. You bet, Matt. Thanks.
Unknown Executive: Operator, we can take one more question.
Brandon Nistow: Okay, the final question is from Brandon Nistow of Keyband Capital Markets. Please go ahead. Great. Thank you for taking the question. Dan, thanks a lot for all your help over the last several years, and best luck.
Jay Brown: I hope that you guys could unpack the tower leasing sort of all through 3Q and 24. You've always talked about sort of the contracted nature of this business, you know, but on a year over your basis, leasing went down roughly 40%. So I was hoping you could sort of unpack the drivers from like a sequential year over your standpoint and then talk about sort of your first half or second half expectations for power leasing in 24.
Jay Brown: And secondly, I was hoping you could unpack the turn that you've guided to the 155 million just from a tower fiber and small cell side and then the one off turns from the remaining sprint cancellation. Thanks. Sure, I'll take the first question and Dan can walk through the numbers on the second question. As Brandon, as we came to our tower leasing guide for 24, we looked at the activity that we were seeing from the customers and embedded in that activity, about 85% of what's in the guide for 2024.
Jay Brown: At this point is contracted, so there is some amount of roll over of activity that we'll see in this calendar year where the tenant goes on the tower this year and then shows up for a full 12 months in calendar year 24. There is by definition about 15% that we guys still got to go get in calendar year 24 that we don't have line of sight to. And our view has been as we came off of the peak of 5G that there is absolutely going to be a needed a needed addition to tower sites of our carriers investing to add additional equipment to build out 5G we're not done with 5G and they're not done with macro sites.
Jay Brown: So that activity will continue and it's based on the conversations that we've had with them, the activity that we've seen and the work that we see ahead still believe that there's good activity on the macro tower side, feel good about where the guidance is and feel good about where we'll be not only in 24 but in the years beyond. As the towers are still the most efficient way to deploy network capacity and so to the extent that macro tower sites can solve the need the carriers we believe will continue to prioritize those assets and in the portfolio and will continue to see good growth in towers for a long period of time. So we've reset our expectations from where we were at the peak of 5G but feel good about where we are from this point forward.
Dan Schlanger: Yeah, and the second question on the $155 million of churn. On the tower side, it's going to be a very similar churn in 24 to what we've seen, or what we think we'll see in 23, which is on the low end of our 1 to 2%, so in the $30 million range of churn on towers. On small cells, similarly very similar to 23, we'll be about 1% of our small cells, so without as long as you take out the sprint cancellations.
Dan Schlanger: And fiber solutions, as Jay mentioned, we believe the churn is coming down from closer to 10% in 23 to around 9% in 24, so in the neighborhood of 115 million, when you add all those up, maybe 120, so you add all those up, you get to about $155 million total of churn. Great, thanks for taking the questions. You bet.
Jay Brown: Well, thanks everyone for joining the call this morning, appreciate the continued support. We look forward to seeing and talking with you soon. And just want to thank our team broadly for all the work that they have done to deliver the results for 23 so far. We've got a good quarter ahead of us to finish out the year. And then excited about the opportunity to continue to grow the business as we get into 2024 and beyond. Thanks for joining. We'll talk soon. The conference was now concluded.
Unknown Executive: Thank you for attending today's presentation. You may now disconnect.