Q4 2023 Crown Castle International Corp Earnings Call
Good day and welcome to the Crown Castle fourth quarter 2023 earnings 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 todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded.
Christian <unk>: I'd now like to turn the conference over to Christian <unk>, Vice President of corporate Finance and Treasurer. Please go ahead.
Christian <unk>: Thanks, Scott and good morning, everyone.
Christian <unk>: Thank you for joining us today as we discuss our fourth quarter 2023 results with me on the call. This morning are Tony Malone Crown castle's interim Chief Executive Officer, and Dan Schlanger Crown Castle's Chief Financial Officer.
Christian <unk>: To aid the discussion we have posted supplemental materials in the investors section of our website at Crown Castle Dot com that will be referenced throughout the call. This morning.
This conference call will contain forward looking statements, which are subject to certain risks uncertainties and assumptions and actual results may vary materially from those expected infer.
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.
Daniel K. Schlanger: Our statements are made as of today January 25, 2024, and we assume no obligation to update any forward looking statements.
Daniel K. Schlanger: In addition, today's call includes discussions of certain non-GAAP financial measures tables reconciling. These non-GAAP financial measures are available in our supplemental information package in the investors section of the Companys website at Crown Castle Dot com.
Daniel K. Schlanger: That let me turn the call over to Tony.
Tony Malone: Thanks, Chris and good morning, everyone. Thank you for joining us.
Tony Malone: Before I begin I'd like to take a moment to thank Jay Brown for his 25 years of service to Crown castle, including the past seven as CEO.
Tony Malone: We are grateful for his many contributions over those years.
Jay A. Brown: And wish him well in his retirement.
Jay A. Brown: Okay.
Tony Malone: As we work to identify the next CEO I am also thankful for the boards confidence in me to lead the company during this interim period.
Tony Malone: I'm excited to serve in this capacity.
Tony Malone: I have been associated with Crown castle for over 25 years, principally as a customer.
Tony Malone: But also as a joint venture partner in the early days and most recently as a member of Crown Castle as board of directors.
Tony Malone: Over that time I've witnessed the Crown castle team of dedicated talented people grow the company into the nation's leading provider of shared communications infrastructure.
Tony Malone: In my first few weeks in the new role I have been impressed by the open candid and thoughtful discussions I've had with teammates throughout the organization.
Tony Malone: I am enthusiastic and optimistic about our path forward.
Yeah.
Tony Malone: In the near term I will be focused on the following priorities.
Tony Malone: First and foremost I am committed to.
Tony Malone: Ensuring that our organization continues to execute for our customers.
Tony Malone: <unk> us to meet or exceed our financial and operating goals in 2024.
Tony Malone: Secondly, I want to facilitate a seamless transition to the company's next CEO.
Tony Malone: And lastly, I will assist the board in evaluating the alternatives that may come out of our strategic fiber review and help position the company to maximize shareholder value.
Tony Malone: <unk> of the outcome of that review.
Tony Malone: My confidence in achieving these priorities is bolstered by having a closely aligned leadership team that is focused on delivering strong operational performance.
To that end I am pleased to announce that Dan Schlanger will continue serving as crown castle's Chief Financial Officer.
Daniel K. Schlanger: Dan has been a valuable member of our executive leadership team for the past seven years.
His expertise leadership and institutional knowledge will be vital as we position the company for success in 2024 and beyond.
Mike McCormack: In addition, Mike Cavanaugh.
Mike McCormack: Currently our Chief commercial officer has been appointed Chief operating officer for the Tower segment.
Chris Smith: Chris will then dose will remain in the role of Chief operating officer for the fiber segment.
Mike McCormack: The tower small cell and fiber solutions sales teams currently under Mike will be distributed across these two organizations.
Chris: I believe this change in leadership structure provides an enhanced focus on generating the highest returns in each business segment.
Chris: And we will best enable us to maximize value across our portfolio.
Chris: We have also recently taken steps to further strengthen our company's board with the addition of three new directors.
Chris: Jason soon it and Brad each bring valuable financial operational and industry experience.
We look forward to benefiting from their unique insights and expertise.
Jason Soon: As we work to leverage our strong foundation.
Jason Soon: And positioned Crown castle for the future.
Chris Smith: At this point I'd like to share some of my personal insights into how I see Crown castle positioned.
Chris Smith: In my 30, plus years of experience in the wireless industry I have seen the tower business grow tremendously.
Chris Smith: Particularly during periods of generational upgrades.
During my time at Verizon the shift from <unk> to <unk> required more tower densification than initially expected and.
Chris Smith: And more than initially deployed.
Chris Smith: The coverage and capacity from the new <unk> technology.
Chris Smith: And corresponding new spectrum that it was deployed on was not sufficient to meet the promise performance levels of that technology.
Chris Smith: This was especially true with cell edge and resulted in further densification over time.
Chris Smith: I think a similar dynamic is in play with five G.
Chris Smith: The remaining densification required to deliver on the promise of <unk> performance will drive not only robust tower growth, but also significant demand for small cells.
Chris Smith: As the largest shared communications infrastructure provider in the U S.
Chris Smith: With a unique portfolio of towers small cells and fiber.
Chris Smith: I am excited to see how we can take advantage of these industry trends and.
Chris Smith: And deliver value to our shareholders.
Chris Smith: As a final note the work of the CEO search committee is underway.
Chris Smith: And the fiber review committee is well into its work as it oversees the board and management's review of strategic and operational alternatives that maximize value across our enterprise.
Chris Smith: We will provide updates on each as developments warrant.
Dan: With that I'll turn the call over to Dan.
Dan: Thanks, Tony and good morning, everyone.
Dan: Want to start by saying, how glad I am to continue serving as crown castle's CFO. This is a great company and a great industry and I look forward to helping deliver on our 2024 plans while positioning the company to grow long term shareholder value.
Dan: Moving to 2023 results on page four we finished the year in line with our expectations.
Dan: Full year site rental revenues grew 4%, which included $212 million of core organic growth, excluding the impact of sprint cancellations.
Chris Smith: In the year tower organic growth was 5%.
Chris Smith: By our decision to pursue holistic long term agreements with each of our major customers.
Tower growth remained resilient despite the industry wide slowdown in tower activity in the middle of 2023.
Chris Smith: Additionally, small cell growth was 6%, resulting from six from 8000, new nodes in 2023.
Chris Smith: We completed an additional 2000 notes in the year that are expected to begin billing in the first quarter of this year.
Chris Smith: Finally fiber solutions revenue was flat.
Chris Smith: The slowdown in tower activity in 2023 had the most pronounced impact in our services business driving a $100 million decrease in our margin year over year.
Chris Smith: The decline in services contribution along with increased interest expense from the rise in interest rates in 2023.
Chris Smith: We offset our revenue growth, resulting in 2% <unk> growth for the year.
Chris Smith: Yeah.
Chris Smith: Turning now to page five our full year 2024 outlook remains unchanged.
Chris Smith: Strong underlying growth across our business continues to be supported by increasing data demand and the network densification required to meet it.
Chris Smith: We continue to forecast our activity levels consistent with the back half of 2020 free as well as accelerating small cell.
Chris Smith: With 2000 nodes shifting from 2023 to 2024, we now expect to deliver 16000, new nodes this year.
Chris Smith: With respect to fiber solutions, we returned to growth of 3% in the first quarter of 2023 and continue to expect 3% organic growth in 2024.
Chris Smith: However, as discussed in our call last quarter. The following three items are expected to negatively impact our 2024 results.
First the $170 million of sprint cancellation payments, we received in 2023 will not recur in 2024.
Chris Smith: Second we anticipate a combined $250 million reduction in noncash item, specifically to our straight line adjustments to the amortization of prepaid rent and.
Chris Smith: Lastly, we expect $55 million and lower contribution from services gross margin.
Chris Smith: Due to these impacts our 2024 outlook shows year over year decline in site rental revenues of $160 million or 2%.
Adjusted EBITDA of $250 million, or 6% and <unk> of $270 million or 8%.
Chris Smith: Normalized for the impact of the items I just mentioned.
Chris Smith: Site rental revenues adjusted EBITDA, and <unk> would show year over year growth of 4%, 5% and 3% respectively.
Chris Smith: Turning to page six expected organic contribution to full year 2020 for site rental billings remains unchanged with consolidated organic growth of 2%.
Chris Smith: Or 5%, excluding the impact from sprint cancellations.
Tony Malone: The 5% consolidated organic growth consists of four 5% growth from towers compared to 5% in 2023.
Tony Malone: 13% growth from small cells as we expect 16000, new nodes in 2024 compared to 6% growth in 8000 nodes in 2023 and.
Tony Malone: And 3% from fiber solutions compared to flat in 2023.
Tony Malone: Full year 2023 site rental revenues were $21 million above the 2023 outlook at the midpoint.
Tony Malone: Inclusive of approximately $5 million higher than expected nonrecurring tower segment.
Tony Malone: Revenue in the fourth quarter.
Tony Malone: Our 2020 for outlook for site rental buildings remains unchanged and we expect year over year core leasing activity to be within the growth ranges in the chart.
Tony Malone: Moving to page seven we expect to deliver $65 million of <unk> growth at the midpoint, excluding the impact of sprint cancellations and the noncash decrease in amortization of prepaid rent.
Tony Malone: Turning to the balance sheet in December of 2023, we issued $1 5 billion of long term fixed rate debt, allowing us to end the year with approximately $6 billion of unutilized capacity on our revolving credit facility.
Weighted average debt maturity profile of eight years, and 92% fixed rate debt.
Tony Malone: Lastly, our 2020 for outlook for discretionary capital remains unchanged at one five to $1 6 billion.
Tony Malone: Our $1 one to $1 2 billion net of $430 million of prepaid rent received.
Tony Malone: To wrap up.
Tony Malone: Strong underlying growth across our business continues to be supported by increasing data demand and the network densification required to meet it.
Tony Malone: The contracted agreements we have in place provide line of sight into continued underlying growth over a multiyear period.
Mike McCormack: We believe this growth provides a stable foundation for our current dividend and superb supports our 2020 for Capex plan without issuing equity.
Mike McCormack: Our unparalleled domestic portfolio of tower small cell and fiber assets provides a growing number of opportunities to create value for our shareholders.
Mike McCormack: With that Scott 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 Touchtone zone.
Mike McCormack: If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Mike McCormack: At this time, we will pause momentarily to assemble our roster.
Mike McCormack: The first question comes from Simon Flannery with Morgan Stanley. Please go ahead.
Simon Flannery: Thank you very much and good morning.
Tony Malone: Tony I appreciate the comments on the Densification it'd be great to get a sense of what you think the shape of that looks like I think you'd assume that we continue at the levels. The last couple of quarters do you think we sort of pick up then over the next 235 years as.
Tony Malone: As the traffic continues to grow or is it going to be more lumpy in them that and any comment on the current leasing environment. We did hear I think Nokia CEO earlier. This morning talking about expectations of some green shoots in that.
Tom: Second half of this year. So if you are kind of having better more constructive conversations around plans that will be interesting to know as well and then Tom.
Just one thing for you on the discretionary Capex. If there was that a decision to do something on the fiber side to what extent is that capex committed today versus still being something that could change later on depending on what the committee comes up question. Thanks.
Tom: Simon Thanks for the questions I appreciate it.
Simon Flannery: Let's start with the.
Simon Flannery: The shape and trajectory, it's hard to speculate obviously on.
Simon Flannery: On the.
Simon Flannery: The progress with the carriers might make in terms of Densification.
It depends on on their own personal capital allocation decisions.
Simon Flannery: My personal opinion based on history is that it will it will likely be.
Tony Malone: A fairly.
Simon Flannery: Non lumpy.
Simon Flannery: Approach over time, but it's very hard to speculate exactly how that will play out.
Simon Flannery: In terms of some of the some of the comments commentary recently, it's too early for US we have not seen any anything that would cause us to change.
Simon Flannery: Our view of 2024.
Simon Flannery: Okay.
Simon Flannery: And I'll take the Capex question Simon Thanks.
Simon Flannery: Most of what we have on the small cell side of our business is committed because we have customer obligations to build a small cells. Those 16000 that we have coming on air.
Simon Flannery: That we're building throughout 2024.
Speaker Change: But we obviously are going to be looking at it through the strategic review anything we can to drive the most value possible.
Simon Flannery: <unk>, what our Capex plans are so we'll have that in mind and if anything.
Simon Flannery: Does change out of that we'll update anybody but as of right now we see the same capital going for 2024 that we expected and when.
Simon Flannery: When we gave guidance in October.
Tony Malone: Great and could you just clarify about to carry that sort of slipped into 2024, what was the situation there.
Sure.
I think we discussed it a lot of the small cell node build that we had for 2023 was going to be backend loaded it was.
Tony Malone: And we built some at the very end of the year that we werent able to start billing until the beginning part of 2024.
Tony Malone: So we're talking about.
Tony Malone: Something crossing over a year, so beef being a month later than we expected or even less than that.
Tony Malone: When we get into trying to figure out exactly when a node is going to be completed it's hard to pick two a day.
Tony Malone: But we feel like we have made the progress we expected to make during the year in 2023 of of delivering for our customers.
Tony Malone: The fact that the billing didn't happen just kicks it over into 2024.
Tony Malone: Great. Thanks Pam.
Tony Malone: Sure.
Yes.
Tony Malone: Yeah.
Tony Malone: Our next question comes from Ric Prentiss with Raymond James. Please go ahead.
Tony: Good morning, everyone and Tony good to talk to you again.
Richard Prentiss: Thanks, Rick.
Richard Prentiss: A couple of questions first Dan I appreciate the color on the 2000 loads for Simon.
How should we think about what the disconnected nodes were in 'twenty three and then I think there is another.
Dan: Connective nodes in 'twenty four probably around the middle of the year can you help us understand was that like.
Dan: Two or three thousands disconnected last year, maybe a three to 4000 getting disconnected this year from that sprint and other.
Rick: Yeah Rick.
Rick: As we discussed in 2023, a lot of the sprint cancellations happened in some of those were on the small cells on.
Rick: On small cells.
Rick: Churned about 5000 small cells in the year.
Rick: If you look at kind of the number of small cells, we have on air.
Rick: <unk>.
Rick: When you start at 60000 at the beginning of the year took them down to 55000 during the year with those 5000 nodes and now we're up back to 65000 that we.
Rick: That are generating revenue for us at this point.
Rick: I think we had talked about that there is no more going into 2024 of actual churn, but there are some lop over impact of having churn at mid point of the year that will then have a full year churn impact in 2024, which is what youre seeing so we don't anticipate any significant or any.
Rick: Sure really at all in our small cell business in 2024.
Rick: Okay, and then I think previously where the churn slides had anticipated maybe $25 million of small cell <unk> split between 24 and 25 is that still the case that is still the case.
Rick: Okay.
Speaker Change: Then one more esoteric question.
Speaker Change: American Tower has started.
Tony Malone: Recognizing some capital expenditures for exercising purchase option from carrier transactions I think in your 10-K, you all talk about it maybe have about $19 billion of purchase options that could come due over the next many years.
How should we think about how that flow of money comes in is it ratably equal over those different periods, where there was an AT&T towers or a T mobile center towers or any thoughts about giving us a table at some point about when that $9 billion worth of value could come in and I think I did see a note that lesson less than $10 million.
Simon Flannery: In before 25, just want a little more color on that if I could.
Simon Flannery: Sure so.
Simon Flannery: So try to give a little bit of color is as we as we went into some of the transactions were repurchased towers from our carrier customers. Some of those restructured as his long term leases, where we had a purchase obligation at the end, which is what you're referring to the $9 billion obligation that we have.
Chris Smith: Those are not ratable.
Chris Smith: They really start to kick in in the mid 2000 Thirteen's area.
Chris Smith: And we will consider your comment there of providing more color more secure certainty around when they come in.
In the future.
Chris Smith: Some sort of table, but we're not close enough right now for that to be an obligation that we need to worry about at this point is it sorry.
Chris Smith: Sorry, it's an option at this point is not an obligation.
Chris Smith: We have the option of doing so or not.
Chris Smith: Bad language on my part, but we are.
Chris Smith: We can provide some of that color as we get closer, but we're still a long way away from that being a material number for us and as you pointed out less than $10 million.
Chris Smith: It just isn't something that in the near term has much impact.
Chris Smith: And as it does and as we get closer whenever that may be we can provide more color at that point.
Okay very good thanks, everybody stay well.
The next question comes from Michael Rollins with Citi Investment Research. Please go ahead.
Chris Smith: Thanks, Good morning, Tony I'm curious based on the experience you have.
Chris Smith: Over a whole number of years on the network side as you look at the fiber segment for Crown.
Tony Malone: How do you see the opportunities for crown to improve marginal returns on capital.
Tony Malone: And how quickly that could potentially happen.
Tony Malone: Didn't you organization with some of the changes that you're making.
Tony Malone: And maybe some of the opportunities that <unk> been able to identify.
Tony Malone: You've been on the board and now serving as the <unk>.
Thanks.
Tony Malone: Thank you Michael.
Michael: Certainly as we look at performance in the fiber segment of our business.
If I go back to my three priorities.
Michael: Clearly improving performance in those segments as part of the strategy in terms of how we achieve our 2024 results and how we position ourselves better for the future.
Michael: So I.
Tony Malone: I have I have benefit from my own experience over over 30, plus years, obviously working with the management team here, but we also have the benefit of the strategic fiber review that's going on right now. So so I will be informed from a lot of different directions.
Tony Malone: And based on that I'm sure I'll get.
Tony Malone: Good insight in terms of the things that we can do but as you saw from the announcement there are certain things that I think.
Tony Malone: We need to do right out of the gate personally.
Tony Malone: I like a management structure, where accountability is unambiguous the change in the CLO structure.
Jason Soon: I believe provides an opportunity.
To improve the returns we're getting out of the fiber segment and I expect that to happen in 2024, I think there is other levers that.
Jason Soon: Are likely to be pulled that will be looking at through the process things like capital allocation things like cost structure et cetera.
Tony Malone: And in terms of timing, yes, I do believe that we can make those improvements make improvements in 2024.
Tony Malone: On the trajectory of our performance and our returns in that segment.
Tony Malone: Thanks, and then just one other question.
Tony Malone: Over.
Tony Malone: I suppose just a few months ago. There was a press reports about crown castle, considering selling or monetizing I should say part of its land portfolio and there was some discussion of that on the last earnings call.
Tony Malone: <unk> come to a decision about what to do in terms of monetizing land on a go forward basis as part of capital allocation for the company.
Tony Malone: Yes.
Tony Malone: I don't think we commented at the time when those press release rumors came out one way or the other of what we are doing but.
Tony Malone: But I do think that the overall concept remains.
Tony Malone: One of the things that we want to make sure of is that we are maximizing the value of all of the assets in our portfolio and if that includes something that we think that we can sell and generate better value for an external place. Then we can internally then we would absolutely look at it.
Tony Malone: And that would include land under our towers.
Tony Malone: But only if we believe that the value we can get from an external party would exceed the value that we get as owning that asset.
Tony Malone: And like I said Thats true of all the assets we own.
Tony Malone: And if something does come up we would obviously identify it and talk about it with our investors.
Tony Malone: But at this appointment on and you're talking about.
Tony Malone: Thanks.
Tony Malone: Okay.
Tony Malone: The next question comes from David Barden with Bank of America. Please go ahead.
Tony Malone: Hey, guys. Thanks, so much for taking the questions Dan.
Tony Malone: Not that you weren't anywhere, but welcome back good to hear.
Tony Malone: Have you.
Tony Malone: Hi, I guess.
Tony Malone: Tony My first question is could you talk a little about the order of operations of what's going on is is the plan to make a plan with respect to fiber and then find the right CEO to fit with the plan or.
Tony Malone: Or is the plan to find a CEO too.
To help create the plan to own that plan and execute that plan.
Tony: It will be interesting to hear what is actually the plan and what the timetable is going to be.
Tony: And then Dan when we set 2020 for guidance.
Lots hasn't changed but what has changed is the rates environment attitudes opinions consensus views around rates in 2024 and <unk>.
Tony: Can you kind of elaborate a little bit on how that element of the 2020 outlook didn't change from from what we were thinking in the third quarter guide. Thank you.
David Barden: David Thanks for the questions.
David Barden: So.
David: Both both committees the CEO search committee and the fiber Review Committee strategic review we're underway.
David: I think it's too early to speculate on how it will play out I have great confidence in the CEO search committee that.
In their process of evaluating and determining the best fit for our company at the same time.
David: Sure we will have information coming out of the strategic review in that process and so I think the two will naturally come together and provide us clarity in terms of.
David: How we move forward.
David: So at this point, it's too early to say a whole lot more about that.
David: But I am very confident that the two committees.
We are approaching this very thoroughly.
David: Yeah and.
David: Dave on the on the interest expense.
David: <unk>.
David Barden: As you are well aware.
David Barden: <unk>.
Speaker Change: Margaret perception of interest rates it moves around quite a bit.
Margaret: It moved us moves up it moves down.
Margaret: There are plenty of things in our guidance, where we have ranges in what we think are reasonable expectations of what could happen.
Margaret: Some of those sometimes go better some of those sometimes go worse and very rarely do we get it right.
Margaret: So.
Margaret: So what we do when we're talking about guidance to think about things in an overall perspective.
Margaret: And we believe at this point there isn't enough clarity around what interest rates are going to do and even in Alaska.
Margaret: Two weeks.
Chris Smith: The perception of what interest rate cut likelihood is in March as trains dramatically. So we're.
Chris Smith: We're not comfortable enough with what the rate environment looks like over the course of 2024 to make a change at this point.
Chris Smith: And like I said, there would be some impact.
<unk> level, and there's going to be positive negative throughout the course of the year based on what we thought was going to happen to what actually happened.
Chris Smith: Only when they start to exceed the ranges that we've given really consider changing the guidance definitely alright.
Chris Smith: Alright, great helpful guys. Thank you so much.
Yeah.
Chris Smith: The next question comes from Brendan Lynch with Barclays. Please go ahead.
Chris Smith: Great. Thanks for taking the question.
You guys have guided to 5% organic tower growth through 2027, which is largely already contracted here Mlps can you talk about what level of consistency.
Chris Smith: Or volatility, we should expect on a quarter to quarter basis for core leasing activity.
Chris Smith: Sure.
Chris Smith: To clarify the comment you made we've given some disclosure that through 2027, we believe our tower growth will average, 5% and 75% of that is contracted to date.
Chris Smith: And I think you can understand that.
Chris Smith: Theres more contracted in the early years and there is in late years.
Chris Smith: But we believe that the amount of activity will support our 5% growth going forward.
Chris Smith: And in terms of volatility on a quarter to quarter basis, our business is very stable.
Chris Smith: But that doesn't mean that every quarter is the same.
Chris Smith: So we will have volatility quarter to quarter, but over the course of the year I think it is pretty pretty stable growth pattern.
Chris Smith: And that has been proven over time, but even in the years. We grew 5% in 2023, we expect to grow four 5% in 2020 for that level of volatility will likely remain something in that vicinity, but when you're talking about a business of our size and scale that's not a.
Chris Smith: Huge amount of volatility overall, so we feel good about both the stability of our cash flows and the growth of those cash flows over the next several years.
Chris Smith: Great. Thanks, that's helpful and then on churn.
Chris Smith: Let me say that <unk> had and at least five years in 2023.
Chris Smith: Are you expecting it to be structurally lower going forward of course this is excluding sprint.
Chris Smith: Yeah.
Tony Malone: <unk> said that we believe our turns going between D between 1% and 2% per year. We were on the low end of that obviously in 2023 as you pointed out.
Tony Malone: We.
Chris Smith: Theres nothing that would say that we're going to be outside of the 1% to 2% range, but we do think we'll be on the lower end of it over in the near term just given some of the churn historically have been related to consolidation churn that is not occurring anymore other than the sprint canceled the consolidation that you just spoke of.
Chris Smith: And we think that that churn in the industry is very low it's one of the reasons that it makes the tower business such an attractive business is that we have.
Speaker Change: Growth driven by the things that Tony was talking about densification continuation of data demand.
Speaker Change: Limited capital expenditure requirements and limited churn so.
Tony Malone: So we can have long term growth without having to spend a lot of money. That's a great place to be and we believe that churn will remain relatively low on the lower side of that range for a bit.
Tony Malone: Great. Thanks for the color.
Tony Malone: Okay.
Tony Malone: Next question comes from Nick del Deo with Moffett Nathanson. Please go ahead.
Tony Malone: Hey, good morning, Dan glad to hear that you won't we won't be going anywhere.
Tony Malone: Thanks, Nick you know first there's obviously been a lot of change and uncertainty in a pretty short period of time.
Tony Malone: I think that the reduction force the leadership and the board changes that you turn on the plan to centralize the organization and obviously, what's going on with the fiber review.
Tony Malone: In light of all of that how would you characterize meru.
Nick Del Deo: Morale and the state of the workforce and are you.
Nick Del Deo: Are you confident that there won't be any sort of operating impacts or unwanted loss of human capital stemming from all that.
Nick Del Deo: Okay.
Nick Del Deo: Nick Thanks for the question yes.
Nick Del Deo: Time here.
Nick: <unk> spoken to a great number of employees and I would say that the morale is good I mean, obviously change is unsettling for people but.
Nick: Yes.
Nick: People the employees wanted us.
Nick: Get down to work they want they want to serve their they want to serve their customers they want to.
Chris Smith: Drive the business forward and I think they're excited about.
Chris Smith: Moving forward.
Chris Smith: So I have not experienced in my short time here any evidence to say that.
Chris Smith: People.
Chris Smith: Are reacting in a way that I would be concerned about.
Our ability to execute our plan in 2024 and beyond so I've been I've been happy with with everything I've seen so far and I think the employee morale is very good.
Chris Smith: Well a couple of things that I, probably have a little bit more context given.
Chris Smith: The perspective here.
Tony Malone: First it's been great to see how Tony is engaged within our employees. He has been talking to a lot of people and I think the.
Response has been very positive both ways as Tony just said from his perspective, but also people.
Tony: Appreciate it is coming in.
Tony: And with <unk>.
Tony: Plans and ideas and Didnt not just sitting here doing nothing like Hey, we're going to make this better and I think people like that I think people like the direction.
Speaker Change: And as you pointed out mix theres been a lot of change and a lot of uncertainty.
Tony Malone: I think Tony has projected a view of.
Tony Malone: Understanding what we need to do and having an idea of how to get there and I think that has been helpful.
Tony Malone: And lastly.
Tony Malone: Even in the fourth quarter, we delivered on what we expected to do in there couldnt have been much more turmoil than in the fourth quarter for us.
Tony Malone: So I think that's just a testament to how well people stay focused on as Tony pointed out delivering for our customers and generating what we need to do for the business and the overarching commentary that I've received recently has been just does let us go back to work.
Tony Malone: There's been a lot of a lot of turmoil, we like what we do we like working here relates to delivering for our customers as lets go do that.
Tony Malone: And I think that's the overarching feeling that we've gotten from most of our employees.
And to which I would just say thanks to all of them who are listening.
Tony Malone: I know, it's been a tough time and I appreciate all the dedication they've shown to getting things done anyway.
Tony Malone: Okay. That's.
Tony Malone: That's terrific to hear.
Tony Malone: If I can ask one more about fiber solutions.
Tony Malone: Your bookings in that segment in Q4, where we are at a level that we'd get each year 2024 guidance. If they were sustained over the course of the year.
Tony Malone: It was a nice step up from what we've seen over the last.
Tony Malone: Year, and a half or so I guess can you talk a little bit about what's behind the improvement. So we can get additional comfort in its and its sustainability.
Tony Malone: Sure I think we tried to address this through 2023, because I think a lot of people were.
David Barden: And rightfully skeptical that we would return to 3% growth in the fourth quarter and as we talked about it but we gave a couple of reasons for that one was we saw more activity in the first half of the year and we thought that it was going to come through by the fourth quarter and we had year over year comps that were a little easier to meet on the fourth quarter. So what.
David Barden: What we're seeing is a level of activity.
David Barden: Based on customers wanting more data to move and more connectivity.
Tony Malone: For all of the general macro trends that are going on in the world right now that you're very well aware things.
Things like artificial intelligence and moving data to centralized data center locations, where the cloud whatever you want to call it.
Tony Malone: And just the overall amount of data increasing data demand increasing.
Tony Malone: From a from a wired perspective, not just wireless and we're seeing those transaction our favor because of our focus on.
Tony Malone: Larger businesses government agencies education medical and financial services those types of industries.
Tony Malone: The demand generally has been a little bit more predictable than we've seen in the other parts of the fiber market like the small and medium business parts of the fiber market.
Tony Malone: And what we expect it to come through has come true those bookings did happen. We did see the growth and we do see that going into 2024, and all of the industry information and analyst expectations that we've seen which support our view that 3% growth is achievable in 2000.
Tony Malone: Yeah.
Tony Malone: Okay got it thank you guys.
Tony Malone: Thanks Lee.
Tony Malone: Next question comes from Jon Atkin with RBC markets. Please go ahead.
Tony Malone: Thanks and welcome.
Dan: Welcome back Dan.
Dan: So with several new board members involved in obviously the new App.
Jason Soon: <unk> CEO I, just wondered if you could give a little bit of color about the operating metrics youre going to be examining for are examining around small cells.
Dan: Fiber that will inform your strategy.
Dan: Strategic review.
Tony Malone: Whether it's the same tenant fee growth in the fiber metrics in this volatile metrics may actually be separate can you give a little bit more color as to what you'll be looking at as you conducted review are asking are asking.
Speaker Change: The committee to look at.
Speaker Change: Yes, John Thanks for the question I would answer that by saying that review will be very thorough a holistic review that will take into account all aspects of our operations so to get more specific than that in terms of.
Speaker Change: The nuances.
You can you can be assured it will be a very thorough process.
Tony Malone: Obviously will allow the board and management team to be very informed in terms of what the best path forward would be.
John: And I might've missed it but what's what's kind of the timeline that youre looking at.
For conducting that.
John: We have not not going to speculate on how long the process will take what I will tell you is we're very very much into the process now.
Chris Smith: The board and management has been active in this.
Chris Smith: Since the beginning of the year, but I can't give you a timeline on when that will complete.
Chris Smith: And then two more questions I'm interested in the backlog.
Chris Smith: Small cells and roughly what portion of that.
Chris Smith: This incremental nodes are kind of second and third tenants versus requiring capital maybe a rough split.
Tony Malone: And then lastly, I think it might be useful to.
Speaker Change: Review the history, you've got a lot of acquisitions over the years.
Jean: Next Jean <unk> and bolt on FPL in light tower, and so forth and as you look at the totality of the fiber business in particular.
Jean: How would you characterize.
Jean <unk>: The product mix, how much would you consider to be more infrastructure versus managed services any any kind of views on that I think would be useful in Europe. Thanks.
John: Let me take the first one of those John.
John: In the backlog.
We have about 50000 nodes and our backlog of which about 60% our colocation notes.
John: So as we've talked about that number is.
John: Has moved over time for the majority of our nodes has been anchor builds for a long time and the majority of the nodes and our backlog now are co location notes, we're seeing a progression there.
John: And I think that that does speak to overtime decreasing capital intensity to get to the same amount of growth.
John:
John: On the on the product mix of our fiber acquisitions, our fiber business around infrastructure versus managed solutions.
John: I think I would go back to what I said earlier, which is what we were really focused on is trying to deliver the right products to a larger base of our base of larger customers that are generally more sophisticated in the general fiber market, which leaves us more towards.
John: And many times, an infrastructure build but as the market does move in managed services becomes important we are.
John: Evaluating our product set to make sure that we remain top of mind with our customers and are delivering exactly what they need.
John: But the vast majority of what we do.
John: Is it aimed at kind of those large scale enterprises and they generally do have more sophistication in how they manage their networks internally and required less of the services that have become more in Vogue recently in the fiber solutions business.
John: Thank you.
John: Our next question comes from the line of <unk> Levi with UBS. Please go ahead.
John: Great. Thank you a couple of questions.
John: Talk about how we should think about capital allocation in terms of maximum leverage you would like to take on.
John: And the next year or two and maybe an update on the operational efficiencies and cost control.
John: Continuing to take on the strategic review and I think you had positive b locations is there any impact that we should be thinking about some bad and lastly, the pacing of tower leasing activity 24 guidance.
Tony Malone: Four 5% for the year should we expect that it was more second half weighted thank you.
Let me take the first one on leverage.
Tony Malone: Our target languages around five times debt to EBITDA, we understand that given the.
Tony Malone: Pending of capital over the course of 2024, along with some of the.
Tony Malone: The noncash reductions that are going to reduce our noncash impacts are going to reduce our EBITDA that our leverage will tick up a bit but we believe that over over time the growth in our business will allow us to naturally delever back to our five times and believe that we are in a good shape to do so.
I wouldn't I wouldn't talk about a maximum leverage at this point.
Tony Malone: I don't think we need to talk about it that way what we want to do is maintain somewhere close to five times and then when we take above it like we have recently and we will continue to do in 2024 have very good line of sight into how we can bring it down with with good capital management and good operating performance, which is what we think will happen.
Tony Malone: Dan before why don't you.
Answer.
Dan: <unk> of the leasing and then I'll.
Dan: I'll circle back on the operational efficiency question sure on the pacing of leasing is generally.
Dan: Level loaded through the year like we said we believe the level of activity in 2024 approximates. This what we saw in the back half of 2023, and we think that will remain relatively consistent there is a little bit as it is typical that is backend loaded there's a little bit more in the second half than the first half typically when we see these.
Dan: The leasing mostly because our customers act that way they spend more money in the second half of the year. They do in the first half of the year, but it's not anything that I would speak to it would cause a significant change in pacing of leasing activity in 2024.
Dan: Thanks, Dan regarding operational efficiency.
Dan: Sure.
Dan: The move to <unk>.
Jason Soon: With cielo.
<unk> responsibility, obviously is a step that I feel will improve our line of sight on the efficiencies needed in each segment and I think that in and of itself.
Tony Malone: <unk> will allow us to drive efficiencies in.
Speaker Change: In addition to that there is.
Speaker Change: There is a.
Tony Malone: The work we did in 2023 in the middle of the year with consolidations.
Tony Malone: That it's important to distinguish that from the consolidation that you're referencing that we reversed.
Tony Malone: Those those are complete the benefits of those are in the 2023 results and we will continue and flow through into our 2024 results as well. So we feel very comfortable with the achievement of those efficiency initiatives.
Tony Malone: When I looked at the consolidation that has been planned for the end of 2023 in early 'twenty four.
Tony Malone: If you recall, we did not identify.
Tony Malone: Specific savings and quite frankly, those savings were more longer term in nature. So.
Tony Malone: The guidance, we provided for 2024 and the efficiencies that we need it.
Tony Malone: I feel strongly that those efficiencies can and will be gained.
Tony Malone: Irrespective of our decision to.
Tony Malone: To cancel the consolidation that was previously announced.
Tony Malone: So.
Tony Malone: I don't have any concerns in terms of achieving the efficiencies we need.
Tony Malone:
Tony Malone: With respect to the change in that consolidation plan.
Tony Malone: Got it thank you very much.
The next question comes from Richard Choe with Jpmorgan. Please go ahead.
Tony Malone: Hi, I just wanted to follow up on the backlog for small cells is that still being added to but the overall level should come down given the higher build base that you are having for 2024, and then I would fall.
Tony Malone: Yes.
Tony Malone: The short answer Richard is yes, we continue to add to our backlog is just in small increments at times and there is not because we want to.
Tony Malone: Make those kind of rounded numbers.
Richard Prentiss: We won't always announce everything we do.
Richard: But given the size of the orders that we got from specifically T mobile and Verizon.
Richard: We're working through those that backlog with those customers and that is the majority of the work that we're doing and that is the majority of the 50000 node backlog that we have currently.
Richard: So we do anticipate that as we deliver.
Richard: 16000 nodes that we expect to deliver in 2024 that the backlog will come down.
Richard: Based on that.
Richard: <unk>.
Richard: Moving them out of backlog and into revenue generating which is.
Actually we think a very good day.
Yeah.
And then given the transition in strategic review period is there.
Richard: Potentially a shift maybe to allocate more capital to.
Speaker Change: Towers in terms of builds or acquisitions or is that something that.
Tony Malone: You've largely stayed away from and to.
Speaker Change: And you're right.
Richard: Yeah Richard.
Richard: I think all options are on the table with the strategic review I don't I don't think.
Richard: <unk>.
Richard: I think it would be premature to conclude.
Richard Prentiss: That we would we would do or not do.
Tony Malone: Anything specifically in terms of capital allocation I think it's all fair game and.
We will be informed.
Tony Malone: By the reveal will be informed by just opportunities in the marketplace.
Tony Malone: Great. Thank you.
Tony Malone: Okay, operator, I think we are.
Time for one more question.
Eric <unk>: Our final question today comes from the line of Eric <unk> with Wells Fargo. Please go ahead.
Speaker Change: Hi, Thanks for taking the questions.
So just I know you said all options are on the table, but just wondering at a higher level with fiber solutions and small cells. This is there any possibility you could consider divesting fiber solutions, while retaining your small cell business or are they more or less married together, where it's very hard to really split them apart from one another.
Speaker Change: Okay.
Eric <unk>: Eric Thanks.
Eric <unk>: I think it's it would be pure speculation on my part I think as I said all options are on the table I would not.
Dismiss any option would not suggest any option is more is more likely than another at this point in time.
Got you and as you look at fiber solutions and small cells I guess.
Do you think there are ways you could operate the business more capital efficiently without sacrificing the future growth of the business or does that just kind of naturally come.
Eric <unk>: From your improvement in the mix of co location nodes versus anchor tenant nodes. Thank you.
I think we can improve.
Eric <unk>: How we operate the business.
Eric <unk>: Without impacting the future growth prospects.
Eric <unk>: Yes.
Eric <unk>: Okay. Appreciate it thank you.
Eric <unk>: Okay.
Eric <unk>: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Eric <unk>: [music].
Okay.
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