Q2 2024 Crown Castle International Corp Earnings Call
Operator: Good day, and welcome to the Crown Castle second quarter 2024 earnings conference call. All participants will be in a listen-only mode.
Speaker Change: Good day and welcome to the Crown Castle Second Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance?
Operator: Could 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 the star key, then 1 on a touch-tone phone.
Speaker Change: Please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions.
To ask a question, you may press star then 1 on a touch-tone phone.
Operator: To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Kris Hinson, Vice President of Corporate Finance and Treasurer. Please go ahead.
Speaker Change: To withdraw your question, please press star then 2.
Kris Hinson: Kris Hinson, Vice President of Corporate Finance and Treasurer, Thank you, Betsy, and good afternoon, everyone. Thank you for joining us today as we discuss our second quarter 2024 results. With me on the call this afternoon are Steven Moskowitz, Crown Castle's Chief Executive Officer, and Dan Schlanger, Crown Castle's Chief Financial Officer.
Please note, this event is being recorded.
I would now like to turn the conference over to Kris Hinson, Vice President of Corporate Finance and Treasurer. Please go ahead.
Kris Hinson: Thank you Betsy and good afternoon everyone. Thank you for joining us today as we discuss our second quarter 2024 results. With me on the call this afternoon are Steven Moskowitz, Crown Castle's Chief Executive Officer, and Dan Schlanger, Crown Castle's Chief Financial Officer.
Kris Hinson: 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 conference call will contain forward-looking statements that 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 filing.
Speaker Change: 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.
Speaker Change: 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.
Kris Hinson: Information about potential factors which could affect our results is available in the press release in the risk factor sections of the company's SEC filings.
Kris Hinson: Our statements are made as of today, July 17, 2024, and we assume no obligation to update any forward-looking statements.
Kris Hinson: In addition, today's call includes discussion of certain non-GAAP financial measures.
Kris Hinson: Our statements are made as of today, July 17, 2024, and we assume no obligation to update any forward-looking statements. In addition, today's call includes discussion of certain non-GAAP financial measures. 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.
Kris Hinson: 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 Steven.
Steven J. Moskowitz: With that, let me turn the call over to Steven. Thanks, Kris, and good afternoon, everyone. We appreciate you joining us for this call, and as you can see from our second quarter results, we delivered solid operating and financial performance in all three of our businesses and reiterated our full year 2020 outlook. We're confident in our outlook based on having 95% of our expected tower revenue growth for this year contracted, either as part of our holistic master license agreements with our major customers or with revenues from regional and local wireless customers and also having implemented changes to our fiber segment, which will position us to generate more profitable business and increase our operating efficiency.
Steven: Thanks, Kris, and good afternoon, everyone.
Steven: We appreciate you joining us for this call, and as you can see from our second quarter results, we delivered solid operating and financial performance in all three of our businesses and reiterated our full year 2020 for Outlook.
Steven: We're confident in our outlook based on having 95% of our expected tower revenue growth for this year contracted, either as part of our holistic master license agreements with our major customers.
Steven: or with revenues from regional and local wireless customers and also having implemented changes to our fiber segment which will position us to generate more profitable business and increase our operating efficiencies.
Steven J. Moskowitz: In the tower business, we anticipate organic revenue growth of 4.5% this year and believe that as we look out over the next few years, our growth rate will be higher based on three factors. First, the holistic master license agreements we have with our largest customers provide us with a stable and consistent level of growth over time. Second, industry forecasts estimate that long-term U.S. wireless data demand growth will continue to drive the need for significant future communications infrastructure investment.
Steven: In the tower business, we anticipate organic revenue growth of 4.5 percent this year and believe that as we look out over the next few years, our growth rate will be higher based on three factors.
Steven: First, the holistic master license agreements we have with our largest customers provide us a stable and consistent level of growth over time.
Steven: Second, industry forecasts estimate that long-term U.S. wireless data demand growth will continue to drive the need for significant future communications infrastructure investments.
Steven J. Moskowitz: And we are aware that major carriers still have lots of work to do to expand their networks in the 5G build cycle. And finally, we believe that as more tangible steps are taken by our company to be a best-in-class supplier of low-cost shared infrastructure solutions, we will be better positioned to compete for a higher share of revenues as our customers continue to invest in their networks. Moving to our fiber and small cell businesses, we've completed many of the changes to our operating plans that we announced in June and have started to see the benefits of those changes through more profitable growth and greater operating efficiency.
Steven: And we are aware that major carriers still have lots of work to do to expand their networks in the 5G build cycle.
Steven: And finally, we believe that as more tangible steps are taken by our company to be a best-in-class supplier of low-cost shared infrastructure solutions, we'll be better positioned to compete for a higher share of revenues as our customers continue to invest in their networks.
Steven: Moving to our fiber and small cell businesses, we've completed many of the changes to our operating plans that we announced in June and have started to see the benefits of those changes through more profitable growth and greater operating efficiencies.
Steven J. Moskowitz: As part of the operational review of our fiber segment, which we conducted earlier this year, we affirmed that a greater opportunity exists to provide additional customer solutions to enterprise fiber connections and small cell locations that are on or near our existing high-quality fiber footprint, which allows us to add revenue without the requirement to invest as much capital as we've done in the past. To implement these changes in our small cell business, our commercial and deployment teams have been working collaboratively with our customers on a mix of outcomes, many of which improve our project economics, while also addressing our customers' evolving priorities around network densification and capital allocation. As part of this change in our operating plan, we plan to build fewer anchor nodes in the short run.
Steven: As part of the operational review of our fiber segment, which we conducted earlier this year,
Steven: We affirm that greater opportunity exists to provide additional customer solutions to enterprise fabric connections.
Steven: and small cell locations that are on or near our existing high quality fiber footprint which allows us to add revenue without the requirement to invest as much capital as we've done in the past.
Steven: To implement these changes in our small-cell business, our commercial and deployment teams have been working collaboratively with our customers on a mix of outcomes, many of which improves our project economics, while also addressing our customers' evolving priorities around network densification and capital allocation.
Steven J. Moskowitz: However, given our large pipeline and our customers' long-term densification needs and geographies where we have really robust assets in place, we continue to expect there is sufficient demand to grow small cell revenues by double digits over the next several years. Turning to our fiber solutions business, we believe we can improve returns by focusing our sales efforts on on or near-net opportunities that reduce discretionary capital expenditures going forward. And to support these changes, we've already adjusted our go-to-market commercial plan. We changed our sales incentive award system and increased our required rates of project returns, resulting in anticipated shorter payback periods on invested capital.
Steven: As part of this change in our operating plan, we plan to build fewer anchor nodes in the short run. However, given our large pipeline and our customers' long-term densification needs in geographies where we have really robust assets in place,
Steven: We continue to expect there is sufficient demand to grow small cell revenues by double digits over the next several years.
Steven: Turning to our fiber solutions business, we believe we can improve returns by focusing our sales efforts on on or near net opportunities that reduce discretionary capital expenditures going forward.
Steven: And to support these changes, we've already adjusted our go-to-market commercial plan. We've changed our sales incentive award system and increased our required rates of project returns, resulting in anticipated shorter payback periods on invested capital.
Steven J. Moskowitz: So like in our small cell business, we analyze the markets around our fiber assets to quantify the opportunities to utilize our existing fiber. And we believe we have ample opportunities to improve capital efficiency while achieving long-term organic revenue growth in fiber solutions of 3% per year. As we announced in June, we believe our more focused effort to target on-net and near-net demand in both small cells and fiber solutions will drive a more efficient use of capital and will also generate approximately $100 million of annualized run rate cost savings.
Steven: So, like in our small cell business, we analyzed
Steven: The markets around our fiber assets.
Steven: to quantify the opportunities to utilize our existing fiber. And we believe we have ample opportunities to improve capital efficiency while achieving long-term organic revenue growth in fiber solutions of 3% per year.
Steven: As we announced in June , we believe our more focused effort to target on-net and near-net demand in both small cells and fiber solutions will drive a more efficient use of capital and will also generate approximately $100 million of annualized run rate cost savings.
Steven J. Moskowitz: Importantly, we implemented most of these changes by the end of the second quarter, which keeps us on track to generate approximately $60 million of expected cost savings and reduce capital expenditures by about $300 million for this year.
Steven: Importantly, we implemented most of these changes by the end of the second quarter, which keeps us on track to generate approximately $60 million of expected cost savings and reduce capital expenditures by about $300 million for this year.
Steven J. Moskowitz: As we continue to deliver solid results and make operational changes, we remain focused on the FIBER strategic review, which is active and ongoing. The management team and I continue working with the Fiber Review Committee, the Board of Directors, and external consultants to evaluate strategic alternatives to determine how to maximize shareholder value. Right now, we can't share much more about the process and the timing.
Steven: As we continue to deliver solid results and make operational changes, we remain focused on the FIBR strategic review, which is active and ongoing.
Steven: The management team and I continue working with the Fiber Review Committee, the Board of Directors, and external consultants to evaluate strategic alternatives to determine how to maximize shareholder value.
Steven J. Moskowitz: What we can share is that we remain actively engaged with multiple third parties who continue to show a lot of interest in our fiber solutions and small businesses, and we'll provide updates as the process unfolds. I'd like to conclude my comments by saying that over the past few weeks, I've been fortunate to have engaged in conversations with more than 50% of our company's employees, either in person or via videoconference. Conversations, through either in-person conversations or also video conference calls.
Steven: Now, we can't share much more about the process and the timing. What we can share is that we remain actively engaged with multiple third parties who continue to show a lot of interest in our fiber solutions and small sub-businesses, and we'll provide updates as the process unfolds.
Steven: I'd like to conclude my comments by saying that over the past few weeks, I've been fortunate to have engaged in conversations with more than 50% of our company's employees
Steven: through either in-person...
Steven: through either in-person conversations and also video conference calls.
Steven J. Moskowitz: The goal of my meetings with everybody was to be present and discuss the rationale behind our recent operational changes, answer questions that are on people's minds about the fiber segment, and start to set expectations for everybody in the company going forward. My takeaways from these discussions were that two major themes exist in the minds of Crown Castle employees. First,
Steven: The goal of my meetings with everybody was to be present and discuss the rationale behind our recent operational changes, answer questions that are on people's minds about the fiber segment.
Steven: and start to set expectations for everybody in the company going forward.
Steven J. Moskowitz: They care and have great pride. They're very proud of being part of Crown Castle, and they want our company to be seen as excellent in the minds of the constituents we serve, including shareholders, customers, and communities. And second, most recognize that to be excellent, we need to continue to make changes in how we operate, and they are engaged and energized about their ability to participate in and lead the process and develop new ways of doing things to help differentiate us as a leader in the sector.
Steven: My takeaways from these discussions was that two major themes exist in the minds of Crown Castle employees.
Steven: They care and have great pride. They're very proud of being part of Crown Castle, and they want our company to be seen as excellent in the minds of the constituents we serve, including shareholders and customers and communities.
Steven: And second, most recognize that to be excellent, we need to continue to make changes in how we operate.
Steven: And they are engaged and energized about their ability to participate in and lead the process and develop new ways of doing things to help differentiate us as a leader in the sector.
Steven J. Moskowitz: So I'd like to thank all the employees I met for being as open and transparent with me as they were, and to those employees I've yet to meet, but will at a time come soon. And to all of our employees, a big thank you for continuing to drive our business and deliver results over the past several months. I know there's been a lot of change, and it's reassuring that this team has been able to stay focused on delivering for customers during this period.
Steven: So I'd like to thank all the employees I met for being as open and transparent with me as they were, and to those employees I've yet to meet, but will at a time come soon.
Speaker Change: And to all of our employees, a big thanks for continuing to drive our business and deliver results over the past several months. I know there's been a lot of change, and it's reassuring that this team has been able to stay focused on delivering for customers during this period.
Steven J. Moskowitz: And having said all that, I would ask all employees and our investors to keep in mind that change management's a process, and it takes time. And I appreciate your understanding as we continue to develop new goals that will improve our chances of taking higher shares of new revenue opportunities, convert a greater share of new revenue into EBITDA, increase investment returns on the growth capital we deploy, bolster our balance sheet to generate more optionality for us in the future, and ultimately increase shareholder value. So with that, I will turn it over to Dan to walk through the quarter results. Thanks, Steven, and good afternoon, everyone.
Speaker Change: And having said all that, I would ask all employees and our investors to keep in mind the change management's a process and it takes time.
Speaker Change: And I appreciate your understanding as we continue to develop new goals that will improve our chances of taking higher shares of new revenue opportunities.
Speaker Change: Convert a greater share of new revenue down to EBITDA. Increase investment returns on the growth capital we deploy. Both are a balance sheet to generate more optionality for us in the future. And ultimately, increase shareholder value.
Speaker Change: So with that, let me turn it over to Dan to walk through the quarter results.
Dan Schlanger: We delivered second quarter results in line with expectations and remain on track for our full year outlook after implementing the operational changes we announced. See the second quarter results on page four of our earnings. The underlying business continued to perform well on the corridor, highlighted by 4.7% consolidated organic growth, excluding the impact of Sprint cancellation. The 4.7% organic growth in the second quarter consists of 4.4% growth from towers, 11% from small cells, and 3.2% from fiber solutions.
Dan: Thanks, Steven, and good afternoon, everyone. We delivered second quarter results in line with expectations and remain on track for our full year outlook after implementing the operational changes we announced in June .
Dan: Looking at the second quarter results on page four of our earnings presentation.
Dan: The underlying business continued to perform well in the quarter, highlighted by 4.7% consolidated organic growth, excluding the impact of Sprint cancellations.
Dan: The 4.7% organic growth in the second quarter consists of 4.4% growth from towers, 11% from small cells, and 3.2% from fiber solutions.
Dan Schlanger: We are encouraged by these levels of growth at this, with our tower business generating growth in line with our current expectations, the uptick in small cell activity resulting in higher growth compared to the last couple years, and our Fiber Solutions business delivering growth above our 3% expectation. Despite the changes we made to our operations, this growth underscores the stability and attractiveness of our business, as we are well positioned to capitalize on the growing demand for data.
Dan: We are encouraged by these levels of growth at this time, with our tower business generating growth in line with our current expectations.
Dan: The uptick in small cell activity resulting in higher growth compared to the last couple years, and our fiber solutions business delivering growth above our 3% expectation despite the changes we made to our operating plan.
Dan: This growth underscores the stability and attractiveness of our business.
Dan Schlanger: As anticipated, the solid organic growth delivered in the quarter was more than offset by several one-time and non-cash outflows, including a $106 million reduction to site rental revenues related to the Sprint cancellation, and a combined $105 million reduction in straight-line revenues and prepaid rent amortization, both of which are non-cash.
Dan: as we are well positioned to capitalize on the growing demand for data in the U.S.
Dan: As anticipated, the solid organic growth delivered in the quarter was more than offset by several one-time and non-cash items.
Dan: including a $106 million reduction to site rental revenues related to the Sprint cancellations.
Dan: A combined $105 million reduction in straight-line revenues and prepaid rent amortization, both of which are non-cash items.
Dan Schlanger: A $22 million decrease in service margin contribution due to the combination of lower tower activity and the decision we made to exit the construction and installation business, which we implemented in the second half of last year, and $20 million in advisory fees primarily related to our recent Turning to page five, we are reiterating the full-year outlook we released in June, which reflects a year-over-year decrease in site rental revenues, adjusted EBITDA, and ASFSR, primarily due to one-time and non-cash.
Dan: A $22 million decrease in service margin contribution due to the combination of lower tower activity and the decision we made to exit the construction and installation business, which we implemented in the second half of last year.
Dan: and $20 million of advisory fees primarily related to our recent proxy contest.
Dan: Turning to page 5, we are reiterating the full-year outlook we released in June , which reflects a year-over-year decrease in site rental revenues, adjusted EBITDA, and ASFO, primarily due to the one-time and non-cash items I just mentioned.
Dan Schlanger: Our expected organic growth contribution to full-year site rental billings remains unchanged, with organic growth of 2% or 5%, excluding the impact of Sprint cancellations. The 5% consolidated organic growth excluding the impact of Sprint cancellations consists of 4.5% from Towers compared to 5% in 2023. 15% from small cells, as we expect 11,000 to 13,000 new billable nodes in 2024 compared to 8,000 nodes in 2023, and 2% from fiber. As we announced in June, the small organic growth of 15% includes a $25 million increase in non-recurring revenue, primarily related to early termination.
Dan: Our expected organic growth contribution to full-year site rental billings remains unchanged, with organic growth of 2% or 5% excluding the impact of Sprint cancellations.
Dan: The 5% consolidated organic growth excluding the impact of Sprint cancellations consists of 4.5% from Towers compared to 5% in 2023.
Dan: 15% from small cells, as we expect 11,000 to 13,000 new billable nodes in 2024, compared to 8,000 nodes in 2023, and 2% from fiber solutions.
Dan: As we announced in June , the small soil organic growth of 15% includes a $25 million increase in non-recurring revenues primarily related to early termination payments.
Dan Schlanger: Excluding this impact, small cell organic growth is expected to be 10% Moving to page 7, we expect to deliver $105 million of AFFO growth at the mid- Excluding the impact of the Sprint cancellations and non-cash decrease in amortization of prepayments. Included in this AFFO growth is a $10 million increase in cost, which includes normal operating cost increases as well as $25 million of advisory fees related to our recent proxy.
Dan: Excluding this impact, small cell organic growth is expected to be 10% this year.
Dan: Moving to page 7, we expect to deliver $105 million of AFFO growth at the midpoint, excluding the impact of the sprint cancellations and non-cash decrease in amortization of prepaid rent.
Dan: Included in this AFFO growth is a $10 million increase in cost.
Dan: which includes normal operating cost increases as well as $25 million of advisory fees related to our recent proxy contest.
Dan Schlanger: All of which is expected to be offset by an approximately $60 million decrease in costs related to the reduction in staffing levels and office closures we announced today. Turning to the balance, we ended the second quarter with leverage at 5.9 times even, or 5.7 times excluding the impact of the non-recurring advisory.
Dan: All of which is expected to be offset by an approximately $60 million decrease in costs related to the reduction in staffing levels and office closures we announced in June .
Dan: Turning to the balance sheet, we ended the second quarter with leverage at 5.9 times EBITDA, or 5.7 times excluding the impact of the non-recurring advisory fees.
Dan Schlanger: Looking ahead to the third quarter, we expect our leverage metrics to improve, as we believe our second quarter EBITDA will be the low point for the year and we benefit from our operating costs. Since transitioning to investment grade in 2015, we have strengthened our balance sheet by extending our weighted average maturity from five to seven years. Decreasing the percentage of secured debt from 47% to 60% and increasing the percentage of fixed rate debt from 68% to 89%.
Dan: Looking ahead to the third quarter, we expect our leverage metrics to improve, as we believe our second quarter EBITDA will be the low point for the year, and we benefit from our operating cost reductions.
Dan: Since transitioning to investment grade in 2015, we have strengthened our balance sheet by extending our weighted average maturity from 5 to 7 years, decreasing the percentage of secured debt from 47 percent to 6 percent.
Dan: and increasing the percentage of fixed rate debt from 68% to 89%.
Dan Schlanger: In addition, we ended the quarter with approximately $5.5 billion of availability under our revolving credit and only $2 billion in debt maturities through 2025, providing us with ample liquidity to fund our business. We believe the steps we have taken to strengthen our balance sheet. Provide us with financial stability and flexibility as we evaluate strategic paths. As we announced in June, we decreased our outlook for discretionary capex as a result of the modified investment parameters we recently implemented, and now expect $1.2 to $1.3 billion of gross discretionary capex. This was $900 million to $1 billion after taking into account $355 million of prepaid rent we expected.
Dan: In addition, we ended the quarter with approximately $5.5 billion of availability under our revolving credit facility and only $2 billion of debt maturities through 2025, providing us with ample liquidity to fund our business.
Dan: We believe the steps we have taken to strengthen our balance sheet provide us with financial stability and flexibility as we evaluate strategic paths forward.
Dan: As we announced in June , we decreased our outlook for discretionary capex as a result of the modified investment parameters we recently implemented.
Dan: And now expect $1.2 to $1.3 billion of gross discretionary CapEx, or $900 million to $1 billion after taking into account $355 million of prepaid rent we expect to receive.
Dan Schlanger: In summary, the business is performing well, delivering organic growth, and keeping us on track for our full-year outlook after implementing the operational changes we announced. With the operating review complete, our focus is on maximizing shareholder value by continuing to progress the fiber strategic review and delivering operational and financial results across our portfolio of tower, small cell, and fiber solutions. Before starting Q&A, I'd like to note that we are changing the timing of when we provide guidance for the upcoming year. Going forward, we will provide forward-year guidance with fourth-quarter earnings as opposed to our past practice of providing guidance in our third-quarter earnings.
Dan: In summary, the business is performing well, delivering organic growth, and keeping us on track for our full year outlook after implementing the operational changes we announced in June .
Dan: With the operating review complete, our focus is on maximizing shareholder value by continuing to progress the FIBER strategic review and delivering operational and financial results across our portfolio of Tower, Small Cell, and FIBER Solutions assets.
Speaker Change: Before starting Q&A, I'd like to note that we are changing the timing of when we provide guidance for the upcoming year. Going forward, we will provide forward year guidance with fourth quarter earnings as opposed to our past practice of providing guidance in our third quarter release.
Dan Schlanger: This means you should expect to receive our full year 2025 guide with earnings in January. With that, Betsy, I'd like to open the call for questions. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: This means you should expect to receive our full year 2025 guide with earnings in January .
Speaker Change: With that, Betsy, I'd like to open the call for questions.
Betsy: We will now begin the question and answer session.
Betsy: To ask a question, you may press star then 1 on your touchtone phone.
Betsy: If you are using a speakerphone, please pick up your handset before pressing the keys.
Betsy: If at any time your question hasn't been addressed and you would like to withdraw your question, please press star then 2.
Operator: If at any time your question hasn't been addressed, and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Simon Flannery with Morgan Stanley. Please go ahead. Great. Thank you very much. Good afternoon.
Betsy: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question today comes from Simon Flannery with Morgan Stanley . Please go ahead.
Simon William Flannery: Steven, thanks for all the color on the CAPEX and OPEX review there. What I wanted to get more color on was what the new run rate of CAPEX is. Presumably, since this was sort of a mid-year review, some of the spending was already done.
Simon William Flannery: Great. Thank you very much. Good afternoon. Steven, thanks for all the color on the CAPEX and OPEX review there.
Simon William Flannery: What...
Simon William Flannery: I wanted to get more color on was what is the new run rate of CapEx, presumably since this was sort of a mid-year review, some of the spending was already done, you may have more spending contracted in the second half of the year, so any color you can provide us at what sort of...
Dan Schlanger: You may have more spending contracted in the second half of the year. So any color you can provide us on what sort of usual rate you think the more usual rate, given this sort of higher hurdle rate and new, more focused approach will be going forward? And then maybe, Dan, one for you, you talk about the leverage coming down to 5.7 on an adjusted basis. What are you targeting in terms of leverage over the next couple of years? And there's Bloomberg reporting that there may be a Verizon portfolio out there. How are you thinking about M&A in the context of that? Hey Simon, it's Dan.
Speaker Change: You think the more usual rate, given this sort of higher hurdle rate, a new, more focused approach will be going forward?
Dan: And then maybe, Dan, one for you. You talk about the leverage coming down to 5.7 on an adjusted basis. What are you targeting in terms of leverage over the next couple of years here?
Speaker Change: Bloomberg's reporting that there may be a Verizon portfolio out there. How are you thinking about M&A in the context of that? Thank you.
Steven J. Moskowitz: I'm going to take the first two and leave the M&A point for Steven to hit. But the run rate of CapEx, as we've been talking about, we're focusing our CapEx on lower capital intensity projects so that we go towards on net and near net opportunities, which means that over time, we believe that the overall level of CapEx, the amount of revenue we generate, will come down. But ultimately, CapEx is going to be driven by how much opportunity we have in the business.
Speaker Change: Hey, Simon, it's Dan. I'm going to take the first two and leave the M&A point for Steven to hit. But the run rate of CapEx, as we've been talking about, we're focusing our CapEx on lower capital intensity projects, so that we go towards on-net and near-net opportunities.
Speaker Change: which means that over time we believe that the overall level of CapEx, the amount of revenue we generate, will come down.
Steven J. Moskowitz: So we can't really give a full run rate of what we think is going to happen until we understand what that activity looks like and we're able to give guidance in 2025. But I think one of the things you mentioned and you're right about is that this was a mid-year move and we were able to save $300 million, which is what we expect for the year. So we would anticipate that somewhere in that neighborhood or potentially more going forward.
Speaker Change: But ultimately, CapEx is going to be driven by how much opportunity we have in the business. So we can't really give a full run rate of what we think is going to happen until we understand what that activity looks like.
Speaker Change: and were able to give guidance in 2025.
Speaker Change: But I think one of the things you mentioned and you're right about is that this was a mid-year move and we were able to save $300 million is what we expect for the year. So we would anticipate that somewhere in that neighborhood or potentially more going forward, but we're going to have to get to 2025 before we can really give specifics on that point.
Steven J. Moskowitz: But we're going to have to get to 2025. In terms of leverage, our goal is to be at five times leverage, and obviously, we're elevated from that point now, but we believe as we continue to grow our EBITDA and not grow capital nearly as much because of the capital savings we just talked about, we think we will be able to organically bring that leverage down over time towards that five times goal. Hey Simon, it's Steven.
Speaker Change: In terms of leverage,
Speaker Change: Our goal is to be at five times leverage, and obviously we're elevated from that point now, but we believe as we continue to grow our EBITDA and not grow at capital nearly as much because of the capital savings we just talked about.
Speaker Change: We think we will be able to organically bring that leverage down over time towards that five times goal.
Michael Ian Rollins: In terms of M&A, you know, we're aware of different assets that are either in the market or coming to market in the U.S. And, you know, it's a truly compelling proposition for us, which we would consider compelling being highly strategic and cost-effective. So we have confidence in delivering future shareholder value. Then, if it has those types of characteristics, we definitely have an interest. But overall, right now, I mean, M&A is not necessarily the priority for us. Right. Thank you. The next question comes from Michael Rollins with Citi. Please go ahead. Thanks, and good afternoon.
Speaker Change: Thank you.
Speaker Change: Hey Simon, it's Steven. In terms of M&A, you know, we're aware of different assets.
Simon William Flannery: that are either in the market or coming to market in the U.S. and, you know, if it's a truly compelling proposition for us.
Simon William Flannery: which we consider compelling being highly strategic and cost-effective. So we have confidence in delivering future shareholder value. And if it has those types of characteristics, we definitely have interest.
Simon William Flannery: But overall, right now, I mean, M&A is not necessarily the priority for us.
Speaker Change: Great, thank you.
Speaker Change: The next question comes from Michael Rollins with Citi. Please go ahead.
Steven J. Moskowitz: I was curious, Steven, about some of the comments that you made about the tower business. You talked about three things that you thought could drive a higher organic annual growth rate. I'm curious if you can give us an update within that context of what you're seeing in terms of carrier activity, and are there any early signals that you're seeing as you look at the visibility that you have in this business and what could come in 2025.
Michael Ian Rollins: Thanks and good afternoon. I was curious, Steven, on some of the comments that you made about the tower business.
Speaker Change: You talked about three things that you thought could drive a higher organic annual growth rate.
Michael Ian Rollins: I'm curious if you can give us an update within that context of what you're seeing in terms of carrier activity, and are there any early signals that you're seeing as you look at the visibility that you have in this business and what could come in 2025? And then you also mentioned...
Steven J. Moskowitz: And then you also mentioned more tangible steps the company's taking to be a best-in-class provider. I'm curious if you could share some of those steps and how you think that'll translate into better share and results going forward. Yeah, okay, Michael.
Speaker Change: More tangible steps the company is taking to be a best-in-class provider. I'm curious if you could share some of those steps and how you think that will translate into better share and results going forward.
Steven J. Moskowitz: You know, it's tough to talk about next year and beyond. It's a little bit early from our vantage point. But what we see in the market today and the conversations that we're having with our customers, it just gives us optimism that what we've forecasted for revenue growth is directionally correct. We also obviously have the benefit of stability and visibility in our revenue from our MLAs. So we don't really see demand shifting directions in one way or another from our major carriers. Right now, to some degree, we look at things as steady state, as carriers work on their mid-band 5G rollouts. So that's pretty much how we're thinking about this year.
Michael Ian Rollins: Yeah, okay, Michael.
Michael Ian Rollins: It's tough to talk about next year and beyond, it's a little bit early from our vantage point, but what we see in the market today and conversations that we're having with our customers, it just gives us optimism that what we've forecasted for revenue growth is directionally correct.
Michael Ian Rollins: We also obviously have benefit of stability and visibility in our revenue from our MLAs. So we don't really see demand shifting directions in one way or another from our major carriers.
Michael Ian Rollins: Right now, to some degree, we look at things as steady state, as carriers work on their mid-band 5G rollouts.
Michael Ian Rollins: So that's, you know, pretty much, you know, how we're thinking about this year and, again, going into next year, you know, ideally there's more opportunity for growth, but we'll, you know, we'll be working through our budgets, you know, between now and the end of this year from that vantage point.
Steven J. Moskowitz: And again, going into next year, ideally, there's more opportunity for growth. But we'll be working through our budgets between now and the end of this year from that vantage point. As it relates to tangible things, I mean, the priorities right now for us are the strategic review of our fiber business, very critical, and spending cash, what we would say is wisely or differently.
Michael Ian Rollins: As it relates to tangible things, I mean, the priorities right now for us
Michael Ian Rollins: are the strategic review of a fiber business, very critical.
Speaker Change: Spending cash, what we would say is wisely or differently.
Steven J. Moskowitz: You know, with some changes that have already occurred in our fiber business, as we've outwardly discussed with everybody. Cost management for us, which is key, and our leadership team is, you know, evaluating other areas of the business to see how we can consider improving operating and EBITDA margins over time. And then business transformation. I think business transformation is probably the biggest thing that we need to work on. I mean, this company has grown significantly over the last decade.
Speaker Change: You know, with some changes that have already occurred in our fiber business, as we've outwardly discussed with everybody.
Speaker Change: Cost management for us, which is which is key, and our leadership team is.
Speaker Change: you know, evaluating kind of other areas of the business to see how we can consider improving operating and even the margins over time. And then business transformation. I think business transformation is probably the biggest thing.
Speaker Change: that we need to work on. I mean, this company has grown significantly over the last decade. And when you're growing like crazy, you know, you tend to be focused more on driving revenue and getting every opportunity you can for lease up.
Steven J. Moskowitz: And when you're growing like crazy, you tend to be focused more on driving revenue and getting every opportunity you can for lease up. And now that things are a little bit more in a steady state, I think the key for us is to, you know, do some transformation. And when I think about that, it's really evaluating the people, making sure we have the right people in the right roles. It's the business processes. So identifying them.
Speaker Change: And now that things are a little bit more in a steady state, I think the key for us is to, you know, do some transformation. And when I think about that, it's really evaluating the people, making sure we have the right people in the right roles. It's the business processes. So identifying.
David William Barden: You know, root causes of inefficiencies for us and figuring out plans to fix them so things are more repeatable, reliable, and efficient, and improving our systems, which a lot of people have been starting to do with improved workflows in this company. We have some new asset management tools, CRM, and on the enterprise side. So kind of wrapping that all up, if we're able to, over the next year, year and a half, really improve the processes that we have, whether it's the application to on-air cycle time, making sure we have just better data and data governance around our assets.
Speaker Change: You know, root causes of inefficiencies for us and figuring out plans to fix them so things are more repeatable and reliable and efficient.
Speaker Change: and Improving Our Systems, which a lot of people have been starting to do with improved workflows in this company.
Speaker Change: We have some new asset management tools, CRM, and on the enterprise side. So kind of wrapping that all up, if we're able to, over the next year, year and a half,
Speaker Change: You know, really improve the processes that we have, whether it's the application to on-air cycle time, making sure we have just better data and data governance around our assets.
David William Barden: All those types of things are going to help keep us really focused, and that will lead to providing better customer service to maximize organic growth in the future. The next question comes from David Barden with Bank of America. Please go ahead.
Speaker Change: All those types of things are going to help keep us really focused and that will lead to providing better customer service to maximize organic growth in the future.
Speaker Change: Thanks.
Speaker Change: The next question comes from David Barden with Bank of America. Please go ahead.
Dan Schlanger: Hey guys, thanks so much for taking the questions. A nice straightforward quarter.
David William Barden: Hey guys, thanks so much for taking the questions. A nice straightforward quarter.
Dan Schlanger: I guess my first question would be, Dan, you know, we go backwards and we start thinking about, you know, the small cell return thresholds, right? It was always, you know, whatever the capex is times six percent. And then, if we get a second tenant, that goes into the double digits. And if we get a third tenant, it goes north of there. Could you kind of come back to that and kind of give us what the new language around return threshold expectations is for the company now that we've kind of undertaken the, you know, the operational review?
David William Barden: I guess my first question would be, um...
Speaker Change: and
Speaker Change: you know, we go backwards and we start thinking about, you know, the small cell return thresholds, right? It was always
Speaker Change: You know, whatever the CapEx is, times 6%, and then if we get a second tenant, that goes into the double digits, and if we get a third tenant, it goes...
Speaker Change: Could you kind of come back to that and kind of give us what the new language around, you know, return threshold expectations is?
Speaker Change: for the company now that we've kind of undertaken the operational review. And then I guess the second question would be just in terms of the
Dan Schlanger: And then I guess the maybe a second question would be, just in terms of the Service Revenue, kind of run rate in the quarter, I think, Steve, to your point, that this might be kind of, you know, run rate, you know, from a tower activity level, is this the new run rate for these services for the foreseeable future before we start guiding the 25? Thank you. Sure. Thank you. Let me answer the first question, which is, what are our return thresholds as we look at the small cell business? You pointed them out right.
Speaker Change: Service Revenue, kind of run rate.
Speaker Change: I think, Steve, to your point, that this might be kind of, you know, run rate,
Speaker Change: and Unknown Speaker 0. We're going to start in about a minute. All right. Unknown Speaker 0. All right. Bye.
Speaker Change: You know, from a tower activity level, is this the new run rate for kind of services for the, you know, for the foreseeable future before we start guiding the 25? Thank you.
Speaker Change: Sure. Thank you.
Dan Schlanger: Historically, we had targeted 6% to 7% on the anchor build. All I can say now is that our target is higher than that, and we're going to work through the market and figure out exactly what that's going to look like. But what it does, by going to a higher level of anchor build economics, is it allows us, upon lease-up, to get even a higher return on the lease-up, so that we de-risk the business substantially.
Speaker Change: Let me answer the first one, which is, what are our return thresholds as we look at the small cell business? You pointed them out right. Historically, we had targeted 6% to 7% on the anchor build.
Speaker Change: All I can say now is that our target is higher than that.
Speaker Change: And we're going to work through the market and figure out exactly what that's going to look like. But what it does, by going to a higher level of anchor build economics,
Dan Schlanger: With our cost of capital being higher than it was when we first targeted 6% to 7%, we think that we can start making, on the anchor build, a return that accommodates that higher cost of capital and allows us to make money over time by leasing out those assets. But they're not yet in the position of quantifying exactly what that number is going to be or is. On the service revenue question that you asked, yes, the second quarter run rate is what I would put in for kind of a general idea of what we think will happen over the course of the rest of this year. And then, as you pointed out, we'll give additional guidance for 2025 when we update our guidance. I appreciate it. Thank you, Dan. The next question comes from Rick Prentiss with Raymond James. Please go ahead.
Speaker Change: is allows us, upon lease up, to get even a higher return on the lease up, so that we de-risk the business substantially, with our cost of capital being higher than it was when we first targeted 6 to 7 percent.
Speaker Change: We think that we can start making on the anchor build a return that accommodates that higher cost of capital and allows us to make money over time by leasing up those assets, but they're not yet in the position of quantifying exactly what that number is going to be or is at this point.
Speaker Change: On the service revenue question that you asked, yes, the second quarter run rate is what I would put in for kind of generally what we think will happen over the course of the rest of this year. And then, as you pointed out, we'll give additional guidance for 2025 when we update our guidance in January .
Speaker Change: Appreciate it. Thank you, Dan.
Speaker Change: The next question comes from Rick Prentiss with Raymond James. Please go ahead.
Richard Hamilton Prentiss: Yeah, thanks, everybody. Yeah, hey, I want to start with the change in giving guidance, slipping it to the 4Q call from the 3Q call. I know we had chatted about it in NARED, Dan, but kind of help us understand what kind of led to that change. I know your peers do it on the 4Q call.
Richard Hamilton Prentiss: Yeah, thanks everybody. Yeah, hey, I want to start with the change in giving guidance, slipping it to the 4Q call from the 3Q call. I know we had chatted about it in NARIT, Dan, but kind of help us understand what kind of led to that change. I know your peers do it on the 4Q call.
Dan Schlanger: Sure, that is part of what led us to it. But what we had noticed is that when we were giving our guidance in October, we were a full five months ahead of our peers. And what we had also noticed was whatever trend we started to talk about, we were kind of blazing a trail well before anybody else could talk about it.
Dan: Sure. That is part of what led us to it. I think that what we had noticed is that when we were giving our guidance in October , we were a full five months ahead of our peers.
Speaker Change: And what we had also noticed was whatever trend we started to talk about...
Dan Schlanger: And so we would get an outsized amount of questions and an outsized amount of consternation ultimately about what we were saying about the subsequent year for a pretty long time. And by the time that our peers were giving guidance in February, that news had settled a bit, and it didn't impact them as much. And so what we've noticed is it's been hard to be the trailblazer on that front.
Speaker Change: We were kind of blazing a trail well before anybody else could talk about them, and so we would get an outsized amount of the questions and an outsized amount of the consternation, ultimately, about what we were saying about the subsequent year for a pretty long time.
Speaker Change: And by the time that our peers were giving guidance in February , that news had settled a bit and it didn't impact them as much. And so what we've noticed is it's been hard to be the trailblazer on that front.
Dan Schlanger: One of the things that has led us down the path of giving guidance so early is that our business is relatively predictable. And so we like the idea that giving guidance in October expressed that predictability. We didn't miss very often, even though we were giving guidance in October.
Speaker Change: Unknown Speaker .
Speaker Change: One of the things that has led us down the path of giving guidance so early is that our business is relatively predictable.
Speaker Change: And so we liked the idea that giving guidance in October .
Speaker Change: expressed that predictability. We didn't miss very often, even though we were giving guidance in October .
Dan Schlanger: We still believe our business is predictable. We still believe we could give guidance in October and be good with it. But we think giving ourselves another three months and being closer to our peers makes it easier for us to maintain a good message to the market and for investors to understand what's going on and gives us a little bit more time to incorporate any additional information in that last quarter that will help us give the best guidance we possibly can. Hey Rick,
Speaker Change: We still believe our business is predictable. We still believe we could give guidance in October and be good with it. But we think giving ourselves another three months and being closer to our peers makes it easier for us to maintain a good message to the market and for investors to understand what's going on, and gives us a little bit more time to incorporate any additional information in that last quarter that will help us.
Steven J. Moskowitz: It's Steven. You know, I'd add to that. You know, this company started the budget process at the beginning of August. You know, most companies I've been with in August, September, and October, we're driving home to try to finish out the year as strongly as we can. So I also felt compelled to ask the team to reconsider, start the budget process a little bit later, and if we needed to move guidance out, move guidance out, since it gives us a little bit more opportunity to really understand the market before we completely formalize what we have for our outposts.
Speaker Change: Give the best guidance we possibly can.
Speaker Change: Hey Rick, it's Steven. You know, I'd add to that, you know, this company has started the budget process at the beginning of August .
Richard Hamilton Prentiss: You know, most companies I've been with in August , September , October , we're driving home to try to finish out the year as strongly as we can.
Speaker Change: So, I also felt compelled to ask the team to reconsider, start the budget process a little bit later, and if we need to move guidance out, we can move guidance out, since it gives us a little bit more opportunity to really understand the market before we completely formalize what we have for our outlook.
Steven J. Moskowitz: That makes sense. And the carrier budget cycle seems to really come to a head, bottoms up, tops down, Halloween into the fourth quarter, so I think it makes sense from your customer standpoint, too. Exactly right. Yeah, and it takes away one other thing, Rick. I would just mention that it takes away one of the issues that we were having, which was we would provide guidance based on what we thought that the fourth quarter was going to be, and then it would be a jumping off point. Now we actually will know what that is so that we don't have that other, that extra, Transcript by Rev.com Page that makes sense to me.
Speaker Change: That makes sense. And the carrier budget cycle seems to really come to a head.
Speaker Change: bottoms up tops down Halloween into the fourth quarter so I think it makes sense from your customer standpoint too.
Speaker Change: That's exactly right. Yeah. And it takes away one other thing, Rick, I would just mention. It takes away one of the issues that we were having, which was we would provide guidance based on what we thought that the fourth quarter was going to be, and then it would be a jumping off point. Now we actually will know what that is so that we don't have that other, that extra issue. Absolutely. Absolutely.
Richard Hamilton Prentiss: I'm going to talk about the strategic review delicately, but I think this will work. Last quarter, we talked about fiber and small cells and whether it would make sense from a seller standpoint or the buyer standpoint to separate fiber solutions from small cells. Is it possible to update this as kind of what are the pros and cons from a very 30,000 foot level to say What about, is there a strategic review outcome that includes both of them together, or what if it's something that splits them apart? Is that a fair question?
Speaker Change: changed to try to reconcile back to.
Richard Hamilton Prentiss: That makes sense to me. I'm going to talk to the strategic review delicately, but I think this will work. Last quarter we talked about...
Speaker Change: Fiber small cells and would it make sense from a seller standpoint or the buyer standpoint to separate fiber solutions from small cells. Is it possible to update this as kind of what are the pros and cons from a very 30,000 foot level to say
Speaker Change: What about is there a strategic review outcome that is including both of them together or what if it's something that splits them apart? Is that a fair question? I think it is.
Dan Schlanger: I think it's, Yeah, it's a totally fair question. I think what we've said is that we are open to any alternative that maximizes shareholder value. And if that alternative is somebody who is willing to value the fiber solutions business apart from us, higher than what we think we're getting credit for what we believe it's worth internally, then we would like to sell it separately. If that valuation metric goes only in combination with small sales, then we would do something with a combined. So that's really how we're thinking about it.
Speaker Change: Yeah, it's a totally fair question. I think what we've said is that we are open to any alternative that maximizes shareholder value. And if that alternative is that somebody is willing to value the fiber solutions business apart from us,
Speaker Change: Higher than what we think we're getting credit for, what we believe it's worth internally, then we would like to sell it separately. If that valuation metric goes only in combination with small sales, then we would do something with a combined business.
Dan Schlanger: I can't tell you how a potential buyer would look at the pros and cons of whether they want it together or separate. That's up to them to try to figure out. We know that there are good overlaps between towers, small cells, and fiber solutions. That's why we have them together.
Speaker Change: So that's really how we're thinking about it.
Speaker Change: I can't tell you how a potential buyer would look at the pros and cons of whether they want it together or separate. That's up to them to try to figure out.
Speaker Change: We know that there have been...
Speaker Change: Good overlaps between tower small cells and fiber solutions. That's why do we have them together but we are open to somebody coming in and valuing each however, they think they see value and Comparing that to what our own internal look is and making the best decision for shareholders
Dan Schlanger: But we are open to somebody coming in and valuing each however they think they see value and comparing that to what our own internal look is and making the best decision for shareholders. Okay, last one for me, Steven. In the unique position we can you're in, we continue to see private multiples well above public multiples. Can you give us your opinion?
Steven J. Moskowitz: Are you seeing that? Why are we seeing it? And why has it persisted so long if it is there?
Steven: Okay, last one for me. Steven, unique position you're in. We continue to see private multiples well above public multiples. Can you give us your opinion on are you seeing that? Why are we seeing it? And why is it persisted so long if it is there?
Steven J. Moskowitz: That's a great question. Yeah, I mean, it's a bit of a mystery. I mean, obviously, you have a lot of private investors who are, you know, very excited about this business, about the business model, and about the future growth prospects. And, you know, they're investing capital, and they feel that, you know, whatever high multiples they are investing capital at, that at some point down the road, they'll be able to sell the business and get a good return on their invested capital or recapitalize the business somehow, or partner with somebody, but they see a very good exit.
Steven: That's a great question.
Steven: Yeah, I mean, it's a bit of a mystery. I mean, obviously, you have a lot of private investors.
Steven: who are very excited about this business, about the business model, and about the future growth prospects.
Steven: You know, they're investing capital and they feel that, you know, whatever high multiples are investing capital at, that at some point down the road, they'll be able to sell the business and get a good return on their invested capital or recapitalize the business somehow.
Steven J. Moskowitz: And I think there's, from our perspective, a dislocation. You know, we just, you know, we're not being opportunistic in looking at some deals that are out there that are, you know, very non-accretive to this company.
Steven: We're partnered with somebody, but they see a very good exit. And I think there is, from our perspective, a dislocation.
Steven: Again, we're not being opportunistic in looking at some deals that are out there that are very non-accretive to this company.
Steven J. Moskowitz: So, you know, we'll see what happens over time. And we are hoping, Rick, that the dislocation changes and it does give us an opportunity. So as our balance sheet strengthens over the next number of years, and we do have more flexibility and optionality, you know, to grow inorganically, there are opportunities, and maybe multiples at that juncture will have come down a little bit. And it's something that we would be seeking to, you know, engage in conversations with some of these private individuals. Great. I appreciate the call.
Steven: So, you know, we'll see what happens over time and we are hoping that the dislocation changes and it does give us an opportunity so as our balance sheet strengthens over the next number of years.
Steven: And we do have more flexibility and optionality, you know, to grow inorganically that there's opportunities and that maybe multiples at that juncture will have come down a little bit and it's something that we would be seeking to, you know, engage in conversations with some of these privates.
Speaker Change: Great. Appreciate the call. Thanks, guys.
James Schneider: Thanks, guys. The next question comes from Jim Schneider with Goldman Sachs. Please go ahead.
Richard Hamilton Prentiss: Thanks, Rick.
Richard Hamilton Prentiss: The next question comes from Jim Schneider with Goldman Sachs. Please go ahead.
Dan Schlanger: Good afternoon, and thanks for taking my question. Relative to the operational update and the lower number of small cell deliveries you expect to make in 2024, can you clarify whether that reflects a reduction in the amount of small cell activity that carriers intend to do overall this year? And do you believe there's any change in their intention to do more self-perform work on small cells? Yeah, I'll take that.
Jim Schneider: Good afternoon and thanks for taking my question. Relative to the operational update and the lower number of small cell deliveries you expect to make in 2024, can you clarify whether that reflects a reduction in the amount of small cell activity that carriers intend to do overall this year? And do you believe there's any change in their intention to do more self-performed work on small cells?
Steven J. Moskowitz: You know, again, we made the shift since returns on our invested capital have not yet materialized right to the level we'd hoped for, as we talked about. But we have a lot of conviction that if we continue to execute well, we're going to be able to maximize business in the future, as long as it's more on or around our fiber backbone. And, you know, again, we're looking at this as the carriers have their demands in terms of network changes and expansion with their different types of solutions. And it's based on many factors. And so, you know, for now, the carriers remain focused on deploying mid-band spectrum. I mean, that's kind of their top priority.
Speaker Change: Yeah, I'll take that. You know, again, we made the shift.
Speaker Change: Since returns on our investment capital, you know, has not yet materialized right to the level we'd hoped for, as we talked about.
Speaker Change: But we have a lot of conviction that if we continue to execute well, we're going to be able to maximize business in the future, as long as it's more on or around our fiber backbone.
Speaker Change: And, you know, again, we're looking at this as, you know, the carriers have their demands in terms of network changes and expansion with their different types of solutions.
Speaker Change: And it's based on many factors, and so, you know, for now the carriers remain focused on deploying mid-band spectrum. I mean, that's kind of their top priority.
Steven J. Moskowitz: And from our perspective, you know, our priority is to drive better returns and capital deployed. So we're, you know, in the process now of working with these customers on solutions. And we feel that we're going to be able to align their needs with ours in the short run, right? You know, kind of the balance of this year and into next year.
Speaker Change: And from our perspective, you know, our priority is to drive better returns and capital deployed. So we're, you know, we're in the process now of working with these, with these customers on solutions. And we feel that we're going to be able to align their needs with ours.
Speaker Change: in the short run, right, going through kind of the balance of this year and into next year.
Steven J. Moskowitz: But you know, as it relates to future demand, this business is kind of ever-changing, and it's a bit lumpy in terms of how we see things quarter to quarter. But generally speaking, the type of data demand growth that we see in the future, and that's estimated, we remain very optimistic that data growth is going to drive more densification, and it'll drive more demand for small cells over time, which will lead to the type of double-digit revenue growth that we forecast into the future. That's helpful.
Speaker Change: but
Speaker Change: As it relates to future demand, this business is kind of ever-changing and it's a bit lumpy in terms of how we see things quarter-to-quarter, but generally speaking, the type of data demand growth...
Speaker Change: That we see in the future, and that's estimated, we remain very optimistic that data growth is going to drive more densification.
Speaker Change: It will drive more demand for small cells over time, which will lead to the type of double-digit revenue growth that we forecast into the future.
Steven J. Moskowitz: And then, Steven, relative to your comments on the potential opportunity for market share gains, is there a particular segment of your business where you think you have the greatest confidence in achieving that over the next few years? You know, we have these holistic agreements with our major customers, where we have one that's going to be coming up for kind of a new negotiation over the next year. So we're hopeful that that will lead to kind of sanctifying our relationship even further and kind of taking our relationship or partnership up to the next level of excellence with that customer, which hopefully will enable them to consider us as being a real preferred supplier. So that's one element of it.
Speaker Change: That's helpful. Thank you. And then, Steven, relative to your comments on the potential opportunity for market share gains, is there a particular segment of your business where you think you have the greatest confidence in achieving that over the next few years?
Steven: You know, we have these holistic agreements with our major customers where
Steven: We have one that's going to be coming up for kind of a new negotiation over the next year.
Steven: So, you know, we're hopeful that that leads to kind of sanctifying our relationship even further and kind of taking our relationship or partnership up to the next level of excellence with that customer, which hopefully will.
Steven: Enable them to consider us as being a real preferred supplier. So that's one element of it
Steven J. Moskowitz: There's a whole host of kind of mid and smaller regional customers out there that we've been focused on. And I think with a greater effort, a greater sales effort, and different rewards for our sales teams, we should be able to convincely garner a higher share of business than we have in the past. So I think the combination of those two things should give us a chance to be able to generate more of our unfair share of business than we're taking now. Thank you very much. The next question comes from Nick Valdeo with Moffitt News. Please go ahead.
Steven: There's a whole host of kind of mid and smaller regional customers out there that
Steven: You know, we've been focused on, and I think with a greater effort, a greater sales effort, and different rewards for our sales teams, we should be able to be kind of convincingly garnering a higher share of business than we have in the past.
Steven: So, I think the combination of those two things should give us the chance to be able to generate more of our unfair share of business than we're taking now.
Steven: The next question comes from Nick Del Deo with Moffitt & Nathanson. Please go ahead.
Nicholas Ralph Del Deo: Hi, thanks for taking my questions. And I hope you guys in your team have been managing through the effects of the hurricane. Okay. Steven, you just touched on this a little bit in your prior answer, but I was hoping you could expand a bit more broadly on your high-level philosophies as it relates to MLAs.
Nicholas Ralph Del Deo: Hi, thanks for taking my questions, and I hope you guys and your team have been managing through the effects of the hurricane okay. Steven, you just touched on this a little bit in your prior answer, but I was hoping you could expand a bit more broadly on your high-level philosophies as it relates to MLAs.
Steven J. Moskowitz: So we can kind of understand, you know, the puts and takes of what you think about or want to see when you're when you're contemplating those sorts of arrangements. Yeah, I mean, the, You know, obviously, we've been able to achieve good growth and create significant shareholder value by negotiating these types of comprehensive MLAs. And the key for me is to be able to find ways where we're really kind of getting to a yes-yes situation or a win-win situation between both parties, where we're able to realize kind of more guaranteed growth over a multi-year period of time in a way that maximizes the value of our assets while giving the carriers really a much better degree of certainty as it relates to how they budget, and also enables them to get onto our sites more quickly, more efficiently, which then lowers their overall costs of operation.
Speaker Change: So we can kind of understand, you know, the puts and takes of what you think about or want to see when you're contemplating those sorts of arrangements.
Steven: Yeah, I mean, Nick, the, um...
Speaker Change: You know obviously we've been able to achieve good growth and create significant shareholder value
Speaker Change: by negotiating these types of comprehensive MLAs. And the key for me is to be able to find ways where we're really kind of getting to a yes-yes situation, or a win-win situation between both parties.
Speaker Change: where we're able to realize kind of more guaranteed growth over a multi-year period of time.
Speaker Change: in a way that maximizes the value of our assets.
Speaker Change: while giving the carriers really a much better degree of certainty as it relates to how they budget.
Speaker Change: and also enables them to get onto our sites more quickly, more efficiently, which then lowers their overall costs of operation. So the goal here is to have them be really beneficial to both our customers in providing that framework to leverage our assets.
Steven J. Moskowitz: So the goal here is to have them be really beneficial to both our customers in providing that framework to leverage our assets, and also for us, in order to be able to drive more revenue. But obviously, key elements to that include, you know, pricing and packaging and volume and annual escalations, in addition to the types of needs that the carriers feel that they need over time in terms of entitlements on these assets. So there's a number of things that come into play, and I know you know a lot of those.
Speaker Change: and also for us in order to be able to drive more revenue.
Speaker Change: But obviously, there's key elements to that include...
Speaker Change: You know, you know, pricing and packaging and volume and annual escalations in addition to the types of needs that the carriers feel that they need over time in terms of entitlements on these assets. So there's a number of things that come to play.
Steven J. Moskowitz: But that's kind of how, you know, I think about it broadly. Okay, that's helpful. Thank you for sharing that.
Speaker Change: which I know you know a lot of those, but that's kind of how I think about it broadly.
Steven J. Moskowitz: I guess one other question on fiber solutions: can you guys drill down a little bit on the changes to your sales tactics or sales incentives or the sales tools you're going to be using to enable you to sell more on or near net versus what you've been doing historically? Well, again, from an enterprise perspective on Fiber Solutions, you know, the shift is in sales and marketing, primarily. Basically, going kind of from a wide-angle lens to more of a zoom lens, I guess I would say.
Speaker Change: Okay, that's helpful. Thank you for sharing that. I guess one other question on...
Speaker Change: On Fiber Solutions, I guess, can you guys drill down a little bit on the changes to your sales tactics or sales incentives or the sales tools you're going to be using to enable you to sell more on or near net versus what you've been doing historically?
Speaker Change: Well, again, from an enterprise perspective or Fabric Solutions, you know, the shift is in sales and marketing.
Speaker Change: primarily.
Speaker Change: basically going kind of from a wide-angle lens.
Steven J. Moskowitz: And we're kind of dealing, we've been dealing a lot with retail type of clients, and we're trying to move a bit away from retail clients that are more transactional, that create a little bit more churn, that aren't as financially sound. And we're trying to move to customers and increase time spent with the larger customers out there that are in telecom, financials, and what we call GEM, which is government And those folks tend to, you know, remain loyal for longer contractual periods of time, which helps. And they also have more financial wherewithal to contribute more capital to any type of new project.
Speaker Change: to more of a Zoom lens, I guess I would say.
Speaker Change: We've been dealing a lot with retail type of clients and we're trying to move a bit away from retail clients.
Speaker Change: that are more transactional, that create a little bit more churn, that aren't as financially sound. And we're trying to move to customers and increase time spent with the larger customers out there that are in telecom, financials.
Speaker Change: and what we call GEM, which is Government Education and Medical.
Speaker Change: And those folks tend to, you know, remain loyal for longer contractual periods of time.
Speaker Change: which help and they also have more financial wherewithal to contribute, you know, more capital.
Steven J. Moskowitz: So, you know, the goal really is to kind of shift more into that what we call the complex sale area. And between the review that our teams did over the last number of months and some input from an advisor who's very steeped in this industry, they both felt collectively that there's a lot of headroom or opportunity to be able to kind of shift a bit from retail to more complex selling.
Speaker Change: to any type of new project. So, you know, the goal really is to kind of shift more into that what we call complex sale area and between the...
Speaker Change: Review that our teams did over the last number of months and some input from an advisor who's very steeped in in this industry You know, they both felt collectively that there's a lot of headroom or opportunity To be able to kind of shift a bit from retail to more complex selling
Steven J. Moskowitz: And we've put some pretty good sales incentives in place. And we have some automated systems that also help us in terms of kind of defining you. Okay, that's great. Thank you, Steven. The next question comes from Richard Cho with J.P. Morgan. Please go ahead.
Speaker Change: And we've put some pretty good sales incentives in place and we have some automated systems that also help us in terms of kind of defining, you know, where there's upside in our footprint.
Speaker Change: Okay. That's great. Thank you, Steven.
Speaker Change: The next question comes from Richard Cho with JP Morgan. Please go ahead.
Richard Cho: Hi, I have one question regarding the strategic review. I mean, should we be thinking about an outcome kind of by the next earnings call in the year or maybe longer than that? And then, following up on the tower question, longer term, is the tower business still a 5% business? Or could that actually be a little bit higher given maybe the changes that you're focusing on? Thank you.
Richard Hamilton Prentiss: Hi. I have one question regarding the strategic review. I mean, should we be thinking about...
Speaker Change: And I'll come kind of by the next earnings call, end of the year, or maybe longer than that.
Speaker Change: And then following up on the tower question, longer term, is the tower business still a 5% business, or could that actually be a little bit higher given maybe the changes that you're focusing on? Thank you.
Steven J. Moskowitz: Yeah, as it relates to the strategic review, it's, you know, it's difficult to put a timeframe on it, right? We're in the mix now, we're heavily engaged with, you know, multiple counterparties, potential counterparties, and, you know, we'll see how it plays out. You know, where we'd like it to be accelerated so we can make a decision, right? It'd be good for our company, it'd be good for our people, and it would be good for our shareholders, depending on what outcome we decide on.
Speaker Change: Yeah, as it relates to the strategic review, it's difficult to put a time frame on it, right? We're in the mix now. We're heavily engaged.
Speaker Change: with multiple counter-parties, potential counter-parties,
Speaker Change: You know, we'd like it to be accelerated so we can make a decision, right, it'd be good for our company, it'd be good for our people.
Steven J. Moskowitz: So, you know, just, I guess, stay tuned, stay with us on this, and we'll be able to hopefully report something out as, you know, as the year flows through. As it relates to the tower business in terms of, you know, kind of the outlook, we're not sure how, you know, if over 5% is something that's so readily available. Ideally, for us, it could be.
Speaker Change: [inaudible]
Speaker Change: As it relates to the tower business in terms of, you know, kind of the outlook.
Speaker Change: You know, we're not sure how, you know, if over 5% is something that's so readily available. Ideally, for us, it could be. You know, we've talked about cycles with the G's, and we feel we're kind of in mid-cycle right now, a bit of a trough.
Steven J. Moskowitz: You know, we've talked about cycles with the Gs, and we feel we're kind of in mid-cycle right now, a bit of a trough, and ideally, by the mid to end of next year, maybe we'll see a tick-up by the carriers in their capital spend. I think they're going to be spending $32 or $33 billion this year overall. Not all of that, of course, on our networks, but, you know, if they ratchet back a bit or, say, ratchet forward a bit, particularly maybe as interest rates settle a bit, which could be helpful to them.
Speaker Change: And ideally, by the mid to end of next year, maybe we see a tick up by the carriers in their capital spend. I think they're going to be spending $32 or $33 billion this year overall. Not all of that, of course, on our networks.
Speaker Change: But, you know, if they ratchet back a bit, or say ratchet forward a bit, particularly maybe as interest rates settle a bit, which could be helpful to them.
Steven J. Moskowitz: Then, you know, by the middle of next year, you know, ideally, we see a little bit greater demand and kind of finishing off between 26 and 27 of the 5G expansion. So if that happens, then that could increase growth incrementally. And then if we are able to get a bit of a higher share of growth, those things collectively put us, we believe, kind of in that 5% or maybe 5% plus range. Great, thank you. The next question comes from Ari Klein with BMO Capital Markets. Please go ahead.
Speaker Change: Then, you know, by middle of next year, you know, ideally, we see a little bit greater demand and kind of finishing off between 26 and 27 of the 5G expansion.
Speaker Change: So, if that happens, then that could increase growth incrementally, and then if we are able to get a bit of a higher share of growth, those things collectively, you know, puts us, we believe, kind of in that 5% or maybe 5% plus range.
Speaker Change: Great, thank you.
Speaker Change: The next question comes from Ari Klein with BMO Capital Markets. Please go ahead.
Aryeh Klein: Thank you. Maybe just going back to small cells, you know, given the shift in strategy. I think you've previously talked about 50,000 nodes and the backlog. How many of those are impacted, I guess, by the shifts that you're implementing? As of right now, we don't have a change. We still have 50,000 nodes in the backlog. We're working through all of those and through discussions with our customers. And nothing at this point has changed that would change that 50,000.
Ari Klein: Thank you. Maybe just going back to small cells, you know, given the shift in strategy, I think you've previously talked about 50,000 nodes and backlog. How many of those are impacted, I guess, by the shifts that you're implementing?
Speaker Change: As of right now, we don't have a change. We still have the 50,000 nodes in backlog. We're working through all of those and through the discussions with our customers.
Dan Schlanger: As we come to some sort of decisions with our customers and figure out what we want to do, should there be changes, we will obviously update that number, but it hasn't happened yet. Thanks. And then maybe you've talked a little bit about increased flexibility, which includes the balance sheet and maybe bringing leverage down. Could that at some point include a shift in the dividend strategy, and how do you think about that? Yeah, I think Given the fact that we're in the middle of the strategic review, which would include thoughts around capital allocation, dividend policy, and everything else, ultimately, we're really not in a great place to talk about what's going forward until we have more of a conclusion on what businesses we have and where we're going to be in the future.
Ari Klein: Nothing at this point has changed that would change that $50,000. As we come to some sort of decisions with our customers and figure out what we want to do, should there be changes, we will obviously update that number, but it hasn't happened yet.
Speaker Change: Thanks. And then maybe you've talked a little bit about increased flexibility, which includes the balance sheet and maybe bringing leverage lower. Could that at some point include a shift in the dividend strategy and how you think about that?
Speaker Change: Yeah, I think given the fact that we're in the middle of the strategic review, which would include the thought around capital allocation, dividend policy, everything else ultimately, we're really not in a great place to talk about what's going forward until we have more of a conclusion on what businesses we have and where we're going to be in the future.
Speaker Change: Got it. All right. Thanks. Thanks for the holler.
Dan Schlanger: All right. Thanks. Thanks for the call. The next question comes from Matt Nickman with Deutsche Bank. Please go ahead.
Matt Nickman: The next question comes from Matt Nickman with Deutsche Bank. Please go ahead.
Matthew Niknam: Hey guys, thanks for taking the question. Two on fiber as well; it seems to be the theme of the call. One, obviously, there's a sharpened focus on more profitable on or near net build. So Dan, I wanna go back to a point that was brought up before. I know we reduced discretionary CapEx for the fiber business by 300 million this year. This is a business that typically has, from what I remember, an 18 to 36 month book to bill.
Matt Nickman: Hey guys, thanks for taking the question.
Matt Nickman: Two on fiber as well. It seems to be the theme of the call. One, obviously, there's a sharpened focus on more profitable on or near net build. So, Dan, I want to go back to a point that was brought up before. I know we reduced discretionary CapEx.
Speaker Change: for the fiber business, 300 mil this year. This is a business that typically has, from what I remember, an 18 to 36 month book to bill. So there's pretty decent visibility. And so I'm wondering, as we sit here today, how that maybe informs what...
Dan Schlanger: So there's pretty decent visibility, and so I'm wondering as we sit here today, how that maybe informs what... 2025 could look like, just given sort of that longer book to bill window. And then secondly, on fiber solutions, the core leasing number this quarter was 39 mil. I believe that was the highest since 1Q22. So just looking for any updates you can share there and anything notable you'd call out driving that strength. Thanks. Yeah, Matt, I just want to make sure that the first question you asked was based on was directed at small cells, right, not fiber solutions.
Speaker Change: 2025 can look like, just given sort of that longer book-to-bill window. And then secondly, on fiber solutions, the core leasing number this quarter, 39 mil, I believe that was the highest since 1Q22. So just looking for any updates you can share there and anything notable, you'd call out driving that strength. Thanks.
Speaker Change: Yeah, Matt, I just want to make sure that the first question you asked was directed at small cells, right? Not fiber solutions?
Dan Schlanger: Yeah, we're so just around discretionary spend for the fiber salute fiber in general. Okay, fiber in general, because when you're talking about an 18 to 36 month book to bill cycle, that's more like a small cell type of book-to-bill cycle, Fiber Solutions is much faster. I so. We have reduced the discretionary capex. We do believe that that reduction will ultimately impact the amount of nodes that we're going to build and the revenue that we can generate.
Speaker Change: Yeah, but also just around discretionary spend for the fiber in general. Okay, fiber in general, because when you're talking about an 18 to 36 month book to bill, that's more like a small cell type of thing.
Speaker Change: book-to-bill cycle, Fiber Solutions is much faster.
Speaker Change: so
Speaker Change: We have reduced the discretionary capex. We do believe that that reduction will ultimately impact the amount of nodes that we're going to build and the revenue that we can generate.
Dan Schlanger: Part of how we're going to go through the discussions with our customers and how those will end up will impact 2025, and we'll be able to talk about it, like I said, in January when we get guidance. On the fiber solution side of the reduction, we do have reductions in the capex that has to do with some fiber business. And that's because what we talked about is we're not really targeting.
Speaker Change: Part of how we're going to go through the discussions with our customers and how those will end up will impact 2025. And we'll be able to talk about it, like I said, in January when we give guidance.
Speaker Change: On the fiber solution side of reduction, we do have reductions in the CapEx that has to do with some fiber business.
Dan Schlanger: Building out to new locations, we're targeting locations that are already on our existing fiber. So both of those are happening at the same time, all of which may impact 2025. But as we pointed out, as we look out at our business in the fiber solutions side, we believe there's plenty of opportunity around our existing fiber plant in great markets throughout the top 30 markets in the U.S., which is most where our fiber assets reside now, that we can get back to a 3% growth in fiber solutions going forward, even with a more limited focus on on and near net opportunities as opposed to expansion.
Speaker Change: And that's because what we talked about is we're not really targeting building out to new locations. We're targeting locations that are already on our existing fiber.
Speaker Change: So both of those are happening at the same time, all of which may impact 2025. But as we pointed out, as we look out at our business in the fiber solutions side, we believe there's plenty of opportunity around our existing fiber plant in great markets throughout the top
Speaker Change: 30 markets in the US, which is most where our fiber assets reside now, that we think we can get back to a 3% growth in fiber solutions going forward, even with a more limited focus to on and near net opportunities as opposed to expansion opportunities.
Dan Schlanger: And as you pointed out in your second point of your question on the core leasing activity and fiber solutions, it was a very good core. And it gives us some encouragement that the changes that we're making are available to still generate that 3% growth over time. And as you pointed out, that's some of the best growth or core leasing activity we've seen in that business for quite some time.
Speaker Change: And as you pointed out in your second point of your question on the core leasing activity in fiber solutions, it was a very good quarter for us.
Speaker Change: And it gives us some encouragement that the changes that we're making are available to still generate that 3% growth over time. And as you pointed out, that's some of the best growth or core leasing activity we've seen in that business in quite some time.
Dan Schlanger: And what I would say is that the sales team has gone out and made the right types of decisions with the right types of customers to sell the right types of products.
Speaker Change: And what I would say is, it really is the focus of the sales team having gone out and made the right types of decisions with the right types of customers to sell the right types of products.
Dan Schlanger: And, as Steven was talking about earlier, we put the right incentives in place to make all of that happen. And our sales team and sales leadership have done a phenomenal job of taking that input and attacking the market. And we're seeing that they're still – like I said, we're encouraged by how much opportunity we are unearthing that's near our already existing ones. Yeah, I guess I'd also just add in a recent meeting with our teams on the enterprise fiber side in New York, some of the sales teams were asking the question about, You know, about Greenfield Bill, and the answer to that was it's not like it's binary right So, you know, we're not counting out not doing greenfields at all. It's just, from our perspective, it just has to be profitable.
Speaker Change: And as Steven was talking about earlier, put the right incentives in place to make all of that happen. And our sales team and sales leadership have done a phenomenal job of taking that input and attacking the market. And we're seeing...
Steven: We're still encouraged by how much opportunity we are unearthing that's near our already existing assets.
Speaker Change: Yeah, I guess I'd like to also say, I'd like to also just add, in a recent meeting with our teams on the Enterprise Fiber side in New York, you know, some of the sales teams were asking the question about...
Speaker Change: You know about greenfield builds
Speaker Change: and you know the the answer to that was it's not like it's binary right yes it's not a yes-or-no scenario
Speaker Change: And the example that the individual brought up was, if I'm able to get a deal done with a very well-known hedge fund who wants 15 floors of fiber built in Hudson Yards,
Speaker Change: And I think there's opportunity, you know, for co-location and we can prove in that the returns, you know, from day one are going to be X and the payback's going to be, you know, within the realm of what we're looking at, is that something that I can compete on? And the answer is yes.
Speaker Change: So, you know, we're not counting out, not doing greenfields at all. It's just from our perspective, it just has to be profitable.
Steven J. Moskowitz: If I could just follow up on the first question, I know that there was a reduction of about $300 million that was announced, and I think that was reaffirmed in today's release for discretionary spend in totality for fiber. That's six months of this year, so is it fair to extrapolate that and say next year could look more like an $800 million number, or is that too much of a generalization and we should just sit tight till January to get additional color? Yeah, unfortunately, you're not going to love the answer.
Speaker Change: If I could just follow up on the first question, I know that there was a reduction of about $300 million that was announced and I think that was reaffirmed in today's release for discretionary spend in totality for fiber.
Speaker Change: That's six months of this year. So is it fair to extrapolate that and say next year could look more like an 800 million number or is that too much of a generalization and we should just sit tight till January to get additional color?
Dan Schlanger: It's going to be you're going to need to sit tight until January because, like I tried to say earlier, the amount of CapEx that we ultimately spend is going to be based on the amount of activity we see from our customers. Whatever that CapEx is, it is a lower capital intensity than it would have been historically. But it could still be that there's lots of activity we can go out and do. To Steven's point, that would be very profitable.
Speaker Change: Yeah, unfortunately you're not going to love the answer. It's going to be you're going to need to sit tight until January because because like I tried to say earlier it
Speaker Change: The amount of CapEx that we ultimately spend is going to be based on the amount of activity we see from our customers.
Speaker Change: Whatever that capex is, is a lower capital intensity than it would have been historically for us.
Speaker Change: But it still could be that there's lots of activity we can go out and get.
Dan Schlanger: And so we don't want to give any guidance that says we will definitely have this amount of capital reduction going into next year. Plus, we haven't given a forecast for 2025, so it's hard to give a capital reduction to a forecast that doesn't exist. So, Matt, I'm sorry.
Speaker Change: to Steven's point, that would be very profitable. And so we don't want to give any guidance that says we will definitely have this amount of capital reduction going into next year. Plus, we haven't we haven't given a forecast for 2025. So it's hard to give a reduction to a forecast that doesn't exist.
Dan Schlanger: You're going to have to just sit tight and wait till January. I had to ask. I appreciate it. Thank you both. No problem. The next question comes from Batya Levi of UBS. Please go ahead.
Speaker Change: So unfortunately, Matt, I'm sorry, you're going to have to just sit tight and wait until January .
Matt: I had to ask. I appreciate it. Thank you both. No problem.
Speaker Change: The next question comes from Batya Levi with UBS. Please go ahead.
Batya Levi: Great. Thank you. A couple of follow-ups. First, on the small cell side, can you provide more color on how we should think about the pacing from here?
Batya Levi: Great, thank you.
Dan Schlanger: Should we assume the $3,000 to $5,000 delayed bills will be just tackled down to maybe the $10,000 annual deployments you were targeting next year? And then one more follow-up on the fiber capex reduction, if you don't mind. The $300 million, can you give us a split on what the small cell versus fiber mix of that is? Sure, Batya.
Batya Levi: A couple follow-ups. First, on the small-scale side, can you provide more color on how we should think about the pacing from here? Should we assume the $3,000 to $5,000 delayed bills will be just tackled down to maybe the $10,000 annual deployments you were targeting next year?
Speaker Change: And then, one more follow-up on the fiber capex reduction, if you don't mind, the $300 million, can you give us a split on what the small cell versus fiber mix of that is?
Dan Schlanger: On the first point. Again, we don't really have a plan for 2025 that we've talked about publicly around the small cell nodes that we would deploy. But the push out of the three to 5000 nodes from 2024, we do believe some of those will hit in 2025 because it is a deferral of those nodes going into a future period, a lot of which will happen in 2025. So we do think we have a pretty good sense of where we are going for 2025 and think that the small cell business will continue to grow, as we've talked about, like, we think we can grow that business in the double digits over the next several years.
Batya Levi: Sure, Batya. On the first point,
Bhatia: Again, we don't have really a plan for 2025 that we've talked about publicly around the small cell nodes that we would deploy.
Speaker Change: But the push out of the 3,000 to 5,000 nodes from 2024, we do believe some of those will hit in 2025 because it is a deferral of those nodes.
Batya Levi: We do think we have a pretty good sense or a good starting point for 2025 and think that the small business will continue to grow as we've talked about.
Batya Levi: We think we can grow that business in the double digits over the next several years. And because our backlog is what it is, because we are able to continue to build for our customers, we feel comfortable with being able to grow double digits.
Batya Levi: On the $300 million reduction in CapEx, the majority of that reduction is in small cells as opposed to fiber solutions.
Dan Schlanger: And because our backlog is what it is, because we are able to continue to build for our customers, we feel comfortable with being able to grow double. On the $300 million reduction in CapEx, the majority of that reduction is in small cells as opposed to 5%. Okay, thank you. The next question comes from Eric Luebchow with Wells Fargo. Please go ahead.
Eric Thomas Luebchow: Great, thank you for taking the question. On the small cell backlog and what you expect to deliver in the next couple years, any change to the mix of co-locations versus anchor tenant nodes? How should we think about that shifting as a result of the strategic review and or the operational review that you announced last month? Yeah, Eric and Steven, the fact that we're going to be, you know, shifting down on the anchor nodes means that a higher percentage of our nodes going forward will be co-location.
Eric Thomas Luebchow: The next question comes from Eric Luebchow with Wells Fargo. Please go ahead.
Eric Thomas Luebchow: Great, thank you for taking the question. On the small cell backlog and what you expect to deliver the next couple years, any change to the mix of co-locations versus anchor tenant nodes? How should we think about that shifting as a result of the strategic review and or the operational review that you announced last month?
Batya Levi: Yeah, Eric, it's Steven. You know, the fact that we're going to be, you know, shifting down on the anchor nodes means that a higher percentage of our nodes going forward will be co-locations.
Eric Thomas Luebchow: And I think we've already, you know, communicated that of the 50,000 backlog, a big chunk of those are co-locations. So when you look at our overall mix, you're going to see a higher percentage of Colos versus Anchorage.
Batya Levi: And I think we've already, you know, communicated that of the 50,000 backlog, you know, a big chunk of those, the majority of those are co-locations. So when you look at our overall mix, you're going to see a higher percentage of colos versus anchors.
Steven J. Moskowitz: Okay, great. And then just a higher level question on tower activity. So, perhaps with the exception of DISH, is the majority of your activity today still related to carriers upgrading mid-band spectrum? Or have you seen any activity out there related to new co-locations to densify tower grids in any of your markets, particularly the more urban ones?
Eric: Okay, great. And then just a higher level question on tower activity. So,
Speaker Change: Perhaps, with the exception of DISH, is the majority of your activity today still...
Speaker Change: Amendment-related from carriers upgrading mid-band spectrum, or
Speaker Change: Have you seen any activity out there related to new co-locations to densify tower grids in any of your markets, particularly the more urban ones? And if you haven't seen that in a big way, any kind of visibility on when that tower densification phase may pick up in the next couple of years? Thanks.
Steven J. Moskowitz: And if you haven't seen that in a big way, any kind of visibility on when that tower densification phase may pick up in the next couple of years? Thanks. Yeah, I mean, most of our activity is amendments; there's a few co-locations, you know, in the mix, but it's not a large percentage. Obviously, some of the co-locations we're getting are coming from, as I said before, kind of the smaller regional players out there, not necessarily the big three or DISH.
Speaker Change: Yeah, I mean, most of our activity is amendments. There's a few co-locations, you know, in the mix, but it's not a large percentage. Obviously, some of the co-locations we're getting are coming from, as I said before, kind of the smaller regional players out there.
Steven J. Moskowitz: And we expect that same type of, you know, cadence to happen over the next number of quarters. Thank you. The next question comes from Walter Pysik with Lighthead. Please go ahead.
Speaker Change: Not necessarily the big three or DISH, and we expect that same type of, you know, cadence to happen over the next, you know, number of quarters.
Speaker Change: Thank you.
Speaker Change: The next question comes from Walter Pysik with Lighthead. Please go ahead.
Speaker Change: Thanks.
Walter Paul Piecyk: Thanks. You know, at 200 million, 204 million, not much of a reduction from last year, especially given the reduction we saw in the first quarter. Maybe there's just some non-cash things that move back and forth. We can just kind of talk about the components in there and what areas are targeted for reductions going forward. How do you talk about the components that are in there?
Speaker Change: You know, at $200 million, $204 million, not much of a reduction from last year, especially given the reduction we saw in the first quarter.
Walter Pysik: Maybe there's just some non-cash things that move back and forth, but you can just kind of talk about the components in there and what areas are targeted for reductions going forward.
Dan Schlanger: The majority of our GNA, as you would imagine, are people that are working on the back office functions that we have, whether those are accounting or finance things of that nature, legal, and IT. And what we've been able to do in that business, we've been able to offset all of the labor inflation that we've seen over the course of the last several years by the operating plan we have. And we are and have targeted G&A and believe that we will have reductions over time, which is part of the $60 million reduction that we talked about and that we'll realize in 2024, and what you'll have to just allow me. I don't have the number off the top of my head of what it will be quarter over quarter. That's fine. I'm just looking.
Speaker Change #100: Yeah, well, I'm happy to talk about the components that are in there.
Speaker Change #101: And what we've been able to do in that business, we've been able to offset all of the labor inflation that we've seen over the course of the last several years by the operating plan we have.
Speaker Change #101: And we are and have targeted the GNA and believe that we will have reductions over time, which is part of the $60 million reduction that we talked about and that we'll realize in 2024.
Speaker Change #102: And you'll have to just allow me, I don't have the number off the top of my head of what quarter over quarter. That's fine, I'm just looking, I mean last year you had a, it kind of came up in the second quarter, but then I looked at prior years.
Dan Schlanger: I mean, last year you had one. It kind of came up in the second quarter. But then I looked at prior years, and there doesn't seem to be one.
Dan Schlanger: Seasonality there, so when you talk about 60 million, you know, is that off of the fourth quarter level, and then that's just going to keep going down or not? Maybe there were some proxy fees in there in the quarter, but I guess there was a big number last year. Yeah, there were $20 million. But that wasn't there last year in the second quarter, which also was. Whatever, I just, you know, it just seems like obviously an important component. But you don't, you don't think there's anything abnormal there.
Speaker Change #102: and there doesn't seem to be.
Speaker Change #102: You know, is it, that's off of the fourth quarter level and then that's just going to keep going down or?
Speaker Change #102: Maybe there was some proxy fees in there in the quarter, but I guess there was a big number last year. Yeah, there were $20 million of proxy fees. But that wasn't there last year in the second quarter, which also was up.
Dan Schlanger: And so when are we going to see these reductions kick in? Obviously, the proxy fees drop out in the third quarter. So you'll get whatever that number is, an immediate drop, and then we'll see some additional organic improvements in Q3, or these are all back-end loaded? So, as you pointed out, I think as we see the proxy fees come out, we will be at a lower run rate than we saw in 2023 because we also did a restructuring in 2023, where in Q2, we reduced our G&A pretty substantially as well.
Speaker Change #102: whatever I just you know it just I just it seems like obviously an important component
Speaker Change #103: But you don't think there's anything abnormal there? And so when are we going to see these reductions kick in? Obviously, the proxy fees drop out in the third quarter. So you'll get whatever that number is, an immediate drop. And then we'll see some additional organic improvements in Q3, or are these all back end loaded?
Speaker Change #103: Yeah.
Speaker Change #104: So as you pointed out, I think as we see the proxy fees come out, we will be at a lower run rate than we saw in 2023 because we also did a restructuring in 2023 where in Q2 we reduced our GNA pretty substantially as well.
Dan Schlanger: And we believe we will see the impact of the money we saved. It was largely done very recently at the end of Q2, so you will see the impact in Q3 and beyond. So you'll see both of those things go on. So I think the answer to your question is basically yes, it is back on loading to see the reductions.
Speaker Change #104: And we believe we've seen the impact of the money we've saved was largely done very recently at the end of Q2, so you will see the impact in Q3 and beyond, so you'll see both of those things go on, so I think the answer to your question is basically yes.
Dan Schlanger: And if you look at the numbers in 2023, you see a similar outcome, which even, not focusing on Q2, but going from Q1 to Q4, there was a substantial reduction, but it started in Q3 because we had a very similar timing for the restructuring we did last year to this year. So I do think you'll see a reduction in G&A, and the spike in the second quarter was very much because of proxy-related issues.
Speaker Change #104: It is back in loading to see the reductions. And if you look at the numbers in 2023, you see a similar outcome, which even
Speaker Change #105: Not looking, not focusing on Q2, but...
Speaker Change #105: Going from Q1 to Q4, there was a substantial reduction, but it started in Q3 because we had a very similar timing for the restructuring we did last year to this year. So I do think you'll see a reduction in G&A, and the spike in the second quarter was very much because of the proxy-related fees.
Dan Schlanger: Okay. So, I mean, look, at the end of the day, next year, assuming there are no more proxy fights, and then you've got the reduction and whatever you announce in terms of guidance, you should get some much better efficiencies in 2025, hopefully, right? Yeah, that is the plan.
Speaker Change #106: Okay, so, I mean, look, at the end of the day, next year, assuming there's no more proxy fights, and then you've got the reduction and whatever you announce in terms of guidance.
Dan Schlanger: And as we've talked about a few times today, you know, we announced the restructuring, the changes we were going to make in June. We have completed those changes for the most part, and believe that we will see the savings that we're talking about roll through our income statement over the course of the last half of the year.
Speaker Change #107: You should get some much better efficiencies in 25, hopefully, right? Yeah, that is the plan. And as we've talked about a few times today...
Speaker Change #108: You know, we announced the restructuring, the changes we were going to make in June . We have completed those changes for the most part and believe that we will see the savings that we're talking about roll through our income statement over the course of the last half of this year.
Speaker Change #109: Got it. All right. Thank you.
Walter Paul Piecyk: All right. Thank you. The next question comes from Brandon Nispel with KeyBank Capital Markets. Please go ahead. Yeah, hey, thanks for taking the questions. A lot of them have already been answered.
Speaker Change #109: The next question comes from Brandon Nispel with KeyBank Capital Markets. Please go ahead.
Brandon Lee Nispel: But you guys have talked about in the past, you know, the guidance of 5% tower growth through 27, that 75% of that is contracted. So I guess the simple question is, how are lease applications trending today, in terms of your confidence in achieving the remaining sort of 25% to hit that 5% growth rate? Thanks.
Brandon Lee Nispel: Yeah, hey, thanks for taking the questions. A lot of them have been answered already.
Brandon Lee Nispel: But you guys have talked about, in the past, you know, the guidance, 5% tower growth through 27, that...
Speaker Change #111: 75% of that is contracted.
Speaker Change #112: So I guess a simple question is, how are lease applications trending today in terms of your confidence in achieving the remaining 25% to hit that 5% growth rate? Thanks.
Dan Schlanger: Yeah, what I would say there is that the 5% growth rate is based on, as Steven talked about earlier, the MLAs we have in place and then additional growth we see going forward. The application volumes are much more akin or much more linked to what we see as near-term growth in our tower business. And what we've talked about is that we've maintained our 4.5% guidance for 2024 because we see activity levels that are very much in line with what we expected when we gave guidance last year. So it is all very much in line with what we would have expected.
Speaker Change #113: Yeah, I would, what I would say there.
Speaker Change #114: The 5% growth rate is based off of, as Steven talked about earlier, the MLAs we have in place and then additional growth we see going forward. The application volumes are much more linked to what we see as near-term growth in our tower business.
Dan Schlanger: And we gave that 5% longer-term guide knowing what was going on in 2024. So it's all in line with what we would have expected to get to that that long. Great, thanks. Our last question today comes from Brendan Lynch with Barclays. Please go ahead.
Speaker Change #115: And what we've talked about is that we've maintained our 4.5% guidance for 2024 because we see activity levels that are very much in line with what we expected when we gave guidance last year, so it is all very much in line with what we would have expected. And we gave that 5% longer-term guide knowing what was going on in 2024, so it's all in line with what we would have expected to get to that longer-term growth.
Speaker Change #116: Great, thanks.
Speaker Change #117: chip
Speaker Change #117: Our last question today comes from Brendan Lynch with Barclays. Please go ahead.
Brendan James Lynch: Great, thanks for taking my question. How should we interpret the changes in operations in the fiber and small cell businesses while the sales process is still ongoing? Sounds like you're engaged with multiple counterparties currently, and it seems like maybe it would be a little bit premature to make such changes if somebody else was going to be managing these assets somewhat imminently. Yeah, I mean, I guess we look at it as the process really was, you know, two different processes under one, where Strategic is obviously trying to figure out what makes the most sense for the fiber division as it relates to shareholder value in the future, and then from an operations perspective, what can we do to continually improve our business? You know, and we're trying to have that continuous improvement mindset going forward with this company and all elements of our business.
Brendan James Lynch: Great, thanks for taking my question. How should we interpret the changes in operations in the fiber and small cell businesses while the sales process is still ongoing?
Brendan James Lynch: Sounds like you're engaged with multiple counterparties currently, and it seems like maybe it would be a little bit premature to make such changes if somebody else was going to be managing these assets somewhat imminently.
Speaker Change #119: Yeah, I mean, I guess we look at it as the process really was, you know, two different processes under one.
Brendan James Lynch: where, you know, Strategic obviously is trying to figure out what makes the most sense for the fiber division as it relates to shareholder value in the future. And then from an operations perspective is what can we do to continually improve our business?
Brendan James Lynch: You know, and we're trying to have that continuous improvement mindset going forward with this company and all elements of our businesses.
Brendan James Lynch: So we just felt, you know, there was an opportunity, we wanted to take it; we felt it was something that was going to be good for our business, good for the division, and good for, you know, the profitability of our business as we move forward, which, in essence, creates more shareholder value. So we just wanted to take the opportunity now and implement these changes, because they're kind of separate and apart from how we think about the strategic part of a potential sale.
Brendan James Lynch: So we just felt, you know, there was opportunity.
Brendan James Lynch: We wanted to take it. We felt it was something that was going to be good for our business, good for the division.
Brendan James Lynch: and good for, you know, for the profitability of our business as we move forward, which in essence creates more shareholder value. So, we just, we want to take the opportunity now and implement these changes because it's kind of separate and apart from how we think about the strategic part of a potential sale.
Unknown Executive: Okay, thank you. Thank you.
Speaker Change #121: Okay, thank you.
Unknown Executive: This concludes our question and answer session and concludes the conference call. Thank you for attending today's presentation. You may now disconnect.
Steven J. Moskowitz: Okay, thank you. Thank you. This concludes our question and answer session and concludes the conference call. Thank you for attending today's presentation. You may now disconnect. BF-WATCH TV 2021
Speaker Change #120: Thank you.
Speaker Change #122: This concludes our question-and-answer session and concludes the conference call. Thank you for attending today's presentation. You may now disconnect.