Q3 2024 American Tower Corp Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to the American Tower 3rd Quarter, 2024 earnings conference call. As you remind, your today's conference call is being recorded. Following the prepared remarks we will open the call for questions.
Speaker Change: If you'd like to ask a question press one then zero on your device.
Speaker Change: I would now like to turn the call over to your host, Adam Smith, Senior Vice President of Investor Relations in FPNA. Please go ahead, sir.
Adam Smith: Good morning and thank you for joining American Towers 3rd Quarter earnings conference call. We have posted a presentation which we will refer to throughout our prepared remarks Under the Investor Relations tab over website www.AmericanTower.com
Speaker Change: I'm joined by the call today by Steve Vondran, our President and CEO, and Rod Smith, our Executive Vice President, CFO and Treasurer.
Adam Smith: Following our prepared remarks we are open up the call for your questions.
Adam Smith: Before we begin our reminder that our comments will contain forward-looking statements that involve a number of risks and uncertainties.
Adam Smith: Examples of these statements include, our expectations regarding future growth, including our 2024 outlook, capital allocation and future operating performance, and any other statements regarding matters that are not historical facts.
Adam Smith: You should be aware that certain factors may affect its in the future and could cause actual results to different materialy from those expressed in these four-looking statements.
Adam Smith: Such factors include the risk factors set forth in this morning's earnings press release, those sets forth in our most recent annual report on Form 10K, and other risks describe in documents we subsequently filed from time to time with the SEC.
Speaker Change: We urge you to consider these factors and remind you that we undertake no obligation to update the information, contain in this call, to reflect subsequent events or circumstances. With that, I'll turn the call over to Steve.
Steve Vondran: Thanks, Adam, and thanks to everyone for joining today.
Steve Vondran: As you can see our keythener results, demand remains strong across our global portfolio of real estate assets.
Steve Vondran: Our tower business, our customers' efforts to deploy mid-band 5G for additional coverage, continue to support a healthy pipeline of activity across the U.S., Europe and parts of our margin markets.
Steve Vondran: The discussions we're having with our carrier customers about their need to address upcoming capacity requirements, particularly in the US. Further reinforce our bullish expectations for the identification phase of the 5G investment cycle.
Steve Vondran: Additionally, our data center segment delivered another fantastic quarter of leasing, benefiting from accelerating hybrid IT deployments and early fines of AI related demand.
Steve Vondran: The Coppala and our top-line growth were executing our previously-state strategic initiative to enhance our portfolio composition and improve the quality of earnings. By focusing our discretionary capital and development markets, they closing our India sale.
Steve Vondran: I want to thank all the teams involved in the sale process for their efforts and dedication to getting the deal over the finish line and for ensuring a successful outcome for both American Tower and Brookfield.
Steve Vondran: Finally, we continue to add value by managing our cost structure to maximize conversion rates, expand our margins, and drive profitability across our business. We remain committed to executing all these strategic priorities that position American tower to deliver durable, high quality earnings growth over the long term.
Steve Vondran: Our last call, I talked through the QS and learned from our historical capital investment, but a ledist to refinement, our approach to investment underwriting and prioritise capital deployment to our development markets.
Steve Vondran: Having recently covered the US Tower market where demand remains firmly intact, I'll focus today's remarks on our other developed market platforms, Europe and course life.
Steve Vondran: However, I'd first like to recognize the critical efforts of our U.S. teams who've been working with our customers to rapidly restore essential communication and emergency services. The most communities affected by hurricane to lay the milk and I really appreciate all the harm work.
Steve Vondran: So now I'd like to highlight trends in our European and course-like businesses, which are each position to capture high rates of organic growth and provide opportunities to further invest where the trends meet our standards.
Steve Vondran: I'll start with Europe. As we've highlighted on past calls, we are highly disciplined in our approach to interselect European markets at scale. And we're seeing that patient's pay off.
Steve Vondran: The honest assessment of Europe, we leverage our global underwiting and awkwardly experience to effectively evaluate the most attractive markets. Our criteria included macroeconomic stability, governance support for mobile connectivity, health care and counterparty profiles, and critical contact terms and conditions.
Steve Vondran: Additionally, we saw marketing and competitive dynamics. We believe there are value proposition as a true independent operator, but there were two decades of global experience, could successfully deliver a best and class customer experience that affords outside new business and enhanced margins.
Steve Vondran: This rigorous assessment might be the acquisition of select portfolios across Germany for Antony Spain.
Steve Vondran: Well, local data consumption is expected to grow at about a 20% cake over the next five years. And what governments have advocated for nationwide coverage through various activities, including spectrum options and subsidy programs, like the New Deal and France.
Steve Vondran: Spain's 5G Unico to support a role 5G development and the Gigabit Infrastructure Act at the Barra E-Whevel.
Steve Vondran: Importantly, these markets also present a healthy carrier environment, including increased competition in Jeremy and Spain through the entrance, as well as strong market leaders with whom it can track for the majority of our business.
Steve Vondran: approximately 85% of our revenues in Europe are indexed to care as with at least a 25% share in their respective markets.
Steve Vondran: This provides a high degree of inflation from further consolidation risk, maintaining our very low exposure to ongoing consolidation Spain, while providing visibility into sustained growth and quality earnings over the long term.
Steve Vondran: and all the land sharing is a reality in certain parts of these markets. We mitigate its impact with well structured customer agreements that allow us to, you know, monetize the sharing, open about certain revenue protections that support our growth objectives.
Steve Vondran: American Towers uniquely positioned to unlock opportunities in Germany, France, and Spain, where the neutral host, independent tower model, still relatively nascent.
Steve Vondran: Leverage in our considerable experience and capabilities can help solve but system operational challenges experienced by the carriers that have been pushed on for operators throughout past-network cycles.
Steve Vondran: Since closing the tells you that position, which increased our asset count in the region over five times,
Steve Vondran: We fund our enhanced reliability to server customers by internalizing critical activities that aligns global competencies.
Steve Vondran: Reducing with one of some external vendors.
Steve Vondran: Street for their process management leadership, and when possible integrating our teams directly with our customers to expedite decision making and improve processes.
Steve Vondran: Our discipline approached the Barker-Intray and Insective Operations Acted, that is a real and attractive growth profile on Europe.
Speaker Change: On the organic side, healthy care demand, combined with the benefits of the CPI-Linced Escalators, that yielded an average of over 7% organic tenant doens for the past three years. And we remain confident in driving organic growth in line with our mid-Single-Digital expectations of the region going forward.
Speaker Change: The Copeland is organic growth, we also invested in increased new built-in activity, delivering 1200 new slides since the start of 2021.
Speaker Change: Additionally, we've improved the process of getting new top-complications on error to further evolve the neutral host model and reduce the care of total cost of ownership.
Speaker Change: This required engagement with regulators, landlords, tenants, vendors, any enhancement of our own internal skill sets. But pay off as approximately 70% of our expected or get new business growth in 2024 is coming through coalications, a which of our corner-on rooftops.
Speaker Change: Take it all together, we see a long run away from sustained growth, with optionality to further capitalize on the multi-year pipeline and attractive development opportunities.
Speaker Change: As carriers continued a rapidly deployed midband spectrum in denser by their networks to meet in social-voltated demand, will continue to assess opportunities using both the principle that shape our investments for a decade and the recent earnings we've been institutionalized.
Speaker Change: Now I'll switch to our biggest business.
Speaker Change: We also see long-term demand trends within our US data center segment, which, like our European portfolio, provide the platform for incremental development opportunities and we're written at very attractive return from files.
Speaker Change: Since closing the course like transaction at the end of 2021, we've achieved record breaking links each year and are on pace again to deliver a new high-marked in 2024.
Speaker Change: As we've highlighted on past calls, Carportfolio is optimally positioned to benefit from excelling demand for hybrid and multi-cloud IT architecture, due to its ability to facilitate seamless, secure, nationwide low latency and a lot of mobility, including native cloud access to a diverse set of customers.
Speaker Change: Predantly, we believe that Core-Site's interconnection campus model, which can be extended to distributed in-points to support the low-latency and cost efficiency required for future use cases, represents a potentially distinct option for new synergistic revenue opportunities when combined with our tower essence at the edge.
Speaker Change: Today I'm looking forward to seeing the global and just going to present a meaningful and sensible market for us. And part due to the rapid acceleration and the high deployment, an infrastructure required to accommodate future latencies and workboard as like inferencing.
Speaker Change: While the timing might be delayed relative to our initial expectations, we continued expect synergies between our tower and course-out platforms over the long term.
Speaker Change: In the meantime, we're realizing the benefits of the step-function of AI demand are at least in results of course.
Speaker Change: Aides of the workloads are a growing component of course on its final listing and customer requirements are indicating that demand will always grow over the near-to-medium term.
Speaker Change: of the past several quarters, it comprises of the started building owned GPU space architectures, connecting to the cloud, even through odd ramps or virtual OCAX offering.
Speaker Change: These deployments resemble typical hybrid IT architecture, but their larger and more power deaths.
Speaker Change: As with virtually all workloads across AI Spectrum, our facilities are well equipped to accommodate this need.
Speaker Change: More indirectly, our data center portfolios also been admitting from high-press sale and ads options that's consuming a record of the capacity to have our key markets. Excessorating was supply and demand and balance and further supporting a favorable pressing environment for both newly-seed and renewables into the foreseeable future.
Speaker Change: Given the healthy demand catalyst that we see persisting for many years to come, attractive rates of return that are de-risk through accelerated pre-leasing activity, we find to allocate more capital of course out of the next several years, likely meeting or exceeding the 480 million in development space assumed with the mid-point of 2020 board guide.
Speaker Change: Recently, we have received questions as the role that we'd be interested in participating in the extensive hyperscale development taking place in the market today.
Speaker Change: We see a long runway ahead for corsets retail or you're the courage which is yield of industry leading returns on sustained bases. As our facilities continue to meet and in certain cases exceeding our initial expectations for mid-team stabilised yields.
Speaker Change: That's the thing that hyperscale opportunities are not a priority. At most, it was a clear opportunity for what a service is seed for a new campus, or if there were compelling opportunities to invest for the JV partners to compete.
Speaker Change: Today we will prioritize the expansion of existing campuses, new ground up facilities adjacent to existing campuses, or potentially selected expansion of our national ecosystem by establishing new campuses and new markets.
Speaker Change: We remain focused on developing multi-tenant colocations to facilities that might thought of curating the mix of customer support with our facilities to enhance a valuable air connection ecosystem and effectively finding for long-term absorption and power needs.
Speaker Change: In closing, American Tower has got the global platform of assets that are well positioned to capitalize on the exponential rise in data demand.
Speaker Change: A course-light data center business in European tower operation are both differentiated by asset quality and best in class operations, creating a leading experience for our customers and vatepoid at Creole Networks and applications up to day and future.
Speaker Change: These businesses are uniquely positioned to deliver a track that's sustained again at great and provide optionality for us to assess future opportunities for investment.
Speaker Change: This portfolio stream can bottom with demand cows across our global portfolio and ongoing progress from making an execute as strategic priorities I lay out earlier in this year, position an American tower extremely well to deliver high quality earnings growth and total shareholder returns for many years to come.
Speaker Change: With that, I'll turn over to the law to discuss key three performance in our update outlook. Rod?
Rod Smith: Thanks, Steve. Good morning and thank you for joining today's call.
Rod Smith: As you saw in the morning's press release, adjusted for certain non-cash items in the quarter, including the loss taken upon closing our ATC India sale, our solid third quarter results continue to highlight strong demand across our exceptional portfolio of global assets.
Rod Smith: These durable demand trends combined with our discipline approach to capital allocation, continue focus on cost management and strong balance sheet, position us to deliver sustained high-quality earnings, growth and shareholder returns over the long term.
Rod Smith: Before I dive into our results, I want to highlight a key reporting change that is it relates to the successful closing of our ATC India sale on September 12.
Rod Smith: You will now see historical results associated with our indie business reported as discontinued operations. Representative a standalone line item on the income statement, balance sheet, and in our reconcilations to a true beautiful AFFO.
Rod Smith: As such, certain reported measures, including revenues and expenses within the income statement, and non-gap measures such as adjusted EBITDA and tenant billings will now be presented to exclude discontinued operations.
Rod Smith: I encourage you to refer to the definitions and footnotes throughout our Q3 earnings presentation and press release for added clarity on how the discontinued operation's treatment is reflected in our results.
Rod Smith: Additionally, we have introduced new metrics, AFFO attributable to anti-common stockholders, or attributable AFFO as adjusted.
Rod Smith: and AFFO attributable to anti-common stockholders per share or attributable AFFO per share as adjusted.
Rod Smith: These new metrics represent results from continuing operations adjusted for a full-peerative interest expense savings associated with the use of proceeds from the India sale.
Rod Smith: The extent of these as adjusted metrics is to provide investors with what we believe our continuing operations would produce in a attributable AFFO and attributable AFFO per share. We believe this will be useful in determining an appropriate baseline for future periods.
Rod Smith: Now a few highlights from the quarter.
Rod Smith: 1st, in the third quarter, we demand for our global portfolio of assets remains strong as we saw continued acceleration and application volumes in the U.S.
Rod Smith: which nearly double those of the prior year period and similar growth in our services growth margin.
Rod Smith: International League, Nick Sinkled Digital Ganton's building scrolls was supported by another quarter of accelerating new business contributions in Europe and double-digit organic growth in Africa.
Rod Smith: International Organic Growth was complemented by selective new site construction, including the fourth consecutive quarter of over 100 sites in Europe and approximately 500 new sites overall.
Speaker Change: As Steve mentioned, demand in our U.S. data center business remains exceptionally strong and well in excess of our initial underwriting. As Corsight is on track for its third consecutive record year of new leasing, supporting year of the year revenue growth of over 10%.
Speaker Change: Next.
Speaker Change: Complimenting the demand transcribing our top line results, we continue to execute strategic priorities laid out earlier this year.
Speaker Change: On the cost management side, third quarter SGNA, excluding bad debt declined nearly 2% year over year. Support and cash adjusted EBITDA margin expansion of roughly 30 basis points as compared to the prior year period.
Speaker Change: We also made progress in optimizing our portfolio, closing our India sale and signing agreements to sell our land interests in Australia and New Zealand.
Speaker Change: Additionally, we further strengthened a balance sheet by using ATC in the AppSale Proceeds to reduce growth debt, and we expect further reductions from efficient repatriation in the near-term.
Speaker Change: Importantly, S&P upgraded our credit rating to triple B flat from triple B minus during the quarter. Signalling, our momentum and executing key financial and operating strategies to enhance our balance sheet strength, financial flexibility and portfolio quality.
Speaker Change: These achievements reinforce our commitment to actively assess our global portfolio to focus on platforms where we can drive high-quality earnings in earnings growth, outsized returns, and compelling total shareholder value over the long term.
Speaker Change: Finally, on the customer front, we took certain provisions in Columbia related to Wong, who filed for the equivalent of U.S. bankruptcy early this year.
Speaker Change: Any outcome of the potential reorganization is uncertain and it would be premature to speculate. But we began recognizing revenue on a cash basis and reserved portion of outstanding AR's bad debt.
Speaker Change: In the third quarter, this resulted in revenue reserves of $13 million, including $3 million in straight line and another $8 million recognized as bad that expense.
Speaker Change: For Context, Wom Colombia's gross revenue makes up approximately 1.5% and less than 0.5% of our total Latin America and consolidated property revenues respectively.
Speaker Change: Turning to 3rd quarter property revenue, Andal Gainington at Billings Growth on Slide 6, consolidated property revenue to climb to approximately 1% year of a year. And increase nearly 1% excluding non-cash rate line revenue.
Speaker Change: Growth was negatively impacted by roughly 3% due to FX, as well as by the non-recurrents of certain one-time benefits of the US in the prior year period. In Revitable Reserves taken in the current period in Colombia.
Speaker Change: As I mentioned, performance was supported by the third consecutive quarter of double-digit growth in our U.S. data center business.
Speaker Change: Moving to the right side of the slide, consolidated or gaining 10-in-billion-scrowth was over 5%. In our U.S. and Canada segment, growth was 5% or approximately 6% absent-sprint-related term.
Speaker Change: As we have previously indicated, we expect to see a step down towards 4% growth in Q4. Due to the commencement of the final launch of Sprintcharm, consistent with prior outlook assumptions.
Speaker Change: On the international side, growth was 5.7% representing an enhancement of over 100 basis points compared to prior expectations through the exclusion of the India business.
Speaker Change: Turning to slide seven, adjusted E with doubt the client approximately 1% year over year. From early due to the revenue drivers I just discussed.
Speaker Change: Growth, excluding non-cash straight line, was just over 2%. That affitting from discipline to cost management in a roughly 100% increase in our services gross margin associated with an increase in power activity.
Speaker Change: Growth was negatively impacted approximately 3% by FX headlands.
Speaker Change: Moving to the right side of the slide, AFFO attributable to American Tower Common Stockholders increased 2.6% year-of-a-year.
Speaker Change: Driven by the high conversion of cash address to the even.growth to AFF folks through the effective management of interest costs, maintenance, and cash taxes, partially offset by the timing of our India sale.
Speaker Change: On an as-adjusted, per-share basis, growth would have stood at nearly 3%.
Speaker Change: Now shifting to our revised full year outlook, I'll start with a few key updates.
Speaker Change: First, outlook has been adjusted for the clothes of our India transaction.
Speaker Change: As a result, historical indie results will now be treated as discontinued operations. And as such, our property revenue will gain intended buildings in a just-in-eventile will exclude indie contributions for the full year.
Speaker Change: Our reported AFFO attributable to anti-common stockholders will include contributions from discontinued operations up to the date of closing. Prior year periods have been adjusted accordingly.
Speaker Change: Next, our core business and the drivers that underpin our performance remain solid. As a company, we're focused on executing a strong pipeline of new business demand, driving cost discipline and margin expansion across the global business.
Speaker Change: and effectively allocating our capital in a manner that supports sustained value creation.
Speaker Change: As you'll see, we're absorbing provisions in our outlook related to warm, consisting of $21 million in incremental revenue reserves.
Speaker Change: including $3 million in straight line and an additional $15 million in that that expense. Which combined, represent $36 million in downside to adjusted EVA stock and $33 million to AFFO relatives to our prior outlook.
Speaker Change: However, we're more than offsetting that exposure through direct expense savings and an anticipated settlement with a customer in Brazil associated with the cancellation of future lease obligations. The latter contributing $35 million of upside.
Speaker Change: Lastly, our revised FX assumptions include an incremental headwind of $25 million, $20 million, and $17 million to property revenue adjusted even though an AFFO attributable to the MT comments.co. is respectably.
Speaker Change: Turn it to slide 8. We are increasing our expectations for property revenue from continuing operations by approximately $15 million.
Speaker Change: This outperformance includes $15 million of core upside.
Speaker Change: from a really driven by our data center segment and the one-time customer settlement in Brazil.
Speaker Change: Partially offset by warm related reserves and an anticipated delay in certain non-wrong rate reimbursements in the U.S., which we now expect to receive in 2025.
Speaker Change: Non-Core out performance is driven by increases in pastoral revenue and straight line. Total out performance was partially offset by FX.
Speaker Change: Molyne to slide 9 will gain a 10-billing scroll of the expectations for consolidated U.S. and Canada, Africa, Europe and Latin America remain unchanged with trends and catalysts consistent with our prior assumptions.
Speaker Change: The removal of the lower growth in the business did increase our international expectation by roughly 100 basis points from the prior outlook to approximately 6%. And provide the modest benefits for our consolidated company expectations, though not enough to move our expectation of approximately 5%.
Speaker Change: Turning to Sly10, we are increasing our outlook for adjusted EBITDA from continuing operations by $5 million.
Speaker Change: This out performance is driven by the revenue drivers I just mentioned. Together, with incremental operating expenses upside achieved through a combination of recurring savings from various strategic initiatives, as well as certain non-recurring benefits.
Speaker Change: Gross Margin expectations for our US Services Business Remain Impact. Although, certainly anticipated Project delays into 2025, will likely bring our revenue modestly below an issue estimates.
Speaker Change: Partially offsetting the benefits to adjusted EBITDA, we've assumed $15 million of additional bad debt expense associated with WOM and another $20 million in FX unfavorability.
Speaker Change: This is directionally consistent with the dilution expectations communicated on past calls.
Speaker Change: relative to prior outlook.
Speaker Change: Adjusted for the ATC India closing, our revised outlook reflects upside of $0.05, moving the midpoint to $10.53 per share.
Speaker Change: which is largely offset by the impacts of FX.
Speaker Change: on an as-adjusted basis.
Speaker Change: The Outlook Midpoint remains consistent at $9.95 per share, reflecting the core outperformance in our continuing operations offset by FX.
Speaker Change: Moving to slide 12, our capital allocation plans remain relatively consistent except for the removal of $105 million of capital expenditures allocated to India in our prior outlook.
Speaker Change: Our planned dividend distribution remains at $6.48 per share, with the expectation to resume growth in 2025, all subject to board approval.
Speaker Change: In summary, at the start of the year, we laid out a compelling set of expectations for 2024, reflective of the strong, durable data demand trends that continue to highlight the criticality of our real estate assets.
Speaker Change: Our top-line financial targets assumed accelerating demand in the U.S. and Europe, ongoing growth through 5G coverage and 4G densification across our emerging markets, and a continuation of near-record-setting leasing in our data center segment.
Speaker Change: To capture that demand, we established a set of strategic priorities aimed to effectively support our customers' needs and drive new business opportunities, manage our costs and capital structure, and optimize our portfolio through selective asset sales and refined capital allocation priorities to enhance margins and the quality of our earnings profile.
Speaker Change: Our accomplishments to date and expectations for the duration of the year reflect the successful execution across each of these priorities. We believe this momentum will position us for an even stronger future, enabling us to drive attractive, high-quality growth and shareholder value for years to come.
Speaker Change: With that, Operator, we can open the line for questions.
Speaker Change: Thank you. And ladies and gentlemen, if you'd like to ask a question, please press 1, then 0 on your touchtone phone. You'll hear an acknowledgement that you've been placed in queue. You can remove yourself from queue at any time by repeating the 1-0 command. If you're on a speakerphone, please pick up your handset before pressing the numbers. Once again, for questions, it's 1 and then 0.
Speaker Change: We'll go to the line of Rick Prentiss with Raymond James.
Rick Prentiss: Thanks. Good morning, everybody.
Speaker Change: Good morning, Rick.
Rick Prentiss: Hey, I got two areas of questions, one at the top line and one at the bottom line. Last year on the third quarter call, you gave some color on new lease activity in North America, kind of saying, hey, we're going to split the goalposts, no guidance given at the time, but kind of directionally, we'll split the goalposts, we'll be above 22 level, but below 23 levels. As we look at
Rick Prentiss: the Green Shoots and the positive stuff you just went through on your presentation. Directionally, how should we think about 25 new lease activity versus 24 in North America?
Speaker Change: Yeah, I'll take that Rick. It's still too early to give guidance for next year. There's still some moving pieces in it. But if you look at, in particular the U.S. business, we are hearing a lot of good conversation from our customers about the beginnings of the densification phase.
Speaker Change: and that's right in line with what we thought was going to happen.
Speaker Change: And so if you think about next year,
Speaker Change: In terms of the leasing in the U.S.
Speaker Change: We still have this final Toronto sprint churn that's hitting in October this year that will weigh on the US a bit
Speaker Change: And so when you kind of couple that with the kind of leasing environment that we're seeing, what's contractually already committed growth under our comprehensive MLAs, which does touch, you know, tick down just a little bit next year, that's most likely you're going to see us kind of in that mid-fours range in terms of the U.S. growth rate for next year.
Speaker Change: And that's consistent with our long-term guide of at least 5% from 23 to 27. Because if you think about 26 and 27, at that point we're through the spread chart.
Speaker Change: So if you normalize that out, that's going to be the mid-fives for next year.
Speaker Change: So there's a few moving pieces there, but directionally, you know, you can think about it kind of being in that mid-fours range.
Speaker Change: Hey Rick, maybe I would just add to that, in terms of 2024 levels of new business, we had provided you guys all a range of between 180 and 190.
Speaker Change: And the way the year is shaping up, it's pretty consistent, you know, each quarter in terms of the amount of new bids that we loaded on. We expect that to be similar for Q4 as well, so pretty similar to the last three quarters, which was all.
Speaker Change: in and around a quarterly contribution of about mid-40s, $45 million or so.
Speaker Change: That would end up landing us at the lower end of that range, around $180 million.
Speaker Change: And that's all kind of supportive of then transitioning into next year and hitting the numbers that Steve just talked about.
Speaker Change: about.
Speaker Change: And then on the bottom line question, slide 11 is helpful. Appreciate slide 11 in the deck. I want to make sure I understand completely. Not a CPA. Just continued ops accounting. Makes my head spin this morning, I've got to admit.
Speaker Change: We had been thinking originally that India would be kind of about 8 cents a quarter, maybe 32 cents a year as far as an impact.
Speaker Change: Yeah, I think that's, I think that's right, Rick. So, you know, fully appreciate that the numbers can be a little bit complicated with the, with the addition of the sale of India and, and accounting for that under discontinued ops. I'll try to hit a couple of the highlights here and certainly for anyone on the call that wants to go through it in more, more granular detail, our investment, our investor relations group is here to walk you through all the detail.
Speaker Change: You know, first I'll take you from maybe the 1060 going over to the 1053, which is kind of our AFFO numbers as reported.
Speaker Change: 4th quarter here, so it's out of our numbers for the 4th quarter. So that pulled out $0.12. That's just the elimination of the India contribution to AFFO per share, 4Q4, which they're no longer in there, so we stepped from $10.60 per share to $10.48.
Speaker Change: Then, on an apples-to-apples basis, India outperformed by about $22 million. That was largely with cash.
Speaker Change: Cash, Adjusted EBITDA of the $20 million we show, and then there's a little bit of FX headwind, another $17 million going the other way primarily in the Latin America countries. That bridges us over to the $4,930,000,000, which is equal to $10.53.
Speaker Change: So that $10.53 still has India in there for the first three quarters.
Speaker Change: When you drop down to the $9.95, you're basically reducing that by 58 cents.
Speaker Change: which is the combination of pulling out the India contributions to AFFO and also offsetting that with interest savings that we have by using the two billion dollar proceeds.
Speaker Change: and the cash we got out earlier than closing in the second and third quarter, which we pulled out another almost $350 million. Using all those proceeds to pay down debt will reduce our interest costs.
Speaker Change: the net of taking India contributions to AFFO out.
Speaker Change: Also, combining that with the interest savings from using the proceeds to pay down debt is the $0.58 that gets you down to the $9.95.
Speaker Change: And then there is some timing issues in there and some outperformance in that number as well. Basically the $22 million that I just talked about from India, the discontinued ops outperformance.
Speaker Change: largely in terms of cash taxes.
Speaker Change: And that $9.95 is the best representation of our continuing operations AFFO per share for 2024. And that is a really good starting point to think about how the core business, the ongoing business,
Speaker Change: will grow going forward and as we said we you know we look forward to mid single-digit growth rates kind of going forward and that that holds true for 2025 so you know that would put us into next year on an apples-to-apples basis the 995 we think we can grow that into the 1050 range
Speaker Change: for 2025, and that would be AFFO from Continuing Operations.
Speaker Change: And again, Rick, I appreciate that there's a lot of numbers in here and it may take a little bit of time going through it with our investor relations team. But trust me, when you kind of look through it,
Speaker Change: It becomes much easier after you've had a few minutes to think about it. I know people on the phone have only gotten the press release, you know, early this morning and there's a lot to digest, but once you get through it, I think you'll understand it pretty clearly.
Speaker Change: Yeah, I think we're, you know, certainly getting above mid-single digits is absolutely possible, you know, we
Speaker Change: We are very happy with the portfolio that we have across the globe. We've been working very diligently to improve the, you know, the quality of the earnings. And selling the India business, removing that volatility from the business is a, you know, certainly a positive.
Speaker Change: in the past, certainly.
Speaker Change: We think that U.S. business can grow in the mid-single digits, just like Steve walked through the long-term guide for U.S.
Speaker Change: OTBG on average that 5%. We do think next year with that final tronch of the spring churn will be the low water mark and then it'll spring back up in 26 and 27 and you think about that longer-term guide over that whole period averaging 5% we're still on track.
Speaker Change: We're still on track for that. The international business can grow faster than that, certainly. We all know that CoreSite is outperforming our original expectations. We're hitting double-digit growth this quarter for Q3, and we expect double-digit growth there now going forward annually. And we've had...
Speaker Change: Two years of record new business in CoreSite, and we're pretty well set to either tie that or maybe even set a new record in 2024.
Speaker Change: is going exceptionally well. We've been very focused on cost controls, expanding margins.
Speaker Change: Managing Cash Tax is watching.
Speaker Change: The Balance Sheet and Reducing Exposure to Floating Rate Debt, you put all that together and yes, the portfolio is strong.
Speaker Change: and it's getting stronger as the quality of earnings go up and we've gotten through this interest headwind.
Speaker Change: So, when you think about the longer term, yes, we can get beyond that mid-single-digit growth rate. The area is to watch, you know, FX. We still have 25 percent of our earnings coming from Latin America and Africa, so that there is something that we will watch. And where interest rates go, there's always uncertainty there, so we will, you know, watch that as well.
Speaker Change: Yeah, and I would just add in Rick here if you think about kind of our long-term growth algorithm
Rick Prentiss: A couple of components to watch out for there. The first is Latin America.
Rick Prentiss: Care Consolidation Churn, that's primarily OI, but it's also some potential consolidation that we see kind of on the map. You know, we're seeing some challenges with WOM, and there may be a little bit more consolidation there. And that's why we think for the next few years that's going to be a low single digits. Once we get past that, that won't be a headwind for us.
Rick Prentiss: And we are past the U.S. spread churn after the end of this year, so that will be a positive for us. And so the swing factors will really be...
Rick Prentiss: And I think it's anybody's guess as to what exactly happens with interest rates over the next few years. So those are the things we'll be watching. But that long-term algorithm of mid to high single digits holds true even while absorbing some of those costs in there.
Speaker Change: Great, appreciate all the color guys, thanks.
Speaker Change: Welcome.
Speaker Change: We'll go next to the line of David Barden of Bank of America.
Speaker Change: Hey guys, thanks for all that color Rod Just Steve on the on the core site business. You've been flagging the the record leasing
David Barden: It's not a number you guys have disclosed, could we have a conversation about what the leasing number is and what the historical context of what you're throwing up now is?
David Barden: the anchor for our conversation about the growth in 2025 on a quarterly basis. Is that fair? Thank you.
Speaker Change: Yeah, David, we'll certainly talk about that metric for as long as it's applicable, which will be a little while until we lap this India sale. But while the India sale and the discontinued operations is in our base number or the comparable prior year numbers, we will let you know what it is.
Speaker Change: And when it comes to core site, you know, I don't think we've given a specific number in terms of what sales are, but you know, you can think about it as a factor of what.
Speaker Change: They were doing pre-acquisition.
Speaker Change: You know that bill pipeline just for reference, you know, we've got about
Speaker Change: You know, the majority of our $70 million backlog that we have today is commencing between now and kind of the first half of 2025, and the remainder is beyond that. So we haven't given a specific sale number. We are giving you guys the backlog, and that's the way to think about that revenue growth. We feel very confident in a high single or double-digit, most likely double-digit growth rate for the next several years in terms of revenue commencing there.
Speaker Change: to feed that sales pipeline.
Speaker Change: And we're expecting to have a healthy pipeline in 2025 as well. At this point, all those general dynamics that we're seeing in the industry are just continuing to accelerate. And that is, you know, demand for hybrid, hybrid
Speaker Change: cloud infrastructure by enterprises.
Speaker Change: is our bread and butter. That's where you continue to see strength in it. And we're starting to see those enterprises now deploy GPUs, their own kind of AI-based models.
Speaker Change: and that again is kind of the perfect customer for CoreSite. So we're seeing our existing customers increasing the size of their installations.
Speaker Change: And that's going to keep feeding that pipeline for years to come. So we feel like that growth rate is durable for the foreseeable future right now.
Speaker Change: And David, maybe I would just add in terms of the relationship with the prior numbers, you know, our backlog in that 70 million range.
Speaker Change: that's up from a number in the in the range of you know 40 million or so when we bought CoreSite in those first couple of years so it's up 75% or so and that's a similar level of increase that we're seeing in the new biz roughly.
Speaker Change: Okay, thank you for the call, everyone.
Speaker Change: We'll go next to the line of Simon Flannery of Morgan Stanley.
Simon Flannery: I'm just coming back to the CoreSite CapEx. I think you said it could be ahead of the $480 million.
Simon Flannery: I know in the past when you bought this, you were kind of...
Simon Flannery: to some extent ring-fencing how much you would spend on CapEx.
Simon Flannery: Can you sort of update that for us? Would you be prepared to go to, say, $600 or $700 million? What are the parameters you're thinking about? How much money you do commit to data centers? Obviously a great opportunity, and you don't want to go hyperscale at this point, but it does sound like you see opportunities to deploy capital at attractive levels, but I'd love to understand how big that might go. Thanks.
Speaker Change: Sounds good, Simon. I'll take the dividend question and Steve will talk to you about the CapEx for CoreSite.
Speaker Change: So with the dividend, as we talked about on the last call, we do look forward to resuming dividend growth as we get into 2025.
Speaker Change: I don't want to get into too much detail in terms of what that growth rate might be, but similar to the way we've discussed it in prior calls.
Speaker Change: The long-term view of the dividend growth rate is that it will closely mirror the average AFFO per share growth rate over time. So that's the way we think about it. So if we are hitting a mid-single-digit AFFO per share growth rate on average over time,
Speaker Change: We would expect that the dividend growth rate, on average, over that same time period, would roughly equal that same kind of a growth rate. That's the way to think about it. You can't really apply that to every individual year, because there could be puts and takes. But over time, I think you...
Speaker Change: you kind of get the trajectory there. Now of course with dividend and dividend policy every quarter we go to our board and ask them to approve the dividend declaration and distribution. We would always do that so everything I'm talking about here is subject to
Speaker Change: to board approval. But we do, again, the portfolio that we have is strong.
Speaker Change: It's getting stronger with the quality of earnings increasing, the balance sheet becoming stronger, so achieving that mid-single-digit AFFO per share growth rate, maybe driving that up from there as we talked about, you know, with Rick's question, that all would kind of tie into our ability to grow.
Speaker Change: the dividend, and if that dividend grows...
Speaker Change: in line with AFFO per share, we do see the dividend payout as a percent of AFFO staying roughly where it is, which call it, you know, between 60 and mid-60s.
Speaker Change: kind of in that range, that leaves us another 1.5 to 2 billion-ish to deploy into our CapEx programs around the globe, or use it to buy back shares, or we can allocate it to debt reductions if we wanted to, but it still leaves us with plenty of excess capital to run the business.
Speaker Change: On the CapEx for Core site, we're not constraining the business, so that the business has the opportunity to deploy as much capital as it wants. You could see that number grow into that range that you're talking about.
Speaker Change: And I would also just reiterate that, you know, the beauty of how we've constructed our core site entity with our private capital partners is we have a lot of optionality in terms of how we fund that additional capital growth. So we'll be able to make the determination how much American Tower wants to put in versus how much we rely on our partners kind of real time as we're looking at the budgets for next year.
Speaker Change: So it's too early to tell you what the budget's going to be and what percentage we're going to pay, but it's a very good use of capital. We're still able to underwrite those mid-teens or better development yields and stabilization.
Speaker Change: and because the pre-leasing is at historically high levels, it's a very low risk way to deploy capital.
Speaker Change: And so we'll let you know, you know, kind of when we lay out our expectations for 2025 where that lands, but the numbers that you're suggesting are in the ballpark of something that could be very reasonable for us to do.
Speaker Change: Great, thanks a lot Steve.
Speaker Change: We'll go next to the line of James Schneider with Goldman Sachs.
James Schneider: Good morning. Thanks for taking my question. I guess first of all strategically You know Steve you laid out some of the attractive qualities of European tower business on an organic basis at the same time Some of the owners of European tower assets have been more vocal that they're open to potential sales So I guess all else equal is it fair to conclude that you know This would be an area where you might consider an acquisition of scale over the coming quarters or years
James Schneider: And then secondly, on the CoreSite business, a couple of things I noted. One is a large land purchase in the quarter. Is that related to CoreSite and the new site development there that you're anticipating? And then I think you also made a comment on maybe inference being a little bit slower to materialize in your initial expectations. So maybe if you could unpack those two things a little bit, that would be great. Thank you.
Speaker Change: Sure, so I'll start with the... let me start with the core site, just because that's the...
Speaker Change: The land purchase that we did was in L.A. and that's to expand our L.A. campus and that's to make sure we have a continued runway to
Speaker Change: continue to serve our customers there. So that's again, you'll see us continue to invest in land around our campuses, and that just gives us more capacity to continue to build and grow over time. And that's what that one was.
Speaker Change: In terms of inferencing,
Speaker Change: I don't think it's been slower to develop than we thought. That was the edge that I was talking about that's been a little bit slower to develop than we thought. The inferencing layer, we're seeing some robust demand for that.
Speaker Change: We've certainly seen a lot of interest in that, and we are writing some contracts with that. But there are a lot of unproven businesses out there, so we're being very selective about that counterparty risk.
Speaker Change: In terms of Europe,
Speaker Change: We would love to hear from you.
Speaker Change: And so we've reiterated those kind of factors a few times, but terms and conditions are very important to us, as are the counterparties that we're contracting with, as well as the overall co-location dynamic. And what's working so well for us today in Europe is we have very low churn.
Speaker Change: And we're seeing some competitive dynamics emerge in Europe that just weren't there in the past.
Speaker Change: Adam Smith, Steven Vondran
Rod Smith: Hey James, when it comes to Europe, maybe I'll just highlight a couple of revenue items for you here. So, you've heard us say in the past that we're very happy with the European business that we have. It's outperforming our original expectations.
Rod Smith: I'll just hone in on the Organic Tenant Billings growth. We hit another quarter where we were over 6% OTBG.
Rod Smith: for Europe. We're looking at about 6% for the full year and that's a very balanced 6% so we're in the quarter. We were a little over 4% contributions from Organic New Biz.
Rod Smith: That has been accelerating for the last several quarters, it is higher than it was in any quarter in the last
Rod Smith: six quarters or so. So we're seeing an accelerated level of activity in the market, which we like a lot. The escalator is right around three percent, and the churn rate continues to be below one percent. So it's a very balanced, you know, revenue generation model that we've been able to build there, and and we're very excited about the platform that we have in the durability
Rod Smith: of the way that that business could grow. It looks very much like the U.S. in terms of those numbers.
Speaker Change: Anything further, Mr. Schneider?
James Schneider: No, thank you. That's great. Thank you. We'll go next to the line of Batya Levi with UBS.
Batya Levi: Great, thank you. Back to the domestic operations, can you talk about if you're seeing any change in the co-location versus amendment mix? And to the extent that DISH starts to expand its network, is it mostly included in the holistic agreement that you have right now, or could there be upsides? And one thing quickly on domestic growth margins, I think they were down a little bit year on year. Is there anything to call out there? Thank you.
Speaker Change: Sure, I'll talk about the demand trends and Rodney can talk about the gross margin. Overall, the mix that we're seeing is pretty consistent today, but we're seeing more interest in new coal. So we're getting, we're having...
Speaker Change: request for information like what grad centers are available, what's the structural capacity. Those kind of precede the applications typically as they're doing their RF planning and the conversations we're having certainly indicate that they're moving into a densification phase that will shift more to new COLOs.
Speaker Change: So we're encouraged by what we're seeing there. In terms of how they work in our comprehensive agreements, every one of those agreements is a little bit differently, works a little bit differently. Some of them are just amendments only, so in those agreements, all the new collocations are incremental.
Speaker Change: And in some of those, they may include a limited amount of collocations, and once they reach that number of collocations that's in the comprehensive agreement, the incremental over that would be extra, outside of the comprehensive agreement.
Speaker Change: And so, as we constructed our long-term guide...
Speaker Change: We always knew that we would get to this densification phase and that the contribution for new co-locations outside of the comprehensive agreements would become a larger factor. And that's what we expect to see over the next several years. We expect to see this ramp up in co-locations.
Speaker Change: that will add into the growth that we're expecting to see over the next several years. And that's very consistent with what we're starting to hear from customers of their planning for the next phase of their network development.
Speaker Change: Hey Bhatia, thanks for joining the call. So on the margins, I'll just hit the total margins and this applies to the domestic margins as well because the things I'll describe are really in the domestic business, but we had margins.
Speaker Change: for the quarter a year ago for Q3 of 2023 of about 74.7 percent. That's down to 74.2 percent. So you look at that and it's a 50 basis point reduction. The largest call-out that I would highlight for you is
Speaker Change: The straight line impact there is about a negative 90 basis point.
Speaker Change: It's a dwindling balance here as we kind of run through that straight line curve.
Speaker Change: That makes it makes it the reported margins come down, but the cash margins are actually going up
Speaker Change: Okay, Bhatia, one clarification on the MLAs. DISH is largely a new lease comprehensive agreement, so that one, the new collocations will be included until they get to the maximum number of leases under that agreement, which we don't expect to happen for some time.
Speaker Change: Got it. Thank you.
Speaker Change: We'll go next to the line of Nick DelDale of Moffett-Nathanson.
Speaker Change: Hey, good morning guys.
Nick DelDale: Steve, in your prepared remarks, I think you said that you're more convinced than ever that Mobile Edge is going to eventually be an opportunity, even if it's taken a bit longer to transpire. I guess, are there specific conversations or data points or other things you can point to to help us understand that increased level of conviction?
Steve Vondran: Sure, so what I would say is, we've got a few proofs of concepts that we're working on with some partners on some kind of niche use cases.
Steve Vondran: But the underlying theme that we're seeing from...
Steve Vondran: Really kind of the whole ecosystem, and I would point to the ecosystem at CoreSite, is you're seeing more decentralization.
Steve Vondran: So you're seeing the cloud providers and the AI providers start looking at more distributed architecture today. And the first phase of that is going to more regional centers. And that's what you're seeing driving a lot of the hyperscale activity that's out there is you're seeing people diversifying to more regions. Some of that is to take advantage of power costs, but some of that's also to get closer to the end user and to lower latency and transport costs.
Steve Vondran: We think that will continue, and the conversations we're having with those types of players are that they want to continue to diversify over time. So they'll go to more regional facilities for a period of time, they're looking at Tier 2 markets, which is something that we're exploring with CoreSight, is looking at expanding our presence in a couple of Tier 2 markets, you saw us do that.
Steve Vondran: Diversification will continue until it gets out to the wireless edge, we believe, over time. At the same time, we're seeing our carrier customers start talking about going to 5G standalone infrastructure versus the app.
Steve Vondran: The non-standalone 5G that's been deployed to date, and as you look at what's happening across the globe, you're seeing carriers that go to 5G standalone look at mobile edge compute more and more.
Steve Vondran: So as we kind of look at both sides of that ecosystem, the wireline and the wireless, they're both going into an architecture that suggests the need for more compute at the edge.
Steve Vondran: And so as we have those conversations and talk about, you know, what that eventual plan is, and talk with them about what that infrastructure needs to look like at the edge, we're becoming more convinced than ever that that's going to happen.
Steve Vondran: And that's really kind of what I'd point you to. Again, it's taking longer than we thought. You had to get the 5G standalone on the wireless side for that to make sense. And on the wireline side, there's a little bit of evolution that has to happen to get into that more distributed architecture. But once that momentum starts...
Steve Vondran: They'll keep pushing out further and further toward the consumer.
Speaker Change: That's super helpful. Thank you, Steve. And then, you know, one other on, you know, think about some of your emerging tower markets.
Speaker Change: You've been clear in your words and actions that you're tightening up CapEx there. I guess, has there been any sort of customer reaction to that decision? So, for example, you know, customer engagement with respect to discussing larger commitments?
Speaker Change: Maybe if you're not willing to put as much capex behind new builds or anything along those lines.
Speaker Change: We've been engaging with our customers on that. They understand the issues. I mean, they're good business people. Of course, they would love for us to invest more capital there, but they understand that we need to run our business in a way that creates shareholder value. And so if you look at what we've been able to talk about publicly, where we renegotiated an agreement that results in lower CapEx,
Speaker Change: and more co-locations, that's a result of a customer appreciating the situation we're in and working together to find a win-win solution.
Speaker Change: And we think that we have the opportunity to continue to do that with those customers. We do want to support our Tier 1 M&Os across the globe. That's an important business for us. We do think that we will continue to see growth in those emerging markets over time. And so we're not saying we're spending no capital.
Speaker Change: We're just reducing the capital spend there and focusing more in the developed markets. So certainly the customers are a huge piece of that and they've been very receptive to working with us to find the right solution for them and for us.
Speaker Change: Thanks, Steve.
Speaker Change: I guess I should say thank you to all of our customers who are listening for understanding and working with us on that.
Speaker Change: We'll go next to the line of Brandon Nispel of KeyBank Capital Markets.
Brandon Nispel: Thank you for taking the question. Steve, I think I heard in your answer to Rick's question earlier that you said contracted growth under your MLA steps down next year.
Brandon Nispel: Organic billing growth next year in the U.S. include the assumption that churn excluding sprint should be maintained in the sub 1% range which it's been, you know, the last couple of quarters. Thanks.
Speaker Change: building of a 5G network, you don't want to completely smooth it out. It smooths out the peaks and valleys some, but you don't want to lose the time value money for the earlier phases in that. So there's just a little bit of a step down there. But that also corresponds to an increase in nucleolocations in the densification phase of it.
Speaker Change: And so we in terms of the
Speaker Change: to size that up before we can give you exact numbers.
Speaker Change: Great, thanks for taking the questions.
Speaker Change: Thank you. And our last question will come from the line of Richard Trump with J.P. Morgan.
Speaker Change: Turn around. Thank you.
Speaker Change: Sure, so we continue to work on cost management and SG&A has been a particular focus for us because that's kind of the low hanging fruit and we continue to make progress on that.
Speaker Change: And so if you look at kind of cash SG&A excluding bad debt, kind of year-over-year, September year-to-date 24 versus 23 excluding the bad debt, it's down about 17 million or 3 percent over that period of time. So we're still seeing some savings there.
Speaker Change: and we'll continue to explore those. So I do think over time you'll see some savings. It probably won't be as rapid as the savings we had in SG&A, but we think we can continue to expand margins over time with that.
Speaker Change: Sorry, what was the second part of your question there, Richard? And then on the emerging markets that, I guess, where you don't feel like you have enough scale or... Yeah, so there's nothing I would point to, and certainly nothing on the scale of India. In the quarter, we did sign an agreement to sell some third-party land that we had in Australia and New Zealand, and we do have a few...
Speaker Change: And so there's nothing specific that I would point to, but the board and the management team is always looking at all aspects of the business.
Speaker Change: trying to figure out what the right solution is for each market.
Speaker Change: Great, thank you.
Speaker Change: Thank you, and I'll turn it back to our speakers for any closing remarks.
Speaker Change: Thank you for everyone for joining the call today. Like Rod said earlier, if there's any questions regarding the representation of discontinued operations or if you have any other questions regarding the results and outlook in general, please feel free to reach out to Investor Relations. Thank you.
Speaker Change: Thank you. And ladies and gentlemen, this conference is available for replay. The replay information will be available on the American Tower website. That does conclude our conference for today. Thank you for your participation and for using AT&T Event Conferencing. You may now disconnect.