The operator introduces the Crown Castle Second Quarter 2024 Earnings Conference Call and turns it over to Kris Hinson, Vice President of Corporate Finance and Treasurer. Kris thanks everyone for joining and introduces CEO Steven Moskowitz and CFO Dan Schlanger. They have posted supplemental materials on their website and will be discussing forward-looking statements and non-GAAP financial measures. Steven thanks everyone for joining and highlights their solid operating and financial performance in all three businesses, as well as reiterating their full year 2024 outlook.

The company is confident in their outlook due to having 95% of their expected tower revenue growth contracted through master license agreements and regional and local wireless customers. They anticipate organic revenue growth of 4.5% this year and believe it will continue to increase in the future due to their agreements with major customers, industry forecasts for wireless data demand, and their efforts to become a leading supplier of low-cost infrastructure solutions. They have made changes to their fiber segment to increase profitability and efficiency, and see potential for additional revenue by providing solutions to enterprise fiber connections and small cell locations.

The company has made changes to its small cell and fiber solutions business to improve project economics and address customers' evolving priorities. They plan to build fewer anchor nodes in the short run but still expect double-digit growth in small cell revenues. In the fiber solutions business, they will focus on on-net and near-net opportunities to improve returns and have already made changes to their sales and incentive systems. These changes are expected to result in $100 million in annual cost savings and a reduction of $300 million in capital expenditures for the year.

The company is currently undergoing a fiber strategic review to determine how to maximize shareholder value. They are actively engaged with multiple third parties who are interested in their fiber solutions and small cell businesses. The CEO has met with over 50% of the company's employees to discuss recent operational changes and set expectations for the future. The employees are proud to be a part of the company and recognize the need for continued changes to maintain excellence. The CEO thanks all employees for their openness and transparency and looks forward to meeting with the rest of the employees in the near future.

The company's CEO expresses gratitude to employees for their hard work during a period of change and asks for their continued understanding as the company works towards new goals. The company's second quarter results were in line with expectations, with strong organic growth in the tower, small cell, and fiber solutions businesses. Despite operational changes, the company remains on track for its full year outlook.

The company experienced strong organic growth in the quarter, but this was offset by one-time and non-cash items such as a reduction in site rental revenues, lower tower activity, and advisory fees. The company maintains its full-year outlook, with a decrease in site rental revenues, adjusted EBITDA, and AFFO due to these factors. Organic growth is expected to be 2% or 5% excluding the impact of Sprint Cancellations, with contributions from towers, small cells, and Fiber Solutions. The company also expects $105 million of AFFO growth at the midpoint, excluding the impact of Sprint Cancellations and non-cash decrease in amortization of prepaid rent.

The company's AFFO growth includes a $10 million increase in costs and $25 million in advisory fees, but this is expected to be offset by a $60 million decrease in costs due to staffing reductions and office closures. The company's leverage metrics are expected to improve in the third quarter, and they have strengthened their balance sheet by extending their maturity, decreasing secured debt, and increasing fixed rate debt. They have ample liquidity to fund their business and are evaluating strategic paths forward. The company has decreased their outlook for discretionary CapEx and now expects $1.2 billion to $1.3 billion, or $900 million to $1 billion after accounting for prepaid rent. Overall, the company is performing well and is on track to meet their full year outlook after implementing operational changes.

The company has completed its operating review and is now focused on maximizing shareholder value by progressing with the fiber strategic review and delivering operational and financial results. They will now provide forward-year guidance with fourth quarter earnings instead of third quarter. The first question in the Q&A session is about the new run rate of CapEx and OpEx, and the company's target leverage over the next couple of years. The M&A point is left for Steven to address.

The company's CapEx run rate is expected to decrease as they focus on lower capital intensity projects. However, the exact run rate cannot be determined until 2025 when they have a better understanding of their business opportunities. The midyear move has already resulted in $300 million in savings and they anticipate further savings in the future. Their goal is to have a leverage of 5 times and they believe they can achieve this through organic growth and reduced capital spending. M&A is not a priority for the company, but they would consider it if it aligns with their strategic and cost-effective goals.

Steven Moskowitz is optimistic about the growth potential of the tower business in the coming years, citing stable demand from major carriers and the company's MLAs. He also mentions the ongoing strategic review of the fiber business and efforts to spend cash more wisely as top priorities for the company. However, it is still early to make predictions for 2025 and beyond.

The company is currently focused on cost management and evaluating other areas of the business to improve margins. They also recognize the need for business transformation, including evaluating personnel, improving processes, and upgrading systems. These efforts aim to improve customer service and drive organic growth. Analysts are interested in the company's small cell return thresholds.

The company's return thresholds for small-cell business have increased and they are working on determining the exact number. The service revenue run rate for the second quarter is expected to continue for the rest of the year, with additional guidance for 2025 to be given in January.

The operator introduces a question from Ric Prentiss about the change in given guidance for the fourth quarter. Daniel Schlanger explains that the decision was influenced by the fact that they were giving guidance five months earlier than their peers, which caused an outsized amount of questions and consternation. They still believe their business is predictable, but they wanted to align their guidance with their peers and have more time to incorporate information before giving it. Steven Moskowitz adds to the explanation.

The company has started its budget process in August and the team has been asked to consider starting it later to better understand the market before finalizing their outlook. This also eliminates the issue of providing guidance for the fourth quarter and then having to reconcile it later. The strategic review is still ongoing, and the company is open to any alternative that maximizes shareholder value, including the possibility of separating fiber solutions from small cells.

The company is open to selling its fiber solutions business separately if a potential buyer values it higher than the company does. Private investors are interested in the business and are willing to pay high multiples for it, but the company is not being opportunistic and will only consider deals that are accretive to the company.

The speaker explains that there may be changes in their small cell activity and the intention to do more self-perform work. They have made shifts due to returns on invested capital not meeting expectations and are now focused on maximizing business around their fiber backbone. The carriers are currently prioritizing deploying mid-band spectrum, while their priority is to drive better returns on capital deployed.

The company is working on finding solutions for their customers and expects to align their needs with theirs in the short term. They believe that data demand will continue to drive growth and lead to double-digit revenue growth in the future. They also hope to gain market share in the coming years through their relationships with major customers and a greater sales effort.

Nick Del Deo of MoffettNathanson asked about the company's high-level philosophies on Master Lease Agreements (MLAs). Steven Moskowitz, the speaker, explained that they aim for a win-win situation with the carriers, providing guaranteed growth and certainty for both parties. Key factors include pricing, packaging, volume, annual escalations, and entitlements. Nick then asked about fiber solutions.

The company is shifting its sales focus from retail clients to larger, more financially stable customers. They have put incentives in place and are using automated systems to identify potential growth opportunities. The strategic review is ongoing and an outcome may be announced by the next earnings call or by the end of the year.

The company is currently in the midst of a strategic review and is engaging with potential counterparties. They hope to make a decision soon for the benefit of their company, employees, and shareholders. The outlook for the tower business is uncertain, but they hope to see a tick-up in demand by the middle of next year, which could potentially increase growth to 5% or higher. The company also mentions potential opportunities in the small cell market.

Analysts are asking questions about the fiber business and its profitability in light of the company's shift in strategy. The company has not made any changes to its backlog of 50,000 nodes and is still in discussions with customers. They are also considering changes to their capital allocation, including the dividend policy, but are waiting for the conclusion of their strategic review. One analyst asks about the reduced discretionary CapEx for the fiber business and its impact on 2025 projections.

The speaker discusses the company's recent core leasing number for fiber solutions, which was the highest since 1Q '22. They mention a reduction in discretionary CapEx and how it may impact the number of nodes built and revenue generated. They also mention targeting existing fiber locations rather than new ones and believe there is still opportunity for growth in the top 30 markets in the US.

The company had a strong quarter in their core leasing activity for fiber solutions, which gives them confidence that their changes will continue to generate 3% growth. The sales team has made good decisions with customers and products, and incentives have been put in place to support this. The team is also open to greenfield builds if they are profitable.

Batya Levi asked for more information about the company's plans for small cell deployment and fiber CapEx reduction. Daniel Schlanger stated that the company cannot provide any guidance at this time and that investors will have to wait until January for more information. He also mentioned that the amount of CapEx spent will depend on customer activity and profitability. Batya also asked for a breakdown of the $300 million reduction, to which Daniel replied that he cannot provide that information.

The speaker discusses the company's plan for small cell nodes in 2025, stating that a majority of the 3,000 to 5,000 nodes that were pushed out from 2024 will likely be deployed in 2025. They also mention their belief that the small cell business will continue to grow in double digits over the next several years, thanks to their backlog and ability to build for customers. The $300 million reduction in CapEx is primarily in small cells rather than fiber solutions. When asked about the mix of colocations and anchor tenant nodes in their backlog, the speaker states that there will be a higher percentage of colocations due to the shift away from anchor nodes. They also mention that the majority of their tower activity is related to carriers upgrading mid-band spectrum, with the exception of DISH.

The speaker discusses the company's SG&A expenses and mentions that the majority of these expenses are related to back office functions such as accounting, finance, legal, and IT. They have been able to offset labor inflation, but they plan to make reductions in G&A in the future, as part of a $60 million reduction plan by 2024.

The speaker is unable to provide exact numbers, but says that there will be a reduction in G&A expenses due to the removal of proxy fees and a recent restructuring. This reduction will be seen in the third quarter and beyond, and is similar to the reduction seen in the previous year. The reductions are back-end loaded, meaning they will occur towards the end of the year.

The company has seen a spike in fees in the second quarter due to proxy-related issues. They plan to make changes and restructure to achieve better efficiencies in 2025. The company is confident in achieving their 5% tower growth through 2027, with 75% of that growth already contracted. The current lease application volumes are in line with their expectations, and they maintain their 4.5% guidance for 2024. The company gave a longer-term growth guide of 5% knowing the current activity levels.

During a conference call, Brendan Lynch from Barclays asked about the changes in operations in the fiber and small cell businesses while the sales process is ongoing. Steven Moskowitz explained that the company is engaged with multiple counterparties and is trying to continually improve their business. They saw an opportunity to make changes that would benefit their business and create more shareholder value, and they wanted to implement them now, separate from the strategic part of a potential sale. The operator then concluded the call.

This summary was generated with AI and may contain some inaccuracies.