The American Tower Second Quarter 2024 Earnings Conference Call has begun and is being recorded. The host, Adam Smith, is joined by the CEO and CFO. Forward-looking statements will be made, including expectations for future growth and the sale of the India business. Factors that could affect the company's future performance will be discussed.

The company is not obligated to update information and the call is being turned over to Steve Vondran. He thanks the teams for their commitment and discusses the international investment thesis, which involves exporting the successful US model to a diverse portfolio of assets. This results in a complicated footprint with two types of risk: operational and financial.

American Tower has strong operational teams and has successfully managed operational risks through their global expertise and experience. They use operational challenges to create new business opportunities and have a reputation for reliable speed-to-market delivery. Their power as a service model supports initiatives for their customers and communities. This, combined with their global knowledge and support platform, creates value through operational excellence and allows them to command a premium for their assets. However, their exposure to financial risk has been more pronounced in their emerging market portfolio due to global macroeconomic factors in recent years.

The company has experienced financial risks in certain emerging markets and is taking action to improve those results. They have implemented cost controls and are focusing on maximizing returns on investments in those markets. They have also raised the hurdle rates for deploying additional capital in those markets. As a result, their discretionary capital allocation towards emerging markets has reduced and they have divested non-core assets. They are also increasing investments in developed markets with compelling yields.

Earlier this year, the company announced their exit from India and has been focusing on expanding their operations in developed markets through mergers and acquisitions. They expect their exposure to emerging markets to be around 25% after the sale of their India business. The company plans to continue actively managing their portfolio and may consider divestitures, but their focus is on expanding margins, reducing capital intensity, and repatriating cash flows. They also retain the option to reinvest in emerging markets if economic conditions and growth outlooks improve.

The company has learned from its experience in India that owning and operating high-quality assets and partnering with leading carriers is important for stable growth and reducing volatility. They have focused on working with Tier 1 global MNOs and may also support new entrants or smaller operators. Their scale allows them to operate more profitably and develop nationwide agreements with favorable contract terms. They prioritize securing full lease-up rights on acquired assets to drive organic growth.

The company has faced challenges with currency devaluation, but has found success with CPI-linked escalators. They are focused on creating value for customers and have a customer service-driven approach. Their global model allows for flexibility and cost management. They are committed to reducing cash SG&A and leveraging scale and technology for growth. They believe their experience in global operations will help them continue to grow and be successful in the future.

The company is actively managing its portfolio to ensure a strong mix of assets and geographies to support growing data demand and maintain a competitive advantage. They are focused on maximizing organic growth, reinvesting cash flows, and leveraging their global scale to increase profitability. The second quarter results were strong, driven by resilient demand for their assets and growth in mobile data consumption. The company is confident in their ability to drive growth, manage costs, and deliver returns to shareholders. Activity levels on their tower assets remain strong, with organic tenant billings growing by 5.3%. In the U.S. Services segment, revenues and gross profit increased significantly compared to the previous quarter and the same quarter last year.

CoreSite had a strong quarter with double-digit revenue growth and record leasing and cash backlog. Their data center projects are 60% pre-leased, providing confidence in their returns on invested capital. In India, they reversed reserved revenue and cleared outstanding AR with a key customer. They also made progress in accelerating payments associated with the pending sale of ATC India, repatriating $210 million back to the U.S. and expecting to receive an additional $20 million. They anticipate incurring incremental costs in the business but continue to target the second half of 2024 for closing. They also issued €1 billion in senior unsecured notes to pay down floating rate debt.

In the second quarter, property revenue and organic tenant billings grew, with consolidated property revenue increasing by 4.6% and organic tenant billings growing by 5.3%. The US and Canada segment saw a 1% growth in property revenue, while international revenue grew by 7%. Data center revenues also increased by 12%. In terms of organic tenant billings, the US and Canada segment saw a growth of 5.1%, while the International segment saw a growth of 5.5%. In Europe, there was a quarter of accelerating new business, leading to a 5.7% growth in organic tenant billings. The company expects to see a similar growth rate in the third quarter, but a step down in the fourth quarter due to contracted Sprint churn. Overall, the company remains confident in its 2024 outlook of approximately 4.7% growth.

The company's adjusted EBITDA increased by 8.1% in the quarter, with a 12% increase when excluding non-cash straight line impacts. Despite facing FX headwinds, the company's cash adjusted EBITDA margins improved by 300 basis points. This was supported by the tower model's operating leverage and cost management efforts. Attributable AFFO and AFFO per share also saw strong growth, with a high conversion rate of cash adjusted EBITDA to attributable AFFO. The company has revised its full year outlook, reflecting a strong start to the year and better-than-expected core performance. Additionally, due to two consecutive quarters of solid collections in India, the company has reassessed its revenue reserves for the year.

In the second quarter, the company saw positive collections leading to a reversal of $67 million in previously reserved revenue, resulting in an $84 million upside. This, combined with the removal of reserve assumptions for the second half of the year, is driving an increase of $116 million in property revenue, adjusted EBITDA, and attributable AFFO. However, there is a $51 million headwind due to revised FX assumptions. The company is also increasing expectations for property revenue by $20 million, with outperformance in India and offsetting decreases in pass-through and FX impacts. Expectations for tenant billings growth remain unchanged, except for increases in Africa and Europe and a decrease in Latin America. The adjusted EBITDA outlook has been increased by $130 million compared to the previous outlook.

The company has seen strong financial performance due to increased property revenue and expense savings, but has also faced some challenges such as additional SG&A costs and FX headwinds. As a result, they are raising their expectations for AFFO and have adjusted their capital allocation plans, with a focus on maintaining a strong balance sheet.

The company has successfully executed its capital markets strategy, issuing over $2 billion in fixed rate debt this year and prioritizing cost management and strategic rebalancing. This has led to progress in achieving their net leverage target and improved debt profile. The company is confident in its ability to drive sustainable growth and value for shareholders while being a top performer for stakeholders globally. The CEO also discussed potential for M&A opportunities in developed markets and the current state of valuations.

Steve Vondran, responding to a question about data center investments, states that the company is focused on their current capital allocation priorities, including deleveraging and internal CapEx programs. They are not currently considering any material M&A opportunities in the US or Europe, as they have not found any that would be more beneficial than buying back their own stock. They are also prioritizing investments in their existing campuses for the best return on investment. However, they are constantly evaluating potential opportunities and will inform investors if their evaluation changes.

In summary, CoreSite has 44 megawatts under construction, with 61% of that being pre-leased. The company is confident in achieving mid-teens stabilized yields or better in these campuses. They are committed to their business model of being an interconnection hub and are focused on investing in their core business. While they may consider inorganic opportunities, they currently see ample opportunity to invest in their core business. Additionally, CoreSite has increased their CapEx investments in 2024 compared to 2023, showing their confidence in the opportunities available.

The US leasing environment is seeing a modest increase in application volume, with the main driver being carriers building out their 5G networks. This is primarily through amendments rather than new colocations. Over half of the sites have been upgraded with mid-band 5G, with one carrier ahead of the others. There is still a lot of room for expansion and the company expects this trend to continue.

The company is confident in their services guide for the year, as their application flow and services are in line with their projections. They expect US activity levels to continue to increase, driven by consumer demand and the success of 5G technology. The company also held their dividend flat in 2024, but did not provide further details on their decision.

The company has decided to prioritize balance sheet strength, operational growth, and organic growth due to the uncertain macroeconomic environment and interest rates. They are focusing on increasing margins, controlling expenses, reducing costs, and investing in CapEx while maintaining the dividend and reducing exposure to floating rate debt. They expect pre-tax income to grow in line with AFFO and AFFO per share over time, which will also impact the trajectory of the dividend growth. The dividend growth is expected to resume in 2025, subject to approval by the Board.

Ric Prentiss asks two questions regarding the company's financial update and 5G deployment. Steve Vondran responds that there is no update on the India collections process and they anticipate a second half of the year closing. Regarding 5G deployment, Vondran mentions that Europe has been able to deploy 5G to a large proportion of the population, but there is still room for growth.

The percentage of mid-band usage in the 5G market is not readily available, but it is more advanced in France compared to other countries. In Africa, there are some 5G deployments in major cities, but the focus is still on improving 4G networks. In Latin America, 5G is still in its early stages, with delays in spectrum auctions and integration of oil assets affecting progress. Overall, developing markets are behind developed markets in 5G deployment, but there are some signs of progress and potential for growth.

The company is focused on cost management and is decommissioning underperforming assets to save on operating expenses. This includes taking down sites in Latin America and the US, as well as reducing land rent escalations and investing in brown leases. The company is also allocating capital to the most value-creating opportunities.

The company is seeing a direct cost reduction due to various factors. They have made a bold prediction about activity levels and services accelerating in the second half of the year, but this may not necessarily translate to increased leasing activity due to existing MLAs. The company's Q1 services gross margin was twice that of Q4 2023 and Q2 is expected to be 50% higher than Q1. The company is on track to meet their full year services guide based on their current pipeline.

The company has experienced some risks in their services pipeline in the past, but they are confident that they are on track to meet their goals. They have disclosed that one customer rolled off their MLA earlier this year, and this may affect their growth in the short term. However, they are open to entering into new agreements if it makes sense for the company. It is too early to provide a growth forecast for 2025, but the company is encouraged by the activity from their carriers and smaller customers.

Steve discussed how emerging markets currently account for around 25% of the company's AFFO per share. He did not provide a specific projection for this percentage in the future, but mentioned that it will continue to be a significant portion of the company's growth. This information will be taken into consideration when making decisions about using discretionary capital for M&A opportunities. Rod may have further comments or information on this topic.

The company is looking to reduce their exposure to emerging market economies due to macroeconomic conditions and FX headwinds. They plan to pivot towards developed markets and make discretionary investments there. This may result in a decrease in emerging market exposure over time. They will continue to support their Tier 1 MNOs in these markets but will not be looking to expand or increase investments there. The company also expects a $50 million benefit to cash gross margins.

The speaker discusses the company's strategy for international and emerging markets, emphasizing a focus on higher returns and portfolio optimization. They also mention the possibility of disposing of non-core assets if they can fetch higher multiples in the market. The management team and Board regularly review the company's portfolio.

American Tower is always focused on creating long-term shareholder value and believes that their operational excellence and ability to drive best-in-class margins make their assets more valuable under their management. They would only consider divesting assets if they believe someone else could create more value, as seen with their recent divestments in Mexico and Poland. They are constantly evaluating their portfolio and will make decisions that maximize long-term value.

The speaker, Rod Smith, addresses a question about the company's return on invested capital. He mentions that they provide information on the NOI yield in U.S. dollar terms for vintage, which typically shows higher yields in emerging markets. The company also has risk-adjusted return requirements and may require additional spread to compensate for market or portfolio factors. The vintage analysis shows that NOI yields increase over time, with the company targeting high teens to above 20% returns in Africa. Currently, their return on invested capital in the region is in the mid-teens.

The company is focused on driving organic growth and margin expansion in the long-term assets of the data center segment. They are also working to be more efficient in their operations in markets like Africa, India, and LatAm. The goal is to increase return on invested capital and reach their hurdle rate. The company is optimistic about the underlying fundamentals of the business in the U.S., Europe, and CoreSite, as well as in LatAm and Africa. In Europe, there has been an acceleration in new business contributions. The company had their second highest bookings quarter in the data center segment.

CoreSite is experiencing broad-based demand from various sectors, with a scarcity of supply in some markets. Their key customer base driving demand is enterprises deploying hybrid cloud technology. They are selective in who they lease to in order to build their ecosystem. They are also seeing demand from AI, but are being selective in who they lease to in that space. The overall demand is driven by a scarcity of supply, but they are also expanding their reach to serve their existing customers and their needs.

Rod Smith discusses the company's deleveraging path and potential for buybacks in 2025. He mentions that the company's leverage is currently below their stated range and is expected to increase in the second half of the year. They will be disciplined in their capital allocation and will consider buybacks if it creates more long-term shareholder value than other options such as CapEx or M&A.

The company is discussing their plans for capital allocation and the importance of long-term growth rates. They mention that buying back shares will be one of their options and they will continue to evaluate it. They also mention their projects with CoreSite in Raleigh and a JV with Stonepeak in Denver, explaining the rationale for these projects and the potential for more similar projects in the future.

Steve Smith, CEO of Equinix, discusses the company's plans for monetizing their sandbox and their new data center in Denver. He explains that the company is taking advantage of a partnership to fund the development of the Denver facility and plans to build a campus over time. He also mentions the importance of scale in creating value for overseas markets.

Steve Vondran, CEO of a tower company, defines and measures scale as being strategically relevant to customers and ideally being the number one or two independent tower company in a market. This can be achieved through a given number of towers, share of towers, or exposure to top carriers. The company has achieved scale in most of its markets, except for some subscale markets where they use operational leverage to serve them. Overall, the company has adequate scale in all its markets to be strategically relevant and achieve cost synergies.

Batya Levi from UBS asks about the potential for international growth through the implementation of comprehensive MLAs, and the potential for high single-digit FFO growth in the next few years. Steve Vondran explains that while there is interest from international partners, there is some hesitation due to lack of experience with this contract structure. They are hopeful to export this strategy and are in talks with international customers. Rod Smith adds that they believe in the fundamentals of their global portfolio and that revenue growth is key to driving AFFO per share growth.

The medium answer is that the company is seeing strong demand and activity levels in the US and Europe, with expectations for higher growth in international towers. CoreSite has been outperforming expectations and the company is building sites opportunistically. Revenue growth is expected to be in the upper single digits, with a focus on margin expansion and cost control. Overall, the fundamentals of the business are strong and could potentially lead to upper single-digit AFFO growth globally.

In this paragraph, the speaker discusses factors that could affect the company's performance, such as interest rates and FX rates. They also mention the upcoming sale of ATC India, which will have a slight dilutive effect on earnings. However, the company's portfolio is expected to deliver upper single-digit AFFO per share growth. The speaker encourages investors to reach out to the Investor Relations team with any questions.

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