American Tower Corporation (AMT) Earnings Call Transcript & Summary

Hi. My name is Phil Cusick. I follow the comm services and infrastructure space here at JPMorgan. Thanks for joining us. I want to welcome Rod Smith, CFO and Treasurer of American Tower. Rod, thanks for spending some time with us today.

Yes. You're welcome. Good morning, Phil. Thanks for inviting me and happy to be here.

Excellent. Just to start, the U.S. seems to be more open every week, but many of your regions are still deep in COVID. Can you start with an update on carrier activity in the different regions compared to what you think is normal?

Yes. Absolutely, and thanks for asking the question. So many of our markets are not quite as fortunate as we are here in the U.S. when it comes to COVID, so we have seen resurgence of the virus. Particularly in places like India and Brazil have been hit quite hard recently. So certainly, our first thoughts are with our employees and vendors and their families. So we're doing a lot, working with our people on the ground, especially in India, to make sure that we're doing what we can to help the situation, including working with charitable foundations that are supporting India. Many of our employees have donated money to the India relief funds around COVID, and the company is matching that as well. So we're certainly doing what we can and keeping a critical eye on that, really from a humanitarian standpoint. When it comes the business activity, we've been fortunate throughout the pandemic globally, where we've seen relative strength through, and we haven't seen any significant negative impacts other than early on when many of the currencies around the globe that we operate in weakened relative to the U.S. dollar. But in terms of the level of activity that the customers are -- that we're seeing from the customers, it's been quite consistent throughout many of the markets globally throughout the entire pandemic. So in the U.S., though, you've probably heard us talk about recently that we're actually seeing an acceleration in gross new business. We do expect Q2 to be up around 15% over what we saw in Q1. And we expect that trend to continue through 2021 and into at least the latter stages of 2022, so we couldn't be more pleased with kind of the backdrop of what we're seeing in the U.S. In our Latin America markets, it's very consistent throughout the pandemic. And as I said, some of the countries in Latin America have been hit relatively hard with COVID. But due to the critical nature of wireless communications, particularly in many of the developing markets that we're in, the carriers have just continued to advance their networks, continue to invest in the networks, partly because it's very limited to no wireline communications. So the countries really rely on the wireless communication. So that's been critical. And certainly, in Latin America, we haven't seen any significant impacts there. And in Africa, very similar story. We're actually seeing growth accelerate. You probably heard us talk about the growth rates in Nigeria, which have accelerated quite a bit from where they were in prior years, and we expect that to continue. And again, in Africa, we haven't seen any slowdown in carrier activity. And in general, we've seen the exact opposite, and that includes new builds. So in places like Africa, we're seeing a large number of new builds because the current network infrastructure in Africa, in places like India, just isn't sufficient to run 4G networks. So we are seeing a heightened level of new business. In Europe, again, Europe has been hit hard with the pandemic, but our business has proven to be very resilient. New business trends are picking up. We're seeing that very specifically in Germany as 5G launches are preparing. We are seeing the carrier activity there tick up, and we've actually seen the highest growth rates that we've experienced in Europe, in Germany just recently, which is, really, a good sign for our pending acquisition of the Telxius assets, which we expect to close on later this month, actually. And then in India, the level of activity has been very consistent, very consistently high. So gross new biz in India has been up in the double digits, low double digits growth rates for quite some time. Now much of that is offset by a heightened level of churn. We are seeing double-digit churn levels there, but we have not seen a slowdown in carrier investment due to the pandemic, even though in India, they've been hit probably the hardest of any of our markets just recently. So our thoughts and prayers certainly go out to the folks in India and our employees there. And in India, we've actually seen quite a bit of new builds last year and this year, so throughout the pandemic. We are guiding towards 6,500 new builds this year, and about 4,500 of those will come in India and come in at a double-digit day 1 NOI yield at probably in the 13% to 15% range is what we're seeing in India. So again, in India, it's a place where the current infrastructure is just not capable of supporting the kind of coverage, capacity and quality that the subscribers demand on a 4G network. So I think we'll continue to see that densification of those networks. so A lot of demand for our assets globally and demand for additional assets in many of the markets that we operate in.

That's a good overview. So let's start with the U.S. business. Consensus among your peers seems to be that business accelerated maybe late last year, early this year and as you said is still accelerating. Can you compare where we are today to previous levels of major upgrade activity. And as we continue to accelerate through the end of '22, as you said, is this -- does you look -- does this look like a record level of new gross activity against the overall business?

And it's a great question. And we are, like our peers and many of the carriers, we've certainly seen that acceleration in carrier activity in the U.S. It did pick up at the end of last year, and we're seeing it accelerate into this year as well. To put a finer point on it, I'd point to 2 things specifically. One is the level of applications that we've seen come in is the highest we've seen in quite some time and certainly could be paced towards having a record year in terms of new applications from carriers for both new collocations as well as amendment activity on the site. So that level of applications and activity really is quite a lot. We're also seeing Services work kind of keep pace with that, and we've increased our guidance for Services up about $55 million to $175 million, which would be a record in terms of the level of services work that we've done, all keeping our margins very healthy at 55% to 60%. So those kind of data points certainly do point to the fact that the level of activity is accelerating, and in some cases, trending towards record levels that we've seen in the U.S. But certainly, we're at the early stages of the 5G deployment. So in terms of comparing what 5G might look like to 4G, it's probably too early to draw those comparisons over an extended period of time. But we're really excited about what we see in the market now and kind of where the market in the U.S. is headed, for sure.

Can I dig in a couple of things there? One is you said potentially a record number of new applications. Is that a gross number? Or is that relative to the much larger size of the business that you are today versus probably the last record a few years ago?

Yes. No. I would say it's a gross number, so just the physical count of applicants coming in, which applications in our business really refer to when a customer wants to touch a site. Some of those may be non-revenue producing. Some are revenue producing. Some could be collocations. Some could be amendments. Some could be large amendments, like adding new antenna arrays to deploy new spectrum. Some are smaller amendments, where they're adding radio heads up into the antennas or just fine-tuning their equipment. So there's a wide variety of activity that can happen on an application. But the point being the level of applications really is quite high and to the extent that it continues at this level could certainly be a gross kind of record in terms of the number of applications coming through. And certainly, the way to compare it to another time period back in 2018 when all 4 carriers were active, including AT&T building up FirstNet, the level of activity we're seeing today is in line with that. And again, we'll see over time if that's sustainable and where it heads, but it's very, very strong, very high level of activity that we're seeing today. And you can see that in our Services business. It's probably the best place to see it in terms of that immediate effect, and we're seeing it right through our services line in the P&L this year.

And we saw -- John Stankey was with us a couple of hours ago. They just raised their CapEx in the U.S. as well. And I had thought a year ago that they'd be slowing down for a few years. It doesn't seem like that's the case.

Yes. I think that's our view. I mean we do think -- we're projecting that we'll see an acceleration of gross new business throughout this year into next year, probably through most of next year, certainly into the back half of next year. So that's certainly what we're seeing. The one offset that you will see from us, which we've talked a lot about in the U.S., is that we will have Sprint churn through the T-Mobile business. Late in 2021 is when that churn will begin, and it will have its biggest 1-year impact in 2022. So some of that heightened gross growth will be offset by higher levels of churn -- Sprint churn specifically in the U.S. when you get into the -- late in 2021, you'll see an elevated churn level for the quarter -- fourth quarter of 2021. And then for the full year of 2022 is where it will have the biggest -- any single-year impact.

Okay. Curious on that, the faster activity and application level, how long does it take to translate that into booked revenue? Are there any COVID issues that are still slowing that down?

Yes. There are no COVID issues that are slowing that down, certainly not in the U.S. And maybe just to put a finer point on COVID, the one place we are seeing impacts today from COVID is with some of the new builds around the globe. So in India, there was some significant lockdown. Same thing in Brazil, we are seeing a little bit of a slowdown in terms of newbuilds. So we'll see when the lockdowns get loosened up and when we get back to normal there in terms of building new sites. But in the U.S., we don't see any impacts from COVID in terms of disrupting the supply chain, disrupting our labor force, our vendors being available to do the work. Our teams are out and about in executing on applications. The one thing I would point out, though, is that with many of our MLAs with carriers, they're holistic in nature. And therefore, we have very high visibility in terms of the revenue, and it's not necessarily pinned on site-by-site applications but more an overall holistic level of activity that we expect to see over a number of years, and the revenue is kind of spread over that time period to match the overall time frame. So you won't necessarily see a spike because of the buildup in activity that we're seeing here. Our revenue will be much smoother over a longer period of time.

Okay. I want to follow up on the Sprint churn that you talked about. You've quantified the potential impact. That's really helpful. It's sort of a question still as to what T-Mobile will shut down. But I'm curious if T-Mobile didn't shut any of these sites down, how big of a revenue impact is still coming because of the things like take-or-pay contracts that were there over the last 10 years with Sprint?

Yes. So it's an interesting question. I guess I would highlight the fact that the T-Mobile churn, just so everyone knows, that's contracted for us between us and T-Mobile at this point. So it's embedded in the new MLA that we've just executed that we announced back in 2021 or in 2020, and there is no variability expected there. We know exactly when it will churn, how much will churn at different stages. Those are the numbers that we've outlined. So that's kind of out in the marketplace. And there is no sort of notification period, unless T-Mobile or we and us agree on a new structure. If we amend the terms and conditions, then you might see some changes there or if T-Mobile decides that they don't want to dismantle the level of sites that we contemplated in the agreement. But the churn really is it's contracted at this point, so it's very clear what it will be and exactly when it will hit. And it will take a renegotiation of the contract to see any changes there. And the other thing I'll highlight, Phil, which I think you alluded to a little bit in the question is, over the years, American Tower didn't have Sprint churn the way some of our -- some of the other tower companies in the U.S. had over the years. We had a holistic deal with Sprint years ago which kept our run rate revenue consistent, and we didn't have any sprint churn. So we've been able to enjoy that Sprint revenue on lots of sites for a longer period of time than some of the other tower companies in the U.S. But at this point now that Sprint is part of T-Mobile, T-Mobile is going to rationalize their network and kind of move forward. We've got our deal, which has growth in it every year over the next 7 years, in addition to the 3% escalator. So we're in really good shape from that perspective. And we've taken the risk in any kind of unknown out of the churn. So we know exactly when it's going to be, and we've told the market when that will happen and how much will be year by year.

Good, good. Okay. So the other big question in the market today is with DISH, and one of your peers have said that they expect to give a sort of a larger than typical share because of their sort of first-mover advantage with DISH. Do you think that's correct? And is DISH in that sort of high level of activity? Or is that a lot of the acceleration you look for over the next 18 months?

I'll start with the last piece of the question first. DISH is in the acceleration, so we have seen applications come in from DISH. We announced our agreement with DISH, as has the other large tower companies in the U.S. and many medium- and smaller-sized tower companies as well. So they are well positioned here with their agreement with the government and with their agreement with T-Mobile, and now they've got agreements with all the tower companies to deploy a network, which we're excited to see them do that. We're ready, able and willing to help them deploy their 5G network very rapidly across all of our sites, and we are seeing activity from them today. So that is in kind of the acceleration. We won't see revenue from DISH until 2022. So that's when we will begin to see the revenue build up, and we think the revenue cycle here is along kind of long term and will begin to accelerate from 2022 beyond. In terms of what our -- the other tower companies may say, I don't want to address that too specifically. But I will tell you, we expect to get, let's call it, our fair share of kind of the network build. We've seen network rollouts in the U.S. many times over many years over decades, really. And one thing is for certain, and I'll highlight 2 things. One thing is we build value over the long term. Short-term spikes in revenue and activity doesn't really change the needle in terms of long-term value creation for our shareholders. It's the long-term contracts that we get. It's getting revenue on our sites and having stayed there over a long period of time. We are very confident that when -- as DISH builds out the network, they will be utilizing many of our sites. And I think they'll utilize a percentage of our sites that will be similar to what we've seen other carriers use as they build out a network. A lot of ways from an engineering standpoint and the location of our sites, it's just that's the way that it goes. So the idea that one tower company might be favored over another, maybe you could see some of that early on in terms of where they start. But certainly, over a few years as they build out everything, everything kind of comes back to the mean. And towers are used across the country from multiple tower owners, so we don't expect any other tower company to get an outweighted share of that build, I think it will be spread across the tower companies. And our assets are really good assets. They've got a high structural capacity, ready to go, which means we have a low failure rate when people come in and put applications in and want to put equipment on our sites. And that helps us kind of move the build along and really provide a good service to the carriers. And our relationship with DISH is good, and we expect to be working with them for many years as they deploy their network.

Okay. You mentioned Services a couple of times, and that's guided to a very high number for this year. With that acceleration in business over the next 18 months, can this be just as strong next year as this year? Or is it more of a front loading, Services comes in before a lot of that business accelerates?

Services is -- I guess the word front loading is probably accurate. It is kind of the early indicator here. We get applications, and we do things like structural capacity testing which we get paid for. We do engineering studies.that are in that. We might do some zoning and regulatory kind of support for the carriers and a little bit of project management. A lot of that stuff is kind of upfront in terms of the application cycle and is well ahead of when you see equipment going on the towers and revenue actually commencing to the extent that it's on an à la carte basis. So there is some of that that's upfront. It's a nonrecurring in nature, so it's hard to say exactly what the level of services work will be next year. But to the extent that the level of applications is consistent, we think, certainly, there's an opportunity to have heightened levels of Service revenue, not just this year, but beyond. But it will be tied to the level of activity that our carriers are engaged in at that time, out into next year. But we certainly have the capacity to do the $175 million. We're focused on some of the front-end work that comes in at a pretty high margin, that 55% to 60% margin. So it's good, quality services work, and we do it very well. We do it quickly for the carriers, and so the relationship there is really strong. So we'll see what next year brings, but there's a good chance that we could see a heightened level of services beyond just 2021.

Okay. So Services is sort of current correlated to application level, whereas actual revenue growth is more of a trailing to -- by a year or so of that -- of those applications.

Yes. I think that's right. So I guess the one thing I would point out here is you're absolutely right. Services work is directly correlated to the activity level that we see. Applications come in. It needs owning support. It needs structural analysis. We do that work. We get the fee, and it's kind of timed right with the applications that come in within a few months, that sort of thing. But I will just remind you and for the audience that many of our MLAs with the large carriers are holistic in nature. So we have really good visibility in terms of our revenue stream, and that's not necessarily tied or correlated to the activity level in any given quarter. It's more tied to that activity level over an extended period of time, over a couple of year period. So -- but the services work is directly correlated with the applications.

Is services work part of that master lease agreement as well? Or that's all the leasing side, and the services is a little more variable?

The services is definitely variable in terms of the way that it's tied to applications. So when you think about our holistic deals and, let's say, the use right fee, which is the fee that carriers pay us for additional amendment and capacity and things like that on the leasing side, that does not cover their services work, right? Services work is independent of that. Some of our holistic deals may have certain terms and conditions around services work in terms of providing the services on sites and that sort of thing, and it may even have some pricing in there that would be used when services work is performed. But the triggering event for the services revenue is when the work is done, and that is tied to the applications and when the carriers actually need the work. So it's decoupled from that perspective in terms of the revenue when we actually earn the revenue on the services side is much more variable and tied to activity, where the leasing revenue is holistic and is not as, let's say, responsive to a downturn in applications or an upturn. It's more evenly spread.

Got it. Got it. Last question on the U.S. The edge compute opportunity is something we hear a lot about. It seems -- edge, I would argue, is the biggest buzzword in our space for this year. How was that developing for you? And at what point could this be an important revenue contributor versus what right now feels like a bit of a science project?

Yes. I think we -- there's no doubt we're in the early stages of edge computing, and it really in our view, in my view, it's kind of tethered to the overall 5G development that's going on now. So carriers are beginning to deploy 5G. Once they get 5G kind of up and running, there's no question that it will become more advanced in the future as more advanced handsets become more readily available, more and more people are on 5G handsets in the future and more, more high-band spectrum. Mid-band spectrum will be integrated into the networks over the next 3 to 5 years or so. So as that unfolds, that's when the carriers will be really focused on reducing latency, increasing the capacity to handle these 5G-ready phones and services that people will want to use. So we do think that it is early stage here in terms of the overall development. With that said, we do have about a half a dozen or so trials with edge computing facilities at our sites. We did buy a data center in Atlanta that we're trialing with some customers and connecting in towers and learning a lot about the way people use data centers, the power that's required and the latency issues and those sorts of things. So we're learning a lot in preparing for the future, which we believe will definitely have edge compute centers when you think of the carriers wanting to do compute closer to the end user. They want to hold content closer to the end user. They can reduce their backhaul if they're not sending large amounts of data all over the fiber optic networks, and they can reduce that cost if they have the content held closer to the end user. And we think that a neutral host model there is most efficient from a technology standpoint as well as an economic standpoint with multi operators in the facility, again, it's the most cost-effective way for them to deploy it. And we think the combination of our assets, our relationships with the carriers and our skill set is perfect -- potentially perfect to be able to deploy edge compute centers on tower sites.

So do you think that drives more capital investment by American Tower? Or is it better to partner from here?

Yes. I think that -- I mean it's so early now that I'm not exactly sure. There could be different -- this could roll out in many different ways. It could roll out in a way where we are deploying capital. And if we did that, we'd certainly expect to get a return on that capital, where we could potentially deploy shelters and even connect things together with some fiber from an edge compute standpoint, connecting towers into that would be willing to do that. If it was a neutrally hosted set of assets with multiple tenants potentially on it, that would be perfect for us. You could see us do some sort of partnership with other people that bring a different set of skills to the table or different knowledge base, different types of relationships with different types of customers. We're really close with certainly all the telecom carriers. We're getting closer with some of the tech companies, but there are other people that have been in that world for longer. So you could see some sort of a partnership there. We're not quite sure how it will develop and roll out, but we're maintaining maximum flexibility at this stage because we really don't know what the future holds yet. We're still early stages, doing a lot of investigation working. We are deploying some capital, just to make sure that we're on top of kind of the main issues in learning about how this will roll out, so we can be well positioned to be a significant player in it, if possible.

Are there other markets that might be faster to move to an edge compute model? Or you think the U.S. is the farthest along? so...

Yes. No. I think, yes, it's a great question. And that's one of the advantages we bring, I think, Phil, is that we are global. We have assets all around the globe. Many of these multinational, large wireless carriers around the globe are looking at deploying 5G networks, and they will need the same type of technology. And we would be even in a stronger position, I think, globally to support these carriers in that way. When it comes to who's first, I do think the U.S. is further along than most of our markets in terms of deploying 5G and therefore closer to deploying edge compute and needing that lower latency and increased speeds and that sort of thing. Europe is right there as well. So with the Telxius acquisition, getting a leadership position overnight really in Germany and in Spain with dense urban assets, I think that those -- the combination of the relationship there with Telefónica as well as some of the other carriers and our new expanded role in Europe and the leadership position, again, in Germany and Spain, there's an opportunity that we could be doing some of these things, maybe simultaneously with the U.S., maybe even in advance of the U.S., maybe slightly behind the U.S. But I think they're pretty closely tied in terms of their 5G rollout plans, and we're well positioned in both markets now.

That's a good lead into the Telxius and Germany deal. You've expressed a lot of excitement about that 5G acceleration in Germany. Do you think that, that is sort of a leading indicator for the rest of Europe as well and that the Spanish business eventually gets there? Or is there something unique in Germany that gets you excited here?

Yes. I think the way we look at Europe is that it's not one place, that it is a collection of different countries with different regulatory bodies, different market structures when it comes to telecom and wireless, different -- even different wireless carriers within the different markets. So they are -- each country can be fairly unique. What I would say is we're excited about Europe. We think Europe offers tremendous opportunity. We're very excited about the Telxius transaction that we announced. It's over -- almost $9.4 billion transaction. Again, overnight, we'll become -- being a lead position in Germany and in Spain, increasing our assets there significantly. And we're in France as well, and we've got a small investment in Poland. We have seen accelerating gross growth in Germany in our legacy business. So that's up to the mid-single digits, even over that, close to 6%, in terms of the gross new biz. So we have seen that acceleration as the networks there in Germany prepare for 5G. We expect that acceleration to continue as they work to rolling out 5G networks. We think that, that will happen, and we're seeing that happen in Spain as well. So we think we'll have higher growth rates through the Telxius transaction in Germany and Spain than what we've seen traditionally in our legacy business. But I want to make sure that it's clear that in Germany, The growth rates that we're predicting for the Telxius assets are the growth rates we're now seeing in our legacy business in Germany. So there's definitely a connection there, which is really strong. Not every market has the same regulatory structure. Not every market has the same density of assets and carriers and things like that, so we certainly would be looking at it country by country in making our expansion decisions based on the traditional disciplined capital allocation approach that we have. But we're very excited about the ability for us to close on these Telxius assets, which, in Europe, we'll begin to do this month, I think late this month, if not early in June and begin to work those into our organization very quickly and get them marketed to other carriers. And the thing that is -- one of the things that's great about that portfolio is the relationship we have with Telefónica, which we've had for decades, is really strong. So we're looking forward to them as a partner. They are the leaseback partner on the assets that we're buying in Germany and Spain. The majority of those assets are urban assets, which is much more important to have urban assets in Europe than it is in the U.S. because in Europe, that's where people tend to live and work, not just work. So that's key. Telefónica has signed a 7-year leaseback, and we know that it will have very little churn in that revenue stream over that 7-year period, unlike, let's say, our legacy business in Germany, which we see 300 basis points or so, maybe even a little bit more of churn. We won't see that in the Telefónica, in the Telxius assets. So that gross growth in the 6% range, plus a little bit on top of that for escalations with little churn, ends up giving us confidence that we will grow that business on our organic tenant billings growth in Germany, let's say, between 6% and 7%. And in Spain, probably between 5% and 6%. So really attractive growth rates for Europe standards, in general, but above what we've been experiencing in our legacy business. I do think that is a trend that we will see in our legacy business, particularly in Germany, and I think eventually in France as well.

Okay. One more on Europe. Some people have pushed back on European tower businesses because it seems like many carriers now have a captive tower company. Does that concern you about the business there, number one? And then number two, Tim Höttges from Deutsche Telekom last week seemed much more interested in selling his towers than he has in the past and talking about it as a kingmaker asset. How does that make sense for you?

Yes. I think when it comes to tower companies having -- being captive to wireless carriers or telecoms, we've seen that happen around the globe many, many times. We saw it in the U.S. for a long time. The big wireless carriers in the U.S. own their own towers, and they put marketing around it. They had organizations built around it to go out and market and lease those sites up and create value. We've seen that in other parts of the world as well. The one thing that I'm pretty comfortable in saying and pretty confident in the assessment is that they don't create as much value as can be created when those assets are truly in the hands of a neutral host, someone that is independent of the wireless carriers themselves. And it doesn't necessarily mean that it's a capability issue, although I think the tower companies, in general, and certainly, we are very good at running a tower business. And I'm not so sure that that's the key competency of a wireless carrier. But even if they were as good as the tower companies at running and managing it, there is something inherently problematic with one wireless carrier trying to lease sites from another wireless carrier. Oftentimes, the service levels aren't quite there, and there are other issues. So we do, in general, see more value being created when towers truly become neutral in the environment. And we've seen wireless carriers have tower companies have captives for a few years. And then eventually, they sell them off because they realize they're not really a competitive advantage. They can monetize those and create more value by selling them than by owning them. I'm not saying that, that will happen in Europe. And maybe it will, maybe it won't. But our experience is that, in general, down the line over a multiyear period, those assets have a likelihood of creating more value for the telecom when they truly sell them and put them in the hands of independent tower owners.

Yes. And we've seen it in almost every region. We're running out of time, but one thing I wanted to hit before we go. I thought it was interesting recently that rating agencies raised the allowable leverage for Equinix to 5x after years of politicking. And other investment-grade data center companies have leverage closer to 6x. What are your conversations with rating agencies look like today? How do they think about towers? And is there a potential that you could raise your leverage level and stay IG over the next few years?

Yes. So we -- so I'll try to answer this fairly quickly here. So we talked to the rating agencies on a regular basis. We have really constructive conversations with them. They understand our business very well. Even in the last several years, they've become much more confident in the long-term ability of the wireless carriers. Our order book now is up to close to $60 billion of guaranteed contracted revenue. That's a significant level. The vast majority of that is in the U.S. We've proven, over time, that this business and this business model is very resilient. We went through the downturn, the economic downturn of '08 and '09 very well and posted some of our highest growth rates throughout that period. We sailed through the pandemic. Again with the exception being a little bit of foreign exchange disruption and maybe a few less towers being built up by and large, our business was unscathed from that perspective. So the rating agencies are seeing that, and they understand the quality of this business model. We still operate between 3 and 5x. We've announced that with the Telxius transaction. We're comfortable going up into the high 5s for a, let's say, an extended period of time between 2, 2 plus, 2 to 3 years, but we do intend to delever back down to below 5x. We think that, that between 3 and 5x has really served us has really served us quite well in terms of the cost of debt access to markets, different sources of capital around the globe. It's worked really well. Do I think that the rating agencies could get comfortable at a little bit higher level? Yes, that's possible, but it's not something that we're focused on. We're not actively pursuing that sort of a change. We are comfortable, long term, between that 3 and 5x. And generally, you see us operate even at the high end of that 3 to 5x, up around 4.5% or even higher than that on a sustainable basis is kind of where we usually kind of keep our leverage. But we will be at a higher level of leverage for the next couple of years. We've worked with the rating agencies. We don't expect any risk of downgrades or outlook changes, and we do plan to delever throughout the next couple of years. But -- so I am very comfortable with a little bit of higher leverage. This business certainly can support it. But on a temporary basis, yes, that's fine. On an ongoing basis, we're still planning to operate between that 3 to 5x.

Good. That's a good place to stop. Rod, thanks very much for your time. Nice to see you.

Yes. You're welcome.

And have a great day. Thanks very much.

Yes, you, too. Thanks, Phil. Great seeing you. Bye.