American Tower Corporation (AMT) Earnings Call Transcript & Summary

Welcome, everybody, to the first session of the first day of the 2025 edition of our Global Communications Infrastructure Conference. My name is Jon Atkin. I'm with RBC, and I will be -- you'll see a lot of me on stage, driving a lot of the fireside chats and one of the panels. Very pleased to welcome Rod Smith, who's been the CFO of American Tower for quite some time. And -- welcome and appreciate you having -- being here with us.

Yes. Great. Thank you, Jonathan. It's great to be here.

To maybe just set the stage, if you want to recap kind of your top level guidance that you provided around some of the key metrics organic tenant billings growth, AFFO per share growth and then we'll dive into some strategic and operational and balance sheet topics.

Yes. When it comes to organic tenant billings growth in the U.S., which is really the primary metric a lot of people look at, we've updated our guidance to approximately 4.3% for the year. And that really represents a pretty robust, pretty stable demand backdrop in the U.S. We are continuing to see the wireless carriers roll out their 5G deployments across the country all striving to move the amount of 5G deployment up into the 80% to 90% range. Some are there. Some are not there, and they're continuing to move up. So we benefit from that. We've seen a very strong beginning of the year in terms of a level of applications. We increased our applications by about 50%, first half of 2025 versus 2024. So we saw '24 kind of ramp up. That ramp-up in applications continued into '25, and that's been a really good -- a good thing to see the carriers continue to spend money on the networks, continue to kind of keep their networks in the right condition when it comes to coverage, quality and capacity. And -- we are I think in the beginning stages of seeing a reflection where AI-driven use cases will increasingly hit mobile devices, which could have another leg up in terms of demand, mobile data consumption on wireless networks, which could continue to drive growth, certainly for the tower industry for a long time. And I would say the one factor that we really look to above all others in terms of driving sustainable long-term growth on the tower sites is the growth in mobile data that we have seen, that we're seeing and that we expect to continue to see going forward. In terms of the key priorities, which we've talked about American Tower, we are really focused on the fundamentals driving organic growth in the U.S. and around the globe, making sure we drive as much value as we can, not only for our shareholders but also for our customers, having those sites available for our customers in the U.S. and around the globe is critical, making it easy and efficient for them to use them to get on to them to contract around them is also critical. We spend a considerable amount of time on operational efficiencies, making sure we have the right cost structure. That is all of our direct costs, things like operations and maintenance, capital investments around the sites, the expenses that we have around land and other things as well as SG&A and the expenses that we see there. We've had a couple of years, '23 and '24, we saw SG&A costs come down. That was purposefully driven us being proactive in bending that -- not only bending the curve down, but actually reducing the aggregate amount of SG&A at a time when inflation was fairly high. So we continue to drive those costs down to help expand margins. We also complement the existing assets we have by building towers in select places where we see the value proposition for our shareholders in places where our customers need it. With that said, we are prioritizing developed markets. We've increased capital investments in the U.S. We've increased investments in Europe as well as with our core site data center business, which is in the U.S. We've decreased capital investments in emerging markets, particularly Africa and across Latin America. So you can see our actions, our capital investments, our capital allocation is following those priorities. So being efficient is critical. And the last point that I would make, which we focus on a lot is balance sheet quality. Ensuring that we have the right balance sheet that can weather any kind of economic backdrop that can support us, our customers and shareholders in good times and bad times. You've seen us get upgraded with S&P. We're now a BBB+ rated organization. We're proactively reducing the refinancing headwinds that we have getting out ahead of that. We have no more refinancings this year. That's all done. We have now the next end of this year, the second half of 2025 to be working on planning and dealing with refinancings for next year. So we're well ahead of that curve. That puts us in a position where we can be truly opportunistic when it comes to balance sheet management. We've reduced our floating rate debt. That again reduces uncertainty around interest rates and interest rate headwinds. So we're in really good shape there.

Great. I'm going to have a chance to circle back on some of the topics that you just elucidated. But maybe just hitting some recent headlines. We've got the DISH spectrum sale to AT&T. How do you view the impact to your business given that some of AT&T's capacity needs can be met through software, but in other cases, maybe in the low-band 600 megahertz, they might need to deploy new equipment? So how do you look at the puts and takes around that as it pertains to tower companies?

Yes. I would say that the -- it's probably too early to assess the longer-term impact of that transaction. A couple of things I would highlight in general. Number one is in our outlook not only for 2025, but longer term, when it comes to DISH, we have built into our outlook only the minimum contracted payments that DISH has made in their MLA with us. We haven't assumed or expected anything above the minimum commitments that they've made. That contract is still in place. We expect to get paid for that, not only in 2025 but over the long term. So from that perspective, the contract and the obligations that DISH has financially to meet that contract is pretty well buttoned up and so we expect to get that revenue over time. That means in 2025, that transaction shouldn't have any effect on our outlook nor should it over the next couple of years. But again, it's too early to really assess exactly what the transaction means, whether or not it's going to get approved and those sorts of things. The other thing I would say is getting more spectrum in the hands of the carriers is a good thing for the industry. It's certainly a good thing for them. And it's a good thing for the tower companies as well because more spectrum means more deployment. When they deploy spectrum, they put equipment on towers, new antennas, cables lines, the whole thing. It also is evidence of the need for more spectrum because the growth in mobile data continues to go up. The networks have to continue to increase the capacity. Also augment the coverage and the quality and based on the type of data consumption that's going through the networks, depending on which frequency it goes through, they may need to densify the networks also to get that higher band spectrum, the C-band spectrum and others to be able to cover more areas to use that higher band spectrum, which gives you more capacity, gives you faster throughput speeds to use it in more places they may have to densify the networks. They can do that with bringing in more spectrum. And if they don't have that additional spectrum, they can do it by reusing the spectrum they have more frequently, which means more transmission points for RF, which means more co-location on tower assets over time. So again, that brings certainly me back to the fundamental piece to look at for tower companies is the growth in mobile data consumption. That drives everything in this industry. We are here with our towers and our infrastructure, which is well positioned to support the wireless carriers as they continue to invest in the network and increase coverage capacity and quality, particularly at a time when 5G applications are just coming to the handsets and AI is beginning to also make its way onto the handsets, which could be, again, that next leg of demand drivers for the long term in the tower space.

You mentioned just real quick by way of follow-up before I hit the next set of topics. But -- so you get paid by -- for those DISH leases over time. So what sort of initial lease term are we looking at, 5 years, 10 years, longer?

We don't disclose specific terms. I think we have talked about it being a long-term lease with certain revenue step-ups. So they today represent about 2% of our global revenue. They represent about 4% of our U.S. revenues and the contract is a long-term contract, more than a decade.

SpaceX purchase -- SpaceX purchase of spectrum, even a more recent announcement and thoughts on impacts to the tower industry.

Yes. We -- I mean, we view the satellites as very complementary to the tower industry as well as the terrestrial wireless network. So I think it's an important element of providing that coverage to rural places in a very efficient way. That's really what it is being designed to provide not only in the U.S. but around the globe. So it is ideal for efficiently and cost effectively extending the wireless coverage into rural places, even hard to build places, so that you can extend that wireless network. It is not meant to or is likely not to be a contributor -- significant contributor to mobile coverage in denser areas. Areas, urban centers, even suburban areas, travel corridors on highways, the amount of bandwidth that is used there and the amount of subscribers is just not conducive to being materially impacted by satellites. Satellites is meant to based on their capacity constraints in their increased latency, the slower speeds of the satellite network, it's really ideal for when you get out into the very rural areas to extend that coverage. So we don't see it as a competitor to wireless networks, terrestrial networks. And we don't see it having an impact on the tower space other than it may reduce the need for expanding the tower networks out into the real rural areas. As the government looks to extend wireless coverage into some hard to cover areas, it may not have to be covered by towers or terrestrial networks. So satellites will do a good job picking that up, and it would be complementary, not a negative to our business over the long term. And we have an investment in AST Mobile. So we're deep into the satellite space. And we -- so we have a lot of knowledge, a lot of experience with them. We think it's a great technology, but very complementary.

Last couple of tower questions, and then maybe we'll hit on data centers. But a lot of folks are kind of thinking for 2026, 5% organic growth given what's happening with U.S. Cellular, which we won't ask you to answer directly, but everything we just talked about, LatAm, AT&T Mexico, how much pressure should we be thinking about mid-single-digit growth over the medium term?

Yes, it's a great question. And as you would probably expect, I don't want to get into too much specifics when it comes to 2026. We will do that in February of '26 when we lay out our guidance. With that said, we expect to hit around 4.3% this year. That still has 3 quarters of Sprint churn coming off of the billing roll. So it's impacted by over 100 basis points just from that Sprint churn. That Sprint churn is nonrecurring when you get into 2026. So we do see this year as an inflection point where organic tenant billings growth is very likely to go up from next year. Even if nothing else changes, just the absence of that Sprint churn. And again, we do see the demand backdrop as being very robust. With that said, we do have a few challenges around the globe. I think you mentioned, Jonathan, the Mexico issue. That is an issue that could have an impact on our numbers. It really shouldn't have an impact on our numbers but it may, and you may ask other questions, and we can talk about that a little bit more. It's much too early for me to say that it will or won't have an impact in 2026.

And then turning to Europe. You talked about developed markets. Any kind of highlights to point out around your particular geographic exposure within Europe. And then how you see the growth prospects between organic growth around maybe some of the 5G build-outs versus inorganic growth opportunities?

Yes. Europe is an interesting market to us. We did a transaction a few years ago. We bought the tower assets from Telefonica. That was a great transaction. We have a great partnership with Telefonica as well as the other carriers in Europe. We are centered in France, Germany and Spain. I mean we're driving mid-single-digit growth rates there on organic revenue, and we should be able to do a little bit better than that when you drop that down to EBITDA and AFFO. So it's a solid mid-single-digit environment, high-quality economies, robust economies, high-quality counterparties. And we were driving slightly higher than mid-single digit growth for the last couple of years. So we're well ahead of our investment thesis that we originally put forward in making that acquisition, and the market looks very constructive. Now with that said, it is a small contributor to AFFO and AFFO per share for us in and around the mid-single digits. The market there and our assets in particular, we like a lot. And we think we have the scale to compete well in that footprint and in that market. If we find compelling opportunities to inorganically invest and expand things, ,we will, but only if we see a direct line to value creation limited or risks that are -- that we are able to effectively mitigate. If we don't, we won't expand in Europe. We don't feel a need to just get bigger in Europe for the sake of getting bigger in Europe. And today, it is a small contributor to our AFFO per share growth, although it's performing very well, well ahead of our business case.

You mentioned you like what you see in terms of mobile data growth. So there's mobile data growth and there's growth on terrestrial towers, which would include FWA. I assume you're excluding FWA when you're talking about mobile data growth?

Not necessarily. I mean, in our world, the data growth is the data growth. And when I say grow -- mobile data consumption, it's the data that is going through the wireless networks and fixed mobile -- fixed wireless going through those tower. It's just data going through the pipe. We don't certainly -- in our position as a tower company, we don't see exactly the end case of what that data is doing, and whether it's fixed wireless or if it's truly mobile. We just see that it goes through our antennas, it goes through the radios that are on our towers, and it goes -- it's propagated from our tower locations.

You have a technology team just north of Boston. And what are they kind of thinking and seeing as they look at your customers' behavior and also end users? Is it FWA? Or is it AI applications, which are the two? Or is there a third or fourth category that you would get excited about over the medium term around traffic growth?

Yes. I would say from a -- exactly what the carriers are deploying their equipment to do, we don't have insight to that. We see the equipment that they're putting up. What we get excited about is the consistent growth in mobile data consumption. The fact that more of the handsets out there are converting and being upgraded to 5G handsets. And the 5G applications that will hit those mobile devices has really yet to be seen in a material way. That is continuing to be developed, and it will come. AI, I think, is a very exciting development and one that will also drive growth and activity on the mobile networks and towers will be a critical aspect of helping the carriers keep up with that demand. So that is certainly critical. Fixed wireless access over the mobile devices, I think that's really exciting. I mean we are seeing a convergence of the networks. You see a lot of the carriers investing in fiber. They're continuing to divest in their mobile networks. They're putting that together. And I really do think the industry is focused on delivering bandwidth and looking for the most effective way to do that. And it will be a combination of wireless assets, wireless networks now and for a long time into the future, and also fiber networks will pick up some of that. You'll see more competition between wireless carriers and landline carriers competing for those broadband subscribers that are fixed and not mobile. I think that's an exciting development for everyone, in particular, for the tower company. So the backdrop, the demand drivers, I think, is just really exciting for this industry. This is a long-term industry, and the investments are long-term investments. That's how we view it. And the long-term outlook for towers and tower companies, I think, is really strong when you think about these demand drivers. And again, I would just highlight the AI is beginning to make its way to mobile devices, and that will continue. We think that our data center assets, high-quality, differentiated interconnection facilities with cloud on-ramps will play a role in the convergence of these networks and potentially tie into towers and create a digital edge or a data center edge, where you have cloud on-ramps, compute power, content cashing, much closer to the end user, much closer to the base radios. We have the cloud on-ramps, the interconnection. We have the towers with the relationship with the wireless carriers, relationship with cloud players as well as landline networking companies, and that all comes to us from a combination of core site to data center assets and our wireless towers that we have in the relationships there. Bringing those together would be another step in that network conversions. And we think we have the right assets in the right places to play a big role in that.

So last question, we'll go a little bit over, but data centers, the product du jour seems to be triple-digit megawatt or gigawatt plus commitments. That's not where you play. So if you look at your peer group, you've got one company in their sub-1 megawatt category is seeing a lot of success with enterprise, one of the bigger peers just recently lowered their financial guidance. You're putting up 13% year-on-year growth in Q2. So how do you see your segment of the data center space which is different than where a lot of the capital seems to be flowing -- performing around organic demand drivers? And what's kind of your strategy going forward?

Yes. When it comes to CoreSite, we're being very disciplined, and we are -- each and every day, we reflect on or remember why we bought CoreSite and the value proposition we think that it brings to our customers as well as our investors, which is the unique nature or the differentiated nature of these assets being well distributed across the U.S. and having cloud ramps, multiple cloud ramps in each campus location, some of the highest quality enterprise customers within these facilities, hundreds of network companies within these facilities, and we're seeing interconnection being -- between 15% to 20% of our revenues, and that is growing double digits every year. So the interconnection nature of these facilities is also critical. That type of an ecosystem is what we see over time naturally migrating out closer to the end users in the wireless network, in the landline network even to the enterprise customers. We believe that they will want those cloud on-ramp access points closer to the way they do the compute, whether it's enterprise landline or wireless. So that's why we bought the business. That business is performing exceptionally well. The demand is strong. And the result of that is we've had a couple of years of record-setting new business. We also are in a position where there is such strong demand that we have pricing leverage, and we're using that leverage. The access to power is critical. We are in locations and we have long-standing relationships with the local utilities where we're getting the power that we need. Not just now, we're planning power of 2 years out, 4 years, 6 years, 10 years out. We're making financial contributions to build substations to ensure the power is there for us. So that is critical when customers come into these facilities to know that not only can we provide what they need today, but they can build a business within our ecosystem that will be able to support them 5, 6, 8 years down the line. That is critical. That does give us pricing power. It does give us the ability to attract the best enterprises into these facilities to keep that ecosystem strong. So we're seeing double-digit economic growth. We're seeing very good returns on our investments over time and we expect that to continue. Double-digit growth in our core site business is achievable over the next several years based on the pipeline that we have, the backlog that we have, the facilities that we're bringing online today, we see a clear path to that. When we bought CoreSite, we underwrote that transaction between 6% and 8% economic growth. We're well above that and we have been consistently. So again, the fundamentals there, it has been a very good transaction for us and it's performing well. The wildcard, the upside is extending out the edge and connecting it with towers could be a really nice addition, not only to CoreSite but to towers. We don't want to get distracted from that mission. We're not pursuing hyperscale facilities at much lower return on invested capital. We're not building large single-tenant high megawatt facilities. That would be, in our view, not the right path for us, even though the opportunity is there, I wouldn't criticize anyone that's doing it. It would just take us off of our mission. We think we have a very unique mission and a very clear focus on these high-quality data centers that we have, continuing to expand that platform, which we have been doing. You'll continue to see us do that through investments expanding the facilities we have within the geographic regions, maybe expanding into one or two other regions slowly, cautiously in a disciplined way. That's a much different expansion process than jumping into the hyperscale business.

That's a great overview. Appreciate your taking the time.

Thank you.