American Tower Corporation (AMT) Earnings Call Transcript & Summary

Thank you very much. Good afternoon. My name is Greg Williams. I cover cable, wireless and comm infra here at TD Cowen. I'm joined in this session by Rich Rossi, the Executive Vice President and President of the U.S. Tower Division of American Tower. Richard, thanks for joining us.

Thanks for having me.

Before we start about talking with the U.S. carrier activity, et cetera, the elephant in the room from earlier last week was about SpaceX and they said more specifically we can sort of figure out a network topology using femtocells, putting them around homes and their dishes or putting them even in Tesla cars. I just wanted to maybe vet that a little bit with your opinion on what that would mean? Would that disenfranchise any towers and just your general thoughts on that? I know there's a lot of more questions and there are answers to that.

Sure. I mean I think that when you look at build-outs in the U.S. macro sites have always been the backbone and we think that they're going to remain in the backbone. So while there may be other types of infrastructure that are used help get networks into targeted locations, urban areas or really fixed sites. Macro sites will always be that backbone. So there may be ambitions or plans to do something that pivots in a different direction. But at the end of the day, it comes down to deployment time, cost, efficiency, and that's when you're going to come back to companies like ours. So we think ultimately there's a large network deployment in the U.S. that we're going to play a big part of that and ready to do it.

Absolutely. And just transitioning over to the U.S. carriers. How would you describe the current activity environment across the big 3? And as part of that, are you seeing any sense of acceleration or deceleration in your application activity?

Yes. I mean we're still right in the thick of things with 5G, and I would describe it as consistent. If you were to look at '25 versus '26. Our new business growth was about 2.5%. That component of our algorithm. We're seeing that again in '26. And so while you do have a couple of carriers who are working their way towards the end of their mid-band deployment. We are seeing densification pick up, so it takes a different mix of activity, but you're largely seeing the same output as it pertains to our growth. So I think it's consistent and it's sort of where we thought we're going to be at this phase of 5G, moving out of that initial paint the map coverage phase and more into how you solve for capacity. And obviously, the capacity demand continues to increase dramatically year-over-year mobile networks. And depending on what you look at, I mean there are predictions that will double by the end of the decade, maybe sooner. So we're seeing the carriers aggressively respond to that type of demand.

Got it. So some of the carriers are moving from coverage to capacity, so I imagine then the way it looks from your revenue perspective, it shifts from amendments to colocation then. And is that on a carrier-carrier basis or market by market? Is that sort of broad? How would you describe the mix shift?

It's a little bit carrier to carrier because they're all in different phases of their journey in terms of how they're going to get 5G rolled out. And what you see is the amendments still drive a lot of the activity just based on sheer volume of amendments compared to how many new locations you see. But you start to see an increasing share of new colocations and that really is the best indicator for densification given that a lot of those co-locations occur in markets where you have mature networks that have been rolled out for years. So you know it's a capacity play versus just a straight coverage need.

Got it. So maybe you've seen a little more colo on like the NFL cities first. Is that...

You're going to see capacity addressed from the urban areas moving out. So you may see different types of infrastructure, rooftops, building facades, small cells in the urban areas, and you get to our sweet spot, which would be suburban and moving out from there. And that's where the macro tower is really play the big role.

Got it. And maybe talk about organic growth, I think you grew 1% in the second quarter year-over-year, but 5% if you exclude the dish churn. With new business, I think it was contributing 250 bps if I recall. And to what extent do these colocation trends hold? I guess the question there is how long is the legs for the densification or the capacity upgrades? How long does that last, the organic growth?

So I'd say, overall, we have our organic growth algorithm that we look at, which is you've got a 3% escalator you've got your new business that's somewhere between 2% and 3%, and you've got your churn that pulls that back by about 1% to 2%. And we think that, that's going to hold true over the long term. So we think that it is a durable growth vehicle.

Is it 3 plus 3 minus 1 is 5.

Well, it has proven out that way so far over 5G, if you take out the onetime events, consolidation, things like that. And obviously, there's a range on that, right? So it can go down, it could go up a little bit there. But I think densification, as you look at the new spectrum that's coming to market over the next decade, a lot of that is going to be at higher bands. So by its own nature, as you deploy higher bands of spectrum, you need more dense networks for that to mesh correctly. And then as you have that -- in parallel, you have that increasing mobile data consumption model, things like AI coming along, you're going to see more and more data consumed, more of a capacity crunch and then architecting networks to address the way that the frequencies are going to propagate from those higher bands.

Higher bands, more towers.

Yes. So to answer your question, we see there to be a really long, sustained period for densification from 5G into 6G, and you're going to see that new spectrum at least.

Got it. I want to talk about service revenue guidance. You held it at $245 million for the full year. But you noted a step down in the back half. And a lot of times, we look at service revenue as leading indicators for leasing. So is there a read-through here that's still valid? Or is there a mix of the service work that's changing?

Yes. Well, so I think the tough part is 2025 was our best services year ever.

Tough comp.

Yes, exactly. Tough competition and '26 is going to be a great year. We think it's going to probably be our third largest. So a really healthy business, but compared to last year, it just may not match the peak of what we saw. We've worked hard over the last 5 years or so to really diversify that U.S. services business and our bread and butter was always the ADP, the acquisition is owning and permitting for our customers. And now we've introduced more construction work which higher revenue, a bit lower margin. So it's kind of a mix and profile, but we've also developed a product that we refer to as end-to-end, which picks up the customers' needs at the scoping. So kind of around the time they're applying for sites and goes all the way through construction. And that program management has been an offering that's very well received, especially given that some of the carriers have scaled back their resources in market working on deployments. So we're able to help fill that gap, and nobody is going to perform better on our sites than we are in terms of getting people out there quickly. So yes, we're feeling good about services, happy with where our attachment rates are with the major carriers and still very healthy.

I want to talk about MLAs. As we start to look towards 2027, are there any comprehensive MLAs scheduled to sort of roll off through the balance of the year through 2027 that you can sort of help us with? And how does American typically approach the conversation around the next holistic agreements?

Yes, always talking to our customers, right? When the ink is dried on an arrangement, you're talking about what's the next opportunity, how can you upsize, what was agreed to, how can you figure out how to keep continuity when something comes up for expiration? So those discussions are always ongoing. It isn't necessarily a sign of what's to expire, but more so what can we help to do to extend out having a good healthy relationship with that customer. So always ongoing there. We're somewhat agnostic as to whether we do a holistic agreement or whether we do something that's more paid by the drink. At the end of the day, we think the bottom line result in terms of the growth numbers will be somewhat the same. It may be -- it may translate into the financials over a different period of time. That's one of the nice things about the holistic agreement on the tower owner side is the predictability of it that you can forecast out very clearly. But ultimately, those arrangements really are about the value creation for the customer and how much efficiency you can give them when it comes time for them to deploy. So you have to have the demand for the customer who needs to have those economies of scale and the speed to market on deployment. And then for us, it just has to be a match on what we think the addressable market is with that particular build or over a longer-term multiple builds and you kind of see where it goes from there.

Yes. And all times, I think of MLAs, it's like sort of when an up-cycle is ready to happen, so it would be have a good carrier to do -- sign an MLA. What would be those up cycles? Is it safe to say that maybe it's like auction 115, but that's -- there's some FAA restrictions there, so it's going to be a little bit pushed out. Would that be an accelerant or a catalyst for an MLA or even -- can you talk to the 2.7 gigahertz spectrum? Are those the factors you think that will create or drive maybe enough swing for internal MLA?

There are different factors, right? They are going to be the frequency auctions and when the carriers deploy capital to acquire the spectrum rights, they're looking to do it and aggressively roll it out. Nobody wants to sort of spend at those levels and then sit on their powder, so to speak. So I think that, that can be a catalyst if they're going to go out and touch a number of sites, but also the natural evolution into 6G is going to be another thing that may help drive some of that. And when you have multiple of those factors happening that tends to be when there a lot of demand forecasted. And yes, those absolutely are catalysts, right? When someone shows up at a car dealership, they're usually there to buy a car, right? So I think when someone comes in and says, "Hey, I've got a lot of activity that I'm looking at," it means it's probably a good opportunity to maybe talk about getting something done.

Right, right. I wanted to talk about churn a little bit because you guys noted in the second quarter you absorbed what's characterized, I think, says the final wave of churn from a former anchor tenant and none was expected next year. So I don't expect you to give any gains or anything in the ongoing process. But having that headwind behind you, does that change the way you think about your growth algorithm?

For us, it really just clarifies for folks who are falling along with our results and trying to predict our growth. We thought it was important to derisk the business and just make it really easy for people to follow along with what's happening. So canceling the dish business and taking that out of our numbers was the way we could be most transparent to make it simple. I kind of gave you the walk on the algorithm, and we think that, that outside of those onetime events, that is going to be our long-term outlook on things. So for us, it just makes it easy for people looking at 2026. We've talked about numbers with dish, without dish. So it helps for people to understand the magnitude of what we're taking out, but also be able to track what those numbers look like compared to, say, 2025 or prior years.

Got it. What typically happens when a tenant is winding down their network in terms of -- I guess, it's not a typical situation, but when a typical situation, how long do they leave the equipment up there. I will stop there, and then I have a follow-up.

Yes. Sure. So I mean there's usually a kind of contractual protocol for it. You work that out as you're leasing somebody space, what happens to the equipment at the end. Generally, your customer will come in and take the equipment down as a surrender type arrangement there. As you've seen consolidation of networks over the last 20 years, there have been some commercial arrangements where the acquiring parties says, "Hey, I don't want to take down this old network, why don't we work something out where we pay you, you keep it, you progressively take it down over time." So sometimes it's removed. Sometimes there's a negotiation for it to not be removed. And then there are other cases where maybe a bankruptcy court is helping to decide what happens with the equipment that's out there.

Right, right. And I guess you're harking back to Sprint too and there was some decommissioning as well. Just thinking out loud, I mean, do you believe that there's infrastructure up there, could that be a shortcut for a new entrant to enter the market if you buy what's up there already or early on second base, if you will?

Yes. Yes. I mean there are [ summer ] restraint or constraints in the sense of you need to have antennas, radios that align with whatever the frequencies are that the newer entrant would be using, so the gear may or may not work in that sense. But when you look at long lead time items for network deployment, you have local permitting, you have power procurement. There are some parts of the country where the power companies aren't able to quickly get meters put out there, get you connected into an existing meter. You may have issues with the ground lessor, where you have to get approvals to get another customer in there or acquire some...

Control the ground lease or...

Sometimes they have consent just to add a new customer. So you go to ad selling your tower and the ground lease that was negotiated 25 years ago, says, "Hey, anytime you go to add a customer, I need to know and I need to sign off on it." So some of those things can take a long time. And so if someone were to come in and look to take equipment that's already up on the site, you've got a poured concrete pad, you have cabinets, you have tower mounts like there's there is infrastructure that can be reused irrespective of the spectrum. And then those other items, things like building permits, you might be able to transfer the permit or it may be quicker for the local jurisdiction to approve the permit because they've already approved the like type construction project for that prior customer who's exiting. So there are definitely some synergies that exist. And we've seen it with Sprint and others where people went in and acquired shelters or used mounts up on their RAD centers.

Got it. Has the way you looked at counterparty risk change the way you structure contracts, any lessons learned there with recent events?

Yes. I mean we've always been extremely disciplined when it comes to how we underwrite contracts. What I will say is the scenario we're talking about isn't about an inability to pay, right? It's an unprecedented situation. [indiscernible] Yes, exactly right. And I think as an industry we've had to work hard as Patrick's sitting out there, right? There's been a lot of work done to try to rectify that. But even though we have three customers that drive a large part of our business, we have several thousand other customers out there that we do business with every month. And so there is a discipline when it comes to how we underwrite, how we collect and we have all the landlord-tenant interactions you'd expect with a portfolio of our size and our ability to keep our churn at a very low rate, I think, speaks to the discipline we've had around that.

I wanted to bring it back to SpaceX. I know we started with the whole femtocell thoughts because I just had to get it out there. But SpaceX acquired 65 megahertz of nationwide spectrum from EchoStar, flexible use. I appreciate it's early days and a lot of more questions than answers by far. But do you see SpaceX ultimately coming in maybe as a fourth carrier, how do you see this all sort of play out?