American Tower Corporation (AMT) Earnings Call Transcript & Summary

Great. Good afternoon, everybody. Welcome to the American Tower fireside chat at the Goldman Sachs Communacopia Technology Conference. My name is Mike Ng, and I cover AMT and telecom services and infrastructure here at the firm. And I have the privilege of introducing Steve Vondran, who's the President and CEO of American Tower. First and foremost, thank you so much for being here this afternoon, Steve. It's an absolute pleasure to have you. .

Yes. Thanks for inviting us.

Great. So to kick things off, I was just wondering, if you could talk about some of the strategic priorities that you're focused on. Last quarter, during earnings, American Tower raised its full year outlook for the second time this year. You've also talked about long-term outlook for wireless infrastructure just being exceptionally strong. So what's working well and what are some of the key things that you're most focused on?

Sure. Thanks, Michael, [indiscernible] because for the first time in a long time, we're seeing 4 different catalysts for building [indiscernible] the business. And so when I look out over the kind of short, mid and long term. There are a lot more demand catalysts coming in than we've seen in a while that excites me a lot. So our goal is to position ourselves to best capture that demand that's coming and to deliver industry-leading AFFO per share growth. And so the strategic priorities that we've outlined for 2026, first and foremost, to focus on organic growth in the portfolio, making sure that we're capturing the growth that we're seeing from that first catalyst, which is densification from 5G and being there for our carrier customers as they're augmenting their networks today. The second strategic priority is really focused around expanding our margins. We've been very successful over the past few years expanding margins. It's a key priority for us always, cost control. And we've expanded margins by about 300 basis points over the last few years, and we've committed to doing another 200 to 300 over the next few years. So operating an efficient organization that still supports that care activity to capture as much of that business that we can is the second priority. And the third is capital allocation, making sure that we're using the cash flow that comes in that we generate in our business in a way that creates the most long-term shareholder value. And that's whether we're investing in new assets or whether we're buying back shares or delevering any of those options out there, making sure that we're making the right decisions at the right time.

And as we think about some of the catalysts that you've highlighted, 5G densification, 6G. I was wondering if you could just help us size or thinking about the near-term opportunity for those things and what that eventual transition to 6G means from the long-term leasing outlook?

Sure. When we look at these 4 catalysts is self-reinforcing, the first is densification, and it's something that we always expected to happen as part of 5G, if you think about how carriers deploy their networks, the first phase of a build is a coverage build that's largely a bidet driven. And then after that, you start focusing on capacity. So you still get some amendments there, but the carriers start looking at different ways to add capacity to their networks. And they'll add some capacity through technology improvements, some through spectrum additions but a lot of it comes through densification. And so we're already seeing that. We've seen a shift in the mix of our new business, a little bit less on the amendment side, more on the colocation side, but all underpinning a steady level of investment by the carriers. So the first catalyst is happening now, and we expect that to continue to accelerate over time. The second catalyst is a little bit further out, 6G, but just around the corner. And so if you look at kind of the standards bodies, they're expected to come out with standards in 2029, which means commercial deployments probably happened '30, '31 somewhere in that area. But you'll probably see some activity before that. You'll see some proof-of-concept, some early-stage network similar to what we did in 5G. Then the third, which will happen kind of throughout this whole process is spectrum availability. We've seen some spectrum auction this year. We're going to see some more next year. And the big beautiful bill is earmarked 800 megahertz spectrum to come to market over the next several years. And that's great for towers. Historically speaking, more spectrum equals more equipment, and we expect that to happen again with the new spectrum that's coming out. that will come over time, and there's a cadence of which that spectrum is going to become available, but that should be a catalyst for a number of years. And then AI is something that kind of is another catalyst that, we don't know exactly when that's going to hit. We know that it's a small piece of network traffic today, but we also know there's an asymmetric pattern with AI that's different than the normal usage, there's more uplink required. And we think that as that grows, that's going to put more stress on the network and require more investment. So when we look at all the 4 others together, you've got near-term, medium-term and long-term drivers that we see creating a great path of growth for us from now going forward.

Great. If I could double click or dive into the catalyst around spectrum availability. AT&T closed its acquisition of the 600 megahertz of spectrum from DISH back in August and Verizon was a very significant bidder in the [ AWS-3D ] auction this past June. So are you seeing any uptick in carrier activity from those spectrum deals yet? Or would you expect to at this point?

Well, I will leave it to them to talk about their particular cadence. But what I would say is it takes a little bit of time when you buy spectrum for you to get the planning by the equipment and deploy it. And so it doesn't happen the day after necessary that we start seeing the limit activity, but you do see network planning starting to happen. . And if you're spending billions of dollars to buy spectrum, you're going to want to deploy that as soon as you can. So I would expect for all of our carriers to be aggressively laying out their plans, ordering equipment. I would expect to see that activity coming pretty quickly after the spectrum is cleared.

Great. And then on the 800 megahertz that's mandated for auction by 2034, including the 160 megahertz of upper C-band next year. How would you frame the opportunity here? Like how should investors think about that as a potential catalyst? Yes.

Well, again, historically speaking, more spectrum equals more equipment, and we'd expect that to be the same going forward. And so we believe it's a big positive for us. And that's just assuming that the incumbent carriers buy it. If someone else buys it and you had another network deployed, that would be a whole different catalyst. We're not -- that's not in any of our numbers. That would be upside from where we are today, but that's always a possibility. But that 800 megahertz is critically needed by our carriers to meet mobile traffic demand. If you think about mobile data growth, it's growing double digit or better. Every year, network capacity needs to double by the end of the decade. Carriers will get some of that through technology upgrades. The rest is going to come from spectrum and site densification. So we think the 800 megahertz is a big opportunity for us, and it will clear over time. It will all be available day 1, I expect that to happen as a cadence similar to prior swaps spectrum where carriers buy it. You've got to clear it. They'll focus on pockets where they needed the most, spend more money to do that sooner, and some of them will come available over time.

Great. And since you mentioned the potential for someone other than the 3 major players becoming more aggressive in terms of spectrum, maybe we can talk about satellite and StarLink, is it a positive? Or is it a negative for towers? Just how would you frame it for everybody?

We've been getting this question a lot for the past several months. And I'm going to say it again, there's nothing negative for towers in the satellite business. We bought a position in AST in the early days to get a board seat so that we would have a ringside seat to this as it develops. Satellites are a fantastic complement to the existing terrestrial networks, they can provide ubiquity of coverage, where you don't have it today that can enable new use cases, new revenue streams for our customers. It's a net positive for the industry. It's not a threat to towers, satellites, are not going to replace towers as the primary method by which people are getting their coverage. And there's been a lot of notes written about it. So I won't go on too much of a rant about this. But I will just say from a technology perspective and a spectrum perspective, the only places that it's going to meet the need is ultra rule. And I have very few towers there today, if any. And if I have towers there, they're not going to be our most productive because you're not going to have multiple carriers on them. So from our perspective, satellites are good for the industry. They're good for towers, and they provide a lot more upside than they do any potential downside.

Great. It's very clear. Going back to how you opened the session on the key priorities and you talked about margin expansion. I was just wondering if you could expand a little bit and talk about what underpins those margin goals? And if you could just walk through some of the key drivers of the operational efficiencies that you can achieve?

Sure. We've always been cost conscious. And when your margins are as high as ours are, it's always tough to get that extra juice when you squeeze it. But we've got kind of 4 pillars that we've laid out. The first is managing our land costs across the globe. And we've got some very successful programs in the U.S. that we've done that with for a couple of decades and by globalizing that program and being more aggressive there, we think land expense is 1 piece of it. The second is globalizing our operations and taking advantage of a global supply chain, and so we think that we can get better deals just by concentrating our spend in a little bit different way than we have in the past. The third is it's a little hard to explain, we call our standard of care. And it's essentially the way we operate our sites in the U.S., you provide a consistent standard of care for them, but we're also doing preventative maintenance. -- so that it costs less to operate over time. So we can actually reduce R&M by doing a better job maintaining sites today and not letting things get too bad for that cost more to fix. As we roll that out globally, we'll get some savings there. And then finally, we'll continue to focus on SG&A control across the globe using this global organization that we're focused on. And that's not counting AI, by the way. We actually think that AI could be a further catalyst for more savings. It's early days on that. And so not ready to put a stake in the ground for what it can produce, and got to make sure our token costs are too high, just like everybody else is working on, but we look forward to sharing what we think we can do on that as well.

Super interesting. Yes, I'm looking forward to hearing about what you guys are doing internally with AI over time? Just on organic tenant billings growth. This year, American Tower is obviously seeing some onetime headwinds from DISH churn and organic growth should accelerate from here on out. Could you talk a little bit about your outlook for global and U.S. organic tenant billings growth?

You want me to give you '27 guidance today?

If you would like.

Nice try. Look, it's too early to talk about 2027. We'll give guidance in February on that. But what I would say is if you look at our organic data billings growth in 2026, any normalized out for DISH, it's about 4.5%. And within that 4.5%, the new business from leasing, from new leasing for new excess and amendments is about 2.5%. If you look back at 2025, the contribution from new leases and amendments was about 2.5%. And that's kind of a normal investing environment. And so that's been a pretty steady state for the next couple of years. So if you believe next year is going to be a normal leasing environment. That's not a bad reference point. Now we're not ready to guide yet because we need to see what the carriers are going to do. And we have 2 carriers under comprehensive agreements, but not everything is covered in that. Some of the new leasing is outside of that. And we have 1 that's not on the conference if agreement. So when we look at 2027, we've got some variability in there based on how quickly they decide to act. And so we'll be more comfortable getting that in February once we have a better idea, but when we focus on the long-term growth algorithm, what we expect to see over time, we've given multiyear guidance in the past, they consider a normal leasing environment. And it's been kind of right in that mid-single-digit range, and that's what our long-term growth algorithm calls for. So over time, we've given you guys the guidance year-to-year, depending on when people start and stop and things like that, it can have a little bit of variability. So we'll give you guys that in February, but nice try.

I have to try. It's my job. If we could maybe talk a little bit about the international footprint. We're starting to see some carrier consolidation in Europe, the reports that Vodafone Spain will move sites onto your portfolio beginning in 2028 on the other hand. Would you talk a little bit about your European portfolio how do you feel its position relative to some of the potential consolidation?

Sure. We were very patient before we decided in Europe. We sat on the sidelines because a lot of the deals that we saw didn't have the right types of conditions or didn't have the right counterparties and things like that. And so when we did enter, it was with Telefonica as a partner. So we feel very good about our position because we're partnered with 1 of the strongest carriers there. So we don't expect either consolidation to affect our anchor tenant, and we don't have a lot of exposure on the churn side to some of the folks that may or may not be in there. On the contrary, it's an opportunity for us. And when you look at some of the consolidation that's happened you had weaker carriers who are not investing in their networks as much. They've consolidated to a stronger carrier and they are investing now. And so we're actually seeing the opportunity to increase our sales into these new carriers because they're not big tenants on the portfolio because it's anchored really by the top -- 1 of the top quality carriers there and people want to replicate that coverage. So we feel very good about the current portfolio there. Now Europe in general, we tend to generalize it as a continent. It's really each individual countries it's an investment case. And so when we think about Europe as a business, we feel very good about the 3 countries that we're in. It's -- there are other countries that would be attractive. If we found the right terms and conditions in the portfolios, but we really haven't found that opportunity yet.

Great. And if I could ask about the international portfolio as a whole. You divested the Philippines and the Bangladesh assets. And that's allowed a sharper focus on some of your developed markets. Maybe you can just talk about the strategy around the, call it, the pruning or the rearchitecture of the international portfolio and what opportunities are in some of the emerging markets.

Sure. So just to kind of reiterate the strategy that we laid out a couple of years ago when I took over as CEO, is to decrease our exposure to emerging markets over time. And it's not because we don't believe in those markets. They're good growth drivers. They can perform very well for us. There's just a little bit more volatility there, and we think that we have a little bit too much exposure in our portfolio. So just like you guys would rebalance your portfolio we want to rebalance ours to have less exposure over time. Some of the pruning is related to that. But really, it's about making sure that we're generating the best return -- risk-adjusted returns that we can with the best growth prospects. So in markets where we're subscale, if we think that we can create more value by selling it, we will. But 1 of the things that we've also done over the past 2 years is to scope the portfolio a little bit differently as part of our globalization efforts, we're running them more out of regional hubs or through our international organizations, and getting all those markets to be more sustainable and free cash flow positive. So there is no impetus to sell them. We don't have to sell them. And that lets us be more targeted and sell them when it creates more value. And otherwise, we'll just hold them and harvest the cash flow. So not going to telegraph any more divestitures. But if it creates more value to sell it, we will. Otherwise, we'll hold it in harvest.