Yahoo Finance American Tower Corporation (NYSE:AMT) Q4 2023 Earnings Call Transcript
American Tower Corporation (NYSE:AMT) Q4 2023 Earnings Call Transcript February 27, 2024
American Tower Corporation misses on earnings expectations. Reported EPS is $0.18 EPS, expectations were $2.18. American Tower Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the American Tower Fourth Quarter and Full Year 2023 Earnings Conference Call. As a reminder, today’s conference is being recorded. Following the prepared remarks, we will open the call for questions. [Operator Instructions] I would now like to turn the call over to your host, Adam Smith, Senior Vice President of Investor Relations. Please go ahead, sir.
Adam Smith: Good morning. And thank you for joining American Tower's fourth quarter and full year 2023 earnings conference call. We have posted a presentation, which we will refer to throughout our prepared remarks under the Investor Relations tab of our website, www.americantower.com. I'm joined on the call today by Steve Vondran, our President and CEO; and Rod Smith, our Executive Vice President, CFO and Treasurer. Following our prepared remarks, we will open up the call for your questions. Before we begin, I'll remind you that our comments will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include our expectations regarding future growth, including our 2024 outlook, capital allocation and future operating performance.
Our expectations for the closing of the sale of our India business and the expected impacts of such sale on our business, our collections expectations in India and any other statements regarding matters that are not historical facts. You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in this morning's earnings press release, those that will be set forth in our upcoming Form 10-K for the year ended December 31, 2023, and in other filings we make with the SEC. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call to reflect subsequent events or circumstances.
With that, I'll turn the call over to Steve.
Steven Vondran: Thanks, Adam, and thanks to everyone for joining the call today. I'd like to start by saying it's an honor and a privilege to step into the role of CEO at American Tower. I want to thank Tom Bartlett for his leadership over the last 15 years of the company and congratulate him on an exceptional career. I certainly recognize I have big shoes to fill and to all of our stakeholders, I look forward to continuing to build on the tremendous success we've achieved together to date. In recent weeks, I've been telling many of our employees, customers and investors that I'm more excited today by the opportunity ahead that I've been in my 20 plus years with the company. There are two key reasons for that. First, we're still in the early stages of a mobility and computing-driven technology wave that suggests distributed digital infrastructure is going to be a higher demand for the foreseeable future.
Second, we spent the last two decades developing a leading global portfolio with real estate, power and interconnection platforms that will serve as the core backbone of this wave. I believe we're now positioned to harvest the benefits of the scaled, differentiated tower and data center platforms we've built to provide unique value for our customers and best-in-class growth, profitability and returns for our investors. To deliver on that opportunity, we're going to be zeroing in on a few key areas in 2024 and beyond. To begin, we're committed to operating the highest quality portfolio. This means owning and investing in assets in the most attractive geographies where secular demand trends signal the potential for long-term sustained growth.
Equally, it is important, it means securing business with market leaders, maintaining contract structures that maximize organic growth and minimize downside risks, as well as attracting and securing accretive development opportunities afforded by our in-market scale and leading operational capabilities. We saw the clear benefits of these factors play out in 2023. In our [indiscernible] U.S. and Canada Tower business, the 5G investment cycle and contributions from our comprehensive MLAs drove a record of roughly $230 million in colocation and amendment growth. International performance was also driven by record organic new business growth contribution and further supported by critical CPI-linked escalator terms and growth from our build-to-suit and power as a service programs.
Furthermore, our differentiated CoreSite interconnection business saw second consecutive year of record signed new business. Going forward, we're going to continue our focus on maximizing organic growth across our existing assets and complement that incremental revenue generation through select development opportunities. At the same time, we'll continue to actively assess and challenge our prior capital allocation decisions to ensure the opportunity we see ahead across our global footprint is still supportive of our original underwriting thesis and apply what we've learned over the last two decades to our deployment plans going forward. Ultimately, we're focused on operating a portfolio that provides the proper mix of risk exposure and can deliver high quality, sustained top line growth supported by an operating structure that drives outsized rates of conversion to profitability and commands a premium in the market.
That's a good segue into the next area of focus, which is delivering the most efficient global operating model centered around cost discipline, margin expansion and increasing returns on invested capital. Our global regional scale and long operating track record present an opportunity to further improve on the operating leverage inherent in the neutral host infrastructure model. We're accelerating initiatives in our regional operations to bring down direct cost per site, we're also investing in experimentation and implementation of AI applications and other technologies that create a more cost and time-efficient equipment deployment cycle bring greater precision and lower cost to our maintenance operations and improved yields on renewable energy generation, just to name a few examples.
What it cost our overhead costs, as you'll see in our 2024 guidance, we're targeting a reduction in SG&A, which combined with healthy top line growth is supporting an 80 basis point reduction in cash SG&A as a percentage of property revenue and approximately 200 basis point expansion in cash adjusted EBITDA margin since 2022. Continued improvement to our cost structure and driving profitability is going to be a cornerstone in our both algorithm going forward. Next, and as we've highlighted on past calls, we're working today to further reinforce our balance sheet as a strategic asset. Our investment grade credit rating is at the core of our strategy, and that's not going to change. In fact, I believe market access and cost of capital advantages may be of even more strategic importance in this cycle than they were over the last decade.
As Rob will elaborate on further, we made substantial progress towards strengthening the balance sheet in 2023. And as we look to 2024 and beyond, our capital allocation program is going to prioritize resiliency and flexibility in this evolving economic environment. Together with other strategic initiatives like reducing our overall capital intensity of executing on cost savings across the business, we'll hold the dividend relatively flat in 2024, subject to board approval. In turn, we'll prioritize a reduction to our gross debt balance and accelerate the pathway to achieving our net leverage target and enhance financial flexibility. As we've highlighted in the past, while M&A is not a priority today, as a company, we want to be in a position of strength when and if strategically relevant portfolios that meet our investment criteria do come to the market.
In our internal CapEx program, we'll continue investing to expand our existing tower and data center platforms by selecting the opportunities with the highest risk-adjusted rates of return. At American Tower, we've developed a unique ability to allocate capital between our U.S. and international tower businesses as well as our U.S. based CoreSite platform. We see this as a distinct competitive advantage. While we continue to view the tower business as the best model out there, the flexibility we're building into our CapEx program and the robust cash flow assets generate allow us to be nimble and responsive to market conditions as we make capital allocation decisions over time, which in the near term means growing our exposure to developed markets.
In our outlook for 2024, a larger share of our development capital is going toward the U.S. and Europe including expanding within our CoreSite footprint, where the same demand trends that have resulted in two consecutive years of record new leasing are expected to drive stabilized returns in the mid-teens for ongoing development projects. We're balancing out the expectation to build around 3,000 new tower sites, primarily in our international markets. This does represent a decline in volumes compared to 2022 and 2023, particularly as we assess certain risks in our emerging market footprint, including the FX volatility we've seen recently in Africa. However, I want to reiterate that we continue to see partnering with market leaders to grow our tower portfolio globally as a key component of our long-term growth algorithm.
Simply put, the changes in the global macroeconomic environment we've seen over the last 24 months and our balance sheet priorities, have raised the bar when it comes to required returns. And you're seeing discipline and flexibility reflected in the capital allocation expectations that we're rolling out for 2024. Finally, and foundational to our strategy are the people throughout the global business. Everything I've talked about today hinge is of the dedication and performance of our teams across the globe and the impact we can make for our customers, investors and the communities we serve. I've been so impressed by the teams I've met with and heard from over recent weeks, and we're going to continue strengthening our organization around the world and focus on developing, attracting and rewarding the best talent in the industry.
In closing, I want to reiterate my comments from the outset. I believe there's tremendous opportunity ahead for American Tower. Evolving technology trends continue to drive demand for more ubiquitous, dense, low latency distributed networks. Against those trends, we're going to leverage our leading tower and data center platforms, balance sheet strength, capital allocation discipline and the dedicated teams that are supporting our global business to present a truly differentiated value proposition and compelling growth and return opportunities for shareholders. With that, I'll hand the call over to Rod to discuss our 2023 results and 2024 outlook.
Rod Smith: Thanks, Steve. Good morning, and thank you for joining today's call. Before I dive into our 2023 financial results and our expectations for 2024, I will highlight a few key achievements from the past year. First, we closed a successful 2023 with a strong fourth quarter, exceeding our prior outlook midpoints across property revenue, adjusted EBITDA and attributable AFFO per share with full year 2023 results comfortably beating our initial guidance from a year ago. For the year, performance was anchored by continued demand for our diverse global asset portfolio resulting in over 6% consolidated organic tenant billings growth, an acceleration of over 300 basis points as compared to 2022. With our U.S. & Canada and International segments each delivering record colocation and amendment growth of roughly $230 million in nearly $150 million, respectively.
Additionally, we marked another record year of signed new business for CoreSite, supporting digital transformation across diverse workloads in emerging technologies, including more recently, AI use cases. Furthermore, our focus on cost management, combined with the inherent operating leverage in the tower model and certain one-time benefits resulted in attractive year-over-year cash adjusted EBITDA margin expansion, which I'll touch on in a moment. Second, we continue to strengthen our balance sheet through organic deleveraging and the successful issuance of approximately $7 billion in fixed rate debt. As a result of our 2023 actions, we've extended our average maturity and reduced our exposure to floating rate debt to less than 11% of the total debt stack, down from over 22% at the start of the year.
Closing the fourth quarter with net leverage of 5.2 times, we are on track to meet the upper end of our 3 times to 5 times net leverage goal by the end of 2024. Finally, we concluded the strategic review of our India business earlier this year, reaching a definitive agreement to sell 100% of ATC India to Brookfield, which we will refer to as the India sale. We believe this transaction together with the Mexico fiber and Poland divestitures in 2023 enhances our global portfolio mix and risk profile and positions American Tower for sustained high quality earnings growth over the long term. Now let's discuss the details of our full year 2023 results. Turning to Slide 6. Full year consolidated property revenue growth was over 5% and nearly 7% on an FX neutral basis, tenant billings growth was 7.2% with organic tenant billings growth of 6.3%, complemented by the construction of nearly 3,200 new builds, primarily in our international markets.
In the United States & Canada, property revenue growth was over 4%, with organic tenant billings growth of 5.3% or 6.6% excluding Sprint churn. Our international property revenue grew by over 5%, including organic tenant billings growth of 7.7%, with each segment meeting or exceeding our prior outlook. Additionally, in the fourth quarter, we were able to reverse approximately $38 million of prior revenue reserves associated with customer collections in India, contributing to outperformance versus our prior outlook, closing the year with a net revenue reserve associated with customer collections in India of approximately $28 million. Finally, our data center segment contributed approximately $835 million to our total property revenue in 2023, representing year-over-year growth of nearly 9%, and as I mentioned earlier, delivering another record year of signed new business.
Moving on. Adjusted EBITDA grew nearly 7% or around 7.5% on an FX neutral basis to over $7 billion. On a consolidated basis, cash adjusted EBITDA margins improved approximately 170 basis points year-over-year to 62.3%, primarily driven by strong organic growth and certain one-time benefits combined with a keen focus on cost management throughout the business, with cash, SG&A as a percent of total property revenue down over 30 basis points year-over-year to approximately 7%. Moving to the right side of the slide, attributable AFFO and attributable AFFO per share grew by over 2% and 1%, respectively. Growth on a per share basis absorbed negative impacts of approximately 7% in financing costs and another 1% from FX. Now before I discuss the details of our outlook for 2024, I will start by summarizing a few key highlights and assumptions.
First, and as Steve mentioned, we are committed to owning and operating the highest quality portfolio supported by a strong balance sheet. With that commitment in mind, we are focused on continuing to drive compelling organic growth across our diverse portfolio of assets, while maximizing the conversion of top line growth to profitability by taking costs out of the business. Together with reducing our aggregate capital intensity for the second year in a row and maintaining a relatively flat dividend payout in 2024 as compared to 2023, subject to Board approval, we believe these collective actions will maximize recurring cash flow growth, further strengthen our balance sheet, and as a result, accelerate our pathway to financial flexibility and optionality.
We'll get into more detail shortly. Next, we are assuming a full year contribution of the India business in our outlook, representing over $1.16 billion in property revenue, $360 million of adjusted EBITDA and $285 million for unlevered AFFO attributable to AMT common stockholders. Upon closing of the India sale, which we anticipate occurring during the second half of 2024, subject to customary conditions and regulatory approval. We will then revise our outlook assumptions to incorporate the transaction. For added transparency, we have included Slide 20 in this earnings presentation, which shows the India contributions to our outlook by quarter, assuming a potential closing on October 1, 2024, for your reference, we would anticipate a reduction of $295 million and $95 million to our presented outlook midpoints for property revenue and adjusted EBITDA, respectively.
Furthermore, we would estimate an approximately $0.09 reduction to attributable AFFO per share, which assumes anticipated proceeds at closing are used to pay down existing indebtedness. Also within the India segment, we have included approximately $65 million in incremental revenue reserves for the full year, translating to a reduction of $0.14 to attributable AFFO per share. Although, we are encouraged by the positive collection results realized in the second half of 2023, we believe it's prudent to take a conservative view at this point in time. Additionally, we've assumed the forward rate curve to support our 2024 interest rate assumptions, including the cost of our floating rate debt and assumptions for refinancing our 2024 senior note maturities.
Lastly, on the FX side, our outlook reflects estimated negative translational impacts of $191 million on property revenue, $132 million for adjusted EBITDA and $82 million for attributable AFFO as compared to 2023. With that, let's dive into the numbers. Moving to the details on Slide 7. At the midpoint of our outlook, we expect total property revenue of over $11.1 billion, representing an increase year-over-year of greater than 1% and 3% on an FX neutral basis. Our guide includes cash revenue growth of around $200 million in the U.S. and Canada segment and $225 million of FX neutral growth in our international regions, excluding pass-through. We also expect data centers to contribute roughly $80 million of growth in cash revenue in 2024, demonstrating nearly 10% growth year-over-year, excluding the impacts of straight line.
Property revenue also includes an approximately $203 million stepdown in non-cash straight line revenue or approximately 2% headwind to growth partially offset by approximately $28 million increase in pass-through. Lastly, as I mentioned in my earlier remarks, we anticipate an FX headwind of nearly 2% or $191 million to consolidated property revenue growth. Turning to Slide 8. We expect another solid year of organic growth contributions from our U.S. & Canada and International segments. In the U.S. & Canada, we anticipate organic tenant billings growth of approximately 4.7% or 6%, excluding Sprint churn. This expectation includes another healthy year of colocation and amendment growth contributions of $180 million to $190 million, reflecting the expected step down from our record level achievement in 2023 though still approximately 20% higher than our 2016 to 2022 average.
Internationally, starting with Africa, we expect a strong momentum from 2023 to continue with expected organic tenant billings growth of 11% to 12%. This includes colocation and amendment contributions of approximately 7%, along with escalator growth of 8% to 9%, partially offset by churn of around 4%, which would represent a notable year-over-year improvement after incurring the largest impacts from carrier consolidation in 2023. Turning to Europe. 2024 organic tenant billings growth is expected to be 5% to 6%. On the colocation and amendment front, we anticipate growth of 3% to 4%, an acceleration as compared to 2023, while growth from escalators stand at roughly 3%, consistent with 2023, churn is expected to remain low at around 1%. In Latin America, consistent with our previous messaging, we expect organic tenant billings growth to stepdown as compared to 2023 to approximately 2% for the year, as churn will remain elevated at around 5%, primarily due to Oi (ph) in Brazil.
Churn is offset by relatively consistent colocation and amendment activity of approximately 3% and contributions from escalators of approximately 4%. Finally, in Asia Pacific, we are guiding to approximately 2% organic tenant billings growth in 2024, including colocation and amendment growth of approximately 3.5%, roughly 2.5% from escalators and churn of around 4%. Moving on to Slide 9. At the midpoint of our outlook, we expect adjusted EBITDA growth of less than 1% and approximately 2.5% on an FX neutral basis, while absorbing a negative impact of over 3% associated with net straight line. Complementing the strong revenue growth trends I mentioned earlier, we're planning to reduce cash SG&A by approximately $30 million as compared to 2023, contributing to cash adjusted EBITDA margin expansion of around 30 basis points.
Additionally, our outlook includes an expectation for approximately $17 million in year-over-year gross margin growth from our U.S. services business with the quarterly cadence, suggesting a ramp-up in carrier activity in the second half of the year. Turning to Slide 10. We expect attributable AFFO per share to grow approximately 5% year-over-year to $10.33 and approximately 6.5% on an FX neutral basis. Growth in cash adjusted EBITDA and a reduction in maintenance CapEx is partially offset by an increase in financing costs and cash taxes, together with higher minority interest adjustments due to growth in our European and data center JVs. Moving on to Slide 11. I'll review our capital plans for 2024 and our balance sheet priorities for the upcoming year.
In 2024, we will continue to focus on organic growth, quality of earnings and operational efficiency, while prioritizing balance sheet strength, reducing risk and channel and discretionary spending into capital projects that support sustainable earnings growth and yield the most attractive risk adjusted returns. Consistent with the messaging, on our third quarter 2023 earnings call, the 2024 plan assumes maintaining an annual common dividend distribution of approximately $3 billion, representing a modest increase on an annual per share basis to $6.48 per share. We also expect to evenly distribute the dividend across each quarter of the year, which would suggest a one-time sequential stepdown from our fourth quarter 2023 declared dividend of $1.70 to $1.62 in the first quarter of 2024, all subject to Board approval.
In addition, we expect to deploy around $1.6 billion in CapEx, of which 90% will be discretionary. As Steve highlighted in his remarks, we view the flexibility of our CapEx deployments with options across a range of geographies and assets to be a distinct competitive advantage for American Tower and our ability to drive sustained attractive returns for our shareholders. In 2024, this means increasing our CapEx allocation and exposure towards our developed markets. This includes increasing development spend for existing CoreSite data center campuses to $450 million as we seek to replenish the record capacity sold in 2022 and 2023, and maintain appropriate levels of sellable capacity, while continuing to drive attractive targeted stabilized yields in the mid-teens.
The balance of the development CapEx spend will support another year of solid new build volumes internationally, which assumes the construction of 3,000 sites at the midpoint. Moving to the right side of the slide, and as I mentioned earlier, we made significant progress towards strengthening our balance sheet in 2023 through recurring business growth, augmented with cost discipline and combined with the strategic management of our capital allocation plans, we anticipate meeting the upper end of our 3 times to 5 times net leverage range by year-end. Our steadfast commitment to maintaining investment grade credit rating and enhancing our balance sheet strength and financial flexibility remains unchanged. Turning to Slide 12 and in summary, our global business continued to demonstrate solid core growth and resiliency in 2023, augmented by strategic initiatives aimed at enhancing our quality of earnings, driving operational efficiency and strengthening our already strong balance sheet.
We believe successful execution of these initiatives provides a strong foundation for 2024 and enhances our position as a leader in the global communications infrastructure industry. Looking ahead, we are well positioned to capitalize on opportunities, adapt to challenges and deliver compelling risk-adjusted returns to our shareholders for years to come. With that, operator, we can open up the line for questions.
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