American Tower Corp (AMT) — Q3 2022 Earnings Call Transcript

Good morning and thank you for joining American Tower's third quarter 2022 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. On this morning's call, Tom Bartlett, our President and CEO, will discuss current technology trends and how we are positioned to benefit from the continued wireless technology evolution. And then Rod Smith, our Executive Vice President, CFO and Treasurer, will discuss our Q3 2022 results and revised full year outlook. After these comments, 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 2022 outlook, capital allocation and future operating performance; our collections expectations associated with Vodafone Idea in India; the Stonepeak transaction and the expected value and future investment activities of our US data center business; our expectations regarding the impacts of COVID-19 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 set forth in our Form 10-K for the year ended December 31, 2021, as updated in our upcoming Form 10-Q for the nine months ended September 30, 2022, 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 Tom.

Thanks, Adam. Good morning, everyone. As is typical for our third quarter call, my comments today will center on the key technology trends we're seeing across the wireless landscape and how our distributed tower portfolio is positioned to benefit from next-generation network deployment and generate sustained resilient growth, despite ongoing macroeconomic volatility. Additionally, I'll provide an update on the CoreSite portfolio of assets, our latest view on the evolution of mobile life and the progress we are making in advancing our edge strategy, which aims to leverage our distributed tower and land assets, in combination with our interconnected data center portfolio to drive incremental value as network technology evolves. Since the start of 2019, 5G spectrum auctions, mainly in the mid band, have collectively driven over $155 billion in purchase price proceeds across our served market. These acquisitions of large swaths of new spectrum have kicked off what we believe will be at least a decade-long period of network investments, aimed at delivering on the promises of 5G's faster and lower latency applications. We anticipate this will result in $5 billion of incremental annual customer CapEx spend in the United States, on average, as compared to the levels we saw throughout the 4G cycle. Additionally, in the US, the visibility we gained through the comprehensive MLAs we put in place with AT&T, T-Mobile, DISH and most recently, Verizon, supports our expectation that these investments will drive a near-term acceleration in organic new business growth and a sustained level of elevated tower activity over a multi-year period. As we saw during the rollout of 4G, we expect this investment cycle to play out in two broad phases. The first being a coverage phase, through which carriers prioritize upgrading their existing footprint to maximize the percentage of the population having 5G access and begin to benefit from the cost efficiencies associated with their network technology upgrades. Over the last year, we've seen carriers leveraging our presence in nationwide scale to efficiently and aggressively upgrade equipment on our sites, both here in the United States and in several markets across our international footprint to meet those 5G build-out objectives. In the second phase, as consumers adopt advanced 5G-enabled mobile devices and applications, carriers will invest in additional capacity through network densification to facilitate increased mobile data consumption and optimized customer experience. We saw this second phase play out after 4G was launched in the United States around 2010. By coupling the provision of higher bandwidth speed and improved network capabilities with the proliferation of advanced smart connected devices with improved user interfaces, 4G unleashed innovative applications, such as video streaming, mobile gaming, as well as industry redefining applications, which is mobile-enabled ride sharing and transportation. The introduction of these new data-intensive applications contributed to an annual consumption growth rate of nearly 50% from 2013 to 2018, requiring carriers to meaningfully invest in the densification of their network. Similarly, we expect our customers' 5G network anticipating delivery times of 5 to 10 times lower latency and increased download speeds up to 100 times to further unlock new capabilities, facilitate consumer and enterprise innovations, enable use cases that will necessitate further proliferation of connected devices and drive higher network throughput. Consider emerging augmented and virtual reality technology as an example, video streaming excluded, primarily because of the advancements achieved through 4G, driving extended destination investment in order to provide users with adequate network quality. Currently, video streaming bandwidth requirements range from a few megabits per second to about 8 megabits per second for HD and up to 25 megabits per second for 4K, depending upon the resolution, eventually working to 50 and closer to 100 megabits per second for 8K videos. Depending on compression schemes and the device requirements, looking ahead to the theoretical max specs for potential future applications of mixed reality, we would expect multiple gigabits per second. Again, that is gigabits with a G. Compared to 4G, 5G will offer enhanced resolution, rapid refresh rates, real-time raw midstream with low latency and provides 3 times more bits per hertz spectrum efficiency in the 5G mid band. Even when factoring in all these benefits, we believe rapid mobile data consumption growth, along with the shorter propagation characteristics of mid band spectrum will necessitate a massive 5G densification phase of network investment, greater than what we realized in 4G. As a result, we expect this future capacity as to support sustained growth in our tower business. At the same time, we expect the applications driving these densification efforts to present new neutral host infrastructure opportunities, aimed at minimizing latency and reducing traffic burdens on middle mile network. This is a good segue into a discussion about our CoreSite data center activity and the progress we're making in advancing our edge strategy to support these networks of the future. While the tower business certainly remains healthy and staggered deployment of network generation rollouts across our geographically diverse footprint provide a solid runway for growth over the next decade, we remain focused on identifying new opportunities for value creation through the platform expansion pillar of our stand and deliver strategy. A key element of this pillar is identifying new opportunities that leverage our portfolio of communication assets and our capabilities in managing and redeveloping distributed real estate to provide new multi-tenant neutral host infrastructure model that support the demands of next-generation networks and applications. As we previously communicated, the most apparent opportunity of scale that we see over the next decade is out of the mobile edge, which ultimately solidified our decision to acquire CoreSite at the end of 2021. We still believe this acquisition further positions us to take advantage of the emerging digital transformation enabled by 5G. Having now owned CoreSite for more than three quarters, we couldn't be happier with the performance we're seeing across the business and the use cases driving leasing activity, which we expect to serve as growth catalysts well into the future. Importantly, we're extremely encouraged by the consistently positive customer feedback on this acquisition. Customers continue to view CoreSite as a strong operator in hybrid IT solutions provider with a high-quality ecosystem, which under the American Tower umbrella can now provide more predictable scalability and future incremental value through our combined platform capabilities and expertise. So far in 2022, CoreSite has achieved solid new business volumes, a reflection of the strong demand for the company's interconnection and cloud on-ramp rich ecosystem, where over 80% of revenues are derived by customers with a variety of interconnections to at least five different and independent customers. This strong demand demonstrates the differentiated value proposition and resiliency of these strategically located and well-integrated assets. We are pleased to see strong new business volumes from enterprises, prioritizing digital transformation to the implementation of hybrid IT solutions, leading the migrations from on-premises data centers to co-location data centers in major metros. We are also encouraged to see accelerating demand from leading digital platforms, seeking to extend compute functionality closer to their users to enable automation, collaboration and address latency-sensitive applications and early indicators supporting our edge evolution thesis. Critical to CoreSite's interconnection-rich ecosystem value proposition is its open cloud exchange platform or OCX. OCX provides CoreSite customers with quick scalability and represents an essential element as we seek to expand the ecosystem to more distributed points of presence at the edge development. Today, through this automated Layer 2 Ethernet software-defined networking platform, we connect our customer communities within and between our US data centers, and we connect cloud providers to CoreSite's nationwide portfolio. We continue to invest in improving the platform's features and building out the functionality and reach to enable high-performance, hybrid architectures more quickly and securely and at a lower total cost of operation than alternative solutions. More recently, we launched Layer 3 enhanced network services, including virtual routing, cloud connect tiering to service providers and cloud-to-cloud connectivity to leading cloud providers. These enhanced functionalities simplify an enterprise's network hardware or management resources at a lower total cost of ownership. Through continued innovation over time, CoreSite’s vision is to provide customers with single port access to their entire digital supply chain, which we will also expect to be leveraged and extended as the distributed interconnected edge ecosystem develops over time. While the distinctive characteristics of CoreSite's portfolio, including its enhanced capabilities accorded to its OCX platform, represent the critical attribute in advancing our edge strategy, we also see tremendous value in CoreSite's development pipeline. CoreSite continues to execute on opportunities to redeploy their cash flow towards high-yielding development projects. Customers require additional scale across our footprint. And consequently, over 20% of our data center development under construction is now pre-leased. We also recently announced the acquisition of a purpose-built data center in Southern Florida, MI2, which will be connected to our existing Miami facility, expanding and strengthening our Southeastern footprint, where we have also integrated our legacy data centers in Atlanta and Orlando into the CoreSite ecosystem. As we look further out, we expect workloads to become even more distributed and localized. Therefore, we see the importance of an interconnection hub like CoreSite increasing as customers look to future-proof their digital businesses with secure, flexible and scalable solutions, enabling agile interoperability as businesses shift to more customized hybrid multi-cloud IT environments and, importantly, require an extended edge computing presence to support evolving low latency applications. In turn, the mobile edge is emerging as a critical area in the convergence of wireless and wireline networks. Over the past year, these 5G deployments in the US have continued at a rapid pace; we've seen elevated emphasis from select wireless carriers with respect to their edge compute strategies and forging a partnership with cloud and enterprise technology platforms to better prepare for the network demands of the future. We see all of this as incremental data points in support of our vision for forthcoming demand of VA. In our view, much like the adoption of the shared tower model, this digital ecosystem over time will be most efficiently provisioned through a distributed neutral host, multi-tenant interconnected edge infrastructure model, reducing the capital intensity and total cost of ownership among MNOs, cloud, landline, and enterprise players and critically, facilitating a seamless universal customer experience for end users. Our tower portfolio, coupled with our US data center business, represents a distributed portfolio of real estate with access to robustly interconnected core networks and native access to cloud on ramp. We believe the combination of these platforms will be critical as data processing extends from the core to the edge. With that migration, more distributed and localized points of presence, along with transit costs and low latency considerations, will become essential over time, providing American Tower and CoreSite, the potential to win across multiple edge layers. To date, our team has identified over 1,000 sites within our existing US tower portfolio that we see as shovel-ready candidates for mobile edge deployment based on location, parcel footprint, land control, and existing fiber and power access. Over the next several months, we plan to break ground on our first 1 megawatt edge facility and an owned tower site to build upon our understanding of market demand and customer requirements, design a blueprint that can be rolled out at scale as the edge ecosystem develops, and demonstrate the differentiated value proposition that American Tower and CoreSite can offer potential customers. As always, any future development will go through our disciplined approach to evaluating the market opportunity and economic returns of edge deployments at scale, as well as an evaluation of the best way to finance future deployment, which could potentially include strategic partnerships, financial sponsors, or both. In short, the strategic partnerships emerging between the MNOs and cloud service providers, the evolution of latency-driven edge leasing activity within our CoreSite portfolio, and our interactions with the architects of the low latency networks of the future have only strengthened our conviction. The edge will represent a meaningful opportunity to drive incremental value to our assets over the long term. Although this architecture will take time to develop, American Tower is positioning itself as a critical future provider and partner for cloud, MNO, and enterprise customers as wireless and wireline network convergence accelerates over time. In the meantime, we'll seek opportunities to advance our learnings, including through the development of an edge application integrator and our participation in various trials in the edge industry form. We are proactively taking the necessary steps to understand emerging trends, network requirements, and customer needs, all aimed at strengthening our option to win at the edge over the long term. In closing, demand for wireless connectivity continues to grow across the globe, where despite the dynamic challenges we've all navigated over the past several years, the need for reliable wireless and broadband access has been elevated in importance as a means to advance global economies and the populations they serve. With carriers aggressively deploying their valuable spectrum assets, we will begin to realize the true capabilities of 5G. And with that, we expect to see new innovations that will change the way we live for the next decade and beyond. Our effort to build scale across our global footprint of macro tower assets over the past two decades, combined with our continuous focus on platform expansion and innovation, has positioned American Tower to support our customers in meeting the continued acceleration in mobile data demand while leading the way in the development of new infrastructure models that will be essential in meeting the needs of applications of the future and drive incremental value on our assets over time. With that, let me turn the call over to Rod to go through our third quarter results and updated full year 2022 costs.

Thanks, Tom. Good morning, and thank you to everyone for joining today's call. As you heard from Tom, we are very encouraged by the technological trends that we believe will drive continued secular growth in the industry and a long runway of growth for American Tower. Before I walk through the details of our Q3 results and revised outlook, I will first touch on several key trends and developments from the quarter, including the evident strength of leasing demand across our footprint and renewed collections volatility in India. First, we continue to see 4G and 5G investments driving strong demand across our footprint, which translated into solid gross leasing growth in the quarter, and we expect this trend to continue and further accelerate, particularly in the US as we approach 2023. We complemented sequential growth in organic leasing with nearly 1,600 newly constructed sites internationally earning on average low double-digit returns on day one, driven by those same trends. Additionally, demand for hybrid IT solutions optimally suited for our US data center portfolio remains healthy. This resulted in another strong quarter of leasing results, fueled by digital platforms and the continuation of enterprises moving their IT infrastructure from on-premises to interconnection-rich co-location facilities with direct cloud access, such as CoreSite. Next, we closed on Stonepeak's initial $2.5 billion investment in our US data center business in August, which was upsized by another $570 million after quarter-end at the same valuation and terms. This further highlights the differentiated characteristics and value of the CoreSite portfolio while establishing a partnership through which we will execute our US data center strategy. Also, we signed a new comprehensive MLA with Verizon at the end of August, which is expected to allow Verizon to efficiently accelerate their 5G network deployment over a multiyear period. This agreement is yet another data point illustrating the fundamental long-term criticality of our portfolio as our customers seek to leverage our scale and capabilities to rapidly deploy nationwide 5G and further provides tangible evidence that our US business should have a solid runway of growth over the next several years. Additionally, we executed a new multi-market MLA with Airtel Africa, our largest customer in the region. Under this new long-term agreement, we've secured attractive terms across our existing Nigeria, Kenya, Uganda, and Niger portfolio, along with a contractually committed attractive build-to-suit pipeline to support Airtel Africa's 5G deployment, among other opportunities. Importantly, with Airtel Africa, we share a focus on advancing wireless connectivity in a sustainable manner, which is represented in this agreement through a commitment to deploy low-carbon sites and expand our digital communities program. Our agreements with both Verizon and Airtel Africa, two of our largest customers, is the latest demonstration of the value our global scale and operational capabilities as a company, both in markets and across borders, can unlock to provide mutually beneficial solutions for American Tower and our partners. With that, I'd like to take a moment to address some uncertainty related to collections arising out of our India operations and how this event has affected our results for Q3 and revised outlook for 2022. In Q3, collections from Vodafone Idea or VIL fell short of our billings. And the customer has also communicated an expectation for that trend to continue through the balance of this year. As a result, we found it prudent to take certain reserves associated with VIL in Q3 and against the anticipated Q4 billing shortfall in our revised guidance. Consequently, our full year expectations now include approximately $95 million in additional revenue reserves, about half of which was booked in Q3. It also includes the removal of a $30 million bad debt reversal that was assumed in our prior guidance. Together, these results in a reduction in adjusted EBITDA and attributable AFFO of $125 million. At this time, our revised outlook for net income does not assume any additional impairment charges associated with the goodwill and intangibles that we currently have on the books associated with VIL, as the shortfall in cash flows is being viewed as temporary. It should also be noted that VIL did express a commitment to revert back to 100% payment at the start of 2023 and repay outstanding pass-through balances, which could potentially provide an opportunity to reverse certain reserves we've taken in the future. VIL has also laid out a set of strategic steps that we will closely monitor on its path to more stabilized and consistent payments, including the conversion of its AGR interest into equity held by the Indian government. However, until then, we expect continued uncertainty in collections for VIL and have reflected those risks in our revised outlook. In the meantime, we are actively working with VIL on the path forward, which could potentially include converting a portion of its existing AR into optionally convertible notes, which we believe can better secure our receivables. We will incorporate new developments that unfold over the next several months into our guidance for 2023 on this February's call. With that, please turn to Slide 6, and I'll review our Q3 property revenue and organic tenant billings growth. As you can see our Q3 consolidated property revenue of $2.6 billion increased by over 10% and over 14% on an FX-neutral basis compared to the prior year period. Growth was primarily driven by solid organic leasing, execution on our international new build program, and contributions from our US data center business, partially offset by headwinds of approximately 2% associated with revenue reserves taken in India during the quarter, as discussed, and another 2% from Sprint-related churn. Moving to the right side of the slide, you can see we achieved consolidated organic tenant billings growth of 2.6% for the quarter. In the US and Canada, as expected, net organic growth was slightly positive at 0.3%, including a sequential step-up in gross organic new business of $38 million, a meaningful acceleration from $31 million in Q2 in our highest quarter since Q1 of 2020. As we have indicated throughout the year, we expect this acceleration to continue into Q4 and even further in 2023, where a large portion of our growth will be contractually committed through our comprehensive MLAs. Escalators were 2.8%, which, consistent with last quarter, were impacted by certain timing mechanics within our MLAs. Though for the full year, we expect escalators to come in right around 3%, consistent with historical trends. This growth was offset by the impact of Sprint churn, which continues to drive over 4% of negative headwinds year-over-year and will step down in Q4 as the largest tranche of contractual Sprint churn will have lapped in our year-over-year growth metric. On the international side, organic growth was 6.1%. Starting with Europe, we saw growth of 6%, which is now at a more normalized level with healthy largely in the prior year base. In Africa, we generated organic tenant billings growth of 6.8%, modestly higher than prior expectations due to some delays in anticipated churn now pushed to later in the year. Growth also included another strong quarter of gross organic new business standing at 7.5%, putting Africa on track for its best organic new business year on record, and continuing past quarter trends; we saw the strong organic leasing activity complemented with an active new build program, constructing just over 250 sites in the quarter as we see 4G coverage and densification initiatives continue to drive strong top line growth and returns on our capital deployments across the region. Moving to Latin America. Organic growth was 8.2%, which includes approximately 9.7% from escalations. Growth through organic new business and escalations was partially offset by another quarter of elevated churn, primarily associated with certain decommissioning agreements, which we expect to further accelerate in Q4, as highlighted on previous earnings calls. In APAC, we saw organic growth of 1.9%, in line with our expectations, which comes alongside a continuation of solid new build activity with 1,200 sites constructed during the quarter. Turning to slide seven. Our third quarter adjusted EBITDA grew nearly 6%, or over 8.5% on an FX-neutral basis, to over $1.6 billion, with strong revenue growth and cost controls, partially offset by the negative impacts of Vodafone Idea revenue reserves and Sprint-related churn, together representing approximately 6% headwinds to growth. Adjusted EBITDA margin was 61.5%, down 170 basis points year-over-year, driven by the lower margin profile of newly acquired assets, the conversion impacts of Vodafone Idea reserves and Sprint churn, along with higher pass-through revenue resulting from fuel costs. Moving to the right side of the slide, attributable AFFO, and attributable AFFO per share decreased by approximately 3% and 5%, respectively, with each including a 3% headwind associated with FX. Growth was meaningfully impacted by the Vodafone Idea reserves and Sprint-related churn, combining for an over 8% offset to otherwise strong and resilient performance across our global operations. Let's now turn to our revised full year outlook, where I'll start by reviewing a few of the key high-level drivers. First, performance remains solid across our portfolio as demand for wireless connectivity and the rollout of next-generation networks are fueling strong new business volumes across our regions. Together with the straight-line benefit from our recently executed MLAs, along with pass-through increases, primarily related to power and fuel, we're raising our property revenue and adjusted EBITDA guidance for the year. Second, we have revised our FX assumptions using our standard methodology, which has resulted in outlook-to-outlook headwind of $45 million, $22 million, and $13 million for property revenue, adjusted EBITDA, and consolidated AFFO, respectively. Finally, and as noted earlier, we have incorporated approximately $125 million in incremental reserves relative to our prior outlook, associated with Vodafone Idea. This includes $95 million in revenue reserves, split between Q3 and Q4, and the removal of our previous assumption for incremental bad debt reversals of around $30 million. As I mentioned, Vodafone Idea has communicated its intention to resume full recurring payments in 2023. However, at this time, we believe these adjustments to be appropriate for the current year. With that, let's discuss the details of our revised full year expectations. As you can see on slide eight, we are raising our property revenue outlook by $70 million at the midpoint. This outperformance includes a straight-line upside of approximately $65 million, primarily associated with our recently executed Verizon and Airtel Africa MLAs, and $77 million in higher pass-through revenue driven by fuel costs, along with various non-recurring benefits, including accelerated decommissioning-related settlements in Latin America, which we now expect to total approximately $85 million for the full year. Our guidance raise was also supported by a recurring revenue upside across several of our segments, helping to contribute to some modest revisions to our organic tenant billings growth outlook, which I'll touch on shortly. This outperformance was partially offset by the $95 million in incremental revenue reserves related to Vodafone Idea and $45 million in FX. Moving to Slide 9, you will see our organic tenant billings growth expectations. While we are reiterating our prior outlook on a consolidated basis and for the US and Canada as well as APAC segments, we are slightly revising our expectations for International, Europe, Latin America and Africa. For international, we are raising our organic growth to approximately 6.5%, up from approximately 6% previously. In Europe, we have adjusted our organic growth expectations to greater than 8% from approximately 9% in our prior outlook, where we expect new business commencements to shift further into 2023. In Latin America, we are increasing our organic growth expectations to greater than 7%, up modestly from approximately 7% in our prior guidance, reflecting a continuation of the CPI-linked escalation benefits in the region. In Africa, we are increasing our organic growth expectations to greater than 7%, up from approximately 6.5% in our prior guidance, reflecting the delays we're seeing in anticipated churn, as I mentioned earlier. As a reminder, in Latin America and Africa, consistent with prior assumptions, we anticipate consolidation-driven churn events to drive a sequential decline in growth as we exit the year resulting in what we expect to be approximately 4% and 5.5% organic tenant billings growth in Q4, respectively, with some carryover impacts as we head into 2023. Lastly, in the US and Canada, where we are reiterating our prior organic growth outlook, we expect to see Q4 organic tenant billings growth of around 4%, with further improvement in 2023, backstopped by the contractual visibility afforded through our comprehensive MLAs with the big three carriers plus DISH. Moving to Slide 10. We are raising our adjusted EBITDA midpoint by $30 million as compared to our prior outlook, where we're seeing a high conversion of property revenue outperformance delivered through prudent cost controls and continued elevated services volumes, providing meaningful upside compared to our previous expectations. These benefits are partially offset by the $125 million associated with incremental reserves assumed for Vodafone Idea, as previously discussed, along with $22 million in FX. Turning to Slide 11. We are lowering our attributable AFFO guidance by $40 million or $0.09 on a per share basis. This adjustment is attributable to the Vodafone Idea reserves we have taken, which is translating into approximately $0.27 per share of downside, offsetting what was otherwise very strong performance across our business, which represented approximately $0.20 per share outperformance on an FX-neutral basis. Moving to Slide 12. Let's start by taking a look at our capital deployment expectations for the year, which are slightly updated compared to our prior outlook and continue to reflect our focus on driving sustained AFFO per share growth and shareholder returns. Within our capital deployment plan, we are reiterating our expectations to dedicate approximately $2.7 billion, subject to Board approval, towards our 2022 dividend. With regard to CapEx, we are reducing our total midpoint by $45 million, with redevelopment decreasing by $35 million and start-up decreasing by $10 million, the result of some timing adjustments and savings as compared to our prior plan. We continue to assume the construction of approximately 6,500 new sites globally and roughly $300 million towards our US data center business, largely associated with development spend. As we've highlighted in the past, we continue to generate exceptional returns through our discretionary CapEx program, which remains largely financed through the redeployment of locally generated cash flows. We view our ability to allocate nearly $1.8 billion towards accretive high-yield projects as a strategic benefit after years of building scale and credibility with our global customer base in a compelling way to further build scale and drive accretion for years to come. Finally, although we have not incorporated into our revised guide, I'd like to highlight that with the additional capacity we currently have as we outpace our delevering plan, we expect to opportunistically restart our share buyback program. Given recent market performance and the strong fundamentals we anticipate in our business over the long term, we see this as a great opportunity to further drive shareholder value, particularly against other forms of capital deployment in our current line of sight. Moving to the right side of the slide, I'd like to take a moment to review the progress we have made since the start of the year to shore up our balance sheet and liquidity position, particularly in light of the market volatility and unprecedented rise in rates occurring over the past several months. As you recall, we closed the CoreSite acquisition using our bank facilities and term loans, temporarily moving our leverage to 6.8 times and our floating rate exposure to 31% at the end of 2021. Since that time and against the challenging backdrop, we have strategically termed out short-term borrowings through common equity, private capital, and senior unsecured note offerings, all at solid terms and pricing. Today, our leverage stands at 5.5 times ahead of plan, with floating rate exposure of around 20%, in line with our long-term target. Looking ahead, we continue to believe this profile is appropriate given the predictable and contractual nature of our cash flows while providing us exposure to pre-payable debt, which offers us financial flexibility as we execute on our delevering path and access to the typical low-rate short-term curve. In addition, a meaningful portion of our floating rate debt is euro-denominated, which provides us a natural hedge and diversified capital structure, while also offering pre-payable debt at terms more competitive than those currently available in the US. Although we anticipate 2023, as it appears today, will present certain growth challenges stemming from the current rate environment, we feel comfortable with our proven approach to balance sheet management. This includes our ability to manage our upcoming 2023 maturities, where we expect our diversified sources of capital and solid liquidity position to provide near-term financing flexibility, allowing us to opportunistically access the markets against a healthy and constructive backdrop. In short, we believe our investment-grade balance sheet and the long-standing policies we've established position us well to navigate various economic cycles, including the challenges we're all facing today. And although we may see certain growth headwinds in the near term, we believe our investment-grade credit rating and continued access to diversified sources of capital, coupled with our focus on maintaining robust liquidity, will serve as a more meaningful competitive advantage over the next several years. Finally, on slide 13. And in summary, we had a strong Q3 across our global business with solid operating performance, accelerated leasing, and resilient demand even in the face of a challenging economic backdrop. During the quarter, the long-term critical nature of our portfolio of assets in position to drive sustained and compelling growth was further highlighted through key customer agreements with Verizon and Airtel Africa and the closing and subsequent upsizing of our Stonepeak partnership in our US data center business. Although we will likely experience some growth pressure in the near term associated with the continued rise in interest rates, we see our investment-grade balance sheet, liquidity, and diversified sources of capital as a key competitive advantage as we execute on our growth strategy over the next decade and beyond. As we look ahead and over the long term, we are excited about the positioning of our global portfolio of communications assets as our customers augment and extend their networks to meet exploding data-driven demand and believe our global scale and proven capabilities have us positioned to drive incremental sustainable growth and value creation for our shareholders for years to come. With that, I'll turn the call back over to the operator for Q&A.

Thank you. Good morning. Tom, it was good to hear your discussion about the opportunities from 5G and particularly from CapEx capacity additions as well as the favorable comments around near-term and medium-term US leasing trends. Can you square that with the CapEx trajectory at the likes of Verizon and T-Mobile where they're expecting a significant step down? I know it's not a one-for-one relationship. But how do you expect this to evolve? Because I think there's a sense here that there will be some deceleration as we've seen sort of in prior 4G cycle. So what's the offset to those lower CapEx numbers?

Simon, having seen the trends from the carriers for many, many years, I mean, there's always volatility in their overall spend. It will largely be a function of device penetration and application development that will require the further densification that we believe in their deployment as well. So it's not a kind of a one-for-one type of a relationship with our overall growth. And also keep in mind that with our agreements that we have in place, we have these broad comprehensive agreements which really locked in a lot of that revenue growth for us. And so 70%, 80% of our revenue growth, we have tremendous visibility into as a result of those master lease agreements. And I would expect the carriers, as I said, to be investing in their market that demand develops. And I would expect, given the benefits of 5G that each and every one of us are going to be using significantly more levels of spectrum, if you will, over time. So I said it's not a one-for-one. Our MLAs do give us that kind of visibility. And overtime, I would expect higher levels of CapEx being spent on 5G, just as we saw from 4G versus 3G.

Great. Thanks a lot.

Hey, guys. Thanks so much for the question. Two, if I could. The first, Rod just digging into the big moving part in the guidance, the Vodafone Idea relationship. I guess two pieces to that. One is, there's been a lot of press about them versus, say, Bharti, Indus, and maybe trying to renegotiate tower rates to 'soften' the impact on costs? And then, could you kind of talk about what you're willing to give on that front? And then, also, you talked about converting your accounts receivable to notes. I mean, historically, towers have never been impacted by bankruptcies. How is converting accounts receivable to notes a better option than just kind of continuing the way you are as a tower company with your counterparty there? And then I guess the last piece maybe, Tom, on capital allocation, the conversation about buybacks, I'm sure, is welcome, but there's been a lot of conversation over the last two years about AMT's ambitions in Europe and scaling there, and there's obviously some pretty big deals and I think that obviously the cost of capital is a huge issue, your equity where it is as an issue. Could you categorically rule in or rule out what your position on expanding Europe is right now? Thanks.

Hey, David. Good morning.

Yeah, Rod, why don't you start and take the first couple and then I'll take the third.

Good morning, David. Thank you for your question, and I hope you are doing well. Regarding the situation with India and Vodafone, particularly their interest in renegotiating certain agreements, I won't go into specifics about the terms and conditions or discuss future possibilities. However, I can mention that they are facing challenges with their balance sheet, which is well-known and has been widely reported. They are seeking various forms of support from us, which may include discounts that we will discuss with them over time. I prefer not to delve into the exact details of what we might or might not offer. If we consider providing any discounts, it would impact our churn metrics and be reflected in our guidance. I don't foresee any alterations to our organic net billings guidance this year due to negotiations with Vodafone, and any changes for next year will be communicated when they arise. Now, regarding the $200 million, just to clarify, we have the option to convert part of our existing accounts receivable into a convertible note with Vodafone. This is not a new investment but involves receivables already on our balance sheet. We have an agreement that allows this conversion, contingent on certain conditions being met in India, including government actions that many are aware of. If those conditions are fulfilled, we can convert the $200 million into a convertible note. This is beneficial for us as it provides some support to Vodafone by converting accounts receivable into a financial interest, potentially helping them improve their equity and debt situation. Additionally, having this note establishes a defined payment schedule, which offers more certainty compared to typical receivables. We also retain the option to convert it into equity, providing us with another way to convert that balance into cash. This approach enhances our flexibility and increases the likelihood of accessing cash in the near term, which is the primary reason for our interest in pursuing it. Overall, we believe that this supports Vodafone and aligns with our intentions to assist them during this challenging period.

Regarding your question about Europe and the buyback program that Rod mentioned, we're quite satisfied with our Celsius asset base and integration over the past year. The growth rates and our successful relationship with Telefonica have been impressive. We're also in the process of a significant build-to-suit program, with more opportunities anticipated, especially in Germany. Concerning further mergers and acquisitions, we've currently decided to step back due to the disparity between what sellers expect in terms of value and our offers, which is quite significant right now. This situation might change over time, considering the ongoing economic volatility globally. However, at this moment, we are cautious and focused on organic growth, collaborating with our customers in the region. Our build-to-suit program has been an excellent method for us to achieve inorganic growth, offering attractive yields while supporting our customers and enjoying the growth in that capacity.

Perfect. That’s helpful color. Thank you both, Tom and Rod. Thank you.

Thanks, David.

Thanks.

Great. Thanks for taking my questions. I have two. One is how much of the raise in guidance the $142 million in straight line was related to the Verizon MLA, if any? And second, one is just dovetailing off of the M&A discussions, what is your appetite for M&A that's not tower-related? Now that you think about augmentor data centers, we've heard possible Asia data centers are of interest or even US fiber. And I'm just curious of your thoughts. Thanks.

Hey, Rod, why don't you take the first one, and then I'll take the second.

Yes, thanks. Thanks, Greg, for the question. So the straight line increases that you see in our outlook here, we have an increase of straight line of about $65 million built into our property revenue guide. That's really split between the new Verizon deal as well as the deal over in Africa with Airtel Africa. I don't want to break down that in too much detail and give you the piece parts, but it's really those two deals that make up.

And Greg, with regards to M&A on the data center side, as we said all along, we are very focused on developing the US market. I mean, CoreSite's got a terrific presence in the United States. And with our tower portfolio here in the United States, we want to be able to enjoy the benefits of the CoreSite activity, as I highlighted, and as Rod highlighted itself, but also really be able to bring together this overall notion that we have in terms of developing that edge capability that we'll be realizing out the sites themselves, at our tower sites themselves. And so when you're seeing all this, again, noise about buying data centers and things outside of the United States, that's not where we're looking. That's not where our focus is. And if you take a look at the capital that's being spent on the business because we do have a fair amount of development going on within the CoreSite, within the data center activity, it's largely driven just from the cash flow that the business is generating. So the $200 million to $300 million that we're investing back into the data center business in terms of providing more capability going forward, not just in our OCX platform, but also in space itself is just being driven by the $300-plus million of AFFO that the business is generating itself. So the US is our chessboard as we speak, relative to our data center activity.

Great. That’s helpful color. Thank you both.

Thanks Greg.

Great. Thank you. Can you provide a little bit more color on the carrier activity that you're seeing in Europe, given the macro backdrop, I think some carriers are pulling back on CapEx. How do you think this will drive the growth into next year? And another question on AFFO, I know we'll get full guidance next year, but a lot of moving parts going into 2023 with US accelerating, but higher interest costs and FX. Can you provide a general view on your expectations for your AFFO into next year? Thank you.

Yeah. Thanks, Batya. I'll give you a quick update on Europe here. So we are seeing really strong growth in Europe as you've heard us talk about consistently throughout the balance and the activity is really split across the markets and across the carriers. So we're seeing good activity with all the carriers there. I don't want to talk about carrier to carrier, but I will just call out that we are seeing 101 begin to build a new park there. We are beginning to see leasing activity. We certainly expect that to ramp up towards the later part of this year and be a much more meaningful contributor next year. The one thing we'll see, we are pulling back our guide a little bit in Europe, but organic growth there is really just a delay in terms of timing on some certain leases that we have in our pipeline. We're seeing that shift a little bit into later into Q4 and even some of the things later into Q4 shifting into next year. So that's really what you're seeing from that perspective. And remind me, the second part of your question was on the AFFO guide?

Yeah, into 2023 if you have a general guidance that you expect the AFFO per share to grow double digits. How should we think about 2023?

I believe 2023 should be viewed as a challenging year for us. It's well-known that interest rates are rising more quickly than many anticipated as we approach the end of the year, which creates a significant headwind for our AFFO. This will affect our target AFFO growth, and while I won't delve into too many specifics, I think you have enough information to analyze the situation. The increase in interest rates will be a challenge for us. Another hurdle for next year is the timing of our equity raise, as we will have the full new equity of 10 million shares factored into next year’s numbers, complicating our comparisons. Looking ahead to 2024 and beyond, we see strong support for leasing revenue globally, especially in the US. We've mentioned a surge in new business from co-location and amendment activities, which continues to accelerate. We anticipate finishing this year close to $150 million in new US co-location business, with this momentum carrying into next year. Our long-term MLAs provide us with good visibility into next year, and we expect a significant increase in US co-location and amendment revenue. This positions us well for our long-term goal, aiming for an average organic growth of 5% from 2023 to 2027, factoring in some impact that accounts for about 100 basis points, meaning without that, we’d be looking at around 6%. We're on track to achieve this as we move into next year, supported by the strong demand in the US.

Thank you.

Thank you.

Thanks and good morning. Just curious, as you're looking out over the next 12 to 24 months, can you frame just some of the friction points around whether it's market consolidation that you're seeing or some of just structural issues for maybe things that customers are working through? And just how to think about the magnitude and timing of those headwinds, maybe relative to some of the other things that you've noted around the build-to-suit opportunities and the organic improvement in demand?

Michael, let me start with that, Rod. It's a broad question when considering global developments. The primary factor remains technology, particularly the demand for broadband wireless. We've witnessed this through various technology cycles, which is driving significant capital commitment from our customers over the next few years. This creates a solid platform for growth. As Rod highlighted with the numbers, we're seeing this manifest, particularly with the expanding deployment of 5G in more markets. Growth rates have accelerated in the United States, and we anticipate this will continue into 2023. Other regions, especially Europe and Africa, are also experiencing strong growth and activity. Our customers are aligning more closely with us through long-term strategic master lease agreements, such as those with Verizon and Airtel. These contracts involve well-capitalized companies. There are some points of churn in the market, particularly with activity in Latin America linked to consolidation in Brazil and Mexico, which Rod discussed. We expect increased churn in Latin America over the next 12 to 18 months and have observed some consolidation in Africa as well. However, we have successfully navigated this churn while significantly increasing growth in those markets. I don't foresee any major shifts in the next 12 to 18 months. Yes, we are in a rising interest rate environment and facing global inflation. The good news is that we have long-term contracts in high-inflation markets with clauses tied to CPI and local inflation. Additionally, our business is well-diversified, allowing us to offset slow growth in some markets with increased growth in others. This dynamic has been consistent; as carriers invest, they fluctuate between heavy and lighter investments as they optimize their networks. We've observed this pattern across different generations of technology, from 1G to 5G. Our customers will build networks only when they see demand, which relates to device penetration and application development. There's a two-phase approach to network deployment: first, achieving coverage, and then densification and sales splitting as network usage grows. With higher band spectrum, we anticipate even more densification due to the characteristics of those bands. So, in summary, the core issue is the underlying technology and the strong demand from our customers and their markets for increased wireless data usage. This trend offers us solid protection, especially regarding our long-term agreements.

Hey, Michael, this is Rod. I'll just add...

Hopefully, that answers your question.

Yes. And Michael, I'll just add that in terms of churn, you will notice that our churn rates are actually decreasing from Q3 to Q4. Globally, in our 2.6% Q3 organic tenant billings growth, about 5.4% was due to cancellations or churn. This will decrease to about 4% in Q4, which will drive our organic tenant billings growth for Q4 up from the mid-2s to well over 4%, which is really positive. That 4.4 in Q4 contributes to our 3% growth for the full year. In the US, we're also seeing churn decline. The good news is we have moved past the significant portion of Sprint churn, and we expect organic tenant billings growth in the US for Q4 to be around 4%, getting us back to our long-term goals. In the international markets, as Thomas mentioned, there are some temporary churn events due to consolidation in certain countries. From Q3 to Q4, churn is expected to increase by about 100 basis points, rising from just under 5% to the upper 5% in international markets. Specifically, in Latin America, we anticipate a significant increase in churn from about 5% in Q3 to over 8% in Q4. This is part of the normal churn we've discussed and some of it will likely continue into next year, especially in Latin America.

That’s helpful color. Thank you.

You bet. Thanks, Michael.

Thanks. Good morning, everybody.

Hey, Ric. Good morning.

Hey. Hey, I want to follow-up on a couple of questions. One following up on Simon's question about CapEx. If we think about the US. Is part of the reason maybe you guys are so confident that the US leasing goes up in 4Q and then goes up and accelerating to 2023 possibly to do with the timing? Your Verizon MLA, your positioning of when you were getting contracts from DISH and that visibility that you talked about, Tom. Just trying to think, is some of this that it's very visible to you, it's really kind of more timing related?

Yes, I completely agree. As I mentioned to Simon, the MLA structure we have in place makes the capital spending somewhat irrelevant from our perspective because we already have the rates and pricing secured for a long-term period. However, I do believe that the capital will be spent over time, and timing could be a factor as well. It all depends on customer demand, application development, and device penetration. Once those factors are secured, our customers will have to invest in their networks to avoid any decline in service quality. They will need to meet this demand and maintain their competitive edge, as they have traditionally done. But from our perspective, timing is not particularly relevant due to the framework of the agreements we have established.

Right. And if you're not seeing any air pocket out there that's been some of the concern in the marketplace because of high interest rates or because of inflation, maybe turns into recession at least on the US side and the carrier spend with you, it sounds?

No, we haven't. We have not.

Okay. And last question for me is a follow-up on some of David's questions. The stock buyback, what would trigger that? What else has to happen to trigger the stock buyback? That obviously will require some funding that could affect back on the interest rate side. And second question with that is, was your $570 million upsizing from Stonepeak kind of expected in the guidance also?

Well, I mean, from our standpoint, and then I'll let kind of Rod step in here. We continue to look at the opportunities to delever as well as to look at supporting our equity. And given the movements candidly in the equity, I think that there's some opportunities there to be able to generate some value. And so it will be a balance between the two. We talked about M&A and M&A kind of given the delta between the bid may ask kind of around the world. I think that's less focus, candidly, at this point in time. And so we'll look at our NAV and we'll look at it versus our share price. And well, as we always have, look at the kind of the most attractive ways of being able to drive AFFO per share.

Yes, Ric. From a leverage perspective, we finished the quarter with a leverage ratio of 5.5 times following the CoreSite acquisition, down from a peak of 6.8. I want to remind everyone that we started above our target leverage range of 3 to 5 times. We have been collaborating with the rating agencies to improve our leverage, as maintaining our investment-grade credit rating is crucial for us. We've taken leverage very seriously, which is why we've managed to reduce it so quickly from 6.8 to 5.5. Importantly, our current leverage of 5.5 is comfortably beneath the deleveraging plan we established with the rating agency, putting us in a good position. The plans we agreed upon did not include the $570 million, which gives us additional capacity to either delever further ahead of the plan or utilize the funds differently. When considering the $570 million from Stonepeak, it's included in our guidance and benefits our deleveraging efforts. As we decide how to utilize this capacity or our other available capital, we will weigh share buybacks against our internally generated net asset value and assess the share value. We are also considering the cost of debt and aiming to enhance our AFFO per share, whether through repaying our revolving credit lines or buying back shares. There are many factors to consider, and we plan to remain flexible and opportunistic with our capital allocation. I believe we can effectively balance continuing to delever rapidly while also buying back shares when it seems appropriate.

Makes sense. Thanks for that extra color. Stay well, guys.

Thanks.

Thanks, Ric.

Hey, guys. Thanks for squeezing me in here. Just one housekeeping and one broader question. On the housekeeping side, maybe just to go back to the Stonepeak $570 million raise. How does that impact the minority adjustments? I think it's been about $50 million typically between consolidated and proportionate AFFO. Just wondering how that may change in light of the incremental funding from Stonepeak. And then secondly, I think you've kind of answered this in terms of the US, but I'm wondering more broadly, as you think about tighter financial conditions, stronger US dollar, weaker foreign currencies, is that weighing at all on any international customers or regions' investment plans, just given some of the lower presumable purchasing power as they head into 2023? Thanks.

Rob, do you want to cover the MI question and I can talk more broadly? Yes, so we took in another $570 million from Stonepeak as an additional investment into our CoreSite business. So the original investment of $2.5 billion gave them basically a current ownership of about 22%, almost 23% of the business there. And then with their additional $570 million, that's going to pop up to about 28% to 29% ownership. And that is for the pieces of those investments that are actually equity from day one. You may recall from some of our disclosures, there are some pieces of those investments that are preferred, which will convert to equity their mandatory converts over a full year period. So they will convert to equity. When that happens, then their ownership will jump up from the 28% to 29% up to about 36%. The way to think about the MI impacts here, when you get to Q4, you will hit the run rate, you're going to see about $150 million of Q4 exit run rate for the European minority then, and you'll see about $60 million or so for the Stonepeak minority interest. That will all run through the minority interest section. On these preferred notes that we have with Stonepeak, you'll see another $45 million that will be interest that will run through the interest line, but you want to keep that in mind as well. So that puts us at a run rate of about a little over $200 million of MI as we exit Q4, $200 million, $210 million.

In response to your second question about the global impact on our customers outside the United States, we haven't observed any significant signs suggesting that they will slow down their build programs worldwide. It's difficult to predict how this will evolve in 2023 and 2024, but they continue to exhibit the same enthusiasm we've seen over the past 12 to 18 months. Our diversification across markets and customers also provides us protection, allowing us to navigate specific issues in certain areas. Additionally, it's worth noting that our customers have invested nearly $160 billion in spectrum, and they are eager to monetize that investment and enter the market quickly. Consequently, we are witnessing continued strong capital deployment across the markets, and we remain committed to supporting them. There is also a healthy level of build-to-suit activity, which further reflects their readiness and capacity to spend.

That’s great. Thank you both.

Hi. This is Richard for Phil. I wanted to follow up regarding Latin America. Are you anticipating a slightly higher churn rate? Will this affect any new activity, or do you believe new activity growth will persist despite the increased churn? Additionally, on the services side, it appears to be quite solid. Are you noticing any changes in the trajectory of the services business, or do you expect it to remain steady?

Rod, why don't you take those two?

Yeah, sure. Thanks, Tom. Richard, I think when you talk about Latin America, we are expecting higher levels of churn, but pretty consistent levels of that gross new business. And we're also complementing that with higher levels of escalator, which are driven by local CPI in the region. So those two things are pretty solid. We'll see where inflation goes and how the trajectory of our escalator in that region may change over time. But there is solid consistent new activity in Latin America despite the fact that there is a little consolidation churn happening in some of the markets there. And then when it comes to services, we're in another great year in services; we’re going to be up in the mid-$200 million, we raised our guidance at the gross margin level by about $20 million. So we are going to be in that mid-$200 million range for services revenue. That continues to come through at really nice margins in the mid-50s, 54%, 55% at the gross margin level. So our services business is performing exceptionally well and has proven to be very resilient. And that is because the US carriers continue to be very active. I'm not going to guess in terms of where it's going to go in coming years. But to the extent that the activity levels stay high, we'll continue to see really solid high services. Well, there's a chance I could pull back as the timing of activity from the carriers kind of ebb and flow from quarter to quarter. So we'll see what happens next. But we're going to be up in the mid-$200 million this year in services. All the carriers are active, and we're maintaining really healthy margins in the mid-50s.

Great. Thank you.

Thanks, Richard.

Great. Thank you, everyone. If you have any questions, please feel free to reach out to the Investor Relations team. Have a great day.