Crown Castle Inc (CCI) — Q2 2023 Earnings Call Transcript

Thank you, Kate, and good morning, everyone. Thank you for joining us today as we discuss our second quarter 2023 results. I am Kris Hinson, and I recently joined Crown Castle as the Vice President of Corporate Finance and Treasurer. With me on the call this morning are Jay Brown, Crown Castle’s Chief Executive Officer; and Dan Schlanger, Crown Castle’s Chief Financial Officer. To aid the discussion, we have posted supplemental materials in the Investors section of our website at crowncastle.com that will be referenced throughout the call this morning. This conference call will contain forward-looking statements, which are subject to certain risks, uncertainties, and assumptions, and the actual results may vary materially from those expected. Information about potential factors that could affect our results is available in the press release and the Risk Factors sections of the company’s SEC filings. Our statements are made as of today, July 20, 2023, and we assume no obligation to update any forward-looking statements. In addition, today’s call includes discussions of certain non-GAAP financial measures. Tables reconciling these non-GAAP financial measures are available in the supplemental information package in the Investors section of the company’s website at crowncastle.com. With that, let me turn the call over to Jay.

Thanks, Kris, and good morning everyone. Thanks for joining us. Before I begin, I’d like to welcome Kris. We’re very excited to have him here on the Crown Castle team. Turning to our earnings release, I wanted to provide some context for the wireless industry environment that led us to reduce our outlook for 2023, and Dan is going to speak to the specifics of the changes. Across each U.S. wireless generation, the deployment of new spectrum, followed by cell site densification, has increased network capacity and enabled exponential mobile data demand growth. For us, this has played out with an initial surge in tower activity to build out the latest generation network, followed by a consistent level of activity over a long period to support our customers. As a part of the most recent upgrade to 5G, the U.S. wireless carriers spent more than $100 billion to acquire spectrum from 2020 to 2022. Our customers moved quickly to deploy their newly acquired spectrum, driving record tower-level activity and dividend per share growth of almost 11% per year over that same period. I believe this initial surge in tower activity has ended. In the second quarter, we saw tower activity levels slow significantly. As a result, we are decreasing our 2023 outlook primarily due to lower tower services margin. Importantly, our tower organic revenue growth outlook remains at 5% despite this lower level of activity. The resilience of our tower revenues is the result of our decision to pursue holistic long-term agreements with each of our major customers. In these agreements, our strategy has been to maximize the economic value while simultaneously providing visibility and stability in our long-term cash flows. To illustrate this point, Slide 4 shows our organic tower revenue growth since 2013. Over this period, we’ve consistently worked with our customers to provide them with enhanced flexibility to move quickly and deploy their networks while increasing our level of contracted activity. Due to our focus on reducing risk and generating resilient organic growth, we have contracted 75% of our expected annual tower organic growth of 5% through 2027, while also delivering record tower growth in 2021 and 2022 during the initial phases of 5G rollout. In addition to the benefits we’ve captured from our long-term customer agreements, we’ve complemented our portfolio of towers with fiber and small cells, making us uniquely positioned to capitalize on the long-term growth in data demand regardless of how carriers deploy spectrum and densify their networks. Our current backlog of 60,000 small cells provides a line of sight to doubling our on-air nodes over the next several years, which we expect will drive double-digit small cell revenue growth beginning in 2024. To provide additional visibility on how our fiber solutions and small cell businesses are progressing, we have updated our analysis across the five markets we have previously highlighted since 2021 as highlighted on Slide 10. We continue to generate solid returns from the benefits of co-locating additional customers on our existing fiber assets, offsetting the churn related to the legacy Sprint rationalization. Phoenix, which was not impacted by Sprint churn, is a good illustration of what we can achieve with our fiber strategy as we add nodes to existing fiber. There we have seen our yield expand from 9% a year ago to over 11% today as we roughly doubled our nodes on-air from 1,400 to 2,800 nodes. Los Angeles and Philadelphia also illustrate the benefit of our shared infrastructure model. Here, with a combination of small cells and enterprise fiber, we see yields of 8% to 9% with the potential to grow yields as we have done in Phoenix and Orlando as we add small cells. Overall, I’m encouraged by these results, particularly as we accelerate small cell deployments. With 60,000 nodes in our backlog, the majority of which are co-location nodes, we have line of sight to attractive incremental returns and double-digit small cell revenue growth. Zooming back out to the consolidated level, we are consistently looking to deliver the highest risk-adjusted returns for our shareholders. Our strategy has delivered growth and driven improvements on both the risk and return side of the equation. Several years ago, it became clear to us that small cells would become an important component of the wireless carrier network densification required to support data growth. We saw an acceleration in small cells towards the back half of the 4G era as the vast majority of the 60,000 nodes we have on air today are 4G nodes that were deployed because towers alone could not support the continued rise in mobile traffic. Now, as we’ve passed the initial 5G surge in tower activity, we are seeing our customers accelerate the selection and identification of new small cell locations to densify portions of their networks that have experienced the most traffic. The results of our early move into establishing a leading portfolio are reflected in our double-digit small cell organic revenue growth in 2024 and provide a platform for continued growth throughout the 5G era. With our diversified asset base, we have positioned ourselves to benefit from carrier activity on towers and small cells. Additionally, we have reduced our risk by increasing the resiliency of our business through our long-term customer agreements and improving the strength of our balance sheet. As a result of these actions, despite a significant reduction in tower activity in the back half of 2023, we continue to expect 5% organic tower revenue growth, 10,000 small cell node deployments, and 3% fiber solutions growth by the end of this year. This resilient underlying growth across our business underpins our expectation of returning to our long-term annual dividend per share growth target of 7% to 8% beyond 2025. And with that, I will turn the call over to Dan.

Thanks, Jay. And good morning everyone. I wanted to take a moment to frame the changes to our 2023 outlook before getting into the specifics of our results. Over the last quarter, both tower industry-specific and macroeconomic factors have negatively impacted our business. On the industry-specific side, the end of the initial surge in activity related to the early stages of the 5G investment cycle has resulted in a decline in tower activity of more than 50%, causing us to reduce our outlook for services gross margin by $90 million. At the same time, interest rates continued to rise as a result of the macroeconomic conditions in the U.S., resulting in $15 million of additional interest expense. Combined, these headwinds have reduced our outlook by $105 million. While this is a sizable change, our strategy to pursue the highest risk-adjusted return, that Jay just discussed, has limited the impact. Of course, we’re not standing still in the face of these forces. We are focusing on managing our business and cost structure to match the lower activity levels, removing significant cash costs, so the net impact to our AFFO is only $40 million. We encourage that our focus on the resiliency of our cash flows and managing costs allows us to withstand this reduction in tower activity with minimal impact to our bottom line. Turning to second quarter results on Page 5 of the earnings materials, growth in site rental revenue is highlighted by nearly 6% tower organic growth. On a consolidated basis, we generated 12% organic growth or 4% when adjusted for the impact of the Sprint cancellations. We also had outsized growth of 14% in AFFO and 10% in adjusted EBITDA in part due to the Sprint cancellations. As expected, most of the impact of the Sprint cancellations occurred in the second quarter, including a net contribution to site rental billings of $100 million due to Sprint cancellations of a number of moving parts in our second quarter and full year results. We’ve inserted a slide into the appendix of our earnings materials detailing their impact in 2023 and our expectations for those cancellations through 2025. Turning to our full year outlook on Page 6, our outlook for site rental revenues remains unchanged. The decrease in adjusted EBITDA and AFFO is primarily driven by a lower contribution from services, partially offset by lower expenses leading to a $50 million decrease in adjusted EBITDA and a $40 million decrease in AFFO. On Page 7 tower organic growth remains at 5% for the year, despite a slight reduction in tower core leasing, which is partially offset by a slight reduction in tower churn. Additionally, we lowered our Sprint cancellation-related small cell non-renewals by $5 million due to timing, leaving our consolidated organic growth unchanged at approximately 7%. Turning to Page 8, as I previously mentioned, the lower contribution from services totals $90 million and our outlook for interest expenses increased $15 million. More than offsetting the increased interest expense is $10 million of higher expected interest income and $15 million of lower sustaining capital expenditures. Our discretionary CapEx outlook remained unchanged with growth CapEx of $1.4 billion to $1.5 billion or approximately $1 billion net of expected prepaid rent. Our balance sheet is well positioned to continue to support investments that we believe will contribute to long-term growth. Consistent with our strategy to limit risk in our business, we’ve taken steps to minimize our exposure to floating rate debt, including twice issuing fixed rate bonds this year totaling $2.4 billion at a weighted average rate of 5%. We exited the second quarter with 4.6 times net debt to adjusted EBITDA, more than $6 billion of available liquidity, and only 7% of our total debt maturing through 2024. Since achieving an investment-grade rating in 2025, we have taken various steps to de-risk our balance sheet, including increasing our weighted average maturity from five years to eight years, decreasing our floating debt exposure from 32% to 9%, and reducing the amount of our secured debt, which provides access to that market in the future if it is attractive. To wrap up, we believe we are very well positioned to generate attractive risk-adjusted returns going forward. The strategy we have pursued over the last decade has positioned us to benefit from the carriers' network augmentation and densification regardless of whether that activity is focused on towers or small cells. Additionally, we have structured our customer agreements to generate organic growth that is resilient through deployment cycles. At the same time, we have limited the risk in our business by focusing on the U.S. and maintaining a solid balance sheet that allows for continued investment and future growth. As a result, we believe we are positioned to return to our long-term annual dividend per share growth target of 7% to 8% beyond 2025 as we get past the remaining large Sprint cancellations. And with that, Kate, I’d like to open the call to questions.

Hi, good morning, everyone. Thanks for taking my question. It’s Alex Waters on for Dave. Maybe just first off here, just hoping we could get a little bit more clarity on the structure of the MLAs and the line of sight you have within a year. Just curious about the certain characteristics that are in the agreements that would allow you to shift in 2023? And then secondly, just on the new leasing guide for the fiber segment, I just wanted to walk through kind of the line of sight you have there for the remainder of the year, just given that there’s a pretty good ramp here in the second half. Thanks.

You bet. Good morning, Alex. Thanks for the question. On your first question around the MLAs, this has been something that we’ve done over a long period. We did it during the 4G cycle and have continued to do it as we’ve entered into the 5G cycle. There are benefits to us because it gives us line of sight and visibility into the cash flows and the contracted growth that Dan and I both spoke about. There’s also a benefit to our customers of those MLAs. They are better able to predict the cost of network deployment, and it eases the amount of interaction on a site-by-site basis between our companies. So there’s value there. I think the economic value is clear from the comments that we laid out this morning. And then there are also the operating benefits of those MLAs. And I think they benefit both parties. As to the specifics of those contracts, we don’t disclose customer-by-customer agreements or the specifics. So I’ll stop with just a high-level view of why we do it and the benefits to both of us. On your second question around new leasing in the fiber business, this is the way we expected the year to play out. Obviously, we had a difficult year-over-year comp in the first quarter, and then we expected a rebound in the second quarter, which we saw. And we expect the second half of the year to be better than the first half of the year. And by the time we exit 2023, we think we’ll be back at that 3% growth on a year-over-year basis as we go into 2024. What we’re seeing in the market in terms of activity, backlog, the conversations we’re having with customers, etc., would suggest that’s the pace that we’re on.

Great, thanks for taking my questions. You’re clearly noting a slowdown in the second quarter tower activity. Just curious, in your conversations with carriers, when do you anticipate that activity to maybe inflect up again? How prolonged do you think this slowdown is, given there’s a lot of spectrum still on the sidelines? Second question is just on your network services, which also came in lower. Is the $124 million that you posted in the second quarter sort of a good cadence? Or is there further declines from here? Thanks.

Sure. On your first question about the slowdown in activity, I think history serves really helpful lessons, both in terms of what we’ve seen in 4G as well as what we saw in 2G and 3G. On Page 4 of the presentation, you can see historically, basically through the period of time with 4G, we had that initial surge of activity where our leasing results were kind of around 4% to 5%. And then it did drop off a bit. But that initial surge didn’t mean the end of activity or the end of growth. We saw really good, consistent growth throughout that entire 4G cycle of deploying the network. So I don’t know when we’ll see a pickup in activity, but our view of the business is that we will see consistent growth over a long period of time. And obviously, we have the contracted benefit of that. But I believe those contracts, as much as they represent stability and resilience in our cash flow stream, represent a view by our customers that they need continued investment around towers and particularly our towers over a long period. As I look out, I think we’re through the initial surge of 5G and we’ve benefited well from that. And then as we get past this initial surge into activity, I think we’re going to continue to see good consistent growth as the demand for towers continues to rise. On the services business, that business generally tracks whatever the activity is on tower sites. As we see a move downward in terms of activity, you’ll see that reflected in the outlook that we provided for the second half of the year for services, as the future periods of time and the activity we see around towers will drive that services outcome. Over a long period of time, I can’t really give you guidance as to how to think about your model, but it’s going to track, as we would expect, largely in line with the activity and tower leasing activity that we see in the business.

And just to put that into 2023 context, Greg, because we saw the slowdown in activity happen in the second quarter, we would expect the second half of the year to be less on the services side than the first half of the year because of the activity levels and what Jay was saying. So the $124 million that you’re talking about of services revenue in Q2 will likely come down over the course of the year, but that’s what’s reflected in our outlook and why we brought down our service gross margin outlook by $90 million. So that’s all baked into that outlook.

Yes. Sorry about that. Can you hear me?

We can. Good morning, Ric.

Yes. Good morning, guys. Yes. Hey, I want to follow along the lines on the services business first. Obviously a big change from the prior guidance a $90 million change on the services business. Was it really related to one carrier or more so than the whole group? Just trying to gauge what really caused a pretty big change on the services business, although it’s a low multiple business in our opinion.

We saw the activity change across multiple carriers during the quarter.

Okay. And the margins, I assume it’s moving from kind of planning to deployment, so the cost side probably reflects some further pressure maybe on the services business as well.

Yes. I think if you go back and look at our historical results, there’s obviously a portion of costs that are fixed in that business, but there are also a lot of marginal costs in that business that we have been able to move up and down commensurate with that activity. Dan spoke to that briefly in his comments, and we expect to do the same here where we’ll adjust and manage the cost structure appropriately for the level of activity, with some movements in the margin as the types of services we perform change from whether it’s pre-construction or construction work that we’re doing for customers. So there’s some movement in those margins, but we would expect most of the costs associated to come back down and margins to stay in and around what you’ve seen historically. But I would not try to put a point in time on a particular quarter. I would look at it more broadly over the multi-year period, and it’s likely to look like that in the future.

Yes. Okay. Last one for me might be a bit wonky on the supplement. There’s a chart in there that talks about consolidated annualized rental cash payments at the time of renewal. And it shows a big chunk for T-Mobile coming up in 2025. It shows a very large chunk for AT&T here in 2023. Is that suggesting that there’s an AT&T renewal coming up this year? And then also on the 'all other' line, just want to make sure I understand how that plays out over time because that remains to be a pretty high number every year out there. Just trying to think of how I should be thinking about that.

So these contracts have, and depending on which carrier, we’re looking at will have various expiry dates before they enter into their already contracted option dates. Typically, our MLA agreements will have multi-year, multi-term option periods, and those options are usually for 5 to 10 years beyond the term that they’re currently in. We’ve already contracted what the percentage growth in those future periods is as well. As they come up for their natural renewal, those leases are generally extended onto their next term. We would expect that portion of the supplement to constantly be changing as leases come up for renewal, roll into their next period, and we’re into that next term. That’s the normal way that the business operates, and we’re not seeing anything that would suggest that would change. So from a modeling standpoint, as you think about our business, we’ve talked about churn rates on the tower side outside of the Sprint rationalization in kind of that 1% to 2% range. We expect that to continue. As for 'all other', that relates to customers other than the specifically named customers, and we haven’t seen any change in that business and would expect we’ll continue to see normalized renewals. Those time periods of remaining term will just move around as we are in various stages of the terms. I’ll just add a couple things there, Ric. One, you pointed out the one on T-Mobile being a big number in 2025, that is the already predisposed Sprint cancellation that’s going to happen on the tower side, but that chart is for all of our businesses together. So a lot of the 'all other' is outside of wireless as well.

Right. So we have fiber – obviously, we have fiber contracts that roll off over time. That’s part of what we already disclosed. As Jay pointed out, there’s no difference in the fiber churn overall. We still think that’s in the high single digits range, which has been our experience for a long time. But there are always going to be contracts that roll off. It doesn’t mean that the revenue goes away. We contract a lot of those businesses too. Generally speaking, the average term of the fiber businesses is in the neighborhood of five years, and you would always see a pretty consistent level of non-renewals in any given year.

Right, right. And a big number for AT&T in 2023 is just when it’s expiry date for the normal course and that moves into the option period would be the way to interpret that.

Yes. And that’s a very normal thing to happen for the customers over time. We’ve seen that over a lot of years, and what you’re seeing in the disclosure, whether it’s their initial period and some of those leases, frankly, are not even their initial period; they’re already into their option terms and then they’re renewing. We would expect those options will renew into a new term, a new option period, and the term of that will then be reflected in that supplement.

Thanks a lot. Just to follow-up on that payment schedule at renewal, is the decline that we’re seeing in the second half related to a payment that’s pushed out to 2026? Or can you generally talk about what drove the increase in 2026 this time round versus the last schedule? And also, just again to follow-up on the macro lease guidance, can we argue there’s slightly $10 million in the second half? Again, if you could – if you don’t mind, can we go over that – what drove that and maybe what gives you the confidence that it will stay around the 5% level going into next year? Thanks.

Yes. I think what I would point you to is there was nothing specific that moved from 2023 to 2026. This is just the normal course of our business, where we have lots of contracts that have lots of provisions in them, and they move around. When we’re talking about numbers of this size in the business, it’s just the normal course of how our contracts flow through that schedule. The important parts that I would point to are, obviously, I pointed to T-Mobile in 2025, but also, just as Ric had pointed out, the 'all others' is in line with what our fiber business typically does. From a non-renewal perspective, what we see our customer activity being supports our view that the tower business generally sees 1% to 2% churn, small cell business generally exhibits 1% to 2% churn, and the fiber business has been in the high single digits. Nothing has changed from that perspective. So as we think about the long-term health of the business, this cash payment at renewal chart can move around just based on what the underlying contracts say. However, for a long period of time, I would just continue to bake in that 1% to 2% for towers and small cells in the 9% to 10% for fiber.

Great, thank you very much. Good morning. If I could just come back to the guidance change and the 50% reduction in activity. Verizon and T-Mobile had laid out early in the year and even before that they were going to be kind of winding down their 5G build with a front-end loaded CapEx and activity in 2023. Is this over and above that, which presumably you are well aware of their plans from that? So is there something else going on that’s causing this pullback? And perhaps you could just revisit what percent of your sites have been upgraded to 5G at this point. Thank you.

Sure, Simon. It’s difficult to reconcile because we don’t speak to individual customers, which we’re going to continue to not do. It’s difficult to reconcile with the public comments of individual carriers against what we’re seeing. What I would tell you is, we expected there to be an initial surge in 5G, which at some point would come back down. Then, as we have in the past and past cycles, we will see good growth over a long period of time. I think what our results reflect is that we’re at that point where we’ve moved beyond that initial surge of activity and into a period of time, which we think will continue for a long period of time of good growth that we can count on. Our customer agreements reflect that as well. The customers are going to continue to spend inside of the year. Obviously, we lowered our expectations for services. So, the back half of 2023 showed a change relative to what we previously expected. The first half of 2023 came in exactly where we thought it would, and we saw the change in activity during the quarter, which affected our second half of the year.

It hasn’t moved much, Simon. It’s not going to move in the course of a quarter, and I don’t think we’re going to update that quarter to quarter. That was tried to give people a sense of where we were overall in terms of the 5G deployment. But it really hasn’t moved that much from the last quarter when we gave the guidance.

Thanks. I was hoping we could gain a little more insight into how you’re thinking about building the funnel of small cell nodes going forward. We’ve moved through this surge period with the carriers, which was very focused on getting mid-band to a decent chunk of their existing sites. I think one of the questions we get is, until we’ve reached a point where carriers have deployed mid-band across all their sites and maybe even expanded the densification of that on macros a bit more, what would be the basis for going in and starting to do more on the small cell side? So maybe if you could just give us some insights into what those conversations are like, what’s driving it, how you think about what could create more of an uplift around 5G small cell leasing? That would be great. Thank you.

Sure. Good morning, Brett. The driver for small cells is the constraint on the network that happens from a capacity standpoint. As we see activity from consumers increase and where those concentrations of that increase occur, there’s a need to increase network capacity. Initially, whenever there’s a new generation of network deployed, they touch the macro sites as they’ve done over multiple cycles in the history of the company. They have done that with 5G. So they’ve gone out and covered a significant portion of the country, provided capacity and coverage through that initial overbuild, and that’s a very efficient way to deploy spectrum. The places where they supplement with small cells are places where that capacity created by overlaying 5G on towers has been consumed quickly. Underlying all of the conversations we’re having around network capacity and densification is the consumer demand and data growth from that consumer demand. That traffic increase at the consumer level has continued to grow exponentially during this period of time. The pain points from that significant growth in consumer data usage are what drive the need for small cells. As I think about what we’ve seen at the market level, you can see that reflected in our results as we’ve co-located nodes across fiber that we built for other carriers at previous periods. Over time, as data growth increases, carriers come back to those same locations because of population density and need to densify the network in those same areas. They’ll come back and lay additional small cells across that fiber asset we own. I think you’ll continue to see this play out. If we’re in a period where carriers have new spectrum, our expectation would be that they deploy on existing macro sites first. As that spectrum band begins to be used, pain points will create the need for additional capacity in the network, leading to activity on small cells. That’s consistent with our conversations and our contractual arrangements, and it supports the activity we expect, both in terms of the growth we’re talking about for 2023 and double-digit revenue growth in 2024 for small cells.

Got it. And just a quick follow-up. It may be too soon for you to have any insight here, but are you seeing any evidence that the continued growth of fixed wireless is in any way shaping how or where carriers are deploying additional density in their networks?

I think it is having some impact. We talked about this a little bit on our last quarter call. Fixed wireless is a good example of a 5G use case. It’s driven nice margins for our carrier customers. So it’s good to see revenue growth there and the returns from adoption of that product mix. I think we believe we will see other uses for 5G beyond fixed wireless, but it illustrates the pain points and the consumption of capacity. We’ve certainly seen areas where fixed wireless has been deployed that – I don’t want to say, which is first between the chicken and the egg, but the point is those locations have seen increases in activity in 5G networks. They correlate with locations where we’ve also seen increases in small cell nodes and investment.

Thanks, and good morning. Just a few follow-ups if I could. First, as you think about the reasoning for the slower activity beyond just getting through the initial 5G surge, are you hearing from your customers that the mid-band spectrum they’re deploying is getting better propagation, so they just didn’t need as much as maybe they initially thought in this first round of 5G capacity deployments? I have a couple of others that I could ask afterward if I could, please.

Sure. I’ll take the first one, and then you can ask your others. They’re not always specific with us about the reasoning. But I probably wouldn’t go quite as far as you did in trying to get to causation there. I think it’s the natural thing that we have expected would happen. We saw it happen with 4G. We expected this day to come where they had overlaid a significant portion of their network and touched the sites, and then the surge would pass. I think we’re just at the stage where we’ve moved from that initial surge, and now we’re at a point where we would expect to see continued growth over a very long period of time. The consumer demand for wireless data is healthy and growing. That investment will continue to come.

And then second, you’ve held on to a larger services business than some of your peers. Does the recent variability of performance, or as we’re getting into these next phases of the 5G cycle, does this lead you to reconsider whether the services business is strategically important to Crown or whether there are opportunities to maximize value in someone else’s hands?

Mike, I think in any business we’re in or any activity we’re in, that’s always a question we consider. What is the value of the business? What are the returns associated with that business? Is it going to ultimately drive shareholder returns, which, in our way of thinking is, does it help us to grow the dividend over a long period? The services business has been profitable for us and has been very profitable during the initial surge. We would not expect to see quite that level of profitability come out of the services division at lower activity levels. We’ll evaluate this as we do everything in our business. What do we believe the forward look is on the activity? We’ll make good business decisions around what makes sense from the products and services we offer.

And then just lastly, and thanks for taking all these questions. On the cost side, you announced cost cuts for the second half of the year. Does that provide a follow-on benefit into the first half of 2024? Can you just unpack some of the sources of cost savings that the company has been able to identify?

Yes. We spoke to some of this earlier, Mike, on the question around services, and it relates directly to that. There’s a significant portion of variable costs in the services business. As revenues decline, we’re going to see costs come out associated with that, which has a meaningful impact on where we expect costs in the business to go for the balance of the year. We also made mention of SG&A; we’ll adjust there as we have done in the past during periods of time when activity rises and falls. I don’t know that there’s anything to point to specifically, but we’re making good business decisions as we adjust for activity levels we see. We’ll also be thoughtful about how we’re able to continue delivering on the customer front based on activity we’re seeing in the business.

And sorry, does this – sorry I missed, does this extrapolate into the first half of 2024 as an expense benefit as well?

The cost structure in 2024 will reflect whatever activity level we expect, and we’ll update our guidance for 2024 when we get to October. There are components of things we do this year that roll over. But the cost structure in 2024, I can’t really answer that question without answering a revenue question. We’ll take the extra three months and give you guidance in October on what we think the 2024 cost structure is going to look like.

Hi, guys. Thanks. Just following up on a couple things. You talked about looking at history; carriers would move to densification after deployment. You’ve talked about that in small cells. What do you see in towers? Is there any sign of that?

Sure. They’re using towers to densify, and there will continue to be lease-up associated with that. Some portion of the contracted revenue growth we were speaking to relates to sites they’re not on today that they’ll be adding equipment to, and portions are amendments to existing sites where they’re adding more equipment to sites they’re already on.

And are you seeing any acceleration in that discussion?

Well, I think broadly what I would say is, as we’ve mentioned, the surge of activity initially is coming off from those levels. But we’re seeing good growth over a long period of time that we expect would continue. From this point forward, given where we are in the cycle, certainly there will be densification to the extent that they can solve network capacity constraints with macro sites. That’s the most efficient way to deploy capital and create capacity in the network if there’s a macro site to solve the problem. Some portion of the growth we’ll see will be investment of capital around macro sites. If there are not macro sites that can solve the challenge of densification, we would expect to see that activity come towards small cells. We’ve seen it. Conversations are consistent, and our contractual arrangements are consistent with that, and I think we’ll see that play out over the next several years.

Thanks. A question on your expectation for the 5% organic macro tower growth through 2027. So the remaining 25% of activity that you still need to secure the assumptions you have in your model, do you assume that comes just through densification or through new spectrum being made available? And I have one more follow-up, please.

Sure. It’s a combination of spectrum, and when you say new spectrum, I think of that as the spectrum in the hands of carriers today that has not been deployed. We’re not assuming additional spectrum is auctioned and built out over the next several years. There is spectrum in the hands of carriers that has not been built out yet, and some portion of our future leasing is related to that, along with the expectation that spectrum that has been built out will continue to densify. Not placing an expectation on an additional spectrum being auctioned for deployment in the next several years.

Okay. That’s helpful. And then the last one, I just wanted to ask about the recent report that highlighted some of your tenants' potential sizable cleanup costs they might have on some of their legacy telecom networks. I know nothing has materialized on that yet, but did you consider any potential financial burden on your tenants when you reiterated that 5% guidance through 2027?

We have not seen any behavior change from our carrier customers, and so I’ll let them speak to the impact of those recent news reports on their business. They’re very healthy and have a long history of navigating various cycles. The wireless business and demand from consumers, we think, will continue unabated. We expect continued investment as they improve their network and improve margins in their business over a long period from enhancing their network associated with that growth in demand. Thanks everyone for joining the call this morning. We look forward to catching you up in October as we give our guidance for 2024. If we don’t see you before then, thanks for joining.