Yahoo Finance Crown Castle Inc. (NYSE:CCI) Q1 2024 Earnings Call Transcript
Crown Castle Inc. (NYSE:CCI) Q1 2024 Earnings Call Transcript April 17, 2024
Crown Castle Inc. reports earnings inline with expectations. Reported EPS is $0.71 EPS, expectations were $0.71. Crown Castle Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and welcome to the Crown Castle First Quarter 2024 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the call to Kris Hinson, Vice President, Corporate Finance and Treasurer. Please go ahead.
Kris Hinson: Thank you, M.J., and good afternoon, everyone. Thank you for joining us today as we discuss our first quarter 2024 results. With me on the call are Rob Bartolo, Crown Castle's Board Chair; Steve Moskowitz, Crown Castle's recently appointed President and Chief Executive Officer; Tony Melone, Crown Castle's former Interim President and 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 afternoon. This conference call will contain forward-looking statements, which are subject to certain risks, uncertainties, and assumptions and actual results may vary materially from those expected.
Information about potential factors which could affect our results is available in the press release and the risk factors section of the company's SEC filings. Our statements are made as of today, April 17, 2024, 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 Rob.
Robert Bartolo: Thanks, Kris, and good morning, everyone. Thank you for joining us. I would like to start by welcoming our new CEO, Steven Moskowitz. As you know, the CEO search committee along with the full board has been actively engaged in a robust process to find our next leader. We worked with Russell Reynolds and evaluated a number of talented and highly qualified candidates. Ideally, we were looking for someone with strong operating experience in the tower industry, a track record of strategic capital allocation and value creation, as well as prior CEO experience. This process has resulted in the unanimous view of both the CEO search committee and the full board that Steven is the ideal person to lead Crown Castle going forward.
A 25-year industry veteran, Steven is a proven executive with deep tower operating experience. Steven spent 12 years at American Tower, including the last seven years as EVP and President of the U.S. tower business. During his tenure, American Tower's U.S. operations became the largest and most profitable U.S. wireless infrastructure company, tripling in size to more than 20,000 sell sites. After American Tower, Steven served as the CEO of NextG Networks, a provider of fiber-based small cell solutions. At NextG, Steven produced market-leading returns on invested capital, while increasing the asset base to approximately 10,000 nodes. Most recently, Steven served as CEO of Centennial Towers, where he created a leading provider of build-to-suit cell sites in Brazil, Colombia, and Mexico by focusing on prudent capital allocation and operational excellence.
As I've gotten to know Steven, it's clear that his experience and capabilities in the areas of operational efficiency, process improvement, capital allocation, and his proven ability to build strong leadership teams will serve our customers, shareholders, and employees extremely well. We are excited to welcome Steven and believe his leadership will enable Crown Castle to effectively execute on its strategic and operating plans and grow value for all shareholders. I would also like to thank Tony Melone for serving as our Interim CEO for the past three months. With the help of Tony's leadership, the company remains on track to meet its 2024 financial and operating goals and is well prepared for a seamless transition to Steven as the company's next CEO.
I'm going to turn the call over to Steven in a few minutes to introduce himself and say a few words. But as you can imagine, after starting in the job late last week, he won't be in a position to take your questions at this time. But before I turn the call over to Steven, I would like to provide an interim update on our Fiber Review process. As you know, in January, the Board created a committee to direct a strategic and operating review of the company's fiber business with the goal of enhancing and unlocking shareholder value. The board engaged financial advisors, Morgan Stanley and Bank of America, as well as strategic and operating advisors, Altman Solon, as well as another leading management consulting firm to assess our businesses, core capabilities, competitive positioning, and organizational structure and also to perform market analysis and operational benchmarking.
The goal of these assessments was to determine how to optimize the company's enterprise fiber and small cell businesses and determine the fit, value, and synergies both inside and outside of Crown Castle. As it relates to the overarching conclusion, this review confirmed that we have premier assets in attractive markets throughout the U.S. The next step was to determine the optimal path to maximizing the value of these assets, both within and/or outside of Crown Castle. To help assess the potential value creation opportunities, we have recently engaged with multiple parties, who have expressed interest in a potential transaction involving all or part of our fiber business. These discussions are ongoing. While we will not comment further on these discussions during the call, we are excited to have Steven on board to help us think through our strategic alternatives.
We believe his extensive experience in the digital infrastructure sector will be extremely beneficial throughout this process. Regarding our operational review, we have concluded our work with our external consultants. The main conclusion is that they believe there are opportunities for operational improvement in both our enterprise fiber and small-cell businesses regardless of the outcome of our strategic review. We have begun sharing these insights with Steven, who will work with the board and the executive team to develop a revised operating plan that he will share with investors when appropriate. I speak on behalf of the board by saying how pleased we are to have concluded our CEO search with the appointment of such a talented and proven tower executive as well as progressing substantially on our Fiber Review.
We are laser focused as a board and moving rapidly yet methodically on these initiatives that we laid out in late December. To reiterate what I said earlier, we believe Steven is the person best suited to lead Crown Castle through the next stages of our Fiber Review, as well as position the company for long-term success and value creation. We look forward to providing further updates as appropriate. Before I turn the call over to Steven, I would like to say, thank you to the talented employees at Crown Castle for continuing to serve our customers and deliver on the financial results we guided to for 2024. I'm impressed by your dedication and capability to stay focused even during these times of uncertainty. With that, let me turn it over to Steven.
Steven Moskowitz: Thanks, Rob. I appreciate the kind introduction and hello, everybody. I know there's some people on the call that I know from the past, others that don't know me yet, and I look forward to getting to know all of you in the months ahead. But I want to start off conveying how excited I am about the opportunity to lead Crown Castle and really what lies ahead for this company. As you may have seen from my background, I've been at this for a long time. And during my time, I've learned that my leadership success really has been a function of a relatively simple formula. It's been developing and clearly articulating a strategy that the management team and employees can align with and also execute from the onset, having a great team of managers, who are trustworthy and driven and solutions oriented and get things done.
Also maintaining a culture that is customer service driven and based on values of hard work and thoroughness, thoughtfulness, and also having some fun. Also giving employees the necessary resources and tools to make their jobs easier and operate more efficiently, very, very important. And doing these things in a way that focuses on long-term value creation for our shareholders, most critical. Now I think we should be able to apply this type of formula at Crown Castle and also apply the benefit I have of coming really from the other side as a competitor of this company for many, many years. And it really provides me with knowledge and a fresh perspective and it's really a big part of the reason I'm here is that I believe that this company has many good things to offer, but also has the opportunity to be best-in-class in this industry.
I'm also here because I am optimistic about the long-term future of the needs for communications infrastructure and also because I believe the U.S. market is just the best place to do business in the world and have had some experiences in other markets outside the U.S. I've also admired Crown Castle's assets and customer service focus in the past and instinctively, I believe this company is ripe for significant upside. So all that said as incoming CEO, the company's strategic review is a top priority for me. I've already been digging in the last couple of days, start analyzing what's been done by the Fiber Review Committee and also be collaborating with the board to finalize and execute a strategy, of course, that maximizes shareholder value.
Beyond that, even as Rob mentioned, it's kind of too early for further comments on the approach that we're going to end up taking with fiber and small cells. But there are other imperatives that I'll be focused on working with the teams at Crown Castle such as enhancing customer relationships, making sure we manage cash prudently, and finding ways to operate more efficiently. So we definitely convert more new revenues to cash flows. And without a doubt, this is going to be a process that will take some time. But I know together with the employee base, we will create solutions to refresh and reengineer the company in many different aspects of the business operations, finding both some quick hits along the way for some kind of short-term success and longer-term changes that will make it easier for the employees to do their jobs and be more effective at serving our customers, which really will meaningfully enhance our performance.
It's going to improve our operating margins and we'll be in a better position to capture unfair share of new leasing business and new site development as our customers ramp back up spending on network expansion. So anyway, that's kind of it for now from me. Before I hand it over to Dan to walk you through our first quarter results, let me first thank Tony, he has been unbelievable, his unyielding commitment to Crown Castle and a great partner as an Interim CEO. And I also appreciate him helping me to get acclimated over the next month to ensure that we have a smooth transition. I'd also like to say thanks to Rob and the board for their faith in me as incoming CEO. And of course, the employees here of Crown Castle, who are continuing to perform at a high level.
So with that, I look forward to providing more details about our strategic initiatives as they unfold and I look forward to taking your questions when I host our second quarter earnings call. So Dan, I'll hand over to you.
Daniel Schlanger: Thanks, and welcome, Steven. It's great to have you here as part of Crown Castle team and look forward to working with you. We delivered first quarter results in line with expectations and remain on track for our full year outlook as we continue to focus on executing for our customers and shareholders. Our first quarter results demonstrated our customers' consistent and growing demand for our shared infrastructure assets, leading to us generating 5% organic growth, excluding the impact of Sprint Cancellations. The 5% growth in the first quarter consisted of 4.6% growth from towers, 16% growth from small cells, which includes $5 million of higher than expected non-recurring revenue received in the period, and 2% growth from fiber solutions.
As we had anticipated, the solid organic growth delivered in the quarter was offset by the following three items, leading to a year-over-year decrease in site rental revenues, adjusted EBITDA, and AFFO. First, a $50 million reduction in the site rental revenues related to the Sprint Cancellations. Second, a combined $54 million reduction into non-cash items, straight-line revenue, and prepaid rent amortization. And lastly, a $26 million decrease in services margin contribution due to the combination of lower tower activity and the decision we had made and implemented last year to discontinue offering construction and installation services. Turning to Page 5 of our earnings materials. Our full year outlook remains unchanged and reflects a year-over-year decrease in site rental revenues, adjusted EBITDA, and AFFO due to the non-cash and one-time items I just mentioned.
On Page 6, our expected organic contribution to full year site rental billings remains unchanged with consolidated organic growth of 2% or 5% exclusive of the impact from Sprint Cancellations. The 5% consolidated organic growth consists of 4.5% growth from towers compared to 5% in 2023, 13% growth from small cells as we expect 16,000 new billable nodes in 2024 compared to 6% growth in 8,000 nodes in 2023 and 3% growth from fibers solutions compared to flat in 2023. Moving to Page 7. We continue to expect to deliver $65 million of AFFO growth at the midpoint, excluding the impact of the Sprint Cancellations and non-cash decrease in amortization of prepaid rent. Turning to the balance sheet. Since transitioning to investment grade in 2015, we have strengthened our balance sheet by extending our weighted average maturity from five to seven years, decreasing the percentage of secured debt from 47% to 6%, and increasing the percentage of fixed rate debt from 68% to 90%.
In addition, we ended the quarter with approximately $6 billion of availability under our revolving credit facility and only $2 billion of debt maturities occurring through 2025, providing us with ample liquidity to fund our business. The steps we have taken to strengthen our balance sheet provide us with financial stability and flexibility as we evaluate strategic paths forward. Lastly, our 2024 outlook for discretionary capital remains unchanged at $1.5 billion to $1.6 billion or $1.1 billion to $1.2 billion net of $430 million of prepaid rent received. To wrap up, we continue to deliver good underlying growth across each of our businesses in the first quarter. At the same time, we made substantial progress on the strategic and operating review of our fiber business and successfully concluded our CEO search.
I'm excited to welcome Steven to Crown Castle and look forward to working together with him and the board to enhance value for all shareholders. With that, M.J., I'd like to open the line for questions.
Operator: Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Michael Rollins with Citi. Please go ahead.
See also
15 Problems with Over 55 Communities and
19 Best Alternatives to Discord in 2024.
To continue reading the Q&A session, please click here.
