Crown Citadel Inc. (NYSE:CCI) This fall 2022 Earnings Name Transcript

Crown Citadel Inc. (NYSE:CCI) This fall 2022 Earnings Name Transcript January 26, 2023

Operator: Good morning and welcome to the Crown Citadel Fourth Quarter 2022 Earnings Convention Name. Please be aware this occasion is being recorded. I might now like to show the convention over to Ben Lowe, Senior Vice President. Please go forward.

Ben Lowe: Thanks, Kate and good morning everybody. Thanks for becoming a member of us right this moment as we focus on our fourth quarter 2022 outcomes. With me on the decision this morning are Jay Brown, Crown Citadel’s Chief Government Officer; and Dan Schlanger, Crown Citadel’s Chief Monetary Officer. To assist the dialogue, we’ve got posted supplemental supplies within the Buyers part of our web site at crowncastle.com that will probably be referenced all through the decision this morning. This convention name will include forward-looking statements, that are topic to sure dangers, uncertainties and assumptions and the precise outcomes could range materially from these anticipated. Details about potential elements which might have an effect on our outcomes is offered within the press launch and the Threat Components sections of the corporate’s SEC filings.

Our statements are made as of right this moment, January 26, 2023 and we assume no obligation to replace any forward-looking statements. As well as, right this moment’s name consists of discussions of sure non-GAAP monetary measures. Tables reconciling these non-GAAP monetary measures can be found within the supplemental data package deal within the Buyers part of the corporate’s web site at crowncastle.com. So with that, let me flip the decision over to Jay.

Jay Brown: Thanks, Ben and thanks everybody for becoming a member of us on the decision this morning. As you noticed from our outcomes, 2022 was one other profitable yr for Crown Citadel and the constructive tendencies throughout our enterprise stay intact. With fourth quarter 2022 outcomes coming in as we anticipated and no adjustments to our 2023 outlook, I plan to maintain my ready remarks transient earlier than handing it over to Dan to speak via the numbers in a bit extra element. As I mirror on 2022, I’m happy with what our crew completed. We led the business once more with practically 6.5% natural tower income progress as our prospects upgraded present tower websites with extra spectrum and added gear to hundreds of tower websites they weren’t beforehand on to assist nationwide deployment of 5G.

And we deployed 5,000 small cells to assist preliminary community densification efforts whereas rising our fiber options income by 2%. The constructive working tendencies in 2022 exceeded our preliminary expectations for the yr and offset the influence of the speedy improve in rates of interest, demonstrating the resilience of our enterprise mannequin and technique. Because of this, we have been capable of ship robust backside line progress that supported greater than 9% dividend per share progress. As we mentioned once we initially supplied steering in October, we consider {that a} constructive working momentum will carry into 2023, driving one other yr of anticipated robust progress with 5% natural progress in towers and a doubling of our small cell deployments to 10,000 nodes. With respect to tower leasing tendencies, the established nationwide wi-fi operators are deploying mid-band spectrum in earnest as part of the preliminary part of their 5G build-out.

To-date, solely about half of our websites throughout our prime three prospects have been upgraded with mid-band spectrum, offering a major alternative for extra income progress as extra websites are upgraded over time earlier than their focus will seemingly shift to extra infill with new co-locations. Including to the substantial long-term progress alternative, we proceed to assist DISH with their nationwide build-out of a brand new wi-fi community. And I consider we’re in a terrific place to proceed to seize an outsized share of that chance. Turning to small cells, we anticipate to double the speed of small cell deployments this yr to 10,000 nodes with over half co-located on present fiber to satisfy the rising demand from our prospects as 5G networks would require small cells at scale.

With roughly 60,000 nodes on air and one other 60,000 contracted in our backlog, I consider 2023 will characterize the primary yr in a sustained acceleration of progress for our small cell enterprise. We additionally proceed to see alternatives so as to add to the returns we’re producing from small cells by leveraging the identical shared fiber property to pursue worthwhile fiber options progress and we anticipate to return to three% progress as we exit 2023. Trying on the greater image past this yr and why I’m so enthusiastic about our progress alternative, we’re nonetheless within the early innings with 5G because the business is simply a few years into what we anticipate will probably be a decade-long progress alternative. Our prospects are seeing considerably larger ranges of month-to-month information consumption as customers improve to 5G, offering the necessity for important community funding for years to return to maintain tempo with this persistent progress in cellular information demand.

As we’ve got seen in our business all through its historical past, generational upgrades to the wi-fi community happen in phases with an preliminary push to offer nationwide protection adopted by durations of continued community augmentation and densification that has led to lengthy durations of sustained progress. We consider we’re within the preliminary part of the 5G build-out with many phases to comply with over the approaching years. In step with their previous follow, we consider our prospects will first deploy their spectrum on nearly all of their present websites as they’re at the moment doing earlier than shifting their focus to cell website densification to get probably the most out of their spectrum property by reusing it over shorter and shorter distances. The character of wi-fi networks requires that cell website densification will proceed because the density of knowledge demand grows and we anticipate 5G densification to require each towers and small cells at scale to fill within the community.

Photograph by Tierra Mallorca on Unsplash

With that view in thoughts, we’ve got invested greater than $40 billion of capital to-date in towers and extra just lately, small cells and fiber which might be mission-critical for wi-fi networks to seize as a lot of this progress alternative as potential. Importantly, we’re already producing a ten% return on our whole invested capital with the chance to extend that return over time as we add prospects to our tower and fiber property and develop our money circulation. Because of this, I consider Crown Citadel is a superb funding that can generate compelling returns by offering buyers with entry to probably the most publicity to the event of next-generation networks within the U.S. with our complete providing of towers, small cells and fiber, offering the chance to profit from the perfect progress and lowest danger market, a lovely whole return profile with a present yield of 4% and a long-term annual dividend per share progress goal of seven% to eight% and the event of enticing new property that we consider will prolong our runway of progress and create shareholder worth.

And with that, I’ll flip the decision over to Dan.

Dan Schlanger: Thanks, Jay and good morning everybody. We generated one other yr of strong progress in 2022 and we anticipate the robust working tendencies throughout our enterprise to proceed as we see a protracted runway of 5G funding within the U.S. The elevated leasing exercise throughout our prospects contributed to a different yr of business main tower income progress in 2022 of practically 6.5% and to 9% progress in our annual dividends per share. Earlier than discussing the 2022 outcomes and 2023 outlook, I wish to draw your consideration to some enhancements we made this quarter to the disclosure in our supplemental data package deal. In response to suggestions we’ve got heard from our buyers, we supplied natural billings progress element by line of enterprise for towers, small cells and fiber options to assist buyers higher perceive the composition of natural progress tendencies.

This enhanced disclosure consists of historic natural progress data going again to 2019. Along with increasing our disclosure, we additionally reorganized the supplemental data package deal, in lots of instances, by line of enterprise to make it simpler for readers to comply with. We hope you discover this extra data and the brand new structure to be useful. Now turning to the complete yr 2022 monetary outcomes on Slide 4 of our earnings presentation, website rental revenues elevated 10%, adjusted EBITDA progress was 14% and AFFO elevated by 6% for the yr. The ten% progress in website rental revenues included 5% progress in natural contribution to website rental billings, consisting of practically 6.5% progress from towers, greater than 5% progress in small cells and a pair of% progress in fiber options.

Turning to Web page 5, our full yr 2023 outlook stays unchanged and consists of website rental income progress of 4%, adjusted EBITDA progress of three% and AFFO progress of 4%. We additionally anticipate natural billings progress of roughly 4% when adjusted for the influence of the beforehand disclosed Dash cancellations. The 4% consolidated natural progress consists of 5% progress in towers, 8% progress in small cells and flat income in fiber options. As we mentioned final quarter, we anticipate the rationalization of a portion of Dash’s legacy community to lead to some actions in our monetary outcomes that aren’t typical for our enterprise. Our expectations for non-renewals and accelerated funds related to this community rationalization exercise are unchanged with roughly $30 million of recent non-renewals and $160 million to $170 million of accelerated funds throughout 2023.

We anticipate nearly all of the non-renewals to happen within the first quarter and subsequently influence year-over-year billings progress in every quarter this yr. We anticipate the accelerated funds related to this decommissioning exercise and associated companies work to be concentrated within the second quarter. Because of this, we anticipate the second quarter to characterize the excessive watermark for adjusted EBITDA and AFFO in 2023. Turning to financing actions, we completed 2022 with leverage in step with our goal of roughly 5x web debt to adjusted EBITDA. For full yr 2023, our discretionary CapEx outlook can also be unchanged with gross CapEx of $1.4 billion to $1.5 billion or roughly $1 billion web of anticipated pay as you go lease. Based mostly on our present backlog of small cells that features a important mixture of co-location nodes, which have larger returns and require much less capital relative to anchor builds, we anticipate to have the ability to finance our discretionary capital with debt whereas we’re sustaining our funding grade credit score profile.

Earlier this month, we added to our robust steadiness sheet place once we issued $1 billion in senior unsecured notes with a 5% coupon to time period out borrowings beneath our revolving credit score facility. Following this financing transaction, we’ve got greater than 85% mounted fee debt, a weighted common maturity of over 8 years, restricted maturities via 2024 and roughly $5.5 billion in out there liquidity beneath our revolving credit score facility. So to wrap up, we’re excited concerning the power of our enterprise and our capacity to execute on our technique to ship the best risk-adjusted returns for our shareholders by rising our dividend over the long-term and investing in property that can assist drive future progress. We have now delivered 9% compound annual and dividend per share progress since we established our 7% to eight% dividend per share progress goal in 2017.

And I consider that we’re positioned properly to return to 7% to eight% dividend per share progress as we transfer past the Dash decommissioning impacts in 2025. With that, Kate, I might prefer to open the decision to questions.

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