美國電塔 (AMT) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the American Tower first-quarter 2016 earnings call. (Operator Instructions) Also, as a reminder, today's teleconference is being recorded.

At this time I'll turn the conference over to your host, Senior Vice President, Treasurer, and Investor Relations, Ms. Leah Stearns. Please go ahead.

Thank you, Tony. Good morning, everyone, and thank you for joining American Tower's first-quarter earnings conference call. Our agenda for this morning's call will be as follows.

First, I will provide some brief highlights from our financial results. Next, Tom Bartlett, our Executive Vice President and CFO, will provide a more detailed review of our financial and operational performance for the first-quarter 2016 as well as our full-year 2016 outlook. And finally, Jim Taiclet, our Chairman, President, and CEO, will provide a brief update on the US mobile market and our strategy. After these comments we will open up the call for your questions.

Before I begin, I would like to remind you that this call will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include those regarding our expectations regarding future growth, including our 2016 outlook, foreign currency exchange rates, and future operating performance; technology and industry trends; anticipated closing of signed acquisitions; and the impact of recently closed acquisitions; and any other statements regarding matters that are not historical facts. You should be aware that certain factors (technical difficulty) 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 press release, those set forth in our Form 10-K for the year ended December 31, 2015, and any 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.

In addition to this morning's press release, we have posted a presentation which we will reference throughout our prepared remarks, under the Investor Relations tab on our website. In addition, on our IR website you will also find our quarterly supplemental package, which includes expanded disclosure on the components of our revenue and revenue growth, including historical trending of our run-rate revenue, which reflects revenue associated with tenant leases that are typically noncancelable and include renewal options as well as annual escalation provisions.

We believe this disclosure will provide investors with greater visibility into the key drivers of our revenue model and a simple baseline on which to model our business. Accordingly, we have introduced a new metric to track the currency-neutral growth of the organic component of our run-rate revenue, which we will refer to as property revenue run-rate organic growth. To the extent you have any questions on the new disclosures, please don't hesitate to reach out to myself or another member of our Investor Relations team.

With that, please turn to slide 4 of the presentation, which highlights our financial results. During the quarter, our property revenue grew over 19% to nearly $1.27 billion. Total revenues grew over 19% to nearly $1.29 billion.

Adjusted EBITDA grew over 15% to approximately $833 million. Adjusted funds from operations increased by over 17% to approximately $602 million. And net income attributable to American Tower Corporation common stockholders increased by over 35% to $248 million or $0.58 per diluted common share.

With that, I would like to turn the call over to Tom.

Hey, thanks, Leah. Good morning, everyone.

As you can see from the results we released this morning, we had a strong start to 2016, with solid organic core growth in revenue and good margin performance across our global asset base. We also distributed our first-quarter common stock dividend of $0.51 per share, which was up over 21% from the prior-year period.

And just last week, we closed our previously announced Viom transaction in India. Our teams in India are now working hard to seamlessly integrate Viom's more than 42,000 towers into our portfolio. This transaction is expected to be immediately accretive to AFFO per share, and we expect it will help us continue to deliver strong growth across our key financial metrics.

If you will please turn to slide 6, let's take a look at our quarterly results. You can see that we drove strong growth in all of our key metrics in the first quarter, all in the 23% to 25% range on a core basis.

Our total property revenue core growth of about 25% included consolidated organic core growth of nearly 9%, or over 8% on an organic run-rate basis, which excludes the impact of decommissioning revenues. This strong revenue growth, combined with our disciplined expense management, led to double-digit growth in adjusted EBITDA, AFFO, and AFFO per share.

Turning to slide 7, our U.S. segment generated organic core growth for the quarter of about 7.1%, which includes the positive impact of $31 million of decommissioning revenue, as compared to approximately $17 million recorded in Q1 of last year. On a run-rate basis -- again, which excludes the decommissioning revenues -- U.S. organic growth was in line with our expectations at about 5.9%.

Our International markets generated organic growth over 600 basis points higher than the U.S., and over 350 basis points higher than it generated in Q1 of 2015, at over 13% on a consolidated basis, the highest rate in the last two years. On a run-rate basis, organic growth was about 14%, with escalators associated with rising local market inflation contributing about 7% to our International run-rate growth, and organic new business commencements were an even larger component of the growth at about 8%. That growth was partially offset by some churn of less than 1%.

There was broad strength across our International property segments, with all three posting double-digit organic core revenue growth rates. Our Latin American organic core growth was over 13%, including 10% and 13% in Mexico and Brazil, respectively, as network rollouts remained consistent throughout the region, even with some macroeconomic challenges.

In India, we generated organic core growth of over 12%, as large incumbent Indian wireless operators continued to spend aggressively to support the deployment of new technologies and spectrum. And in our fastest-growing region, EMEA, organic core growth was over 14%, or 18% excluding our more mature German market.

These strong growth rates continue to highlight the benefits of our diversification across countries, customers, and technologies. On a global basis, there are nearly 2.5 billion people in the markets that we serve, and our largest customers will be investing tens of billions of dollars in those markets just this year to meet their customers' rapidly growing wireless needs.

Complementing our organic growth on a consolidated basis were contributions from more than 25,000 sites built, leased, and acquired since the beginning of last year, including the Verizon, Airtel and TIM portfolios, as well as the roughly 3,700 sites we built ourselves. Collectively, these new assets contributed over 16% to our core growth rate in the quarter.

We're especially encouraged by the performance of our Nigerian assets, which have so far exceeded our expectations for new business. Of the 3,700 newbuild sites about 500 were completed this quarter, generating average day one NOI yields of over 10%.

In addition, we also built 14 new indoor DAS or small cell networks in the quarter, many in our International markets. Within the US, where the indoor networks have been in place the longest, our tenants per node stands at approximately 2.3, driving gross margins in the 70% to 75% range.

Our return on these investments is about 15%. Including those of Viom, we now have over 700 indoor DAS venues globally.

Moving on to slide 8, the combination of solid revenue growth and tight cost controls led to strong margin performance across our business. Our gross margin excluding pass-through remained above 80% despite the impact of the additional 25,000 new lower-tenancy, lower-margin sites we brought into our portfolio over the last year. This was the result of our strong organic gross margin conversion ratio of roughly 90%.

We've been generating these types of conversion ratios for several years now. Adjusting for the impact of our recent acquisitions, this (technical difficulty) 83%.

Our land acquisition and extension team also made significant progress towards driving incremental NPV for the portfolio, while enhancing our long-term US gross margin and preserving future cash flows, affecting more than 700 land leases this quarter by either acquiring them outright or extending them. About 50% of these transactions related to the Verizon portfolio.

As a result of our continued progress in this area over the last year, the percent of owned sites increased over 300 basis points in the US from the prior-year period to nearly 27%. And the average remaining term of sites on leased land increased to nearly 24 years.

In addition, our adjusted EBITDA margin increased about 20 basis points year-over-year after excluding the impact of the lower-margin, lower-tenancy acquired sites. Cash SG&A as a percentage of revenue declined about 30 basis points year-over-year to about 8.4%.

Our adjusted EBITDA and AFFO growth in the first quarter is detailed on slide 9. Adjusted EBITDA grew over 15%, or about 24% on a core basis, to approximately $833 million as a result of our top-line growth coupled with diligent operational expense management. A strong adjusted EBITDA-to-AFFO conversion ratio of over 81%, as well as some lower cash taxes and cash interest and capital improvement CapEx relative to our internal expectations, led to AFFO growth of over 17%.

On a core basis, AFFO growth was about 25%, and AFFO per share grew by about 13% to $1.41 per share.

As a result of our solid first-quarter performance and improvements in foreign currency exchange rate forecasts, we are raising our full-year guidance for 2016 as detailed on slide 10. At the midpoint of our outlook, we are raising our expectations for property revenue by $40 million or nearly 1%, resulting in projected growth of about 21% on both a reported and core basis.

The increase is being driven primarily by $50 million in FX assumption favorability as compared to our prior outlook, partially offset by approximately $40 million associated with the delay in closing the Viom acquisition versus prior expectations. As you recall, we closed the Viom transaction on April 21 versus an expected April 1 closing.

In addition, we expect a $20 million increase in pass-through revenue and around $9 million in incremental straight-line revenues. Within our total revenue projections, we are reiterating our organic growth outlook for our U.S. and International businesses.

We continue to expect mid-5% organic core growth for our U.S. property segment, given consistent activity levels that have been in line with the expectations we discussed in late February. As we have touched on previously, there are a few items impacting this rate in 2016 versus 2015, including more evenly distributed new business, versus it being more front-end-loaded last year, and flat decommissioning revenue, which are being partially offset by lower churn expectations as compared to 2015.

On an ending run-rate basis, as of December, growth for 2016 is expected to be closer to 6%.

Internationally, organic growth is still expected to be nearly 12%. At a consolidated level, our expectation for total organic core growth remains unchanged at approximately 7% for the year, or nearly 8% on a run-rate organic growth basis.

Newly acquired and built sites, which includes the impact of Viom, are expected to contribute the balance of our anticipated core growth for the year, or about 14%. Our outlook highlights the benefits of the increasing diversification of our revenue base and our decreasing dependence on any one country to deliver consistent and predictable growth.

We are a vital provider of communications real estate in vibrant markets like Mexico, where aggressive 4G rollouts are ramping up, and Brazil, where significant 3G network augmentation is continuing, and in India, where the transition from 2G is only now getting underway for a majority of the population. This diversification supports our ability to generate consistent, sustainable growth rates on a consolidated basis.

Our improved revenue growth outlook and strong conversion rates are in turn expected to lead to a higher 2016 adjusted EBITDA. We are raising our adjusted EBITDA outlook by $25 million or nearly 1% at the midpoint.

This reflects a negative $20 million impact due to the delayed Viom closing. This is being more than offset, however, by a $10 million increase in cash EBITDA projected from our existing business as a result of better cost performance, as well as an expected $35 million benefit from improving foreign currency exchange forecasts and incremental net straight-line impacts.

As detailed on slide 11, we are also raising our outlook for AFFO by $20 million at the midpoint, or nearly 1% versus our prior outlook, despite the negative $20 million impact of the delayed Viom close on cash adjusted EBITDA. The impact of the delay is being partially offset by a $10 million increase in expected legacy cash EBITDA; a $5 million decrease in the combination of cash interest, cash taxes, and capital expenditures on an FX-neutral basis; as well as benefit of approximately $25 million resulting from the improvement in foreign currency forecasts.

As a result, assuming a weighted average diluted share count of 429 million shares, the midpoint of our outlook now implies an AFFO per share of $5.65, representing year-over-year per-share growth of over 11%.

Turning to slide 12, we remain committed to our capital deployment strategy and continue to focus on our goal of simultaneously funding growth, returning cash to our stockholders, and maintaining a strong balance sheet. To this end, we declared over $240 million in common and mandatory convertible preferred stock dividends and deployed nearly $160 million in CapEx in Q1.

We believe that the combination of our growth in AFFO per share and consistent return of capital to stockholders through our REIT distributions will create meaningful value for our stockholders. In 2016, this includes expected growth in our REIT distribution, subject to Board approval, of at least 20%.

We are also committed to maintaining a substantial base of liquidity and a solid balance sheet. As of the end of the first quarter, our net leverage ratio stood at 5 times net debt to annualized Q1 adjusted EBITDA, with liquidity of over $3 billion.

We continue to expect to end the year at 5 times net debt or below. And longer-term, our target leverage range remains between 3 and 5 times.

As a result of our consistent capital deployment strategy, we expect to extend our track record of delivering strong financial results in 2016, as is detailed on slide 13 and, even more importantly, are positioning ourselves for strong, sustainable growth going forward. In fact, at the midpoint of our outlook, we will have grown property revenue, adjusted EBITDA, and AFFO at a mid-teen percentage clip since 2007 while at the same time maintaining return on invested capital of between 9% and 10%, despite adding over 25,000 new sites since the beginning of 2015. We expect these new sites will enhance our future growth trajectory over the long term, while enhancing total returns.

Turning to slide 14, and in summary, we started 2016 with a strong operational quarter, announced our entry into Tanzania, built nearly 500 sites, and closed our acquisition of a controlling stake in Viom Networks just last week. Our top priority remains driving continued operational excellence while focusing on the integration of our recently acquired portfolios.

As a result, we believe we are well positioned to sustain strong growth in all of our key metrics and margin performance and are raising our 2016 outlook for property revenue, adjusted EBITDA, and AFFO. Similar to last year, we expect core growth in all three to be above our long-term targets.

By year end, we expect to have nearly 150,000 sites worldwide, with a solid balance sheet, ample liquidity, and leverage back within our target range. Due to our disciplined, consistent, global capital allocation program, we continue to generate strong organic core revenue growth supported by a high-quality asset base diversified across geographies, carriers, and network technologies, with a global portfolio more than triple the size of our closest US publicly traded peers.

Our significant exposure to high-growth markets and our carefully cultivated asset base positions us to not only benefit from significant near-term network investments but to also deliver strong and steady growth over the long term. As a result, we expect to continue to generate consistent recurring growth in AFFO per share and a highly compelling total return to stockholders.

With that I'll turn the call over to Jim for some closing remarks before we take some Q&A. Jim?

Thanks, Tom, and good morning to everyone on the call. The first=quarter results we've just reported today again demonstrate continued solid demand for tower space, both in the US and in our diversified International markets. In the United States, consumers' ever-increasing appetite for mobile bandwidth has supported cumulative wireless carrier CapEx of nearly $180 billion over just the last five years, with approximately another $95 billion in spectrum auction spending as well.

The deployment of 4G technology at higher spectrum bands has driven significant colocation during this period due to the need for a more dense network array. In addition, each new spectrum band acquired and deployed into the network has driven additional amendment activity in the form of more antennas and remote radio heads on our towers.

In the United States, the four major wireless carriers are at or close to the completion of their Phase 1 coverage deployment of 4G technology.

So what does this mean for the level of demand for tower space going forward domestically? The primary message of my remarks today is that we expect demand for macro tower space to remain robust as mobile operators progress through their subsequent deployment phases for 4G and then on to 5G deployments thereafter. Our conclusions are based on a combination of internal and external analyses that we have conducted over the past two years.

Now, in the past you've heard us describe many of the technical and economic factors that support the continued use of towers as the optimal siting solution for mobile transmitters, especially in suburban and rural environments and along transportation corridors such as highways. Today I'd like to focus the discussion at a much more personal level: the factors that drive a satisfying user experience on our mobile devices.

Each of us is very familiar with these performance factors as we use our smartphones every day. These factors are: first, coverage, second, capacity; and third and more importantly as time goes on, peak speed. So coverage, capacity, and peak speed.

Let's say you're taking the Metro North train for your commute from Rye to Grand Central Station, a ride of about 45 minutes or so. Along that route most of your trip would be served by wireless transmission sites on macro towers, including our towers in Harrison, Mamaroneck, and in the Bronx.

While on the train you want to watch CNN.com video clips of the day's news on your phone. Coverage would be represented by the number of signal bars you see in the upper left-hand corner of your screen -- and by the way, it's just coverage.

Capacity, meanwhile, would determine how many people on the train could watch streaming video at the same time as you. If capacity isn't sufficient, even if the coverage bars are there, then many of the viewers will experience buffering; they will start to see the spinning wheel that we all dread, instead of the video we want to watch.

Finally, peak speed will determine the quality of that video experience. Does it come across crisp, or is it grainy, choppy, and pretty much unwatchable?

So coverage, capacity, and speed all need to be there to give you a good user experience. Based on the level of investment by your particular wireless service provider, your experience could vary drastically on each of these dimensions as you progress along your commute.

We're now at the stage where most US wireless carriers have deployed the majority of their 4G coverage sites. So in practice, the vast majority of US mobile subscribers have access to 4G bars when we look at our phone.

The anticipated 6 times increase in mobile traffic from 2015 to 2020, however, can't just be solved through these Phase 1 coverage sites. Wireless carriers are continuing to make significant investments in their networks to increase capacity across most of their sites, including in suburban and rural areas and also along those transportation corridors.

This capacity augmentation happens in two ways. First, carriers can add new spectrum bands, often resulting in amendments on our sites through new or larger multifrequency antennas. We're seeing this with bands such as AWS-3, WCS, and 2.5-gigahertz already.

Second, wireless carriers are actively refarming 2G and 3G spectrum into 4G to gain better spectral efficiency across all of their spectrum. This is currently being implemented across the cellular 800-megahertz band by some carriers as well as PCS bands, and also drives amendments on our towers as older antennas are typically swapped out for larger, more-advanced antennas when the refarming of spectrum occurs.

In addition to their focus on coverage and capacity, you've been seeing in their advertisements that carriers have also now started to shift their marketing towards an emphasis on peak speeds. This shift drives further investment into cell sites through technologies such as carrier aggregation as well as adding new cell sites to reduce the transmission radius and, therefore, the quality improvement for each signal.

This increase in cell site density is expected to drive incremental colocation opportunities on macro towers, as customers like us demand higher and higher peak speeds to enhance our user experience.

All this points to not only significant continuing 4G LTE investments but also to the subsequent deployment of 5G, which is not expected to be widely available until at least the 2020 time frame, though some pre-standard or trial deployments are possible over the intervening next few years.

Similar to 3G and 4G deployments in the past, 5G is likely to start in those dense urban environments in which capacity and signal strength challenges are the greatest, and then spread to suburban and rural locations over time. While very high frequency bands of spectrum such as millimeter-wave might be effective for 5G in dense urban mobile environments, and maybe as a fiber-to-home substitute, it's our view that lower-band spectrum will continue to be used for mobile 5G service in suburban and rural areas where our towers are located, given the need for broader coverage and a less acute requirement for point capacity.

Coincidentally, the 600-megahertz spectrum currently being auctioned should be cleared in the same general 2020 time frame as the commencement of large-scale 5G deployments. The newly available 600-megahertz spectrum could be used for 5G rollouts outside of dense urban locations without disrupting 4G spectrum bands already in use or causing significant interference.

As a result, carriers would once again need to install additional or larger multiband antennas on towers, which we would expect to result in incremental revenue growth for us. Given more than 80% of the US population resides outside of urban areas, we view this as a long-term opportunity for our portfolio as 5G gets implemented down the road.

To summarize, even in a 5G world, we believe that macro towers will continue to be a foundational building block for mobile network deployments in the US and globally. Consequently, we are confident that demand for tower space will continue to remain robust for many years to come.

Thanks again for joining us this morning. And Tony, you can open the line for questions now.

(Operator Instructions) Ric Prentiss, Raymond James.

Thanks. Good morning, guys. Hey, lots of puts and takes in the quarter, so just trying to make sure I understood everything you laid out for us there. In the first quarter, the $31 million of decomm revenue, how does that compare to what you expect for the year in decomm revenue?

I think last quarter you mentioned you think it might have been $37 million for the year. Was that expected in guidance?

Yes. No, Ric, the $37 million is exactly as you stated. We expect that for the full year.

We don't give quarterly guidance. So as last year we also recognized $36 million or $37 million, we had about $17 million in the first quarter; this year we recognized more. But the balance we recognize throughout the rest of the year, and year-over-year it will be relatively flat, just as we expected in guidance.

Got you. So even though the quarter was high it was already expected in guidance for the year.

Yes, exactly.

Okay. Then on the puts and takes on the AFFO increase and revenue, it looks like the revenue increase was really straight-line and pass-throughs, not really any base business. EBITDA was cost-cutting of about $10 million plus some straight-line.

And on the AFFO, the straight-line or the cost-cutting continues. And then there was $5 million for -- was it cash taxes and interest? Just trying to understand what that extra AFFO benefit was.

Yes, that's exactly right. Some lower interest expense, some lower cash taxes than previously thought. And the services is down a little bit, and so we have a couple million dollars less of services AFFO there as well.

Just to be clear, Tanzania is not in the guidance yet?

That's right. Yes, we expect to close that probably at the end -- hopefully by the end of the second quarter.

Great. Okay, that helps clean it up a lot. Thanks.

David Barden, Bank of America.

Hey, guys. Thanks a lot. Tom, I think you pointed out in the disclosures the organic growth rate domestically in the US was 5.9%. Then in the prepared remarks, I think you said that by the end of the year you expected the run rate exiting the year to be 6%; and yet the guide for the full year is 5.5%. Could you bridge how we get down to a 5.5% rate with those two endpoints in the chain?

Then just second, I understand that you are consolidating Viom for purposes of the AFFO presentation. Could you comment on its contribution?

For instance, if we wanted to back out the 49% that's not yours, what that would be; and what your strategy is for bringing the rest of it in-house. Thanks.

Sure, David. On the first question, two different metrics. The run-rate metric that Leah talked about in her opening remarks is a new metric that we're adding. We talked about it the last time we were together, but it isolates just the recurring lease-based run-rate revenue that we generate on an FX-neutral basis.

We think it provides more transparency into the components which really drive the tenant run-rate growth. So that's what is driving the 5.9%. It excludes decommissioning revenues and those types of things, back billing, amortization revenue, those types of things. We think it gives more clarity in terms of what really is the run-rate growth in the business.

The 5.5% is our traditional core organic growth, which is the one that we've historically talked about, which represents the same-tower-store growth on those assets that we've owned for at least 12 months, and so that's what's really driving the difference between the two metrics.

On the Viom piece, in 2016 we now expect to generate about $555 million of revenue from Viom, about $245 million in gross margin contribution, and I think around $215 million in EBITDA. That represents the closing as of the April 21.

Going forward over the next 12 to 18 months, we'll look to merge our existing legacy business -- which is our 15,000 sites that we have within ATC India, it generates a couple hundred million dollars a year -- with the Viom business. Then over time -- and that will take our ownership interest up from the current 51% to the mid 60%s.

Then following that period of time, we'll look at whether, how, financially what makes sense in terms of bringing the rest of the business in. It's our objective that we would want to own 100% of the business. We have some very strong partners within the business, including the Tatas and Macquarie, so we're really excited about controlling the business, running the business with that kind of participation.

So I would expect over the next three to four years, we'll have more clarity in terms of just what we ultimately end up with from an ownership perspective of the business. But our immediate goal is to merge the two businesses, where then we can really start to recognize what we believe in, some synergies.

Yes, and David, I think the first step of this, to summarize is, we'll go from 51% to the mid-60%s or high 60% just by merging the existing asset and Viom together. Then the incremental piece will be implemented via a more traditional investment process over a number of years, actually.

Got it. Okay, thanks, guys.

Amir Rozwadowski, Barclays.

Thank you very much. Just dovetailing on the prior question, US growth, there has been some discussion earlier this year with select carriers looking to perhaps save some money with respect to some of their tower leases. I was wondering if you give us any clarity in terms of what you're hearing from the operators at the moment.

Because we are seeing some tempered CapEx trends coming out of the operators. Similarly some of the component suppliers at the macro site are talking up the demand environment. So some mixed data points there, and would love to hear your thoughts on overall US trends from that perspective.

Amir, this is Jim. First of all, the overall CapEx from year-to-year in the US wireless industry is expected to be flat, around $30 billion. So if there are moderated ups and downs among individual carriers, the total is looking to be about the same, which means our aggregate new business opportunity among the major tower operators ought to look similar from 2015 to 2016.

That's how we've introduced our guidance and informed our guidance. At the end of the day we're looking more at the overall markets now, especially with the segment reporting we've moved to. So the U.S. run-rate leasing metric that Tom talked about is we expect 6% or so in the United States, which is very solid.

The other thing I'd like to say about the run-rate metric, we're giving you yet another lens to look at the business. I think it's a good lens because it actually is very similar to the way a lot of real estate investors look at the assets, which is: What are your rent increases and rent pricing over time? And what's your occupancy increases over time?

That really just encapsulates all of that in the run rate, and it takes out some of these amortized contributions and other one-time settlements and things like that, that cause you to have to pull them apart to figure out what the real run rate is. So we're just going to give that to you.

When you take a U.S. 6% run rate -- and then you know the other part of our strategy is diversification across carriers, technologies, continents, etc., and our International run-rate leasing is 14% this year, so the weighted average is about 8%. This is what we're trying to preserve over many, many years, which is a weighted average smooth rising curve of revenue growth, which then drives the double-digit expectation and objective we have for AFFO per share growth.

So individual carriers in the US are really important, but we're looking more at a market level now. And when you look at the aggregates, we've still got $30 billion of spending and 6% of run-rate growth, the domestic business.

Then the last thing I'll say, and Tom referred to it a couple times, is we're really starting to focus on efficiency, especially in the domestic business, to get cost out of it, performance to be at or above as far as revenue and top-line growth. And that's going to help us with the AFFO per share contribution from the U.S. over time as well.

So I really think it's important if you want to understand the carriers' individual plans to refer to their public statement specifically or talk to them individually. But we're really going to be looking at market-level and region-level trends from this point on.

Thank you very much for the additional color.

Mike Bowen, Pacific Crest.

Yes, hi; thank you very much. I was interested in the chart that you had in your supplemental going through the International portfolio. I was wondering if you could just walk us through a few of the examples.

If I'm reading this correctly, a few of the examples have literally even over 100% gross margin. At least that's what it's showing in the chart, if I'm reading it right, in Mexico.

Beyond that if you could give us a little bit of your thoughts as to which of these countries do you think these metrics are going to move the most going forward. Thanks for the chart, but I want to make sure we understand it. Thanks.

Yes, Mike, I'm not sure exactly which chart you're referring to. I think you might be talking to the conversion rates. So it's the percentage of that incremental revenue that's actually coming down to the margins.

But I will highlight, though, that the margins in our International business -- particularly in those that we've had some history, Mexico as well as in Brazil, where we are passing through the land cost in the business -- the margins there are actually higher than that of the United States. So we are achieving higher margins there than, as I said, than the States because of some of the incremental pass-through.

I don't know the specific chart. Maybe after the call you can just give Leah a call just in case I've misstated that. But my sense is that you might be talking about those conversion ratios, which is the ratio of revenue that we're bringing back down to margin.

Yes, I think that's right. All right; thank you very much.

Jonathan Atkin, RBC Capital Markets.

Yes, good morning. Keeping things at a market level for the U.S., I just wondered if you're seeing any interest by carriers in renewing or entering into or extending holistic MLAs.

And unrelated to that, on International I wondered if you could talk about in-building a little bit more. Do you have exclusivity? What are some of the more target-rich markets? Do you face a lot of competition? That would be my question; thanks.

Jon, you were a little garbled on it, but let me just repeat what I think you are asking. On the U.S. side, getting just a little bit more color in terms of what's going on from a market perspective and specifically --

Yes, no. For the U.S., I wondered if you are seeing interest on the part of the carriers in renewing or entering into or extending holistic MLAs.

Okay. And what was the second part again, please?

And the second one related to in-building internationally. What are some of the more target-rich markets? Do you have exclusivity? Do you face a lot of competition?

Just a little bit more color about in-building International, because it seems to be where you're focusing. You're focusing more on in-building internationally lately rather than U.S..

Sure. Jon, as I think you know, we don't speak to individual contract negotiations or even outcomes with the mobile operators really anywhere. We've described that we have offered holistic-type agreements when global operators are in a ramp-up or a high-spend mode. That just helps them in a couple ways.

One is to budget more accurately and to understand what their costs will be going forward. Secondly, it reduces the cycle time and therefore increases the surety of when their deployments will be implemented as far as a schedule perspective.

Those benefits are still there. Some of the mobile operators are taking advantage of those now; some of them have decided to either stay on, or move toward or away from a more retail type of operation.

So without specifying any of those, those are the range of options. Carriers move among those options based on their investment cycle, which again speaks to the benefit of diversification when you can do those multiple type contracts.

Secondly, on the in-building side, I would like to think we are a bit of a pioneer in a way, especially in Latin America, to introduce this technology. It will come into EMEA and especially Africa next on our part.

But Mexico and Brazil have been really strong for us on in-building. Viom, to its credit, is more of a pioneer in in-building in the India market, with a couple of hundred venues -- much more actually than we even have. It's actually a very good match on the small-cell side as well, Viom and ATC India.

But those are probably the three places with the most opportunity right now: Mexico, Brazil, and India.

Thank you.

Jonathan Schildkraut, Evercore.

Great. You got to a lot of the key issues already, but I would love if you could spend just a few extra minutes talking about the Mexico market. It does seem like that's one that we've seen some real acceleration, and investment seems to be broadening out in terms of the carriers there. Thanks.

Sure, Jonathan; it's Jim. What's happening in Mexico right now is something that, again, has happened in the US and other markets earlier. And that is the rate of 4G adoption can be governed, if you will, by two things in any market: one is service pricing and the other one is handset pricing. The lower the handset pricing, the lower the service pricing, the more people can afford it and will sign up and start using it and grow over time in their usage.

In Mexico the government successfully increased the level of competition in that country. Service pricing moved in a constructive way for the population to be able to adopt data services more rapidly than they could before.

And globally, handset pricing for 4G is also reducing at the same time. So you have these two complementary cost unit reductions in handsets and service pricing, and people in Mexico are signing up.

So that then, as we've always seen in every other case, increased smartphone penetration, 3G usage, and ultimately 4G drives gigabits per month on the network; and that network demand needs to be serviced in large part often by adding equipment to real estate, including tower. So it's the typical cycle we've seen, but I'd say the two drivers are reduced handset pricing and reduced service pricing for data.

Thanks, Jim.

Colby Synesael, Cowen and Company.

Great. I have two questions. One is on escalators.

Historically we've thought of escalators as being something north of 3% for your business, particularly in the United States. But escalators as we all know, are supposed to be tied to inflation. That's essentially the whole purpose of why they were designed.

And inflation, as we all know, both when we look backwards as well as, I think, when we look forwards is much less than that right now. I'm curious if because of that you are starting to see some pushback on the escalators on new deals you are signing in the United States, and if you are still able to achieve the 3%-plus. Or is it actually now something closer to, for example, 2%?

Then my second question, this goes back to some of the comments Jim made, talking about the U.S. market. I think one of the things that's going to be different with the buildout of 5G relative to previous generational builds is the use of outdoor small cells. It looks like from a topology perspective, particularly when you think of some of the higher-band frequencies that are going to be used, small cells are going to command a greater portion of the overall investment dollars for network buildouts than had historically happened.

I'm curious if you think that that is going to limit the level of macro tower growth you're going to see in the United States tied to 5G versus the growth rates we've seen in previous generational buildouts. Thanks.

Let me start with the escalator. The traditional 3%-plus escalator is really not necessarily tied to inflation in the US; it's tied to real estate rent increases over time, which have been around the 3% level when it comes to land rents upon which towers are built.

Of course there's an inflation concept -- second order -- behind that. But land rent costs are the largest cost of ongoing tower operations, and ground lessors have been able to secure 3%-plus escalators off and on grounds. So those are mirrored in the tower lease.

Moving to the outdoor small-cell 5G issue, I would invite you to get a hold of Leah separately, because we've got some pretty in-depth technical assessments on how this works, whether it's 3G, 4G, or 5G. Yes, in dense urban environments networks do have to have much shorter transmission radii; small cells make sense for them for 3G, 4G, and ultimately they will make sense for 5G.

But what we serve is the suburban, rural, and transportation corridor market, not urban or dense urban. 97.5% of our towers are in non-dense urban environments. And the reason that carriers use towers predominantly in those environments is because that is the optimal height, power setting, and transmission radius for suburban, rural, and transportation corridor use cases.

The proportion of small-cell spending -- our projection is that, yes, as a percentage CapEx it will double over the next five years from 5% to approximately 10%. That's our estimate. Therefore, we think 90% of the spend raises or so is going to continue to be on macro sites, mainly towers and also rooftops in more urban environments.

So that's how we see it going forward. Again, if you want more depth in some of the detail, we can even provide a separate session for anybody that wants that. Just contact Leah.

Great. Thank you very much.

Matt Niknam, Deutsche Bank.

Hey, guys. Thank you for taking the questions. Two if I could.

One on Viom: How soon do you sense you can integrate these assets with the existing ATC India portfolio? Just wondering really where the margins on the Viom portfolio can go from the roughly 40% that's implied by the current guide.

Then just secondly on the Verizon portfolio of towers, can you just give us an update on what you're seeing on the demand front and latest expectations for lease-up activity in 2016? Thanks.

This is Jim. I'll speak to the Viom integration. The most important part of the integration from a commercial standpoint is one salesforce face to the customer, which is in the process of being implemented right now. And that's on a fast track.

The second largest piece from, again, a customer and revenue point of view, will be the integration of multiple Master Lease Agreements between the two portfolios among many customers. That's going to take probably 12 to 18 months to really get those consolidated. But those things have already started.

As far as the leasibility of the sites, Viom has been run as an independent third-party tower company already; and therefore the documentation, the systems, the data to be able to quickly lease sites is largely already there. That's a difference than, say, a carrier portfolio like Verizon, where you have to at least collect a lot of that from field offices and such.

So the Viom integration from an effective leasability standpoint is going to be, I think, on a very fast track. This entire portfolio, this combined portfolio, is going to be jointly marketed to our customer base early on, and we're already in volume discussions with many of them as to how they can take advantage of the now number-one independent tower company in India, along with our traditional operating capabilities that they've come to respect.

So I'd say the Viom integration is 12 to 18 months to get it completely renegotiated around the Master Contracts and then have some of the field work done and some of the organizational alignments fully completed.

As to Verizon, we've said just recently in our last call and it's still the case, we have a 9% to 10% long-term cumulative average growth rate expectation over 10 years for that portfolio. And we still do. So every month or two it's not going to change -- I can't imagine -- materially.

We're seeing new business on the sites. They're in really great shape as far as the carrier portfolio for capacity, ground space, the documentation I referred to earlier. So we're progressing through our plan and expect to be able to deliver what we've stated in the past.

Thank you.

Brett Feldman, Goldman Sachs.

Thanks. Just going back to Colby's question about network design, even before we get to 5G, one of the things that's happening now -- and this is something Verizon discussed when they met with analysts earlier this week -- is that carriers are moving to a centralized RAN design. So they're taking some of the equipment that has historically been at tower locations and moving them to central locations.

However, Verizon also said that in many cases those central locations, they're macro sites. So since this is happening now and I imagine you're seeing some of it going on at your sites, how does this affect your business?

Are you seeing some reduction of footprints in other ones someplace, but meaningful increases in a carrier's footprint in other locations? And, on net, what does this mean for you?

The net effect of changes in ground equipment installations and locations, Brett, is not material. There are some offsets, like you said; but generally the way our contracts are structured, the vast majority of the lease rate, if you will -- and none of it is separable or severable, if you will -- but the vast majority of the pricing calculation is really what goes on the tower, not necessarily on the ground.

Again, none of it is severable. So because you took one cabinet off of your ground space, you're still paying for the square-foot footprint of that ground space, and you can put whatever you want or not on it. So we don't tend to reduce prices because someone moved a cabinet from one place to another or took it off the site.

One of the benefits, though, of central RAN or cloud RAN, in our view, is that it frees up more resources for the radio access network, the transmission equipment that goes up on the tower -- which again we charge for, and that's what most of the amendments have to do with. So, over the long term, we think RAN centralization or cloud RAN is going to be constructive for our lease growth on our sites, because if much less -- and I think a couple of mobile operators have said this is reducing their core network costs fairly significantly -- that more resources could then be potentially devoted to the radio access network. Which again, 90% of that we think will be spent on tower and related rooftop sites.

Got it. Just as a quick follow-up, since they are using -- carriers seem to be using certain macro locations to be the centralized hubs, are you finding that tower sites that happen to have a lot of ground space all of a sudden maybe have more revenue potential than they would have, because that space is useful for the datacenters that they're running?

I think on the margins and conceptually that would be right, Brett. But again, our sites tend to have substantial ground space.

What's been helpful, for example, is when, say, Nextel went from having essentially a tractor-trailer full of equipment on the site down to today's Sprint, two cabinets and in a much smaller footprint. The miniaturization of the base station electronics has actually helped us free up more ground space over time.

Now, there are cases where we need to get more because we have multiple customers now, which is great. But yes, I think that we're going to be in good shape to be able to host not only extra cloud RAN equipment on sites which are closer to the edge of the network, but also distributed. Someday we think there could be an opportunity for distributed storage, caching, especially entertainment-type volumes of data at the tower site to reduce the latency of transmission of content.

That's something down the road that our ground space could be used for. We have some examples of this in our International markets, where we're doing fiber ducts and other very closely related ancillary uses of the ground space for incremental amendment.

So we'll get every dollar we can out of every square foot of ground we can. But I think it's a bit of a long-cycle, again, kind of therapeutic trend.

Got it. Thanks for the color.

Phil Cusick, JPMorgan.

Hey, guys; thanks for getting me in. The FirstNet RFP responses are due in a month. Can you give us any flavor of conversation you're having with the potential bidders for this?

Our interaction with the mobile operators on this is that we will support you should you have a part in FirstNet. They know that we will. We are not a designated subcontractor in a bid to any particular mobile operator.

Our view of FirstNet is there is spectrum to be put to work; there is a national security or Homeland Security need to be filled. It's very unclear as to how that's going to be filled. But at the end of the day they're going to need to transmit off of, largely, towers; and we'll be there to serve that need, depending on who wins, how it's structured, if it's statewide versus national, etc.

So we're going to have our real estate at the ready. And by having good operational practices and good structural capacity on the sites available for these kinds of things, that's the best we can do right now, is just get ready for this wave, if and when it hits, to lease it onto our towers.

I think a bidder would have to have some idea of what he is going to pay for towers. Do you have some level of view on what those amendments might cost if a carrier were to add that capacity?

We don't know the bill of materials yet, first of all, like what equipment would go on. We don't know the redundancy and hardening factors that might need to be put in place. For example, is a generator dedicated to this needed at every site?

So until we know the bill of materials and the specification of the loading and the ground requirements, we can't price it. Now, I think you're absolutely right that bidders are going to have to make estimates of this; but there is market pricing out there for them to draw from today, and I'm imagining that's how people are doing it.

But we're not committing pricing because we don't -- we can't do it until we have a bill of materials.

What about the fact that the carrier won't actually own this spectrum? Does that change the way you expect to price it? Or do you think it will be similar to an owned band?

We will have to see what the legal relationship is between the government entities, whoever they may be, and the operators, whoever they may be; and then compare those to existing agreements that may or may not apply to this type of service depending on who the operator is. So it's all going to be very case-specific.

But we will, again, deal with it -- especially if it's one of our current customers -- in a constructive way, as we try to always do.

Good. Thanks, Jim.

Thank you. We do have time for one last question. Simon Flannery, Morgan Stanley.

Great; thanks a lot. Can you just comment, Jim, on the M&A environment? You've obviously done a couple of big deals here and obviously trying to get your leverage down. We've seen some transactions going for sale in Europe, and I think you talked in December about a lot of markets in Asia opening up.

So how are you thinking about deal activity? What are you seeing out there at the moment? Thanks.

Sure. Well, we've since 2007 positioned business development teams -- and very skilled ones -- in Asia, EMEA, and Latin America, to always be ready when and if mobile operators or others were willing to divest of their sites or engage in some kind of a merger with us. So -- referring to some successes we've had in Brazil, India, and Nigeria recently.

We're still pursuing those. We're pursuing them in light and full understanding of what our leverage targets are, and Tom keeps very close triangulation on all that with the EVPs that run the regions. So everybody is well aware of what the parameters are here.

In Europe specifically, the team in that region is carefully evaluating the situation right now, where there have been some movements of either privately held companies, as third-party tower companies or carrier portfolios being separated and spun out, etc. But they are evaluating it carefully in the context of our disciplined approach that Tom referred to already.

Perhaps the biggest factor in any of these deals, whether it's in Asia, the US, or Europe or elsewhere, is the asset pricing at that moment versus the expected revenue and EBITDA growth rates through the medium and long term. When there is a dislocation between asset pricing and those long-term prospects, you do not see us act.

Any major investment for us, especially given the scale we're at today and the diversification we have today, actually, Simon, needs to enhance the expected performance of our existing asset portfolio. So something we do on top of the transactions and organic growth we've already done has to make the whole cash flow curve better over time.

Those deals are difficult to find, especially when you impart the discipline and patience that are the hallmarks of our investment committee, which is me, Tom, and our General Counsel Ed here. So it's a disciplined process.

And this is one example, not to try to make any kind of prediction for any other region. But you'll recall that we entered the India market in 2007 and we deliberately built the business a piece at a time of increasing size over a nine-year period before securing the leading position in the market with Viom. So if that's what it takes, that's what we'll do.

On the other hand, if opportunities emerge quickly -- like in Nigeria there were three trades within 9 to 12 months -- we were very active in those as well. So it's hard to predict.

The M&A environment is not set just by the seller but also by the buyer community. And if asset prices are too high you're not going to see us that active; if asset prices are within our investment criteria, you'll see us move very quickly to move forward.

So really not much specific to say: that we're out there, we're active, and we still use the same process, and asset pricing is important to us.

Great. Thank you.

Great. Thank you, everyone, for joining us today. If you have any follow-up questions on the results, please feel free to reach out to myself or another member of our IR team, and we're here to help. So thanks.

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