美國電塔 (AMT) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the American Tower First Quarter 2017 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Leah Stearns. Please go ahead.

Thank you, and good morning. Thank you for joining American Tower's First Quarter 2017 Earnings Conference Call. We have posted a presentation, which we will refer to throughout our prepared remarks under the Investor Relations tab on our website, americantower.com. Our agenda for this morning's call will be as follows. First, I'll provide some brief highlights from our financial results, then Tom Bartlett, our Executive Vice President and CFO, will provide a more detailed review of our financial and operational performance for the first quarter of 2017 as well as our updated full year outlook for the year for 2017. And finally Jim Taiclet, our Chairman, President and CEO, will provide a brief update on our U.S. business. 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 of future growth including our 2017 outlook, capital allocation and future operating performance or acquisitions, technology and industry trends, our share repurchase program and any other statements regarding matters that are not historical facts. You should be aware that certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in this morning's press release, those set forth in our Form 10-K for the year ended December 31, 2016, and in our other filings we make with the SEC. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call to reflect subsequent events or circumstances. With that, please turn to Slide 4 of our presentation, which highlights our financial results for the first quarter of 2017.

During the quarter, our property revenue grew nearly 26% to $1.59 billion. Our adjusted EBITDA grew nearly 20% to approximately $998 million. Our consolidated adjusted funds from operations increased by nearly 20% to approximately $721 million and over 19% on a per-share basis. And net income attributable to American Tower Corporation common stockholders increased by more than 16% to $289 million or $0.67 per diluted common share.

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

Hey. Thanks, Leah. Good morning, everyone. As Leah just highlighted, we generated another quarter of strong results posting double-digit growth across our key metrics. In addition, our consolidated organic tenant billings growth accelerated 8.6%. We continue to delever naturally to 4.6x net debt to its annualized adjusted EBITDA. We grew our common stock dividend by about 22%. And with the resumption of our share repurchase program during the quarter, we bought back more than $400 million of our stock so far this year. We also closed on our acquisition in France, which enabled us to launch operations in our 15th global market, and built over 460 new sites globally.

With that, let's dive into the details around our first quarter performance and updated outlook for the year. If you'd please to turn to Slide 6. Consolidated property revenue grew by nearly 26% in the first quarter including tenant billings growth of about 22% and organic tenant billings growth of 8.6%. Our U.S. property segment revenue growth for the quarter was about 5% including organic tenant billings growth of 6.5%, representing a 70 basis point sequential acceleration from the fourth quarter of 2016. This strong growth reflects a healthy demand environment, which drove our third consecutive quarter of record new business levels and the cash impact of our recently signed MLA amendment.

Volume growth from colocations and amendments contributed just over 5% and pricing escalators just over 3%. This was partially offset by churn of around 2% on an annualized basis, just 40 basis points of which was associated with operational churn from the Big 4 core networks. International organic tenant billings growth was over 14% on a consolidated basis with all 3 international segments growing double digits. This growth was supported by the significant geographic, technological and tenant diversification embedded in our global portfolio as well as positive secular global trends in wireless including rising smartphone penetration. Contractual pricing escalators, driven primarily by local CPI indices in most international markets, contributed nearly 7% to our growth, while volumes from colocations and amendments drove an even greater contribution in over 9%. Other run rate items contributed an additional 60 basis points, and this was partially offset by churn from about 2.4% primarily resulting from continued carrier consolidation in India. On the inorganic side, the day 1 revenue associated with the over 46,000 sites we added just the first quarter of 2016, including the volume portfolio and our new French and Argentinian assets, contributed another 13% to our global tenant billings growth. Our new build program also remained active, and we constructed over 460 sites globally this quarter, predominantly in our international markets where average day 1 NOI yields were nearly 12%.

And as you can see on Slide 7, our strong revenue trends led to double-digit growth in both adjusted EBITDA and consolidated AFFO for the 16th consecutive quarter with both metrics growing nearly 20%. Growth on a per-share basis was similarly strong with consolidated AFFO per share and AFFO attributable to common stockholders per share growing over 19% and over 15%, respectively.

So turning to Slide 8, let's now take a look at our updated expectations for 2017. At the midpoint of our revised full year outlook, we expect property revenue to grow by nearly 14% to over $6.5 billion. This represents an increase of about $105 million or 1.6% from the updated outlook we reported in the 8-K issued at the end of last month. This increase reflects about $27 million in additional straight-line revenue, about $20 million of which is attributable to incremental straight-line revenue from the MLA amendment we announced in the 8-K.

We also have included a couple of million dollars of incremental U.S. straight-line revenue as a result of normal course extensions and around $5 million or so of incremental straight-line revenue internationally, primarily from our newly acquired business in France. Additionally, we've layered in about $73 million from positive foreign exchange rate fluctuations relative to our prior outlook as a result of year-to-date FX actuals and a refreshed outlook rates for the balance of the year. The rest of the increase is attributable to slightly higher pass-through revenue and some slight outperformance in tenant revenue in the U.S., EMEA and Latin America. We expect this to be partially offset by our lower revenue expectations in India due to higher churn.

We continue to expect strong organic growth in 2017 in both our U.S. and international businesses, with consolidated organic tenant billings growth in the 7% to 8% range, supported by our global scale and increasing diversification. These expectations are supported by our new business pipeline, our expectation is the positive demand trends underlying our first quarter results will continue for the remainder of 2017 and the meaningful contractual new business secured by the MLA amendment we signed in Q1. Given our strong Q1 results and indications of continued network investment by our U.S. tenants, we are raising our expectations modestly for U.S. organic tenant billings growth to over 6% for the year. This reflects the expectations that 2017 U.S. colocation and amendment activity will be up over 15% versus 2016.

I would also like to make clear that we have still not included any meaningful leasing expectations from the completed incentive auction nor any potential impact from FirstNet deployments in our current outlook. We are optimistic about the intermediate and long-term organic growth potential of our U.S. business. In the intermediate term, aside from potential catalysts such as the 600 megahertz deployment, we expect our tenants to increasingly rely on densifying their networks to support rising mobile data usage, given most available spectrum assets have already been auctioned and given spectral efficiency within 4G is already very high.

Looking even further out, the Internet of Things and other emerging technologies may very well provide additional upside for our U.S. tower business. We have cultivated a high-quality U.S. asset base with significant incremental capacity and strategically important locations that we believe will enable us to be an important part of the solution for both this broadcast spectrum deployment and repack process as well as for other near-term carrier deployment initiatives. Over the last several years, we worked diligently to specifically augment our portfolio to help meet the needs of these important opportunities. We significantly enhanced our suburban and rural offerings to the Verizon wireless tower transaction, and we submitted our position at the largest independent broadcast tower owner in the country through the strategic broadcast tower acquisitions we've made over the last several years, and we expect this differentiated portfolio of assets will enhance our organic U.S. growth given that they are locations particularly well suited to serve these pending initiatives.

In our international markets, we're now projecting organic tenant billings growth of between 9% and 10%, down slightly from the approximately 10% that we had layered into our prior outlook. Additionally, as we have stated previously, we expect our international organic tenant billings rate to decline sequentially throughout the year, largely as a result of the calculation methodology as volume moves into the beginning run rate starting in the second quarter. Our underlying international business continues to be strong, supported by our increasing global diversification, and as a result, we are actually raising our expectations for the contribution for gross commenced new business by nearly 1% from our prior outlook.

We do, however, expect this increase to be offset by higher assumed churn levels. Churn is now estimated to be in the low 3% range internationally for the year versus 2.3% in the prior outlook. This incremental churn is attributable to updated expectations regarding the ongoing carrier consolidation and market rationalization process in India, which is proceeding at a slightly faster pace than we have previously anticipated. While it creates a near-term headwind, we view the consolidation process as a long-term structural positive for the market. And in the future, we expect stronger, well-capitalized tenants to support an industry where wireless competition can be incrementally more rational. This scenario may be further enhanced by the increasing presence of independent stakeholders and some of the captive tower companies in the marketplace. Additionally, I would note that our revised outlook actually includes an increase of about 2% in the expected contribution from new business commencements in India, signaling continued underlying strong demand for tower space in the market as new network technologies are rolled out.

So to summarize, we expect another year of solid international organic tenant billings growth as a result of increased levels of colocation and amendment activity in our international markets despite lower CPI-based escalators and some increased churn assumptions in India. We're also raising our outlook for adjusted EBITDA, consolidated AFFO and consolidated AFFO per share. We're raising our expectations for adjusted EBITDA by about $70 million or 1.8%, which reflects about $42 million from positive foreign exchange rate fluctuations and about $26 million from the benefit of net straight-line recognition.

Additionally, we now expect SG&A as a percentage of revenue of about 7.7%, a decline of around 20 basis points from the prior year. We expect this increase in adjusted EBITDA to translate into higher consolidated AFFO and consolidated AFFO per share as well. We're raising our consolidated -- we're raising our outlook for consolidated AFFO by $55 million or about 2% and now expect to generate consolidated AFFO of over $2.8 billion for the year. We're also raising our expectations for consolidated AFFO per share by 2% and now expect to generate over $6.50 of consolidated AFFO per share at the midpoint of our outlook.

Turning to Slide 9. We deployed approximately $1.2 billion of capital in the first quarter including over $500 million for acquisitions and $225 million of stock repurchases. We spent over $150 million for discretionary CapEx to build new sites, enhance the capacity of existing sites, strategically invest in land and to bring newly acquired sites up to AMT standards with startup CapEx. We also spent about $24 million on nondiscretionary maintenance and corporate CapEx, representing less than 1.5% of our consolidated revenues for the period. In addition, we declared about $291 million in common and preferred dividends in the quarter, growing our common stock dividend by around 22%. All the while, we continued to delever and ended the quarter at a last quarter annualized net leverage ratio of 4.6x. Subsequent to the quarter-end through April 26, we've continued to buy back shares, bringing our year-to-date purchases to over $400 million. The strength of our capital deployment strategy continues to be evidenced by our strong track record of growth across our key financial metrics as well as a rising return on invested capital across our business.

In both our U.S. and international operations, ROIC expanded in Q1. Our U.S. ROIC increased about 0.6% year-over-year to 11.3% despite the non-recurrence of $31 million in decommissioning revenue from the first quarter of 2016. Meanwhile, our international ROIC rose to 10.1%, primarily driven by continuing solid organic new business growth. This performance is especially encouraging in light of the fact that our international ROIC includes the impact of over 46,000 new lower initial margin sites not included in the prior year comparison. As a result, our consolidated return on invested capital expanded to 10.5% in the quarter, up over 40 basis points year-over-year. This reflects our strong Q1 results, the benefit of increased net straight-line recognition for amended MLA as well as seasonally low maintenance CapEx and cash taxes. For the full year, even without the benefit of the seasonal favorability, we expect consolidated ROIC to be above 10%.

As you can see on Slide 10, our capacity for discretionary capital allocation continues to grow and we expect to use that capacity to help us drive compelling total returns for our stockholders. Given the more than $4 billion in adjusted EBITDA at the midpoint of our outlook, we now anticipate having about $1.5 billion in incremental borrowing capacity for the year, which is about $600 million higher than our initial outlook. Since our expectations for our common stock dividend and CapEx program remained unchanged, we expect the vast majority of this incremental capacity to flow through to our discretionary capital allocation. About $125 million of that total has been earmarked for our entrance into Paraguay with more than $400 million having being spent for share repurchases year-to-date. That still leaves us with over $1.1 billion available to allocate at our discretion between additional acquisitions and share repurchases.

Turning to Slide 11, and in summary, we extended our track record of delivering double-digit growth across our key financial metrics in the first quarter, highlighted by our 16th consecutive quarter of double-digit growth in both adjusted EBITDA and consolidated AFFO. At the same time, we continued to delever while growing our common stock dividend by 22% and simultaneously purchased over $400 million worth of shares year-to-date under our buyback program. Our strong first quarter results, coupled with a backdrop of expected continued positive global demand and incrementally more favorable FX rates, have enabled us to meaningfully raise our outlook for property revenue, adjusted EBITDA and consolidated AFFO and consolidated AFFO per share. In addition, due to the growth in the business, we have a sizable amount of incremental borrowing capacity, which could be deployed to generate incremental value.

And with that, I'll turn the call over to Jim. Jim?

Thanks, Tom, and good morning to everybody on the call. The highlight, in my view, of our first quarter results was the increase in our U.S. organic tenant billings growth to a robust 6.5%, further complemented by a 14% organic tenant billing growth in our international segment. Given these results, our recurring quarterly theme for today's call, the state of network deployment in the U.S. wireless industry and its implications for our domestic organic growth is very timely. I'll spend the next few minutes summarizing our logic, but our conclusion is that based on our current technical and economic assessments, the U.S. macro tower market should continue to experience strong, stable growth many years into the future.

A fundamental factor that drives high confidence in our conclusion is the continuously expanding consumer demand for mobile services here, especially video and other high-bandwidth applications. Another important factor for future macro tower demand is our belief that 4G technology will continue to be the only viable, scalable solution for ubiquitous mobile service in suburban and rural areas well into the 2020s at the very least. With the first iterations of 5G being devoted to fixed wireless and later iterations, still being mainly in dense urban and urban areas.

U.S. mobile data usage continues to skyrocket, and the average U.S. smartphone user now consumes more than 4.4 gigabytes of mobile data per month, up over 400% from just 3 years ago. Further projections suggest average smartphone consumption growing another 200-plus-percent, reaching more than 14 gigabytes per month by the end of this decade. To serve this demand with 4G technology, which is largely delivered through macro tower sites, our tenants continue to collectively invest around $30 billion per year to improve the quality and expand the capacity of their mobile networks.

So we expect similar levels of wireless industry network investment to continue for many years to come based on the limited options for wireless operators to address the exploding demand for mobile bandwidth and signal quality, which are inherently limited by the physics of radiowave frequency transmission. There are 3 levers available, really only 3 levers available, to operators to address improving bandwidth and signal strength. The first is adding spectrum; second, increasing the spectral efficiency of the transmission technology such as 4G; and adding transmission equipment to the network creating either new locations, which for us are colocations or new towers, or new equipment at existing locations, which for us result in amendments to tower leases we already have in place.

After the acquisition and deployment of incremental spectrum, the just concluded 600 megahertz incentive auction is likely to be the last significant sub-3 gigahertz spectrum asset to be made available by the U.S. government for many years. So while we expect mobile operators to drive amendment business, both with current unused 2 -- or 2G/3G refarmed cellular, PCS, AWS, WCS and BRS spectrum, and with 600 megahertz as it's progressively cleared over the next 39 months, ultimately, the amount of spectrum available to deploy is finite in these bands. So while we see large slots of very high-frequency millimeter wave spectrum being made available and also with it being deployed in dense urban and urban areas, the incremental spectrum options for improving coverage and capacity for 4G in suburban and rural areas, beyond that 600 megahertz band just auctioned, are going to be limited.

So the second of the 3 network enhancement method is to increase spectral efficiency through technology improvement. The major technology being 4G itself, which enables tools such as carrier aggregation, multiple-input multiple-output antennas and other techniques to increase the spectral efficiency of mobile networks. But as with the new spectrum auction, the abilities to drive incremental gains in spectral efficiency is also inherently limited, and we believe that we're getting close to the upper bound on these opportunities in today's 4G environment. Consequently, as new spectrum resources and efficiency enhancements to 4G subside, we believe that the carriers over the years will increasingly need to rely on the third and final tool to address mobile data usage growth, and that is the addition of incremental cell sites and transmission equipment on existing sites within their networks. Given our comprehensive nationwide footprint of approximately 40,000 U.S. towers, our average U.S. organic tenant billings growth has been around 6% across this time period. And as you saw on our revised outlook issued this morning, we now expect our 2017 U.S. organic tenant billings growth to be slightly higher than that, at over 6%.

Since we anticipate that 4G will remain as the cornerstone of suburban and rural networks well into the 2020s, we also expect this type of strong growth can be continued into the future. Our confidence is further underpinned by the basic topography and population characteristics of the United States. More than 80% of the U.S. population lives in the rural or suburban areas where macro towers remain, by far, the most economically and technologically efficient communications infrastructure solution. Not coincidentally, this is where over 95% of our U.S. towers are situated. In these types of locations, it's simply impractical to broadly deploy high-band spectrum, especially on small cell architectures given that spectrum's short range propagation radius. This is why we've seen that carriers, given the option, continue to primarily deploy low-band spectrum assets like 700 megahertz in these suburban and rural areas, selectively complementing those deployments with mid-band spectrum like AWS. Simply put, low-band spectrum deployed on towers is the most cost and technologically efficient way to cover suburban and rural topographies.

Importantly, we do not believe that the upcoming initial rollout of 5G alters this equation at all. We certainly expect 5G utilizing millimeter wave spectrum for fixed wireless to be paired with newly constructed high-capacity fiber networks by the early 2020s. But the key point is that these deployments will be highly concentrated in dense urban environments and often built by our tenants and other industry players such as cable companies for their own proprietary use. Further, it is our understanding that the 5G standard, as currently defined, will require significant spectrum depth on the order of 100 megahertz. The low and mid-band spectrum assets of any given mobile carrier today that are well suited for suburban and rural mobile use each tend to be just in the 10 to 50 megahertz range, below the current design requirement for 5G technology. And therefore, 5G in its currently envisioned form is not readily applicable to macro site environments.

Moreover, given the wide spectrum bands needed, it's also our understanding that the initial releases of 5G technology may not even be designed for any spectrum band below 6 gigahertz. Thus, 5G for its first years of wide-scale deployment in the 2020s is likely to be limited to an effective transmission radius of 100 and 200 yards. Consequently, while it may support pedestrian type mobile utilization in urban environments, 5G probably will not be a viable full mobility solution for some time, especially in the rural and suburban areas where our towers are situated. As a result, in the near term to the medium term at the very least, we believe 4G will continue to be the predominant network of choice outside of densely populated cities and, consequently, will attract most of the mobile network investment in these areas. And again, given limited available spectrum and the limited incremental efficiency potential of remaining 4G technologies, we expect an increasing focus on equipment deployment on macro sites over time.

So in summary, we view the growth profile for the U.S., our largest market and the driver of ATT's valuation, to be extremely durable, fueled by the continuing proliferation of mobile technology at all phases of our daily lives.

So with that, we're ready to open up the call for your questions.

(Operator Instructions) We'll go to the line of Ric Prentiss.

And it's nice to see the U.S. growth rate accelerating certainly. Tom, you mentioned that the guidance does not include anything from FirstNet, the broadcast auction or the Mexican wholesale network. I assume that also means that the MLA amendment that you announced back in March doesn't address those items also. But my real question is, can you help us size and time kind of what these opportunities are that you've called out here? FirstNet, broadcast auction, T-Mobile's talked a lot about it, Mexican wholesale network. A lot of us are trying to figure out -- nice to see the inflection point, the second order of derivative growth of growth growing. But how do we think about where it could go from here with FirstNet, broadcast, and Mexico especially?

Yes, Ric. It's Jim. Hey, first of all, we don't comment on specific customer deployment plans as you guys know. And each of the projects that you've described is essentially tied to one of our individual customers, as you mentioned. But in general terms, let me speak to FirstNet at the outset here. A national public safety network should be constructive to the U.S. leasing environment no matter how it's deployed or when it's deployed. And since coverage is an important aspect of this program, our extensive suburban rural tower portfolio should have really high relevance. So we need to figure out when we get applications and a schedule and a bill of materials what that really means for our future business. And once we do that, we'll lay it into our outlook, probably in 2018 and beyond. It's similar with the 600 megahertz deployment. Each carrier that has won that spectrum have to go through a clearing plan, then they'll have to match that with our existing architecture, and then they'll come up with bills of materials, schedules and sites that they want to work on. They'll put those applications in those and then we can include them again 2018, really by 2019 and beyond even. And finally, the network in Mexico, which is being built by Altan, is also in the process to being designed and it will lay into our, most likely again, next year and the following year's results. So these are really important and very constructive endeavors and projects. But for us to try to quantify them now really should be left to the operators to give you their plans, and then we can tell you, in aggregate, how those affect our outlook numbers in the future.

So if we think in aggregate, historically, you guys might have thought U.S. 6% to 8% very long term sounds like there's comfort and visibility for a long term here. Does that gets you comfortable that the 6% to 8% is still valid? Some people have speculated it could go beyond 8%. Just trying to get think, in the aggregate, what are we looking at? And when would you think about doing MLAs with these site buy-ins? When should we expect that happening?

So just to go to the top level, Ric, and to, frankly, avoid speculative specificity because we don't have the data yet, we don't have the applications yet to aggregate -- to answer that. Our view over the next number of years, with what we've said publicly, is we're going to try to drive AFFO at double digits per share into the future and augment that by 2%, ultimately, moving to 3-plus-percent dividend. We'll -- of course, we're taking advantage of each and every piece of the opportunity set on the revenue side to drive that, and that's pretty much I think all we can say at this point is to how to bound and quantify these things. Because we just don't have the data to do it.

But MLAs would be your preferred method maybe to approach these?

It depends on the circumstances and the customer, frankly, but we'll give you the guidance year-to-year, and Tom's just raised it by a couple of percent. So I think you could see that our confidence level is pretty high.

Yes, it makes sense and certainly feels good to have the U.S. back growing again at faster pace.

And next we'll go to the line of Colby Synesael.

Just going back to the MLA that was signed earlier, I was just wondering if you could just speak more broadly about reasons that a customer might want to go and sign an MLA. I guess to Ric's point, there's been speculation that it might've been for some of the things that are upcoming, but it sounds like that may not have been the case and just maybe, more broadly, just why that might have been. And also just a question on FX. If current FX rates or spot rates hold true, what's the difference between in terms of upside that we can maybe expect relative to what you've assumed in your guidance right now?

Yes, Colby, I can take the last one. From an FX perspective, if the spot rates stayed for the rest of the year, the math works out to be an incremental $66 million of property revenue, $31 million of adjusted EBITDA and $22 million of consolidated AFFO.

And on the first question, Colby -- it's Jim here. Our latest MLA that we've signed, in accordance with our policy not to discuss the parameters of individual contracts, it's really hard to address specifics again. But what I will say is that when a customer decides to make an MLA commitment over multiple years, that means they created visibility internally and to their plan of how they think they want to deploy their network, their spectrum and their technology over, say, a 2- to 5-year period. Once they do that internally, then they can work with us because they've got a multi-year plan, and we can come up with a customized solution to address that. Our goal in doing these MLAs is to, first of all, give the customer the lowest cost per square foot of real estate for towers based on their deployment plan in the market. But in exchange for that, we try to get as much volume as we can, as little churn risk as we can and the best guarantees that we can of rising revenues. So that's the best construct of these agreements and that applies, I think, very cleanly to our last announced transaction.

And next we'll go to the line of Walt Piecyk.

I want to go back to the guidance, I guess, where you talked about 15% growth and that's kind of that second derivative number on the domestic business. So if you look at that first quarter, obviously, that rate of growth was much higher. So is that colocation amendment business basically going to be down sequentially? Or are you guys just being conservative on the growth? I mean, I realized that Q1 last year had a much lower level of colo and amendments, but 15% seems a little conservative given how strong this first quarter was.

Actually, we would expect the colos and amendments to be pretty consistent from a dollar perspective throughout the year as well as, obviously, escalations. So looking at the overall...

If that's the case then, you're going to be putting out closer to 20% growth number.

Now I would expect, on a full year basis, '16 versus '17 on a colo and amendment basis to be up -- it's over 15%, I think is what we actually said. But it's going to be pretty consistent, maybe down $1 million on a -- for the next Q2, Q3, Q4. But at least based upon what we see right now and to the extent that we see something differently next quarter, we'll update our outlook at that point in time.

Yes, I think that maybe to add to the foundation here for U.S. demand. In aggregate for 2017, as Tom stated and what you've reiterated, we've got higher outlook for new business in the U.S. this year than we did in 2016. But I think one of the foundational issues there is these unlimited plans that are now pervasive across the U.S. industry on the operator side, they're going to put network capacity and quality back at center stage, and everybody's going to be competing on this sort of unlimited basis going forward. And the churn risk for subscribers will begin to increasingly be on the coverage that you have and the capacity where these people tend to live, work and travel. So we think that this is going to be a constructive trend for some time. What we see in the pipeline so far gives us the ability to derive the kind of growth rates that Tom is talking about for 15%, 15-plus percent this year, but we'll see how the rest of this year rolls out. And if any other agreements, similar to the one we had early in the year are signed, we'll update you.

And by the way, if you go back and take a look at I think the supplemental, you'll see that we actually had quite a strong Q3 and Q4 of last year as well. So we had a rising growth coming into the end of last year, which gave us more confidence even in terms of looking into 2017. So I think that's how you get the math.

I hear you. I'd rather you be conservative. I just want to make sure I was looking at that properly. Why do you think that Crown is not seeing the same type of second derivative growth on the colo and amendment business and the macro tower business? Is it possible that customers are just kind of looking at them for small cells now and it's kind of diverting maybe some of the activity that they would see in the macro towers? Or shouldn't this basically be that a rising tide lifts all ships and that all 3 of you should see some strong colo and amendment activities? Anything unique about your portfolio that would be seeing better growth than what they are?

Well, I wouldn't necessarily compare portfolios, strategies or certainly agreements because we don't have access to anybody else's. But what I will tell you is that we focus on 2 or 3 things to make our portfolio attractive over a long time cycle and a planning horizon. One is that we focused in our commercial agreements around that portfolio on 2 things, locking in as much growth as we can get and providing upside in the contract for more if the carriers need more space. And conversely, we've been very disciplined on trying to minimize the churn risk because, again, none of us can predict the future accurately. So we try to contractually limit the downside on churn. There's some agreements that you've heard about in the past that we've done that we called holistic agreements, where churn was dramatically limited in exchange for some more flexibility over a period of time. And those are actually helping us significantly, I think, when it comes to domestic churn in the U.S. from -- especially in this 2016, 2017 time frame versus the industry. That's just one example of how our portfolio and our contracting is designed to give a stable rising curve of growth without the down drafts of churn that come up every few years just as a matter of course.

Great. If I could just sneak one in. If you want to skip it, that's fine. But international, that churn rate of 3%. Can you give us any sense like what's the long-term target there? Even 2018, 2019, what it can come down to after this kind of consolidation plays through?

Yes, I mean historically, I think it's a good benchmark for the future, I mean, both in our U.S. as well as in international. We look at the churn to being in that, on an annual basis, in that 1% to 2% range. So I think what we're seeing in some of the international markets, particularly as we talked about in India, is a slightly higher rate of churn due to this consolidation that's going on in the market, which we think in the back end is going to prove to be a much stronger market from a wireless perspective. And I would expect that the churn, the higher elevated of churn in India probably to exist for the next several quarters, probably into 2018. But I would expect overall then going forward the international churn to be back down into that 1% to 2% range.

And this point started the diversification strategy because our business is very steady over time in aggregate because each market is going to run its own cycle. So some years, there's elevated churn in certain markets. In other years, there's elevated growth. In some of our foreign markets, the currencies are strengthening. In others, they may be weakening. And so when you aggregated all those markets and diversification plans together, you get the steady stable growth that we've been talking about. And again, the U.S. base of business we have, we've tried to make that as stable and growing as possible. And then when you add on these other pieces, there's a fairly elevated level of churn, let's say, in India for 1 year or 2, in the U.S. maybe beginning a new investment cycle for example. And so that diversification is actually proving out in today's results even.

And next, we'll go to the line of Batya Levi.

I wanted to follow up on the domestic growth. Can you provide a little bit more guidance on the acceleration if that came more from new leases versus amendment? Or has the split been similar to the trend? And also it looks like the escalator went up a little bit in the quarter. Is that driven by the new MLA? Would you share what the escalator in that new contract is?

Yes, Batya. I think in terms of the -- it obviously varies by carrier. But given kind of the 4G deployments that we're having, we're still largely amendment-driven in the market, which differs slightly from some of our international markets which are driving colo, which is really just driving new coverage. So I would expect us to continue to be overall largely weighted to amendment activity because, as I said, it varies by carrier. From the escalator perspective, it's pretty consistent I think throughout the year. I mean I would expect, for the year, it to be in that 3.1% area, just north of the 3% which is really where we landed in Q1. So it's quite consistent throughout the year, and again, it's somewhat predictable because 95% of our contracts are actually fixed rate in the United States. So I would expect consistency throughout the year.

And the new MLA, should we assume it was 3%, 3.5%?

Yes.

And next we'll go to the line of Amir Rozwadowski.

I wondered if we could chat a bit about your enthusiasm around the pickup in colocation activity. Clearly, there's been a lot of discussions about potential opportunities with small cell and densification initiatives in the marketplace. And based on the activity levels that you folks are seeing, how do you gauge sort of the investment capital going towards that versus the demand trends for the macro sites? I mean, clearly, you guys are seeing increased activity levels, but I'm just trying to understand sort of how we should think about carrier strategies going forward at this point.

Again, Amir, it's Jim. To speak to budgets and deployment plans by carrier, you're best to ask them. As you know, we're -- 95% of the U.S. revenue roughly is in suburban and rural environments. In other words, nonurban towers, and we have a rooftop business and a gas business as well, mid-single digit percentage of our revenue. So we have huge visibility into the macro sites, a little bit less so into the small cells and then get into small cell strategy later, if anyone in the call would like. But the pickup in colocations in suburban and rural areas, which drives the upside we're talking about here today, there's a few underlying reasons. One is the VoLTE deployment continues, and 2 or 3 years ago, when we did our initial technical analysis of what we thought VoLTE would mean for the sector, for our sector, was a prediction down the road, as time went on, that you need density of cell sites 15% to 25% greater to deliver VoLTE because of the signal loss not in the air link but in the ground link using the IP-based ground link versus a circuit switch ground link. That seems to be a factor that continues to play out. A second factor technically is carrier aggregation. And so when you have original 800 megahertz design topologies, the layouts of sites and suburban and rural areas and you end up adding additional higher spectrum bands to that original layout, the layout has to get denser to use those spectrum bands efficiently over time. And so again, there'll be cell splitting, not necessarily instantly when a new band like AWS is added to original 800 megahertz site but potentially down the road over time. So I think those 2 things are technically driving a lot of the colocation activity that's going on now, plus the demand of capacity in rural and especially suburban areas in long commuting routes is going to drive just basic old-fashioned cell splitting just to break up the capacity requirement and improve the signal on the edge as well. So it's those 3 things I think that are really pushing this.

That's very helpful. And then, if I may, in terms of capital allocation, Tom, how are you guys thinking of going forward sort of potential M&A opportunities in the marketplace? I mean clearly, there's been a recent focus on the buyback. I'm just trying to understand or gauge sort of the appetite. We've heard a lot of discussions about potential assets coming for sale internationally, so we'd love any update. Should we think about the focus is still on the buyback in the near term? Or how should we think about sort of capital allocation?

Amir, I mean our playbook for capital allocation has been the same for the last 10 years and it's really where can we allocate the capital to drive us the highest NPV and the highest value. And so we have development teams around the globe looking in -- at every opportunity that's out there. And there is a pipeline of activity in every market that we're doing business in, and we'll continue to evaluate. And to the extent that we can drive the higher value from those types of things versus a buyback, we'll continue to do it. You saw that we just announced another transaction in South America, which fits nicely within our total portfolio. Our Sense is that we have a lot of little carve-ins like that type of a transaction. I've mentioned this before, but we own less than 1/3 of all the inventory in the markets that we're doing business in. So our focus would be continually to look at the markets that we're in and look at the opportunities for M&A in those markets. And to the extent that it makes sense for us and exceeds, obviously, our risk-adjusted cost of capital and we think that we can get better NPV there than buying back shares at this point in time, we'll move down that path. So there really are several legs to the capital allocation pool but we're looking to do both, just as we did in the first quarter. Year-to-date, we bought over $400 million of shares, but we did close on the transaction in France, and as I mentioned, just announced this other transaction in Latin America. So we're doing all of these things at once, and we'll continue to look at transactions in that light.

Yes. Basically -- Amir, it's Jim. Just to add one final point, our process and our criteria haven't changed at all, and that includes us remaining quite price-sensitive on asset prices upfront.

And next we'll go to the line of Nick Del Deo.

So India looks like it might be a bit of a tough market over the next couple of years on the M&A activity. But based on information you've disclosed in the past, I think your legacy cost per tower in India was something like half that of what Viom or Bharti Infratel had. It's not a perfect comparison, but it always suggested to me that there might be some latent opportunities for margin expansion from running those assets more efficiently. And it struck me as something that might be particularly beneficial in coming years as an offset to some of the losses from churn you might say. Is that a reasonable expectation? And if so, what do you say is some areas where you might be able to bring some cost savings out of that segment?

Well, I think that's a very reasonable expectation that we should see over -- in that market over the next several years. At the end, we expect that the end of this year we'll be actually merging our existing legacy business into the Viom business. We would expect to even -- synergy opportunities there going forward and as we continue to lease up in the market, we'll continually, just as every other model that we have around the world, continually see opportunities. We think now with the 50-plus-thousand sites that we've got in the marketplace, we've got that type of scale in the market that we think is important from a carrier perspective. So I think you're thinking about our future in that market exactly as we're thinking about it and the reasons that we're so excited about the opportunity.

Okay. Maybe one quick follow-up. You mentioned that you thought churn from India might sort of settle back to more normal levels in a matter of course. How do we square with that with the idea that network integration tend to take multiple years, and you've got contracts that run down for quite a bit of time?

Well, let me clarify. I mean I think you're going to see because there's higher level of churn as a result of this consolidation into 2018. So we would expect to see this for probably the next 12 to 24 months. And really just as you said because of the industry consolidation going on and the network deployments, we should see this higher level of churn. But what I mentioned in my remarks, what we're very excited about seeing is we're also seeing a much higher level of colocation and amendment activity going into the marketplace. And so I think kind of to your first point, given the demand that we see in the marketplace, it really is driving the growth in the market, given kind of the amount of capital that the carriers are putting in, but we'll see the churn probably for the next 12 to 24 months in the market.

And next we'll go to the line of Spencer Kurn.

I was just wondering if you could comment on how the Verizon tower portfolio is growing relative to the rest of your U.S. portfolio? And also how much of a factor has that portfolio specifically been in the step-up in organic growth you're seeing that you just saw from Q4 to Q1 of this year?

Okay, thanks. I mean it's really hard to isolate at any one specific time but given the long-term holistic agreements we entered into are supported by all 3 assets. The demand from our customers really over the last several years has been more heavily weighted towards amendments, as we mentioned before. And as a result of the technology and spectrum upgrades, our customers really have been investing across the entire footprint. The legacy ATC and GTP portfolios have certainly benefited given their high existing tenancy compared to the Verizon portfolio. So I'd say that over the last few years, our legacy ATC portfolio has grown right in line with the average of our U.S. business, and the GTP portfolio has probably grown slightly more than our legacy base. And regarding the Verizon's portfolio of lower existing tenancy and the demand of our amendments, the Verizon portfolio is growing a bit slower than our legacy base. And just this year, we've certainly seen an uptick in demand for new tenancy or colocation which we expect will be heavily weighted to our Verizon portfolio. So I think as Jim alluded to, yes, we believe that the macro towers are positioned to see further increase in demand for those increased tenancies as the next layer of densification occurs across the suburban and rural markets. And I think the Verizon portfolio is really well positioned to gain strong demand during that period of time.

Got it. And if I could just follow-up on the small cell topic that you mentioned before. Earlier this year, you said you were sort of evaluating some potential new strategies for outdoor small cells that could improve, I guess, the colocation of those sites or improve the returns. And I was wondering if you could just update us on your thought process there.

Sure. It's, Jim. With regards to our small cell strategy, where we're -- the moment's coming out based on that assessment that you described is really a focus on expanding our indoor small cell business because we've been demonstrating and we're reconfirming with our latest analysis that we can get tower like returns in indoor systems. We have about 350 now in the U.S. and those are proving out to be just as effective as far as leasing performance and also the sort of franchise real estate value as towers. We've also been seeking specific outdoor small cell opportunities with those same characteristics and those characteristics again are some sort of franchise real estate right and homogenous RF environment where we think we can get really good lease-up. So we have about 30 to 40 of the outdoors sort of venues. A couple of examples of those are jurisdictions where we partnered with the jurisdiction or the town itself to have an exclusive opportunity essentially to do small cells in those jurisdictions. Another is in many NASCAR racetracks that happen to be outdoors but you can get an exclusivity on small cells with the venue owner. Those make sense for us, and we're exploring ways to further reduce cost on the outdoor and the indoor side because we'd like to expand the addressable market of both. But really focusing on expanding the addressable market for the indoor small cell but also continuing to evaluate the outdoor.

And next we'll go to the line of David Barden.

I guess my first question was, Tom, I think you're calling out that you're not including FirstNet build in your guide. AT&T very specifically said that their plan is to roll out their network upgrade alongside FirstNet. So I was curious if you are including some of that AT&T in the guide or not including it, that would kind of be helpful to understand how those things put together. The second question would be just on the MLA, what the length of that contract would be would help us figure out using the accounting, kind of how much of that's going to generate per year on a cash basis. And then I guess the last piece is on the Viom portfolio. As we do feather that into the year-ago period, can you talk about the relative growth rate of the legacy ATC versus the Viom portfolio on a year-over-year basis?

Look, David, it's Jim. Let me take the first one here. As far as any individual mobile operator's network plans, we need to refer you back to their public statements or them, directly, to get a sense of those. As far as any inputs to the current outlook, that is based on existing pipeline of amendments and colocation applications along with our new build plan and the assumed escalators, such for 2017. We haven't done 2018 outlook yet, obviously, or signaled it, and we'll do that when we have that data. So all of this input we have for 2017 is prior to the FirstNet award at all. And so we really can't comment on how that may or may not -- FirstNet may or may not affect applied line of applications from any given carrier, including the announced winner of FirstNet. So we just can't address it. We don't speak to MLA terms and conditions specifically either. But again, if you wanted to understand the rollout plan for FirstNet, I think AT&T is the best source for that.

Yes. David. On your second question, there will be now -- it's just math, in terms of including the Viom base into it, the calculation for organic growth going into the second quarter, and so that's kind of that natural step-down that I know you're very familiar with. But when you take a look that kind of our legacy India business, which I think was what the question was, we've been looking at kind of double-digit growth rates and organic growth in those particular markets. And so as I said on a consolidated basis, we're probably looking in India in the 7% range in terms of total growth going forward for the year. And again, that really -- that's versus the high growth rate that we saw in the first quarter. And a good piece of that is a function of that the math step-down but also in anticipation of that -- some of that accelerated churn that I talked about in the business going forward. Really, we'll start to see that, I think, more broadly in the second half of the year.

And next we'll go to the line of Michael Rollins.

Was just curious if you could share with us your average remaining contract length in the U.S. and internationally at the end of the first quarter, maybe compare it to where it would've been either in the fourth quarter or in the year-ago period. And then second, as you look at pursuing additional MLAs and eventually, extending and renewing contracts with your customers, are you taking a longer-term approach in terms of the types of contract duration you'd like to see for the business? Or should we expect the same type of renewal terms that we've seen in the past?

Mike, it's Jim. When it comes to master lease agreement discussions and negotiations, we're going to try to customize the answer for what's best for us and that particular carrier given their rollout plan and their architecture. So I wouldn't say we're necessarily going to change length that are shortened. Our objective is always to get the longest commitment we can but that's got to be balanced with rate and escalation and rights and things like that. So every one of these discussions is multi-month or multi-quarter and very, very customized to specific circumstance. So we'll definitely keep the same frameworks. That's worked for us well over the last 10 to 15 years, but the general objective is to lengthen commitments and contract lengths.

And on your other questions just in terms of average remaining lease term, on a consolidated basis, average remaining lease term at the end of Q1 is 5.6 years, and that's been very consistent for the last several quarters. In the U.S., it's 5.7 years which again, very consistent, and obviously, varies by market, but in that 5 to 6 years remaining on a consolidated basis.

And at this time, I would like to turn the call back over to Ms. Stearns for any closing remarks.

Great. Well, thank you, everyone, for joining us today. And if you have any follow-up questions, please feel free to reach out to the Investor Relations team here.

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