American Tower on its domestic and international growth and plans

Selected highlights from AMT’s Q1 2015 earnings call

Read this article to learn:

  • American Tower growth pattern and results
  • Which countries are driving the expansion of AMT’s international business
  • Small cells  attractive but macro towers remain key
  • AMT’s take on Mexico: expectations for growth and increased investments

On April 30, it was American Tower’s (AMT) turn to release its Q1 2015 results during an earnings call with Jim Taiclet, Chairman, President and CEO of AMT, Tom Bartlett, EVP and CFO and Leah Sterns, SVP, Treasurer and investor Relations for the company. TowerXchange reports on major news and data from the call and associated earning materials release.

Tom Bartlett opened the call with an overview of AMT’s results and stressed that the consolidated rental and management revenue increased by approximately 11% and reached above US$1bn. The growth on a core basis was approximately 16% of which 9% was organic. He attributed the remaining balance to portfolios which were added at the beginning of 2014, comprising 12,000 sites in the U.S. and over 8,000 internationally.

AMT reports strong international growth

On the international front, AMT reported a strong Q1 thanks to 22% core growth and 10% organic core growth. The growth was mainly driven by countries such as Brazil and Colombia with organic core growth of 12% and 17% respectively. Bartlett mentioned markets such as India (11%) and Ghana (23%) strongly advancing in terms of leasing.

BTS projects amounted for over 600 new sites in Q1 of which over 400 were built in India alone thanks to ongoing agreements with Bharti Airtel and Vodafone. In Brazil, AMT has so far built over 90 sites for top clients Vivo and TIM.

In terms of international rental and management gross margin, Bartlett reported a growth around 12% and at 28% of core growth in gross margin. Rental and management operating profits achieved +10.5% whereas operating profit margin reached 73%.

Tom Bartlett went on to comment on the effects of forex and pass-through revenue: “This growth is being partially offset by an incremental US$75mn of negative foreign currency translation effects relative to our prior outlook and a US$10mn decrease in expected pass-through revenue. As a reminder, the impacts of the roughly 2,300 TIM sites we have not yet closed on, as well as the 4,800 Airtel Nigeria sites, are excluded from our current outlook. Together, we would expect these portfolios to generate nearly US$300mn in additional revenue on a full year pro forma basis.”

Graphical representation of American Tower’s international portfolio, Q2 2015 (inc Verizon, TIM and Airtel)

AMT portfolio 

Q115 positive in terms of portfolio expansion in the U.S. and beyond

The beginning of 2015 has been positive for American Tower which has now expanded its domestic portfolio to approximately 40,000 towers thanks to the Verizon transaction, while agreeing the 4,200 site transaction with TIM Brasil.

Tom Bartlett concluded by adding that they “expect core growth in all three of these metrics [rental and management revenue, adjusted EBIDTA and AFFO] to be well above our long term targets. By year end, we expect to have nearly 100,000 sites worldwide with a solid balance sheet, ample liquidity and manageable leverage in the mid-5 times range.”

Macro towers remain main focus

During the Q&A session, Jim Taiclet commented on small cells and stated that AMT remains mainly focused on macro towers in spite of owning small cells and being in favour of diversifying AMT’s business. However, macro towers still are “the best performing asset class” hence AMT’s continuing focus.

M&A still attractive in the U.S. and internationally

In terms of M&A in both domestic and international markets, Taiclet stressed that in the U.S. there was still “a medium-sized carrier portfolio still not traded and numerous small carrier and small third-party tower companies” which make the U.S. market still interesting in terms of potential acquisitions.

With regards to Brazil, Taiclet highlighted how AMT is in a very good position with over 18,000 pro forma towers, whereas he mentioned both South Africa and India as markets where the company is interested in further expanding its position.

Mexico: what does the future hold?

When asked about Mexico, Tom Bartlett stressed the importance of AT&T’s move South of the border and the expectation that once settled, AT&T will seek “the same type of customer experience in Mexico that they have in the United States. So, we’re very hopeful that we’ll be seeing some of that build and some of that activity probably in the latter half of the year.”

He briefly commented on the creation of América Móvil’s spin off Telesites by adding that only time will tell how the new company will shape up and how aggressively they will market their sites. On a positive note, he added that in general, Telesites is going to open up the entire Mexican market; a move likely to stir competition and push carriers to increase their capex investments in the country.

Tom Bartlett concluded by stressing that Mexico has been a quiet market for AMT in terms of core organic growth (below 10%) over the past two years and that there has been “under-spend in that market over the last 24 months and I think once some of these issues get put to bed, I’m hopeful that we’ll start to see some really solid organic growth rate over the next 18 months to 24 months.”

Lastly, Jim Taiclet contextualised Mexico by adding that AMT’s expectations in the U.S. are such that by 2019, 90% of the population will own a 4G phone in their pocket and will be consuming between three and five gigabits per month of data. Thanks to AT&T’s move, the same projection could be realised faster in Mexico where, to date, there is very limited 4G service. By the end of 2020, as many as 100 million people could have access to 4G phones and use as many as five gigabits of data per month. He closed by stating that this will be a “real catalyst” for Mexico for the next decade thanks to the transfer of service, quality and technology that AT&T will bring from the U.S.