Good day, everyone, and welcome to Crown Castle's Q3 2022 Earnings Call. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Ben Lowe, Senior VP of Corporate Finance. Please go ahead, sir.

Great. Thank you, Melinda, and good morning, everyone. Thank you for joining us today as we discuss our third quarter 2022 results. With me on the call this morning are Jay Brown, Crown Castle's Chief Executive Officer; and Dan Schlanger, Crown Castle's Chief Financial Officer. To aid the discussion, we have posted supplemental materials in the Investors section of our website that will be referenced throughout the call this morning. This conference call will contain forward-looking statements, which are subject to certain risks, uncertainties, and assumptions, and actual results may vary materially from those expected. Information about potential factors that could affect our results is available in the press release and the Risk Factors section of the company's SEC filings. Our statements are made as of today, October 20, 2022, and we assume no obligation to update any forward-looking statements. In addition, today's call includes discussions of certain non-GAAP financial measures. Tables reconciling these non-GAAP financial measures are available in the supplemental information package in the Investors section of the company's website. So with that, let me turn the call over to Jay.

(Audit Start) Thanks, Ben, and thank you, everyone, for joining us on the call this morning. As you saw from our third quarter results and the 6.5% increase to our dividend, we are seeing the benefits of a strong leasing environment, as we support our customers’ growth initiatives with their deployment of 5G. With this increase, we have grown dividends per share at a compound annual growth rate of 9% since we established our long-term growth target of 7% to 8% per year in 2017, returning over $10 billion or 20% of our current market capitalization to shareholders over that period of time. Our customers have focused on utilizing towers during their initial deployment of 5G, resulting in the second consecutive year of 6% organic revenue growth in our tower business as we continue to outpace the industry. We expect this momentum to carry into 2023 with another year of solid organic growth of at least 5% for our tower business. In addition, we expect to double the rate of small cell deployments next year, compared to the 5,000 nodes we expect to install this year, to meet the growing demand for our customers, as 5G networks will require small cells at scale. For fiber solutions, we expect revenue to be flat in 2023 compared to 2022, as a result of several discrete items that Dan will discuss later. We expect revenue growth to return to approximately 3% by the end of the year. Consistent with what we have previously disclosed, we also expect the rationalization of a portion of Sprint's legacy network by T-Mobile to have some near-term impacts on our financial results, without altering our long-term growth potential of our strategy. We continue to believe the total impact of the Sprint network rationalization will be approximately $275 million of annualized churn concluding in 2025. As I'll speak to in just a moment, I see tremendous opportunities ahead of us, giving us confidence in our ability to deliver on our long-term target of growing dividends 7% to 8% per year. However, with $225 million of remaining Sprint churn and $140 million of additional run-rate interest expense, we expect dividend per share growth in 2024 and 2025 to be below our long-term target. Looking back over the last several decades in the wireless industry, we have experienced periods of network rationalization by our customers following consolidation events. In each of those instances, we saw increased demand for our assets over time as our customers reinvested the synergies gained from those combinations back into their networks to further improve their competitive positions and keep pace with wireless data growth. I expect we'll see a similar dynamic play out this time around. As such, over the long-term, I believe our strategy and unmatched portfolio of 40,000 towers, 115,000 small cells on air under contract, and 85,000 route miles of fiber concentrated in top U.S. markets have positioned Crown Castle to deliver significant value to shareholders for many years to come. We are focused on the U.S. because we believe it represents the best market in the world for wireless infrastructure ownership when considering both growth and risk. The relative strength of the U.S. market has been clear to us during times of global economic prosperity. And I believe that gap and performance is widening further in the current challenging macroeconomic environment. The operating conditions underlying our shared infrastructure model have been better in the U.S. than any other market in the world. We have benefited over time from persistent growth and mobile data that has required hundreds of billions of dollars of network investment by our customers. As a result of the quality of the networks and the user experience enabled by this level of investment, U.S. consumers have used their wireless devices more and more and have been willing and able to pay for that improving mobile experience. In turn, the wireless carriers have taken the higher cash flows generated from their customers and invested even more in the networks and the cycle continues. When we assess the global landscape for wireless infrastructure ownership, we do not see evidence of that same virtuous cycle in any other market. The combination of persistent growth in mobile data and the value we deliver to our customers by providing a low-cost shared infrastructure solution has enabled us to consistently generate growth through various macroeconomic cycles. Further, I believe our core value proposition of reducing the overall cost of deploying and operating communications networks is even more compelling for our customers in times of increasing capital costs. Adding to our positive view of the opportunity we have in the U.S., I believe we are still in the early stages of 5G development, providing a long runway of growth and demand for our comprehensive communications infrastructure offering across towers, small cells, and fiber. Similar to other generational network upgrades, we expect 5G to drive sustained growth in our tower business as our customers add equipment to our 40,000 towers. We also believe 5G will be different as it will require the deployment of small cells at scale to increase the capacity and density of wireless networks, as more spectrum deployed across macro towers will not be sufficient to keep up with the growth in mobile data demand. As a result of the requirement to build out this denser network, we believe the duration and magnitude of 5G investment will likely exceed prior network investment cycles, further extending our long-term growth opportunity. With this view in mind, we have invested $6 billion of capital in high-capacity fiber and small cells that are concentrated in top U.S. markets. That capital has a weighted average life of approximately five years and is yielding more than 7% today. With more than 60,000 contracted small cell nodes in our backlog, including a record number of colocation nodes, we expect the yield to increase over time as we put those small cells on air. In 2023, we expect to double our small cell deployments, with over half of the nodes co-located on existing fiber. With the increased mix and colocation, we expect our net CapEx to increase by only 10% over 2022 levels, reflecting attractive incremental lease-up return. The resulting incremental returns are consistent with our expectation for small cell co-location to drive two-tenant system returns to low-double-digit yields on invested capital, just like we have achieved in towers. As we have proven out the value proposition for our tower assets over time, those assets now generate a yield on invested capital of approximately 12% with meaningful capacity to support additional growth. Looking at how well our overall strategy is performing since 2017, we have increased our consolidated return on invested capital by 160 basis points to 9.5% and returned over $10 billion to shareholders through our dividend that has increased at a compound annual growth rate of 9%, while also investing $7 billion of capital into attractive assets we believe will generate returns well in excess of our cost of capital and contribute to dividend growth in the future. I believe that the combination highlights how compelling and differentiated our strategy is. We provide investors with the most exposure to the development of next generation networks with our comprehensive offering of towers, small cells, and fiber, as a pure play U.S. wireless infrastructure provider with exposure to the best growth and the lowest risk market, a compelling total return profile with a current yield of nearly 5%, and a long-term annual dividend growth target of 7% to 8%, and the development of attractive new assets that we believe will extend our runway of growth and shareholder value creation. (Audit End) In the context of our 6.5% dividend per share growth this year, it is remarkable to consider that the underlying strength of our business can absorb the significant headwinds of interest expense increases and Sprint cancellations in the near-term without disrupting the long-term growth of the business. I believe this durability of the underlying demand trends we see in the U.S. provides significant visibility into the anticipated future growth of our business, the deliberate decisions we have made to reduce the risks associated with our strategy, and our history of steady execution make Crown Castle an excellent investment that will generate compelling returns over time. And with that, I'll turn the call over to Dan.

Thanks, Jay, and good morning, everyone. We delivered another solid quarter of results in the third quarter, as our customers are actively deploying 5G at scale. Our strong operating results this year are helping absorb the impact from higher interest rates, leaving our 2022 AFFO growth expectations unchanged. Looking ahead to 2023, we expect overall leasing activity to remain healthy, resulting in growth in cash flow that supports the 6.5% dividend increase we announced yesterday. Before I walk through some of the moving pieces within the 2023 outlook, I want to briefly discuss the third quarter results. Turning to Page 4, core organic growth of more than 5% benefited from robust tower growth of 7% and included 4% small cell growth and 1% growth in fiber solutions. The strong top-line growth contributed to 10% growth in adjusted EBITDA and 5% growth in AFFO as our operating results were partially offset by higher interest expense. Turning to our outlook on Page 5, our expectations for 2022 remain unchanged and for 2023, we expect 4% site rental revenue growth, 3% adjusted EBITDA growth, and 4% AFFO growth. As you saw on the earnings release, there are a few moving pieces within the 2023 outlook that are not typical. So let me spend a minute walking through those components. Consistent with what we previously disclosed, we expect T-Mobile to cancel a portion of their tower, small cell, and fiber leases over the next few years related to the consolidation of a legacy Sprint network. We expect to see an impact of this network rationalization in our financial results in 2023. As Jay mentioned, we continue to expect total churn from the T-Mobile Sprint network consolidation to be approximately $275 million, consisting of tower churn of approximately $200 million recurring in 2025, as well as approximately $45 million of small cell churn and $30 million in fiber solutions over the next three years. As you saw in the press release, we expect a reduction of $30 million in small cell and fiber solutions run-rate revenue in 2023 from the Sprint cancellations. Based on our customer agreements, T-Mobile was obligated to pay the remaining contracted revenue on those sites at the time of cancellation, resulting in expected cash payments of $165 million in 2023. Given the nature of the churn and the associated payment of accelerated future contracted revenue, and to make the comparisons more helpful, we've excluded the $135 million net benefit in 2023 from the organic growth comp group comparisons in the remainder of this discussion. Turning our focus to the fundamental trends we expect in 2023 on Page 6, we anticipate another year of solid tower growth complemented by a doubling of our small cell activity, as we expect to install 10,000 nodes in 2023, up from 5,000 this year. With respect to fiber solutions, we expect underlying activity growth to be offset by items that contributed 2022 revenue that are not forecast to recur in 2023, as well as the rollover impact from approximately $10 million of Sprint churn that occurred in 2022. As a result of these discrete items, we expect fiber solutions revenue to be consistent with 2022 levels and believe the business will return to our previously discussed 3% per year revenue growth going forward. Putting those components together, we expect 2023 organic contribution to site rental buildings of approximately $360 million, or $225 million, excluding the $135 million net benefit from the Sprint cancellation. The $225 million of organic growth consists of 5% growth in towers, 8% growth in small cells, and flat revenue in fiber solutions. Turning to Page 7, 2023 AFFO growth is expected to be a $100 million to $145 million, which includes the $135 million net benefit of the Sprint cancellation, a $140 million increase in interest expense, and $20 million of cost increases above typical levels due to labor and other inflationary-related expenses. The rapid rise in interest rates has accelerated the increase in interest expense we included in our long-term planning, causing some near-term headwinds, but not impacting our capital allocation decisions. We believe our investment-grade balance sheet is well-positioned with 85% fixed-rate debt, a weighted average maturity of approximately nine years, limited debt maturities through 2024, and more than $4.5 billion in available liquidity under our revolving credit facility. We ended the third quarter with 4.9 times debt-to-adjusted EBITDA and expect to remain around five times through 2023, as we plan to fund our discretionary CapEx with incremental debt capacity generated by growth in cash flows for the full year 2023. To that point, we expect our discretionary CapEx to increase in 2023 to approximately $1.4 billion to $1.5 billion from approximately $1.2 billion this year. Out of our total capital expenditures next year, approximately $300 million is expected to be spent on towers and $1.1 billion to $1.2 billion in our fiber segment. Consolidated capital expenditures net of prepaid rent contributions are expected to be approximately $1 billion in 2023 compared to $900 million this year. As Jay mentioned, a relatively small increase in net capital expenditures in 2023 demonstrates the benefits of our co-location model, even while we continue to invest in new assets that we believe will contribute to long-term growth. Wrapping up, we're excited about the opportunity we see, as our customers continue to deploy 5G in the U.S. We believe focusing on the U.S. provides the highest risk-adjusted return for our shareholders, as our portfolio of towers, small cells, and fiber provides unmatched exposure to the best market in the world for communication infrastructure ownership. Since we made significant investments in the small cell and fiber portion of our business in 2017, we have delivered 9% dividend per share growth while continuing to invest organically in new assets to take advantage of the opportunity ahead of us. The ongoing 5G investment cycle and the persistent growth in mobile data demand, combined with the inherent durability of our business model and our low-risk balance sheet, provide us confidence in our ability to deliver on our long-term 7% to 8% dividend per share growth target and create a compelling total return opportunity consisting of current yield and future growth. And with that, Melinda, I'd like to open the call to questions.

Thank you, sir. We'll take our first question from Simon Flannery of Morgan Stanley.

Great, thank you very much. Thanks for all that color. On the small cell business, you've got a large backlog here. Could you give us a little bit more color about pacing up the build and to what extent, there are supply chain issues that you need to take into account? And is it possible that you can take this rate above 10,000? I think in years past, there was a hope that it could continue to accelerate from these levels. And any updated thoughts on the demand side, given the rise of fixed wireless systems and more interest in densification, even then six or 12 months ago? Thank you.

Good morning, Simon. Thanks for the questions. As we mentioned, Dan and I think both mentioned in our comments, we would expect in 2023 we're going to double the number of nodes that we put on air compared to 2022, so seeing an acceleration from that. And then given the number of nodes that we have in the backlog and the significant, somewhat recent commitments that we received from Verizon and T-Mobile for 50,000 nodes to be put on air, it certainly portends a continued acceleration as we go into 2024 and beyond. So that's what we currently have in the backlog. I think I would draw from that a little bit and based on what we're seeing for the deployment of 5G and the densification that's required in the networks, we think there's going to be a lot of demand for small cells well beyond just what's currently in the backlog. Some of that is probably drawn from our experience as nodes are going on air and meeting the need in the network, solving some of the gaps and covering some of the increase in data traffic that we're seeing in discrete locations in the network where small cells have been placed and how well that works as a network strategy to reuse the spectrum on both macro sites and small cells. And then also our view of where data traffic is going to grow too, the combination of those two things, both our actual experience and where we think traffic is going portends a continued increase in the overall number of nodes that are going to need to be built inside of these networks. Supply chain challenges have certainly occurred. I think our team has done a really good job working closely with the carriers to navigate through those supply chain challenges. I don't want to sound like there are no challenges to that, because there have been numerous challenges, but our team has been able to navigate those without impacting our expectation of node builds. And as we sit here today, I don't think that will impact our ability to get to 10,000 or more nodes in 2023, as we put into our guidance. So I think that's what I would point to in answer to your question.

Great, thank you so much.

Next, we'll hear from Jon Atkin of RBC.

Thanks very much. I was interested in if you can comment on your ability to adjust for higher CPI, either in your new contracts, new co-locations, or your amendments or even any provisions under your existing MOAs.

Yeah, Jon. Typically, in our revenues that are on the books currently, the vast majority of those revenues are fixed escalators and not CPI-based. I would note the same thing is true on the cost side of the equation, our largest costs being our ground leases, which also have a similar characteristic of a high percentage of those being fixed escalator. So for the majority of the current run-rate cash flows, we're fixed at both the revenue line and then down at the largest item that affects direct margins. Then on the balance sheet side, we obviously have more than 80% of the debt that's fixed currently. So the current cash flow stream is largely fixed with regards to CPI and implications from inflationary pressure. As you think about the go-forward, when we contract with customers, we're typically doing some level of three to five years of a framework under which they'll find new leases. So we're in the middle of that at any given point. And when we reach the natural end of those contracted periods of time with a customer that relates to new sites that they will go on, then we have the opportunity to think about, okay, what will the appropriate escalation provisions be in that next set of contracts? And as we have in the past, we balance out the benefits of doing floating rates versus doing a fixed rate on those contracts.

And then, just on small cells, given what you talked a little bit about the backlog which the conversion of that backlog seems to be kind of accelerating. Are we to assume that it will be more of a backend weighted contribution to the top line for 2023 for small cells?

Yes, it will be backend loaded during calendar year 2023. We will get the benefit of getting those nodes on air into the run-rate as we go into 2024, but the actual work and the completion of those nodes coming on air and then turning into cash-paying nodes, that will be backend loaded in the calendar year.

Considering the higher discretionary capital expenditures you are anticipating for 2023, could you elaborate on how you plan to support the dividend if it remains at a similar level next year? It seems you might have to rely on leveraging the revolver. What are the potential sources for funding a dividend of that size for next year, depending on the board's decision?

I just want to make sure I answer the question you're asking. Are you referring to the dividend in 2024 or the dividend in 2023?

'23.

So we thought about sizing the dividend. We did the same process that we have done historically, and I'll go back to kind of 2017 at the end of '17, when we increased our targets to 7% to 8%. We look at the upcoming year, and we look at what will the cash flow generation of the business be and then what do we expect the run-rate of cash flows to be by the time we exit the year. So the dividend that we size is the increase of 6.5% considers where do we think we're going to exit the next 12-month period of time as we roll around to October of next year, and we look at the uplift that will occur in that run-rate. And the dividend that we gave the 6.5% increase is sized so that when we roll around to October, that's basically the run-rate of the business. The other benefit that we got, the other thing that we're considering is what is the cash flow characteristic during that 12-month period of time. And in the case of the next 12 months, we're obviously benefiting from the payment of T-Mobile of the early cancellation fees that Dan referenced in his comment, which increased the cash flow during this calendar year. So those are the two considerations that we make when we're setting our dividend policy for the upcoming year.

And so, Jon, just to put a point on that. We don't anticipate that we would fund any of that dividend with debt borrowings. That's from the operating cash flow of the business, as Jay mentioned, and that's how we size the dividend. That's how we think about sizing the dividend in any period.

Thank you.

And moving on to Ric Prentiss of Raymond James.

Hi, good morning, everyone.

Good morning, Ric.

Couple of questions. First, on the churn front, it looks like based on '22 guidance, churns are going to step up sequentially from third quarter to fourth quarter. Anything special to call out there as far as what's driving that increase in churn? Is that part of that fiber, Sprint T-Mobile thing?

I don't think there is really a step up going in from the third quarter to the fourth quarter. And there's nothing going on that would increase the churn that we see in the business at all. That will likely be on the low end of our churn for 2022 as we end the year. So like I said, there's nothing going on in the business that we see is increasing our churn at all. It's pretty flat quarter-over-quarter.

Okay. And then on the Sprint cancellation churn, $275 million was expected to be total. Did I hear you say that there's $225 million left of that? I was trying to read my notes fast early.

Yeah, that's left going into 2024 and beyond, so we're going to realize some of that in 2023. So as we look into 2024, and I think what I was mentioning was thinking about the 2024 and 2025 dividend. So we're just sizing the amount that would be remaining at that point.

Okay. Second round of questions is kind of around rates. What are you assuming for interest rates when we updated the guidance? We didn't have to change '22, but when you look at '23, what kind of rates are you assuming in there just so we can keep track of what the Fed actually does regarding rates?

We have assumed at this point, the forward curve for rates as of right now, which does move around a bit, but if you just look at the forward curve, that's what we have in our assumptions.

That's something in the low 4% range, kind of?

Yeah, yes, ultimately. And like I said, it moves around a little bit, so low to mid-4s.

Okay. Last one, similar on the rate question. What are you hearing, if anything from the carrier customers, as far as is the debt market and interest rates doing anything to their capital spending or activity with you? Any worry about we get the questions from investors about what happens if there's a recession? What are you hearing from the carrier customers as far as concerned about recession pressure or concerned about interest rates as far as their ability and desire to spend with you in the short term?

We have seen the carriers be remarkably consistent in their activity and focused on 5G deployment. And that has been our experience frankly through past economic cycles as well. The carriers obviously are well-funded; they have the cash flow capabilities to continue to invest in 5G, and we haven't seen any change in consumer behavior either. So I think the place to watch for that is really is the consumer behavior changing; it's not. In fact, the consumer demand continues to grow, and as I mentioned in my comments, consumers have been willing to pay for that improved and increased service. And so, we've seen the carrier investment cycle continue, and at this point, I don't have any concerns that we're going to see a pullback from that front on the carrier side. They all have multiyear plans that they've shared with us, and they've obviously made sizable commitments to us around those deployment cycles. So our teams are busy working with them closely on multiyear deployments. So don't expect to see a change in that demand profile.

Thanks, guys.

And next, we'll hear from Michael Rollins of Citi.

Thanks, and good morning. First, I'm curious if you can unpack the change from the tower leasing organic growth in '22 of about 6% to about 5% in '23 and the stepped out in activity dollars. And within that context, if you can give us an update on the visibility that you have going forward in terms of what the shape of tower leasing, organic tower leasing, without the T-Mobile churn should look like? And I'll save one for the end, the follow up.

Let me just talk about a little bit about the environment, and then Dan can kind of walk through the numbers on the organic calculations. We're in this cycle as I made some comments around early in the cycle around 5G. And at the beginning part of every one of the technology upgrades that we've seen in the business over the years, as the carriers have gone from 2G to 3G, 3G to 4G, and now the same, we're seeing the same thing as the carriers go from 4G to 5G. They focus the early-day investment on macro sites, the towers that they're already on, and the places where they go through and upgrade their network, adding additional equipment to those sites that they're already on in order to accommodate the new technologies. Once they do that overlay, then they go back and start to focus on increasing the density of their network. And they've done that historically, just by going on towers that they were not on previously. What's unique about the 5G cycle relative to prior cycles is that a part of that network planning is not only going on macro sites, but also utilizing small cells to increase the density of the network. So we're working with the carriers both on the tower side, the macro site side, as well as the small cell side to cover the increase in traffic that they're seeing, as well as the technology upgrades that we're seeing. And we think there's a really long runway of growth on the tower side. Our view is, we're going to be multiyear north of about 5% growth on the tower side, and we'll continue to have really good and healthy demand for towers for an extended period of time. And we'll see that coupled with investment by the carriers on the small cells in order to increase the density.

In Mike, just, we are moving from about 6% growth in 2022 to 5% growth in 2023. But as Jay said, we're excited about that, because we've been about 6% for a couple of years now. And continuing on at 5% is a really good continuation of a long trend of growth. And what we look for is to try to stack really good years of growth year-over-year-over-year as opposed to have outsized growth in one year and then undersized in another. And this is just that type of trend playing out. And it puts us what we think is like we've talked about for the last couple of years leading the industry for the last couple of years and staying within what is a relatively robust level of tower leasing growth of 5% to 6%. And as Jay said, we have a lot of visibility of that growth going forward. So you add all that together, and we're just excited about it. I think it's a great place to be.

And just a follow up. And I apologize, just a little bit more of a complicated setup, but I was looking at two different numbers in your supplemental. So I was looking at the midpoint of the revenue guidance. And I was looking at what you disclosed on the projected site rental buildings from tenant contracts that you gave over a multiyear period of time. And if I compare like for '23, I adjust it to make it apples-to-apples, take out straight line, take out prepaid pick up the one-time benefit. If I look at '23, what's implied in the guidance, it's about the midpoint, it's about 90 basis points higher than what that contracted tenant revenue number is later in this supplemental. But if I do the same thing historically, like last year, it was 200 basis points, and for the couple of years before that it was an average of almost 300 basis points. I apologize for that complicated set up of the question. Is there something different about 2023, where you're expecting less incremental activity above the commitments that you have from customers? Or did you approach maybe guidance in a different way than you've done historically?

Thank you for your question, Mike. We can certainly try to clarify the numbers you've mentioned. The key takeaway here is the nature of our contracts with customers and the developments over the past few years. A larger portion of our growth has been secured through contracts with customers due to the comprehensive agreements we've established. There hasn't been a shift in our approach to guidance or in how we forecast our performance for the year; instead, you're noticing the advantages of our substantial contracted revenue. Dan highlighted this during his remarks, and currently, we have over $40 billion in committed contracts from customers, which supports our growth over several years. Referring back to my earlier comments, we have considerable visibility into achieving more than 5% growth because a significant part of it is already contracted. While we still have potential for upside, we have a clear perspective on our growth trajectory. When you review the billings against the historical context you provided, consider that these periods involved the integration of these comprehensive agreements. At each of those times, we could have had no holistic agreements up to now, where we have multiple agreements with several customers.

Thank you for your time. I have a couple of questions. First, I would like to ask in the context of normalizing 2023 instead of 2024. Dan, during your comments, you mentioned that after accounting for churn, the fiber solutions businesses are not expected to grow in 2023. However, you noted that without the macroeconomic challenges, growth would align more with the usual long-term target of 3%. Could you elaborate on this, especially concerning other segments? For instance, the small cells business could benefit from losing the Sprint churn on a normalized basis. Additionally, regarding the macro situation, it's anticipated to be lower than the growth levels of 2021 and 2022 in 2023. Is there a possibility for improvement under more typical circumstances? My second question pertains to the flat prepaid rent amortization expected in 2023, which seems to be influenced by a $50 million one-time benefit. According to the future prepaid rent amortization schedule in the supplement, it appears to decrease significantly in 2024. How should we view the potential offsets from normalized performance in the core business against the decline in prepaid rent amortization, recognizing it's a non-cash item? What might the revenue and EBITDA trajectory look like on a normalized basis considering these opposing factors? Thank you.

I'll take the normalized revenue growth question and Dan can speak to kind of some of your questions around prepaid. And I'll just stick through each of the business lines. And if I missed something that you're trying to reconcile, feel free to ask again that. But on the tower side, if you exclude the Sprint cancellations, the bulk of which we talked about, it's going to occur to us in 2025. If you ignore that and just look at normalized activity, we think that normalized activity in the business is going to see churn of somewhere in the neighborhood of about 1% to 2%, just like our historical average has been. So there's nothing else occurring on the tower side that I would point to as the need to normalize, other than removing the Sprint cancellations in a couple of years. And my comments before around the growth that we're seeing, both the contracted growth and the opportunity for upside, gives us confidence that we think we'll be able to see organic growth in and above those kind of 5% organic growth levels. I don't think there's anything else in those numbers you really need to normalize in order to get the right run-rate. On the small cell side, we obviously talked about the churn and where that churn is going to hit. If you ignore the churn and get down to the normalized level, the one thing you have to adjust for is this significant rate of growth and the timing of that growth. So the number of nodes that we're going to turn on air next year, doubling obviously increases the activity. And the fact that the activity itself and when those nodes turn cash-paying, being backend loaded. When you look at our contribution to the financial results, whether it's organic growth in terms of number of dollars, or you look at it on the face of the financial statements, you don't see the full effect of those 10,000 nodes until we get to the full run-rate of those nodes getting turned on air by the end of 2023. So you have to normalize for the activity and the doubling of the activity as well as the backend loading in order to get to a more normalized run-rate of growth. On fiber solutions, as I mentioned in my comments, we think the revenue growth is going to be flat. That's a function of in part the churn activity that we saw this year, partly due to the Sprint cancellations that we'll see popping over into 2023. But by the time we get to the end of the year, when we get to kind of fourth-quarter results and look backwards over a quarter-over-quarter meaning quarter 2023 compared to quarter four of 2022, we think we'll be back at that 3% growth that we've expected in the business, normalizing for all of the churn and the other items, we're seeing that level of activity currently in the business. So we're not forecasting growth in activity as we get towards the back of the year. We're just looking at normal activity and removing all of the one-time items, and that gets us back to growing. We think that'll be reflected in the results of growing at about 3% per year, which is our base expectation.

Okay. I'll address the prepaid rent amortization. I believe you've explained it well. At the start of 2023, there seemed to be an expectation of a significant decline based on the tables in the supplements. However, those tables reflect our current book of business and are not projections. The difference between the book of business and forecasts arises when we receive more prepaid or capital expenditure reimbursements from our customers as we construct assets like towers or small cells. We then amortize the additional prepaid rent we receive over the lifespan of the contract. This is not projected in the table, which captures what we know at the time of its creation. As a result, there might be declines, especially in the tower business, but this will be balanced out in 2023 by any further capital reimbursements we receive from our customers, which will then be amortized throughout the contract duration. Typically, our contracts last around 10 years. The only factor that will counter the reduction from 2022 to 2023 is the extra capital reimbursement we anticipate. As previously mentioned, we project our total capital expenditures for 2023 to be between $1.4 billion and $1.5 billion, with net capital expenditures around $1 billion. This means we expect to recover about $450 million in capital from our customers. The amortization of this amount will be included in the table. As time goes on, we expect to see ongoing additions as we receive more reimbursements. Other than that, I believe your insights regarding the prepaid rent and the table are spot on. We do expect to see reductions, particularly within our tower business.

Got it. Regarding the earlier question about the dividend and financing it through operating cash flow, a significant portion of this year's cash flow is attributed to the termination payments, which amount to a midpoint of $165 million from the Sprint situation. Without those payments, we would have either needed to limit dividend growth, become more aggressive with leverage to support it, or rely on equity financing. Could you explain your thought process if the Sprint termination payments were not available?

Sure. Let me just go back and start with how do we size the dividend, and then we can talk about the what ifs. So we size the dividend each year, what we look at is what do we believe the cash flows in the business are going to grow over that subsequent 12-month period of time. And given the visibility that we have in the business, we have a really good view of what the growth is going to be over the year because by this point, you know, as we talked about on the tower side, 70% plus of the overall business is largely contracted at this point. So we have a really good view of that. On the small cell side, similarly, those nodes have been contracted, and we've been working on them. So we have a good sense of when they're going to come on air. So that we start there with what do we believe over the subsequent 12 months the growth in cash flows are going to be. And then what we look at secondly is we look at what's the cash flow generation of the business over the next 12 months when we set the dividend policy. Historically, if you go back and look at it, go back to 2017 and roll that all the way forward through the conversation that we're having this morning, we have sized that dividend between 96% and 99% of the expected cash flows in the business for that subsequent 12 months. And we did the exact same thing in this quarter as we're releasing the expectation for dividend growth and throughout 2023. So if we had gotten to this place and there was a different set of circumstances, a different set of facts and the cash flow generation were different, whether it was higher or lower, or the expected run-rate of cash flows as we exited 2023 were higher or lower, then our dividend would be higher or lower. We don't utilize the capital markets to fund our dividend. So if the cash flows of the business were lower than the expectation we would have is that we would lower the dividend; we would not be accessing the debt markets or the equity markets to fund that dividend. When we think about the opportunity to invest in things, that's where we utilize the capital markets. So the comparison that we're making there with the utilization, as Dan mentioned, the opportunity to use growth and cash flows and EBITDA to fund growth, we look at what's the highest and best use of that capital. And then we'll access the capital markets as appropriate to fund those opportunities. But the dividend is funded based on the cash flow characteristics of the business, and we set the policy based on that.

All right. Thanks, Jay. That's clear. Appreciated.

Next, we'll hear from Phil Cusick of JPMorgan.

Hi, guys, thank you. I wanted to ask about the services guidance, which looks pretty steady, year over year. Should we think of that shifting some from towers to fiber and small cells? And is there any shift in margins as that happens? Thank you.

Good morning, Phil. No, there's no shift. We would expect a similar contribution from towers as what we were expecting and seeing in 2022 to continue into 2023. And no change in behavior from the carriers or margins or anything else that would cause us to lead to a different answer. So we think we'll see a pretty similar result both in terms of revenue and margins and mix in '23.

Got it. Thank you.

And moving on to Brett Feldman of Goldman Sachs.

Thanks. I have two questions if that's okay. You mentioned in your opening remarks that the cancellation payments from Sprint are linked to when they actually terminate their leases. It seems like 2025 will be the biggest year for churn from Sprint. Does this mean we might see some significant cancellation payments in 2025? My second question is regarding the increase in stock-based compensation this year, as noted in the AFFO reconciliation. Is this indicative of a change in the way you intend to compensate the team moving forward, and should we anticipate a higher run-rate from this point on? Thanks.

In response to the first question about Sprint cancellations, those will reach their natural end dates in 2025 on the tower side, so we do not anticipate receiving any substantial payments from T-Mobile in 2025. To clarify what we expect in 2023, we will be receiving payments for the cancellations of nodes that still have contracted terms remaining. Therefore, they are paying for the remaining years of those contracted payments in 2023. This signifies a different approach to their network strategy regarding towers and small cells, which explains the variance in cash flow characteristics. Regarding the non-cash compensation, I want to emphasize that there has been no change in our philosophy regarding the percentages or contributions of overall compensation for the organization compared to previous years. What you are observing is simply a range of potential outcomes that we have included in our outlook as we move forward. Thus, there has not been a significant shift in our approach to using stock as part of employee compensation.

Thank you.

And next, we'll hear from Matt Niknam of Deutsche Bank.

Hey, guys, thank you for taking the questions. Just two if I could. First on the Sprint cancellation payments, any color you can share on the cadence of those payments, how they roll in over the course of next year? And maybe the allocation of those payments between small cells and fiber solutions? And then secondly, maybe bigger picture question, we've seen a couple of announcements from cable around starting to build out some of their own spectrum to supplement their MVNOs. I'm just wondering if you can comment on how meaningful this can be for your business given your ownership of both towers and small cells. Thanks.

Thanks, man on the ETLs, the payments will happen as Jay mentioned, when those contracts ultimately get cancelled. No likely be at the beginning of the year, we think, but we are not in control of that specifically. So we'll wait and see, and we'll let you know. But it could happen through the course of the year or may happen close to the beginning of the year. The majority of the cancellations are going to be in the small cell business. So I would just say that there's more than half in small cells and less than half in fiber solutions.

On your second question around cable, we're certainly working with the various cable companies as they're thinking about their mobile strategy. And have seen some benefits both on towers as well as small cells. I think we will continue to see that overtime, I believe that we have an opportunity for that to be a growing component of our revenue growth. Broadly, without just being completely limited to cable companies, there are a lot of institutions and organizations that are thinking about their mobile strategy. And so we have seen an uptick in the last couple of years of customers outside of what you would traditionally think of as the big four operators, the big four carriers leasing space on towers and also small cells. And we think that's a growing opportunity. One, we're focused on capturing as much of that demand as possible. I wouldn't describe it in our current results in 2022, or what we expect in 2023 as being material. But it is a growing segment, and I think it gives us opportunity for future growth in the years 2024 and beyond.

That's great. Thank you.

And moving on to Nick Del Deo of MoffettNathanson.

Hey, good morning. Thanks for taking my questions. First for Dan, can you just share the expected dollars of churn and the expected dollars of escalation for towers in '23? Having those alongside the leasing number would be helpful.

Yeah, so leasing, as we talked about, I'll give you kind of midpoints to try to help with that is around $140 million on towers on escalators. It should be in the neighborhood of $90 million, and on churn, it should be in the neighborhood of $35 million.

Okay, great. Thank you. And then, on the small cell front, I think you've historically said that anchor small cell nodes typically cost about $100,000 each from a gross CapEx perspective, and obviously, a fraction of that for co-locations. I guess in light of the inflation we've seen in some of the expense pressures that you've called out, are those averages still about right? And if there has been any upward pressure there, are you seeing any pushback from getting corresponding lease rates up or customers kind of accepting it?

Nick, thank you for your question. We have used $100,000 as a reference point to help clarify the impact on our financial statements. The pricing of these agreements is determined by the yield or expected yield. When we create nodes, we generally observe an initial yield of 6% to 7% on invested capital, which we expect to grow. For 2023, we anticipate that co-located nodes will achieve high-single-digit yields, and as we develop a two-tenant system, we project a low-double-digit yield. Therefore, when we evaluate customer contracts, it's important to consider the actual contracted revenue that results from both the upfront funded capital from the carrier and the ongoing rent, which is influenced by the yield needed to meet our expectations. While the $100,000 figure is largely theoretical, each system is uniquely priced based on its return potential. The inflationary pressures you've mentioned have indeed occurred, directly affecting the upfront capital we receive from customers as well as the rental rates for the nodes once they are constructed.

Okay. So you've been able to push that through in pricing to sustain your yields at your historical levels.

Right.

Thank you for the question. I have two questions, one for Dan and one for Jay. First, regarding Michael's questions, can you provide insights on the $140 million in tower leasing? How might that trend throughout the year? Is it evenly distributed, or is it weighted more towards the first half or the second half? Dan, that one's for you. Jay, my second question pertains to the overall backlogs in the small cell business. You seem to be consistently at 60,000 nodes per year, and it appears it will take you multiple years to build those nodes at a rate of 10,000 per year to address that backlog. What can we anticipate regarding the backlog's development over the next 12 to 18 months, if at all? Thank you.

I'll take the first one. Thanks. The tower leasing is pretty stable throughout the course of the year; I wouldn't call out any difference between the first half or the second half; it goes to the course of the year.

On your second question around small cell builds in the backlog, I think this is a business that's going to likely forever be very different than what we've seen with towers where there's more a consistent level of activity with towers where we see the backlog build and grow at a more consistent pace. Small cells by their nature, because of the number of them that have to be deployed and how they're deployed at the market level, I think we'll always see kind of lumpy orders. And the work that we're doing now with customers is, in part working on deploying all the commitments that they've given us, as you referenced, the 50,000 commitment that they made. We're also working with them as they think about the next leg of small cells and what they're going to need in the next part of the densification of their network. And so while it hasn't resulted in orders yet, those are the conversations that we're working on with them across multiple markets. So my expectation for how will it build if you take a really long-term view, Brandon, on your question. My long-term view is the total number of small cells in the backlog will go up and to the right. And over time, we'll see this business continue to scale and grow. But I don't think we're likely to see that business have a backlog where it's a steady change every quarter-to-quarter. I think we'll see some lumpiness in it as we get large commitments from the carriers and visibility towards what their future build is, and then we go through the process of working on it with them and then figure out what's next on their agenda for densification around the network. I think it's just the nature of the way the business is going to work.

Great, thanks for taking my questions. First ones on the small cell CapEx. Obviously, you're doing a good job leveraging existing nodes with over half of the nodes. And, I've heard in the past those CapEx efficiencies could be up to four to one. What's a good runway as we think about beyond '23 of how often you could leverage existing nodes? Is it going to be around that 50% part that I imagine it goes way down as you have to Greenfield additional nodes? Second question is just around the fiber M&A landscape; you probably need color on funding the dividend just with cash. But when you go out and grow, yield, the debt markets, or equity markets, obviously not a good time now, but multiples are also coming down quite a bit in the fiber space we're hearing. So just trying to understand your calculus and what you're seeing in that fiber M&A landscape. Should you go out and need additional fiber? Thanks.

Sure, Greg, thanks for your question. To address your first inquiry, in the past few years, about 20% to 30% of our total activity has involved co-location. As I mentioned earlier, we anticipate that in 2023, co-location will account for around 50% of our activity. Looking forward, most of the 35,000 nodes committed by T-Mobile will primarily be co-located on our existing fiber systems. The commitment from Verizon will include both new markets and co-location, but based on our current backlog, we expect a higher percentage of co-location. This will help improve CapEx efficiencies and enhance our return on these systems. We're seeing encouraging trends at the system level, with returns aligning with our expectations when we originally analyzed those investments. This development is increasingly resembling the tower model we've historically observed, where scalability boosts returns through acquisition. Regarding fiber M&A, we've been very selective about potential acquisitions, focusing on high-capacity fiber strands located in densely populated areas that offer significant small cell opportunities for enhancing returns. Since we haven't made any acquisitions since 2017, it indicates we haven't identified any targets that meet our criteria. We currently believe that most growth will come from organic builds rather than acquisitions. We will keep an eye on available opportunities and consider them if they make sense, but we are more likely to organically develop the fiber necessary for small cells for our carrier customers rather than pursue acquisitions to obtain that fiber.

And that does conclude today's conference. We thank you for your participation. Have a wonderful day.