Crown Castle Inc. Q2 FY2025 earnings call

• Delivering on three near-term priorities: meeting 2025 financial and operating objectives, facilitating sale of small cells and fiber solutions business, and positioning tower business for value maximization.
• Second quarter results were higher-than-expected with organic growth, services activity increase, and SG&A reduction.
• Progress on selling small cells and fiber solutions: on track to close in first half of 2026, with state approvals received and engagement with DOJ.
• Focus on operating tower business efficiently: reduced cycle times, improved services margin, reduced overhead expenses by $10 million, and adjusted dividend to increase financial flexibility.

In the second quarter, the tower business showed solid performance. There was 4.7% organic growth excluding Sprint cancellations. Site rental revenues saw a $10 million increase, adjusted EBITDA had a $25 million increase, and AFFO was up by $35 million. The $10 million increase in site rental revenues is due to higher organic contribution to site rental billings from increased activity levels, including a $5 million increase in core leasing activity and $5 million in change in other billings (mostly back billings). The $35 million increase in AFFO consists of a $10 million site rental revenue increase, a $10 million decrease in overhead expenses, a $5 million increase in services gross margin, and a $10 million decrease in interest expense.

• Full year 2025 outlook updated: site rental revenues up $10M, adjusted EBITDA up $25M, AFFO up $35M.
• Organic growth in site rental billings expected at 4.7% excluding Sprint cancellations.
• Discretionary capital expenditures remain unchanged at $185 million or $145 million net of $40 million prepaid rent received.

• Uncertainties around regulatory approvals for the sale of small cells and fiber solutions business.
• Impact of Sprint cancellations on financial metrics.
• Fluctuations in wireless carrier investment and potential implications from tax reform.

Q: Can you give more info on higher leasing activity driving site rental revenues?

A: Higher leasing activity is across all customers and footprint, driven by wireless customers augmenting network capacity due to subscriber growth and churn. 4G cycle was 10-12 years, 5G cycle likely longer due to increasing data quantum.

Q: Thoughts on pro forma post-divestiture Crown Castle and efficiency opportunity?

A: Believe will reach AFFO range by close of transaction. Second leg of efficiency opportunities not quantifiable yet as working on system and process updates to identify more efficiencies over time.

Q: Questions on overlapping costs allocation between divested and core tower business?

A: Dis-synergies in running three businesses, but most overlap on corporate side, not much on maintenance. Overlapping costs allocation is evaluated with dis-synergies in mind.

Q: Thoughts on capital allocation priorities post-divestiture?

A: Vast majority of proceeds from sale used to pay down debt, some for stock buyback to maintain investment-grade rating. Execution of stock repurchase depends on market timing and shareholder value maximization.

Q: Update on cycle times and efficiency improvements?

A: Cycle times still in 6-12 month range, but incremental and marginal improvements in cycle times, services margin, and cost structure are showing early stages of positive impact.

Q: Update on CEO search and capital allocation changes?

A: Board actively searching for CEO, not waiting for deal close. Capital allocation strategy set by Board, new CEO would need to align with it to take the role.

Q: Thoughts on AI driving incremental traffic and service gross margin improvement?

A: AI likely to increase data demand as technology moves with consumers. Service gross margin improvements are structural, from process and cost structure changes leading to sustainable increases.

Q: Observations on carrier greenfield builds and private market M&A multiples?

A: Not involved much in build-to-suit as it doesn't offer better returns. Private market multiples higher than public, but not impacting Crown Castle's outlook much as focused on closing current deal.

Q: Pace of ground lease purchases and CapEx details?

A: Looking to increase land purchases, with more capital allocated in back half of year. CapEx has seasonality and timing, with heavier spending in second half related to various investments like land, systems, and sustaining CapEx.

Q: Exposure to USM and impact of T-Mobile acquiring towers from USM?

A: Minimal exposure to U.S. Cellular towers, negligible impact on financial results.

Q: Allocating costs between continuing and discontinued ops?

A: Costs allocated with shared expenses staying in continuing ops, minor moves here and there to adjust allocations, not systematic each quarter.

Q: CapEx details and G&A reduction?

A: CapEx has seasonality and timing, with second half seeing heavier spending for various investments. $10 million G&A reduction is from tower and corporate G&A, from actions taken last year and focus on efficient spending.

Q: Carrier 5G coverage and pipeline for next year?

A: Not giving 2026 guidance, but 2025 guidance increased due to higher activity in core leasing and other billings. Improvements in operations lead to episodic positive impacts on financial metrics.

Q: Implications of tax reform on carrier investment?

A: Carriers haven't publicly stated using tax savings for wireless infrastructure investment yet, but continued wireless demand likely leads to investment.

Q: CapEx and G&A reduction details?

A: CapEx has back-end loading due to land purchases, systems investment, and sustaining CapEx. $10 million G&A reduction is mostly in tower and corporate G&A, from efficiency efforts.