The Iron Mountain Company held a second quarter 2023 earnings conference call, in which President and Chief Executive Officer Bill Meaney and Executive Vice President and Chief Financial Officer Barry Hytinen discussed the company's record second quarter results. They attributed the success to their strong customer service, focus on execution, and dedication to finding innovative solutions. The call was opened by Senior Vice President and Head of Investor Relations, Gillian Tiltman, who noted the presence of forward-looking statements and non-GAAP measures in the earnings materials.

In the second quarter, Iron Mountain achieved their highest ever quarterly revenue of $1.36 billion and record EBITDA of $476 million, which was higher than expected. They had organic storage rental revenue growth of 11% and high-teens organic growth in their data center and digital services businesses. Additionally, their Board of Directors increased the quarterly dividend per share to $0.65 or $2.60 per share annualized. They also had a successful customer win with a large not-for-profit hospital system, who needed an alternative to storing in their own space. Iron Mountain's Smart Sort solution will address their needs over the next three years.

Iron Mountain is helping customers optimize their real estate portfolios to accommodate changing working practices during the COVID-19 pandemic. They are providing Clean Start solutions to remove and relocate records, office equipment, and IT assets, and Asset Lifecycle Management solutions to decommission IT assets securely and sustainably. They are also providing public sector, industry focused solutions, and end-to-end business process management, such as the digitization of real estate mortgage records in Greece. Additionally, they are providing transformational solutions for one of the biggest financial service companies in the United States.

Iron Mountain has been providing records and data management services to a Fortune 500 gas and electric utility company for 25 years, and recently acquired the controlling interest in Clutter, a tech enabled on demand consumer storage company. They are leveraging their image on demand service and InSight platform to ensure a secure chain of custody for the customer, and are digitizing 20 million images from 8,000 boxes stored with Iron Mountain over the next three years. Despite muted pricing for their asset lifecycle management business, pricing has stabilized and they expect to see an improvement in the coming year.

Iron Mountain's ALM business has three components: hyperscale decommissioning, enterprise ITAD, and OEMs. The company has seen marked growth and traction in the enterprise and OEM segments, as evidenced by a 175% increase in bookings in the enterprise segment and two MSAs in the OEM segment. Iron Mountain has also been successful in cross selling its products in the health care industry and in decommissioning racks of servers and IT equipment from a software and technology company. The company has gained industry knowledge and expertise through its acquisition and integration of IT renew, which has enabled it to offer customers enhanced value.

In the first half of the year, Iron Mountain leased 55 megawatts of data center capacity and is now confident that it will exceed its original projection of 80 megawatts for 2023. Iron Mountain closed a deal with a multinational media processing company to provide almost 1 megawatt of storage capacity in Mumbai, with the potential to add a further 5 megawatts. In addition, Iron Mountain's Crozier Fine Arts business is building out one of the few globally integrated logistics, storage, and top-quality services businesses in the art world.

Crozier recently partnered with a major art gallery to transport 61 fragile sculptures from the US, Mexico, and Europe. In the second quarter, the team achieved solid performance across all metrics, exceeding the projections shared in May. Revenue was above expectations, driven by outperformance in both the Global RIM and data center businesses, with organic storage rental revenue growing 11%. Total service revenue was $527 million, down 1% on a constant currency basis. The company is proud of its accomplishments and is looking forward to continuing to reach new peaks.

In the second quarter, the Global RIM business achieved revenue of $1.16 billion, an increase of $89 million year-on-year, driven by organic revenue growth of 9%. Revenue management and positive volume trends contributed to strong organic storage rental revenue growth of 9.2%, and Digital Solutions were up 20% year-on-year. Global RIM adjusted EBITDA was $499 million, an increase of $30 million year-on-year. The Global Data Center business achieved 17% growth on an organic basis, with organic storage rental revenue growth of 22%, driven by commencements and improved pricing. Data center services were down year-on-year due to fit out work from the first half of last year.

In the second quarter of 2022, data center adjusted EBITDA was $54 million, representing 27% growth. 2.7 megawatts were signed in the quarter, with total bookings for the year amounting to 55 megawatts. Asset life cycle management revenue grew 4% sequentially, and China returned to lockdowns in the second half of the year. Capital expenditures for 2023 are expected to be $1.2 billion, up $200 million due to strong leasing year-to-date and a large building pipeline.

The company has a net lease adjusted leverage of 5.1 times, and their dividend has been increased by 5% to $0.65 per share. For the third quarter, they expect revenue of $1.4 billion, adjusted EBITDA of $500 million, AFFO of $290 million, and AFFO per share of $0.99. This equates to 9% growth compared to the prior year, which will be aided by easier comparables and incremental revenue management actions.

In the ALM business, component prices declined early this year, reaching record lows in February. Barry Hytinen noted that they saw signs of stabilization in component prices, and that the drop affected all components, from memory to CPUs.

Iron Mountain has seen a significant impact due to the reduction of new component production, leading to lower component pricing. This record-low pricing is expected to continue through 2023, although industry analysts predict a sharp increase in component pricing in the coming year. Iron Mountain anticipates that their total ALM business will increase slightly in the third and fourth quarters, due to increased bookings in their enterprise ITAD business and wins in their OEM teams.

The company's total service revenue growth was affected by the decrease in ALM revenue from the previous year. Global RIM's service revenue was up 9% and the total service revenue should improve in the third and fourth quarters since ALM will no longer be a drag on the revenue. Storage rental growth remains strong and customers are willing to pay the higher prices.

Iron Mountain is focused on providing value to customers and has seen modestly positive performance in terms of storage rental revenue growth. Revenue management actions have been well-received and there are additional actions planned for the third and fourth quarters which will be a tailwind to growth rate. The company has also seen wins as companies shift their use of space with more remote or hybrid workforces.

Barry Hytinen answered questions about Global RIM's storage revenues, which are linked to CPI in some manner and have a price floor and lease terms. He also discussed Clutter, a company that Global RIM acquired, which had cash flow issues as a standalone company. He noted that the majority of their client relationships are on their standard paper, allowing them to affect revenue management actions, and that there are a small number of bespoke contracts with their largest clients.

Iron Mountain recently acquired Clutter, a tech-enabled business that aggregates consumer demand, for $20 million plus various assets. Iron Mountain will recognize a quarterly revenue of over $10 million and expects to drive Clutter to breakeven EBITDA by 2024. Iron Mountain had previously been generating positive EBITDA from the relationship.

Bill Meaney addresses Shlomo Rosenbaum's questions about gross margin trends, labor costs, and volume trends in the wind business. He states that overall, the volume is flat, slightly up, and is trending in the right direction. He also notes that the volume is very large, and that there are trends in new storage areas as well as people going into a hybrid or remote working aspect.

Smart Sort and Clean Start solutions are gaining traction and providing more storage, services, and information to employees without them having to come into the office. This is driving bookings and fueling growth in the enterprise ALM side of the business. Labor costs have also increased due to inflation and the need to ensure mountaineers are well looked after. In the first quarter, labor costs were up 2% while service revenue was up 5%.

William Meaney discusses the company's data center business and how it is growing. He then goes on to discuss component pricing and how it affects gross margins. He is optimistic about the future of the business and the potential for pricing to recover in the coming year. He then turns to Jon Atkin's questions about exposure to leases in Phoenix, the data center development pipeline, and opportunities for third-party capital investments.

The company has a strong pipeline of investments and is able to use the funds generated from their records management and other services business to fund data center development. Additionally, they have taken third-party capital a couple of times for stabilized or near-stabilized assets and they plan to continue to do so when opportunities present themselves in order to recycle capital.

Barry Hytinen discussed the long-standing relationship between the company and one of their clients in Arizona. He noted that the client is not a particularly large revenue client, and that the pricing for hyperscale is up 40% on a triple net basis. He also mentioned that the company has a fully funded plan and may take third-party capital to boost returns in the long-term.

Barry Hytinen explains that the company's data center business is trending positively, with 220 megawatts currently leased and 200 megawatts under construction. The company is 91% preleased on all construction and their revenue management program is doing very well, with their storage rental revenue growth accelerating. He also notes that the company is looking into which facilities to start construction on next. Lastly, he explains that the pricing is better, the CapEx is going up, and the Clutter business will have some incremental revenue.

The Global RIM and data center teams have been successful in meeting customer demand, which has been increasing. Clutter adds a small amount of revenue. Cash generation is expected to remain at 5.1 times at the end of the year and returns on investments are in the low double digits. The company feels good about where things are trending. There is no indication that the current wave of generative AI demand is impacting the data center pipeline.

William Meaney discussed the trends of hyperscale customers needing more capacity, with accelerated growth due to the amount of compute power needed for AI programs. He also noted that customers are now asking for higher density deployments, which EON is able to accommodate with their flexible designs.

Barry Hytinen discusses the team's focus on diversifying away from China, and branching into Southeast Asia, the U.S., Europe, and the Middle East. He also explains that the decommissioning business will continue to ramp up in the future due to the growth of hyperscale data center development and the components that need to be decommissioned five years after being put into service.

Barry Hytinen explains that the retention rate in the Global RIM business has decreased by 100 basis points year-over-year, which is the lowest it has been in a few years. He attributes this to the disruption caused by the COVID-19 pandemic, but also notes that the rate is still within the normal range of the past 15 years. He emphasizes that the customer relationships are still good and that the company is continuing to educate customers on the value they provide.

The Iron Mountain Second Quarter 2023 Earnings Conference Call has concluded, with positive trends in their customer volume providing a good indication of their success.

This summary was generated with AI and may contain some inaccuracies.