The operator welcomes participants to the Iron Mountain Second Quarter 2024 Earnings Conference Call. Gillian Tiltman, Senior Vice President and Head of Investor Relations, introduces the speakers and mentions that the event is being recorded. Bill Meaney, President and CEO, and Barry Hytinen, CFO, will discuss the company's financial results and open the lines for Q&A. The earnings materials contain forward-looking statements and non-GAAP measures, and the team is proud of the record financial performance and strong momentum.

The company continues to see the success of Project Matterhorn through their commercial teams, resulting in increased dividends for shareholders. Their strategic priorities focus on revenue growth, digitally enabled solutions, data center offerings, and asset lifecycle management services. An example of their success is a European pharmaceutical company seeking their services for a global record retention schedule to address regulatory requirements and cost management.

Iron Mountain is expanding its partnership with a large financial institution by providing a suite of solutions, including policy center upkeep and advisory services. They have also secured a deal with one of the country's biggest banks to provide their Digital Mailroom solution, utilizing their proprietary AI-powered intelligent document processing. This partnership builds upon their trusted relationship and will see Iron Mountain managing the bank's physical Mailroom sites and processing millions of images each year.

In the data center business, the company leased 97 megawatts in the first half of the year and expects to exceed their original projection of 130 megawatts for the year. They have a strong leasing pipeline and have won contracts with large hyperscale customers in both the US and UK markets. They have also secured a 10-year co-location contract with a major Japanese bank in Phoenix. In their asset lifecycle management business, they are seeing existing customers seek new solutions from their expanding portfolio.

The company has successfully expanded their relationship with an insurance company and has become their sole ALM provider. They have also secured a contract with a global software company to manage their ALM program. The company's strategy and execution have resulted in strong revenue growth and they have an energized team committed to excellence. The call will now be turned over to Barry to discuss the results further.

In the second quarter, the company had strong overall performance, with record revenue of $1.534 billion, driven by growth in both storage and service segments. Adjusted EBITDA was also at a record high of $544 million, with a margin of 35.5%. AFFO was $321 million, ahead of guidance, due to higher adjusted EBITDA and lower cash taxes. The strength of the US dollar was a challenge, but on a constant currency basis, revenue and AFFO still showed growth. The global RIM business had revenue of $1.25 billion, with strong organic growth of 7.9% driven by revenue management and positive volume trends.

The company's organic service revenue increased by 8.3% and their global RIM adjusted EBITDA increased by $50 million. The Global Data Center team saw a revenue increase of $35 million and achieved 24% organic growth. The company also signed 66 megawatts in new and expansion leasing and increased their full-year projection to 130 megawatts. The Asset Lifecycle Management division saw a significant increase in revenue of 111% year-on-year and 30% organically. The team at Regency Technologies also delivered strong results, exceeding expectations with a revenue of $35 million.

The company has seen positive results from its combination with Regency, leading to increased client relationships and profitability. They remain focused on disciplined capital allocation and have achieved the lowest level of net lease adjusted leverage since their REIT conversion. The dividend has been increased by 10% and the company expects to deliver results towards the high end of their guidance range for the full year. The ALM business saw 30% organic revenue growth, with a mix of volume and pricing contributing to this growth. The company is confident in its strong outlook and thanks its employees for their efforts. The first question during the Q&A session was about the breakdown of growth in the ALM business and assumptions for component prices in the company's guidance.

William Meaney, the CEO of Iron Mountain, discusses the company's growth in their ALM business. He mentions that about two-thirds of the growth is from volume, while the other third is from price improvements. Barry Hytinen, the CFO, adds that the company is expecting pricing to continue to trend higher and that the ALM business is expected to grow organically in the 40s or higher in the back half of the year. He also mentions that the Regency business is performing well and is seeing strong productivity. A question is then asked by Kevin McVeigh from UBS.

The speaker, Barry Hytinen, is congratulating someone on their record results and discussing the beat in the second quarter compared to the reaffirmed guidance. He mentions that the company is feeling optimistic about the ALM side and explains that they beat in the first and second quarters. He also notes that FX is a headwind and will impact reported results in the third quarter, but overall, trends are improving. He mentions that global RIM is performing well and data center leasing activity is robust. The speaker then responds to a question about RIM volumes for the third quarter and pricing growth.

The company expects organic revenue growth of 7% to 8% in the back half of the year, driven by flat to slightly increased physical volume and revenue management. The team has never stored more physical volumes than they are currently, which reflects their diligence in serving customers and driving value. The services business in Global RIM is also benefiting from strong bookings in the digital sector. There is a question about whether the assumptions for data center CapEx made at the Investor Day event in 2022 still hold, given the recent increase in CapEx from hyperscalers. It is also asked if the pool of hyperscalers has remained the same over the past few years.

The speaker responds to a question about whether smaller infrastructure software and AI start-ups have the potential to become hyperscalers. He explains that while there may be some opportunity for these companies to break into the market, it is currently dominated by a stable group of large, global firms due to the high cost of leasing and building data centers. The company's current data center business is exceeding expectations and they are seeing accelerated growth, which may lead to a ramp up in capital for data centers in the future.

The company has a strong leasing performance in its operating and under development portfolios for data centers, with a 96% occupancy rate. They have already signed contracts with clients for future development and are pleased with the returns on these deals. The company is confident in its ability to fund the growth of its data center business without the need to raise equity, and they are optimistic about the potential for lower interest rates in the future.

The speaker discusses the ease of their business and the strong results from their covering business. They mention the rise in equity and how it reflects their growth. The next question is about the hyperscalers and whether they are starting to sell their inventory of gear. The speaker also comments on the increase in storage gross margins and the decrease in rent costs.

The company has seen an increase in volume from hyperscalers due to their data center refreshes and adoption of more capable GPUs for AI services. This has led to an increase in ALM volume for the company. The storage rental gross margin was at 70%, slightly down from the previous year due to a mix of data center and RIM business. However, the company is pleased with the overall performance and sees potential for growth in the data center sector. The storage rent expense was down sequentially, thanks to the company's productivity and warehouse efficiencies.

The company has reduced some of its warehouses to improve expenses and has seen a slight decrease in gross margin due to mix issues and the acquisition of Regency Technologies. The company is pleased with its 7.7% growth in storage rentals and believes mid-to-upper single digit pricing growth is sustainable in the long term. This growth is not solely driven by inflation, but also by the value added to customers.

Iron Mountain has been expanding their traditional records management business by adding services such as Smart Sort and Smart Reveal, as well as offering governance and compliance consulting. This has resulted in a 7.5% growth in their Global RIM business, exceeding their initial projection of 6%. They expect their pricing to remain 300-400 basis points above normal inflation due to the value their customers see in their services. In regards to ALM, Regency is currently fully occupied but there may be opportunities for increased productivity within their assets. As for data centers, there are longer lead times for construction materials and components, which may impact book-to-bill conversion.

The company has been able to manage lead times and keep them in line with customer expectations due to standardization across different regions. They are confident in their ability to manage the supply chain and keep timing intact. There is potential for further utilization of Regency and the company has a capable team to manage a larger business. Real estate depreciation increased by $14 million, potentially due to a new site being acquired during the quarter.

The speaker, Barry Hytinen, is discussing the depreciation of Iron Mountain's assets, which is expected to continue due to their investments in data centers, warehouses, and digital innovation. The operator then concludes the question-and-answer session and the Iron Mountain second quarter 2024 earnings conference call.

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