IRON-MOUNTAIN Earningcall Transcript Of Q2 of 2024
vice president and chief financial officer. After prepared remarks, we'll open up the lines for Q&A. Today's earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainties. Please refer to today's earnings materials, the safe harbor language on Slide 2 and in our quarterly report on Form 10-Q for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. We have included the reconciliations to these measures in our supplemental financial information. So with that, I'll turn the call over to Bill. William Leo Meaney -- President and Chief Executive Officer Thank you, Gillian, and thank you all for taking the time to join us today for discussion of our second quarter results. As you saw in this morning's announcement, this quarter delivered another record financial performance and exceeded our expectations. Reflecting on these results, I am incredibly proud of how our team consistently executes at a high level, putting our customers at the center of everything we do. With our proven growth strategy, we are entering the back half of the year with strong momentum. We continue to see firsthand the power of Project Matterhorn from our commercial teams who are successfully leveraging our full suite of products and solutions to help position Iron Mountain has an ideal partner to our customers. This customer centricity continues to power our results forward for both customers and our shareholders. Building on our track record of value creation for our shareholders and our strong positive outlook, our board of directors has authorized an increase of our quarterly dividend by 10% to $0.715, in line with our AFFO per share growth. I'll now turn to key developments during the quarter and how we executed on our growth strategy, which is aligned to our business segments. As a reminder, our strategic priorities are the following: driving continued revenue growth in our physical storage records management business, providing digitally enabled solutions for our 240,000 customers, which allows them to get true competitive advantage out of their physical and digital information; delivering differentiated data center offerings and offering top-tier growth through our global scale and customer trust; and advancing our asset life cycle management services, which provides security, maximum efficiency and an environmentally sound life cycle management approach for our customers' IT assets. To give you some examples of how we have recently applied our services on behalf of our customers, let's begin with our records management business. The first win I wish to highlight shows how our scalable solutions can solve for complex regulatory requirements and address changing customer needs. A European-based pharmaceutical company came to us in need of a global record retention schedule as the company was struggling to manage costs and meet regulatory requirements. As part of our expanding partnership, we are providing a fully managed suite of solutions, including policy center upkeep, advisory services and a dedicated help desk for queries in a scalable and flexible way that can seamlessly adapt over time as their needs evolve. Continuing with wins in our records management business, I am particularly excited to discuss a couple of digital wins. The first example to highlight is a major contract signed with a large financial institution. The foundation of this win was based upon multiple decades of a trusted relationship with the bank's understanding of our truly differentiated approach to digitally managing and automating workflow. As a result, they selected Iron Mountain to serve as its partner for a long-term transformation of its management of digital and physical documents. On the bank's behalf, Iron Mountain is transforming how it captures both digital and physical documents and their associated metadata across all lines of business, including nonbanking internal documents like finance and HR. Our unique offering revolutionizes document processing services for both physical and digital documents. We have achieved this by employing our proprietary leading-edge AI-powered intelligent document processing built into our InSight platform. Continuing with our digital business in Australia, we have secured a large deal with one of the country's biggest banks to provide our digital mailroom solution, which brings together our operational scale and digital capabilities. Iron Mountain has been a trusted records management partner for over 20 years and we built on that relationship to develop a comprehensive service offering that will see us manage their physical mail room sites across Australia and scan around 32 million images a year as we process mortgage documents, checks, vouchers and other banking documents. Our proven implementation methodology reassured the customer that we could execute a seamless transition of services and the innovative technology we are deploying will help them to realize significant efficiencies in the years ahead. Moving to our data center business. Through the first half of the year, we leased 97 megawatts, which includes 66 megawatts this quarter. Due to our strong pipeline, we feel confident we will exceed our original projection and now expect to lease 130 megawatts for the year. The speed of leasing in the first half of the year is thanks to the momentum that our team has built in our leasing pipeline. We are an attractive partner to customers looking for infrastructure, which can support their very dense IT workloads and associated with their AI-enabled services. Here are some examples of wins during the quarter from our U.S. and U.K. markets. At our Western Pennsylvania location, we welcomed a new hyperscale customer with a seven-year contract. Since signing the contract, the customer is already in discussions about potential expansion to some of our other campuses. A good example of our continued and growing partnerships with some of the largest hyperscalers, our recent wins this quarter with a single customer in both the U.S. and U.K. markets. This customer has placed a 10-year contract for us with us for almost 25 megawatts of capacity at our London data center campus and a 15-year contract for 36 megawatts at our data center campus in Phoenix, Arizona. Also at our Phoenix campus, we have won a 10-year colocation contract with one of Japan's largest banks. We will be providing 800 kilowatts of capacity to support the complete transformation of this customer's North American IT platform. Turning to our asset life cycle management business. We continue to see established Iron Mountain customers seek new solutions from our ever-expanding portfolio. A perfect example of this is how we expanded the relationship with an insurance company that has been an Iron Mountain customer since the late 1950s. Having secured a small ALM project with them last year, our customers' confidence in our capabilities and our delivery record has led them to make us their sole ALM provider. Finally, I'd like to share a last example of a customer that has added our ALM services to the Iron Mountain solutions from which they already benefit. This global cloud-based software company has asked us to manage an ALM program to securely destroy, remarket or recycle data center assets at more than 30 locations in North America, EMEA, Latin America and the Asian Pacific regions. Demonstrating we can provide a full-service global ALM offering is no small task, but our skilled and dedicated teams successfully met the challenge. We are now a proud ALM partner for this customer alongside the records management and digital solutions that we already provide. To conclude, we have thoughtfully and strategically curated a mountain range of best-in-class solutions in an effective operating model under Project Matterhorn. This quarter's successes are a brief testament to the value our strategy is already delivering and a window into the future we are building at Iron Mountain. As we continue to expand our footprint of storage and services and deliver tailored innovative solutions for each of our customers, I could not be more grateful for the hard work of our Mountaineers. Our strategy and execution is showing the way in delivering consistently strong revenue growth and the resulting financial model that delivers top-tier growth in both our AFFO and our dividend. We have an energized team of experienced proven operators who are committed to excellence and that gives us great confidence in our future. With that, I'll turn the call over to Barry. Barry A. Hytinen -- Executive Vice President, Chief Financial Officer Thanks, Bill, and thank you all for joining us to discuss our results. I'll begin by providing an overview of our second quarter results and then go into more detail on each of our business segments before turning to our outlook for the third quarter and the full year. In the second quarter, our team achieved strong performance across all of our key financial metrics. We achieved record revenue of $1.534 billion, up 13% on a reported basis, driven by 11% storage growth and 17% service growth. We delivered 10% organic revenue growth. Revenue was ahead of the expectations we shared on our last call by more than $30 million. Total storage revenue was $920 million, up $89 million year on year. Storage growth was driven by revenue management and continued strong commencements in our data center business. Total service revenue was $615 million, up $87 million from last year, driven by strength in our asset life cycle management and Global RIM businesses. Adjusted EBITDA was $544 million, a new record, up 14% year on year, driven by strong growth in Global RIM as well as data center and asset life cycle management. Adjusted EBITDA margin was 35.5%, up 50 basis points year on year, which reflects improved margins across our business. AFFO was $321 million or $1.08 on a per share basis, up $34 million and $0.10 respectively, from the second quarter of last year. This represents growth of 12% for AFFO and 10% for AFFO per share. This is ahead of the guidance we provided for the second quarter, driven by higher adjusted EBITDA as well as lower-than-expected cash taxes, which is included in our guidance for the third quarter. The strength of the U.S. dollar continued to be a headwind in the quarter. On a constant currency basis, revenue was up 14% and AFFO was up 13%. Now turning to segment performance. I'll start with our Global RIM business, which achieved revenue of $1.25 billion, an increase of $91 million year on year with strong organic revenue growth of 7.9%. Revenue management and positive volume trends drove organic storage rental growth of 7.7%. Our team delivered organic service revenue up 8.3%. Global RIM adjusted EBITDA was $549 million, an increase of $50 million year on year. Global RIM adjusted EBITDA margin was up 40 basis points sequentially and 90 basis points from last year, driven by storage growth and continued productivity across our operations. Turning to global data center. The team delivered revenue of $153 million, an increase of $35 million year on year. From a total revenue perspective, we achieved 24% organic growth. Organic storage rental revenue growth was particularly strong at 27%, driven by commencements and improved pricing. GAAP mark-to-market in the second quarter was 12.3% and was benefited by a single relatively large renewal. We continue to expect mark-to-market to be up mid-to-high single digit in the second half. Data center adjusted EBITDA was $66 million, representing 23% growth. Turning to new and expansion leasing, we signed 66 megawatts in the quarter, bringing total bookings for the first half to 97 megawatts. As Bill mentioned, with our strong leasing and favorable outlook, we are increasing our full year projection to 130 megawatts. The data center market continues to develop rapidly. And with our strong and expanding hyperscale relationships, our pipeline continues to grow. I am pleased to report that we have increased our land bank by 57 megawatts. With those additions, our total data center capacity can now be built out to 918 megawatts over time with 347 megawatts held for development. Turning to asset life cycle management. Total ALM revenue in the quarter was $90 million, an increase of 111% year on year and 30% on an organic basis, driven by both improved volume and pricing. ALM continues to be a key beneficiary of cross-selling with over 95% of our bookings this quarter happening as a result of that initiative. The team at Regency Technologies continues to deliver results ahead of our plan, with revenue of $35 million in the quarter. We have seen our combination with Regency results in expanded client relationships and improved profitability. Turning to capital allocation. We remain focused on a disciplined approach to fund our growth initiatives and drive meaningful shareholder returns while maintaining a strong balance sheet. Capital expenditures in the second quarter were $399 million, with $362 million of growth and $37 million of recurring. Turning to the balance sheet. With strong EBITDA performance, we ended the quarter with net lease adjusted leverage of 5.0 times, which is the lowest level we have achieved since prior to the company's REIT conversion in 2014. Turning to our dividend. On a trailing four-quarter basis, our payout ratio is now 60%. Consistent with our target payout range and reflecting our positive outlook, we have increased our dividend 10%. Now turning to our projections. For the full year, we now expect to deliver results toward the high end of our guidance range on all metrics. For the third quarter, we expect revenue of approximately $1.55 billion, adjusted EBITDA of approximately $560 million, AFFO of approximately $325 million, and AFFO per share of approximately $1.10. In conclusion, our team delivered record results in the first half. We continue to perform ahead of our long-term growth objectives and our outlook is strong. I'd like to take this opportunity to thank all of our Mountaineers for their continued efforts to deliver on behalf of our customers. And with that, operator, would you please open the line for Q&A. Operator Questions & Answers: |
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