IRON MOUNTAIN INC Q3 FY2024 earnings call

• Third quarter saw record revenue of $1.6 billion, up 12% from prior year, new adjusted EBITDA record of $568 million, up 14%, and AFFO per share on a normalized basis of $1.12, up 10% compared to prior year.
• Key strategic priorities include driving revenue growth in physical storage records management, delivering differentiated digital solutions, providing asset life cycle management capabilities, and supplying differentiated data center offerings.
• Important wins: In Australia, signed a seven-year contract with a large government department; launched InSight Digital Experience (DXP) SaaS platform, with 24 recurring revenue deals booked; in asset life cycle management, awarded recurring contract in Australia and acquired Wisetek and APCD; in data center business, won second 2 megawatt deal in Virginia and supported global fintech provider in Arizona.

Global RIM Business

• Revenue of $1.26 billion, an increase of $78 million year-on-year.
• Organic storage was up in excess of 7%, driven by revenue management and consistent volume. Organic service revenue was also up 7%, with contributions from digital and core services.
• Global RIM adjusted EBITDA was $569 million, an increase of $52 million year-on-year. Margin expansion was driven by operating leverage and revenue management.

Global Data Center Business

• Revenue of $153 million, an increase of $26 million year-on-year. Achieved 20% organic growth from a total revenue perspective. Storage rental revenue growth of 22% from the third quarter of last year. Data center adjusted EBITDA was $67 million, representing strong growth of 26%. Adjusted EBITDA margin was 43.6%, an increase of 190 basis points from the third quarter of last year and up 40 basis points sequentially.

Asset Life Cycle Management

• Total ALM revenue in the quarter was $102 million, an increase of $61 million or 145% year-on-year. On an organic basis, strong double-digit growth driven by data center decommissioning and expansion in the enterprise business. Regency Technologies performed very well this quarter with revenue of $36 million. Closed APCD in August, contributing $3 million to revenue. Closed Wisetek in late September, with no income statement contribution in the quarter from that acquisition.

• On track to achieve the high end of the full year 2024 guidance range.
• Fourth quarter expected revenue of approximately $1.6 billion, adjusted EBITDA of approximately $595 million, AFFO of approximately $358 million and AFFO per share of approximately $1.21.
• Expect to finish the year with 130 megawatts of new leases signed in 2024. Acquired a development site in Richmond, Virginia, which when fully built out will operate with greater than 200 megawatts of capacity.

• The strength of the U.S. dollar continued to be a headwind, increasingly so toward the end of the quarter. Fluctuations in Latin American currencies against the dollar could disproportionately impact revenue and EBITDA.

Q: In your ALM business, can you talk a little bit more about trends that you're seeing in the data center and enterprise side of the business, including how much contribution you're seeing from volumes and pricing?

A: William Meaney mentioned strong growth in data center decommissioning due to hyperscalers renewing equipment for AI, and Barry Hytinen noted organic ALM revenue in the quarter was about $64 million vs last year's $42 million, with volume driving increase and ALM profitability up due to Regency synergies.

Q: Give us a sense as to how to maybe frame that for the next year regarding CapEx requirements, especially for data centers?

A: Barry Hytinen said they will continue to invest significantly in data center growth capital, likely a couple hundred million dollars more than previously expected, with nearly all under construction pre-leased, and total capital guidance approaching $1.8 billion with ~$150 million recurring.

Q: Could you talk a little bit about the pacing of when you expect some of the construction to come on board in the data center business?

A: William Meaney said they feel good about the pipeline to land 130 megawatts or better for the year, with commencements driving revenue growth acceleration into the fourth quarter, and Barry Hytinen added there will be incremental data center revenue in the fourth quarter vs third, with ramping levels expected going forward.

Q: I was wondering if you could give us your expectation for RIM volumes in 4Q? And maybe into next year, what should we expect for RIM pricing?

A: Barry Hytinen said they expect RIM volume trend to continue in 4Q and next year, with physical volume expanding, and pricing driven by revenue management and value offerings, with global RIM storage revenue up over 7% organic in the quarter, and long-term outlook for physical volume flattish to slightly up and pricing mid to upper-single digit.

Q: Barry, I think you talked to kind of revenue and EBITDA at the upper end of the range last quarter too. It looks like you beat by a little bit in the quarter. Any thoughts as to just why it was reaffirmed as opposed to not take it up with one quarter left in the year?

A: Barry Hytinen said they have been saying their year guidance and have taken it to the high end, with FX being a headwind, especially in Latin America due to currency fluctuations vs the dollar, but they feel good about their outlook with the growth portfolio outperforming long-term targets.

Q: Question on InSight. You caught my ear with the 22 wins on the InSight DXP platform. I wanted to know if Iron Mountain is getting revenues for InSight?

A: William Meaney said these are double-digit service contracts with 20%-40% gross margins, and the DXP platform has power in digitizing and workflow automation, creating value for clients.

Q: Maybe you could just touch on kind of some of your longer-term aspirations with ALM. I know at your Investor Day a couple of years ago, you talked about getting to $900 million or so of revenues by 2026.

A: William Meaney said they still have line of sight to the targets, with organic growth driven by volumetric trends in enterprise and data centers, and acquisitions like Wisetek and APCD aiding in bridging to the target, and Barry Hytinen added ALM is a big category with immense TAM and they are on track to be the market leader.

Q: I want to stick with the ALM theme. Can you just give us some more details around Wisetek and APCD in terms of their geography and their product offering, maybe the customer focus between enterprise and hyperscale?

A: William Meaney said Wisetek helps expand portfolio in Europe and North America with strong customer relationships in enterprise and hyperscale, APCD is based in Australia for data center opportunities in enterprise and decommissioning, and Barry Hytinen added Wisetek is based in Ireland with operations in US and Asia, APCD in Australia is an underpenetrated opportunity, and they are open to expanding reach through organic and inorganic growth