Yahoo Finance Iron Mountain Incorporated (NYSE:IRM) Q1 2024 Earnings Call Transcript
Iron Mountain Incorporated (NYSE:IRM) Q1 2024 Earnings Call Transcript May 2, 2024
Iron Mountain Incorporated misses on earnings expectations. Reported EPS is $0.43 EPS, expectations were $1.05. Iron Mountain Incorporated isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to the Iron Mountain First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Gillian Tiltman, Senior Vice President and Head of Investor Relations. Please go ahead.
Gillian Tiltman: Thanks, Rocco. Good morning, and welcome to our first quarter 2024 earnings conference call. On today's call, we will refer to materials available on our Investor Relations website. We are joined here today by Bill Meaney, President and Chief Executive Officer; and Barry Hytinen, our Executive 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 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. And with that, I'll turn the call over to Bill.
William Meaney: Thank you, Gillian, and thank you all for taking time to join us today. We are pleased to report that our team has delivered outstanding results for the first quarter of 2024, achieving another set of all-time highs for revenue and profitability. Our continued progress is evidence of the success of Project Matterhorn and our team's commitment to delivering best in class solutions. On a reported basis, in the first quarter, we achieved our highest-ever quarterly revenue of $1.48 billion, representing 12% year-over-year growth and a new first quarter adjusted EBITDA record of $519 million, delivering 13% year-over-year growth. Project Matterhorn has successfully transformed Iron Mountain into a solutions based business with a commercial organization that offers a broad range of products and services to meet the evolving needs of our customers.
This integrated product portfolio drives strong growth across all business areas through our integrated solutions, combining storage with truly differentiated services. Now I'd like to take you through some pivotal wins this quarter. Let's begin with Records and Information Management. The strength and longevity of the relationships we have built with our 240,000 customers is leading to further opportunities to offer more solutions from our portfolio to meet our customers' needs. An excellent example of this cross-selling is in the oil and energy sector where a U.S. headquartered customer with a presence in 75 countries initially selected Iron Mountain to securely manage its data containing geological information. Thanks to our expanded range of solutions and a deep understanding of the customers' needs.
We are now also providing a secure IT asset disposition solution. Another example of our strength and ability to cross-sell and provide more solutions for our customers is in the United Arab Emirates. For the past two years, we have been partnering with a prominent bank to provide records management services for a growing volume of documents. With this customer's need to comply with regulations from the UAE Central Bank, we secured an agreement to extend our solutions. These now include document capture and asset lifecycle management or ALM services. We continue to see opportunities to support government and public sector organizations with their transformations, helping them to increase efficiency and demonstrate value-for-money for the services they provide to their citizens.
A recent example of this is in the U.K., where we have a long-term relationship with a government agency that trusts us to store approximately 18 million records. This customer awarded Iron Mountain a contract to manage documents that must be retained, whilst legal proceedings are ongoing. Our proven ability to manage records effectively to this customer and a number of other government organizations in the U.K. demonstrates we have the skills, capabilities, and experience to successfully manage sensitive projects like this. Turning to our digital business, a global customer that provides automation solutions has asked us to digitize its physical records in Morocco. Our InSight platform, which as you will recall, fully integrates both artificial intelligence and machine-learning will enable this customer to simplify their current use of multiple information systems in content formats.
InSight will enable them to derive greater value from their information, whilst improving their compliance and driving greater operational efficiencies. The customer's confidence in our solution is a testament to our team's clear understanding of our customers' needs, as well as our proven track record of success as a digital transformation partner. Staying with digital solutions, an Australian government agency asked Iron Mountain to digitize approximately 250,000 land registry files dating back to the 1850s for government-owned real-estate in the state of Victoria. Our solution will ensure that these vital historical records are preserved both physically and digitally, enabling efficient access for land managers, potential developers and government departments.
Our infrastructure, reputation, and expertise, including our ability to meet a requirement to manage the entire project within the state of Victoria, were key differentiators that enabled us to secure this deal. Moving next to our data center business, we continue to be pleased by the strength and rapid growth of this business and how we can support more customers with the capacity we are creating at our facilities around the world. Today, I want to highlight three examples of leases we signed this quarter. First, we have signed a 24-megawatt 12-year contract with a global technology company for data center space at our Manassas, Virginia campus. This is an existing North American records customer that required space in Virginia to support their high-performance computing needs and to expand their footprint.
Also this quarter, we leased 4-megawatts with an existing global cloud storage customer. The customer relayed to us that our excellent customer service was a key determinant in their decision to expand their footprint with us. Additionally, in our data center business, we are pleased to welcome a global IT consulting firm as a new customer. They chose us in order to be in close proximity to their clients as well as to meet their demanding connectivity requirements. Turning to Asset lifecycle management, we are pleased to share that this quarter we closed the acquisition of Regency Technologies. The Regency leadership team have already made strong contributions to our ALM efforts, both commercially and operationally and have integrated well into our company.
Moreover, Regency adds eight complementary locations to our U.S. network. Moving to ALM more broadly, we are pleased with strong organic growth in the business driven by a combination of increased volume and component price recovery leading to a strong quarter. As we continue to build our ALM capabilities, I wish to share several examples of how ALM enables us to offer more solutions to new and existing customers. A well-known food service brand has signed an agreement with Iron Mountain in the Netherlands to recycle their decommissioned IT assets. Data security was paramount in their decision to partner with Iron Mountain as well as our ability to be at any of their in-country locations within 48 hours. Also in this quarter, an existing Iron Mountain Global Financial Institution customer signed a program deal to manage their Secure ITAD, recycling and remarketing requirements, including their remote workplace inventory for over 400 sites nationwide.
The customer wanted a single-vendor approach to streamline their asset lifecycle management. We worked with them on a unique solution that created process and workflow enhancements integrated with their existing asset management systems and lowered their overall costs through the remarketing initiatives. The program supports all of their corporate locations with both on and offsite ALM services. Finally, a multinational conglomerate company has signed a deal with us to manage its ALM needs for data center decommissioning, as well as their end-user devices. Due to the customer's significant growth through acquisition, they had accumulated a significant amount of legacy data center and end-user device equipment that needed to be securely decommissioned.
We were pleased to be able to provide a holistic global solution backed by our secure chain of custody in order to meet their needs. To conclude, I am very proud of the strong results our Mountaineers continue to deliver. Our consistently strong performance, including our ability to achieve our highest quarterly revenue to date is evidence of the increasing heights we are achieving as part of our Matterhorn clime. At the core of this continued strong performance is our customers. All of us at Iron Mountain are humbled by the trust which more than 240,000 organizations around the world, including 95% of the Fortune 1000 have in us in our increased portfolio of services. We look forward to continuing our growth journey as we deliver our best-in-class and integrated solutions to our clients and create value for our shareholders.
With that, I'll turn the call over to Barry.
Barry Hytinen: Thanks, Bill, and thank you all for joining us to discuss our results. In the first quarter, our team continued our track record of strong performance, exceeding the expectations we provided on our last call. We achieved record quarterly revenue of $1.48 billion, up 12% on a reported basis, driven by 9% storage growth and 17% service growth. On an organic basis, revenue grew 8%. Revenue was nearly $30 million ahead of the expectations we shared on our last call, driven by stronger performance in both our Global RIM and our asset lifecycle management businesses. Total storage revenue of $885 million, up $75 million year-on-year was driven by solid performance from both Global RIM and data center. Total service revenue of $592 million was up $88 million from last year, reflecting strength in Global RIM and digital as well as strong contribution from our recently closed acquisition of Regency Technologies.
For me, two key highlights in the quarter are: first, data center storage revenue exceeded 30% growth year-on-year; and second, our organic service revenue growth accelerated to 10% year-on-year, primarily driven by improved performance in our asset lifecycle management business. Adjusted EBITDA was $519 million, an increase of $58 million from last year. This constitutes growth of 13%, both on a reported and constant-currency basis year-on-year, driven by strong contributions across all business units. Adjusted EBITDA margin was 35.1%, consistent year-on-year driven by revenue management and cost productivity, offset by mix. AFFO was $324 million or $1.10 on a per share basis, up $29 million and $0.09, respectively from the first quarter of last year.
This was ahead of the expectations we shared on our last call as a result of the upside in adjusted EBITDA as well as phasing of both recurring capital investments and cash taxes, which is incorporated into our guidance for the second quarter. Now turning to segment performance. In the first quarter, our Global RIM business delivered revenue of $1.21 billion, an increase of $84 million from last year. On a reported and organic basis, revenue grew 7%. Storage rental revenue growth of 6% reflects our focus on revenue management and consistent volume trends. We delivered service revenue growth of 10% driven by traditional services and digital solutions. Global RIM adjusted EBITDA was $526 million, an increase of $48 million year-on-year. Turning to our Global Data Center business, we achieved revenue of $144 million, an increase of $32 million and 28% year-on-year.
Data Center adjusted EBITDA was $62 million or 22% growth from the first quarter of 2023. Turning to new and expansion leasing, we had a successful quarter with the team signing 30 megawatts with strong cross-selling activity. Our data center pipeline is robust across the markets we serve. In Phoenix, where we are fully leased in our first two sites, we have now commenced construction on our third site and have a considerable pipeline of opportunities to fill it. In support of our data center strategy and consistent with our sustainability commitments, we were pleased to execute our first green loan in April. This $300 million financing was well-received and considerably oversubscribed. Proceeds will be used to support the construction of energy-efficient data centers in Northern Virginia.
Turning to asset lifecycle management. In the first quarter, we delivered improved performance for both revenue and EBITDA. Total ALM revenue in the quarter was $84 million, an increase of 103% year-on-year. Regency Technologies performed ahead of our expectations in the quarter with revenue of $32 million. While we are only one quarter into the integration, we are very pleased with the acquisition and are already seeing more benefit than planned in terms of cross-selling, increased capabilities, and improved operational efficiencies. On an organic basis, ALM revenue increased 25% year-on-year, driven by both improved component pricing and increased volume from our strong cross-selling activity. Turning to capital. In the first quarter, we invested $366 million, of which $337 million was growth and $29 million was recurring.
Our full year capital expenditure target remains $1.35 billion of growth and $150 million of recurring. Turning to the balance sheet. With strong EBITDA performance, we ended the quarter with net lease-adjusted leverage of 5.1 times. As a reminder, this remains at the lowest level in the past decade. We expect to operate within our target leverage range, which is 4.5 times to 5.5 times. Our Board of Directors declared our quarterly dividend of $0.65 per share to be paid in early July. On a trailing four-quarter basis, our payout ratio is now 61% at the lower end of our long-term target range of low-to-mid 60s percent. And now turning to our forecast. With our positive outlook, we are pleased to reiterate our full-year guidance despite the impact of the strengthening U.S. dollar.
Our forecast today includes current FX rates, which results in an incremental headwind of approximately $25 million to revenue and approximately $10 million to adjusted EBITDA through the remainder of the year as compared to our initial guidance. For the second quarter, we expect revenue of approximately $1.5 billion, adjusted EBITDA of approximately $535 million, AFFO of approximately $310 million and AFFO per share of approximately $1.05. In summary, we are pleased to have delivered strong first quarter results and we expect continued growth in 2024 as a result of our focus on Project Matterhorn objectives. I would like to take this opportunity to once again thank our entire team for their continued dedication and commitment to Iron Mountain and our clients.
And with that, operator, will you please open the line for Q&A?
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