Good morning, and welcome to the Iron Mountain Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this 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.

Thank you, Andrea. Good morning, and welcome to our third quarter 2023 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 of our presentation 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, and we've included the reconciliations to these measures in our supplemental financial information. With that, I'll turn the call over to Bill.

Thank you, Gillian, and thank you all for taking the time to join us today to discuss another record quarterly results. Once again, our Mountaineers have gone above and beyond in their efforts to serve our customers with innovative solutions that support their businesses, putting our customers first runs deep in all we do and sits at the core of Iron Mountain. This legacy, combined with our dedication to not only protect but to elevate the power of our customers' assets and work continues to drive our execution and growth. Turning to our results. We delivered record third quarter performance once again achieving our highest ever quarterly revenue of $1.4 billion which to put that in context, is an increase of over $100 million year-over-year and record EBITDA of $500 million. The strength in these results is a direct result of the positive momentum we are building from Project Matterhorn. We are more than a year into our growth journey and are pleased with our enhanced operating model, which is empowering our commercial organization to cross-sell our products and services. In the third quarter, we delivered organic storage rental revenue growth of 10% as a result of continued revenue management success and improved volume trends and drove over 20% organic growth in our data center business. Let's begin by turning to some of our customer wins, which played a significant role in our ability to achieve these record results. In our records management business, we had a public sector win this quarter in the U.K. with a new contract worth nearly $2 million. This new project is with an important government agency and has been an Iron Mountain customer for 18 years. In that time, our relationship has expanded from an off-site records management provider to an integral partner at…

Thanks, Bill, and thank you all for joining us to discuss our results today. In the third quarter, our team achieved strong performance across all metrics, including another record for revenue and EBITDA. Revenue grew to $1.4 billion, up 8% year-on-year on a reported basis and 7% on a constant currency basis, in line with our projection. Our key highlight in the quarter is our organic storage rental revenue, which grew 10%. This reflects continued strong contributions from revenue management, data center commencements and positive volume trends. Total service revenue was $530 million, consistent year-over-year on a constant currency basis and slightly improved on a sequential basis. As we discussed last quarter, service revenue includes the impact of component price declines versus the prior year. Excluding our ALM business, total company constant currency revenue growth would have been 9%. Our team delivered a new record for adjusted EBITDA at $500 million, up 7% year-on-year. This was modestly ahead of our guidance for the quarter despite the U.S. dollar strengthening significantly. On the same foreign exchange rates we used in August, we would have achieved $504 million of adjusted EBITDA in the third quarter ahead of our projection. EBITDA growth was driven by continued strength in revenue management and strong data center commencements. Adjusted EBITDA margin was 36%, up 100 basis points sequentially and ahead of our projections by 50 basis points. Upside was driven by productivity across our operations, including improving trends in our ALM business. AFFO was $290 million or $0.99 on a per share basis, up $2 million and $0.01 on a per share basis from the third quarter of last year. Both of these were in line with the projections we shared on our last call. On the same foreign exchange rates, we were using in August,…

[Operator Instructions] And our first question comes from George Tong of Goldman Sachs. Please go ahead.

Hi. Thanks. Good morning. Revenue management is continuing to drive healthy price realization in storage and services. Can you elaborate on, how you expect price actions to trend as inflation normalizes and discuss client sensitivity to pricing increases in the services business, compared to the storage business?

Yes. Thanks, George and good morning. So, I think that you can expect and you can see that through the course of the year, even as inflation has come off, is that we're continuing to be able to use revenue management across the board in our - especially in our records management business, and that's really based on how our customers value the services. So, we don't see any change in that trend. And in fact, in terms of customer retention, you've seen even a slight improvement in that during that period of time. So, just as the customers really understand the value that we're applying, and we're actually using revenue management to tap into that. So, we don't see any change in that trend.

And George, it's Barry. Just to add on to that, I would say, as you think about the fourth quarter, we have revenue management actions that have been put in place in the third quarter that, will power another $20 million or $25 million of sequential growth even going forward here, in the fourth quarter. So that's part of the model, as you think about third quarter and fourth quarter.

The next question comes from Nate Crossett of BNP Paribas. Please go ahead.

Hi. Good morning. Just a question on organic service revenue growth. Commentary sounded pretty positive on component pricing. So do you expect that, that metric will be positive in 4Q? And then just on Regency. Maybe you can talk about how the organic growth has been for that business year-to-date? And then lastly, just your expectation of RIM volumes heading into 4Q and next year? Thank you.

Thanks, Nate. Let me answer the question on Regency and then Barry will take your other two points. So on Regency, you can imagine they went through probably a similar growth profile that we saw in ALM. And they also have kind of, I would say, hit the low point probably about four months ago. And since then, they're actually growing kind of mid-single digits over the last, say, two, three, four months. And that's - they probably recovered a little bit faster than our business, but that's where the complementary mix of the two businesses is there, both in terms of the customers that they serve, and they do a lot more on the downstream processing, than the business that we have at Iron Mountain that we've acquired through IT renews. So, it's a good complementary fit. But we also see that they've actually, over the last few months, been growing single digits. Obviously, the business will continue to ramp, hence the pricing across the board starts improving.

Nate, hi it's Barry. Thanks for those questions. On volume, as you saw in the quarter, we continue to grow volume, both in global records as well as in the corporate and other. And as you know, because you cover the company for so long, our expectation over the horizon is for volume to continue to be consistent to slightly up year in and year out. So, we are pleased with the volume continuing to trend at or even a little bit, better actually than our projections. And we continue to see that, both in the quarter coming as well as into the New Year. So very good and positive trends on the volume side. As it relates to service revenue, yes, we do expect service revenue to be up year-on-year, as I've talked about before, the second quarter was the hardest comp for our ALM business, because in light of what was going on in the prior year, that's when revenue for ALM was about $83 million in total. In the third quarter of last year, it was $60 million. And it was $56 million in the fourth quarter. And this year, it's $42 million in the second quarter and in the third quarter. And as Bill and I mentioned in our prepared remarks, we expect our ALM business to be in the, let's say, low 50s. So that helps - with the standpoint of turning around the comp that, you'll see for the total company. The other thing is, just in light of project revenue. For example, in our digital and our global records services, we have incremental project revenue in the fourth quarter and some commencements, on some longer-term digital contracts occurring here in the fourth quarter, which will help our additional service revenue, and is favorable as it relates to the third quarter. As you know, some of that project revenue can be a little bit lumpy quarter-to-quarter. And that's one of the reasons, why we are bullish on the sequential improvement in total revenue in the fourth quarter. So you'll see a little bit of an acceleration, thanks to ALM getting better and easier comp as well as the trending. We - as Bill mentioned last thing, since you asked about component pricing, we've only factored in what I would call a marginal modest improvement in pricing. And certainly, we are pleased to see pricing on memory rising, as much as I mentioned in the prepared remarks, but it's - we and the whole industry have been through a lot there. So we'll kind of be prudent and watch it before baking in too much into our numbers. Thanks, Nate.

The next question comes from Jon Atkin of RBC Capital Markets. Please go ahead.

Thanks. I was wondering if you could maybe put a finer point on helping us think about the impact of pricing actions in the room segment versus volume, kind of what the relative impacts were. And then for the ALM segment, I think you I talked about trying to get to $900 million in 2026. Is that still a number to think about? Or given the M&A that you've done with Regency and just the organic growth, any different way to think about that target?

No. Thanks, Jon. So I'll - let me take the ALM and then I'll let Barry talk a little bit more about pricing and volume trends. So on the ALM side, yes, we haven't backed off from our multiyear target that we shared at Investor Day, a little over a year ago. We still see the $900 million as a reasonable target in terms of the business trends, because one thing that we have continued to see is incoming volume. So if you look both year-over-year and year-to-date and sequentially is we do see volume continuing to grow and to ramp. And as Barry said, that we've seen now pricing starting to come back, whilst it's early green shoots, but 15% improvement in memory pricing, which you probably recall from our call last time is the bulk of the components that we sell on is - it shows that we're moving in the right direction to get back towards the type of pricing that we saw couple of years ago. So, if you put that all together and now with the additional capabilities that we're getting from the Regency acquisition is that both - they do a lot more on the downstream processing, which quite frankly, will not only allow us to harvest more value from the products that we're recycling from our customers, but it will also allow us to kind of expand, improve or accelerate our expansion into the OEM channels that we mentioned before. So I think you put that all together is that we feel very good about the targets that we laid out at our Investor Day.

And John, it's Barry. Thanks for the question on revenue management in the quarter within our global RIM business. I would tell you if you look at the storage rental revenue growth there on an organic constant currency basis was 8%, so it was quite strong. And volume was modestly positive as you would see in our disclosures. So the vast majority of that was revenue management, although as we've talked about the last few quarters, we are seeing some positive mix in terms of driving top line revenue growth as well. So majority of its revenue management, a little - some mix and some improving volume trends. And going forward, as I mentioned in one of the earlier comments, we will see relatively speaking, incremental revenue management actions driving the business fourth quarter versus third.

The next question comes from Shlomo Rosenbaum of Stifel. Please go ahead.

Hi. Good morning. Thank you for taking my question. I really want to focus just a little bit more on the ALM business trajectory. Just - what are you seeing in terms of like volumes coming in? I understand that the pricing is still low, but recovering. But just absolute volumes, how is that doing? And then also just understanding the Regency acquisition, like you said that it's $100 million of TTM revenue, but obviously, it was in a downward slope similar to what you guys were seeing. Is there a run rate that you can provide to us that we can think about that in terms of how to model that thing? And then maybe just keep focusing on a little bit more, what they add to Iron Mountain? What do you mean in terms of the downstream processing? What exactly is it that they do that you do not do?

Okay. So, Shlomo, let me talk a little bit about the - what we see on the volume trends, and then I'll let Barry put it together in terms of how you should think about modeling that going forward in terms of the business. I'll also come and pick up your point about what exactly Regency ads. So in terms of the volume trends, if you look at the enterprise side of our business, is there, the synergies, and as Barry said in his remarks, almost 100% cross-selling in terms of our ALM business. Is there you see almost triple-digit year-on-year increases in terms of volume that we're getting from our enterprise customers. So in the enterprise segment, we're seeing a really, really good volume. If you look at the hyperscale, which is the part of the business, that we acquired through IT renewal is the one that's most been impacted by what we see on the pricing of the components, which, as we said, is now just starting to move back north in the right direction. Is there, we actually see year-on - if you put year-to-date volume trends of incoming equipment, is we actually see double-digit - strong double-digit growth year-on-year, year-to-date incoming volume. And so the thing that's been muting that incoming volume, quite frankly, has been the pricing, but the good news is the pricing has started to improve. And Barry can help you think through how do you think about putting those two together as we project going forward. The last thing coming to Regency. So I'm glad you picked up on that because I probably should be more explicit on that. So Regency, first of all, they are adding a couple of customers into the portfolio that, quite frankly, we didn't have both in…

So Shlomo, it's Barry. I appreciate the question. Specifically, on how to model Regency, just as a reminder, we are expecting it to close kind of around year-end or early next year for when you want to add it to your model. We noted that it's in excess of $100 million of revenue, Shlomo, and I expect them to exit the year at that level in excess of $100 million, and we see the opportunity for it to be growing into the new year. But of course, we'll give guidance for next year on our next call. But we feel very good about the stability of the business that it's been generating revenue and EBITDA at the levels it's been for some time. And as Bill alluded to, it did not see the sort of trough that our ALM business did on the hyperscale side. It's much more of an enterprise IT asset disposition sort of player. And in that enterprise and government services that it does its - didn't see the level of trough that we did, and it's come back nicely. And so we feel very good about the stability of the business at this point and feel like we're getting a very good, very synergistic deal as Bill mentioned, they have a fair bit of incremental capacity. And so we can get synergy off of bringing Iron Mountain Enterprise clients to Regency for service going forward. I would say - I'll just note that you can work through the math on this that it's sort of in the low mid-20s of an EBITDA margin business. We think that, that has opportunity to expand as relative pricing in the broader market expands and through incremental capacity utilization of the footprint of what they have there. We've been very impressed with the team at Regency for a long time. They've built a very good business with critically important relationships to clients. And we've got a very strong focus on sustainability. So we feel very good about Regency. And as I zoom out to broader ALM, Shlomo, I would say, just to reiterate a point Bill made, the volume is clearly kind of doing well. We are seeing incremental bookings, as I mentioned in our prepared remarks, particularly on the enterprise side, on teams having good wins on the hyperscale side as well. And our OEM relationships continue to extend. That's an area that was a focus - has been a focus for us this year. We signed some very important relationships in that area of the market. Of course, it has - the nature of those relationships is that they take a little longer to get to revenue generating, but we are well on our way in the OEM vertical as well. So I appreciate the comment, Shlomo.

The next question comes from Eric Luebchow of Wells Fargo. Please go ahead.

Hi. Thanks for taking the question. So Barry, I just wanted to touch on the balance sheet, obviously, a big move in interest rates recently. So I just wanted to touch on your deployment of CapEx and the sources and uses of capital. It does look like data center CapEx, as you've mentioned before, maybe you could touch on the trajectory there, that's probably going to continue to lift higher based on the leasing you've done year-to-date. And then maybe you could talk about your kind of achieve development yields on data center deals. It looks like those continue to move higher and how comfortable you are in terms of the excess returns you're getting over your current cost of capital for what's in your data center pipeline? Thank you.

So Eric, I'll take the - I'll talk about the yields that we're getting it. And then Barry can talk about the balance sheet impact and how we're thinking about financing it going forward. So I think on the yields, as you probably - were kind of foreshadowing in the nature of your question. We have seen yields moved up and in Barry's prepared remarks and I think also in mind. I talked about the price improvement or the strength of pricing around data center as demand continues to ramp. So historically, if you think about the journey that you've watched us on, Eric, is a few years ago, we would have said, hyperscale or kind of 7 to 8. I think on the most recent calls, we said hyperscale. These are cash-on-cash returns have been 8 to 9. And now you can expect that they are 9 plus. So we're - and these are all pre-leverage, cash-on-cash returns. So the returns are even with the ramp in the cost to build - well, the cost of build is obviously built in, but in terms of the cost of financing is well ahead after you put the data center together and lease it up is well ahead of our cost of capital. So we feel really good about the returns we're getting even in the higher interest rate environment.

Hey, Eric, it's Barry. A couple of things there. We would expect CapEx for the whole company to be probably right around $1.3 billion for the year. That's up some from our prior view because, as you point out, the team continues to do very, very well on data center, and we have a lot of construction to do to service the contracts that the team has signed. It's an interesting point about our business within data center, and we're operating now 225 megawatts, which is nearly all leased. And then we're under construction on another 260 megawatts, of which again, like 90% plus, 93% of it is pre-leased. So we are really constructing to contract as opposed to spec. And so it is a situation where you will see us continue to be gradually rising the data center CapEx as we work to build into the contracts that we've signed. And I think it's - read it to the team and the customer wins that we've been having that we've been able to extend our lease expirations to eight plus years on the backs of higher pricing and those returns improving. So it's - we are feeling very good about where we're positioned with data center and the growth thereof, Eric. You're going to see a lot of growth going forward as we build into those leases. Thanks.

[Operator Instructions] And our next question comes from Brendan Lynch of Barclays. Please go ahead.

Good morning. Thanks for taking my question. I wanted to dig in on the opportunity in Miami to convert storage facility to a data center. One, are you fully scrapping the existing facility and just using the land? Or are you actually using the existing infrastructure? And what do you see as the other opportunities throughout your portfolio to convert other facilities for data center purposes?

Good morning, Brendan. Thanks for the question. So the - yes, so in Miami, you probably can imagine, yes, we are actually scrapping the building. So we're reusing the land in that particular case because it's the way that we could get the most data center capacity into that facility, otherwise we would have been leaving much opportunity on the table. So it's a better use or a better way of actually tapping into that market. But it still gives us kind of - if you look at an all-in basis, probably a 15% reduction in cost to build. And obviously, the speed at which we can enter the market is much faster because trying to find the right location of land in Miami and secure the power can be challenging. So we think both in terms of speed and then 15% cost improvement, which is significant, is really important. And if you look more broadly of the 90 million square feet of industrial real estate that we have around the globe that's associated with our records management business is - think about that's probably in the order of 15% to 20% of the properties are under evaluation on any given day as we look at it. So we're constantly screening about 15% to 20% of our locations and looking at what customers' requirements are and in some cases, having discussions with customers and thinking about which of those sites might be next. And these are generally fit in very nicely for what I call these kind of edge deployments or secondary cities like Miami, right? So this won't be the last one that we - the first and the last. This will be the first of many, we feel as we continue to go forward.

This concludes our question-and-answer session and the Iron Mountain third quarter 2023 earnings conference call. Thank you for attending today's presentation and you may now disconnect.