Q2 2020 Iron Mountain Inc Earnings Call
Good morning, and welcome. So they are involved in second quarter 2000, <unk> earnings Conference call.
All participants will be in listen only though.
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After todays presentation, there will be an opportunity to ask questions. We are.
So one question.
Yeah, Hey, reenter the queue up you have any follow ups.
Please also note this event is being recorded.
Well I want to turn the conference over to Greer Beach Senior Vice President Investor Relations. Please go ahead.
Thank you Rob.
Good morning, and welcome to our second quarter 2020 earnings.
We have provided the user I felt by our Investor Relations website.
Well also be providing the weight to todays webcast earnings materials.
We have joined here today by dummy President and CEO and very heightening, our VP and CFO.
Today, we plan to share a number of key messages to help you better understand are performing including how we have successfully navigating the coping 19 exactly.
Oh, we have continued to durability in our core storage, but there.
Oh, we have continued to strengthen our data center business.
However, I think our transformation program Patrick summit.
And how we as an organization, reflecting acting on every one of them.
He continued social justice with regards diversity Bradley and that black population specifically.
After our prepared remarks, well open up the lines for Q1 night.
Todays earnings materials will contain forward looking statements.
I've noted the impact on public 19, and our expectation of how that may impact or operation and financial performance, it's like a 20.
We have also noted our expectations for projects summit.
As you know all forward looking statements are subject to risks and uncertainties.
Please refer to todays earnings materials, the Safe Harbor language on this slide two and our annual report on form 10-K, and other periodic SEC filings for a discussion of the major risk factors that could cause actual results could differ from those in our forward looking statement.
In addition, we use several non-GAAP measures and protecting our financial results.
We have included reconciliations to these measures as required by Reggie nice supplemental financial information with that Bill would you. Please begin.
Thank you career and thank you all for taking time to join US Let me start by saying I Hope you're all continues to stay safe and healthy and he's trying times before we get into a discussion of our second quarter performance I'd like to take some time to touch on two topics that are top of mind for many of us in the current environment.
First the killings that George Floyd in countless others have left me and my colleagues upset angered and heartbroken I want to reiterate that racism discrimination anyway have no place at ARYMO ER, our commitment and stated is one of our core five values for many years to a quality inclusivity in diversity.
It's part of our belief that our people our greatest assets.
Given this back we must continually attract listen to and develop a broad talent pool, reflecting our global demographics in order to deliver to our customers and protect our future.
These tragic event had spot difficult, but important self reflection in conversations within our organization about how well we are living up to our stated value into commit ourselves to do much better.
It is up to us to work together educate ourselves and encourage open dialogue to promote proactive measures to help eliminate incorrect biopsies and spread awareness not just because it is the right thing to do but also because we will only be successful in serving our customers if we attract and retain the best talent.
Having the best talent can only happen if we're recruiting in developing people from diverse backgrounds across the broader demographics, we operate there.
We remain strongly committed towards taking decisive and strategic action to create a truly inclusive iron mountain, we're committed to listening learning and taking the necessary actions to support long term positive change for the black community specifically in people from all backgrounds in general.
Well, we cannot change the past, we haven't opportunity has an organization and as individuals to positively impact the future and help fixed the racial inequality prevalent in our society.
Now I'd like to update you on the impact we are seeing with respect to covert 19.
As you all know the virus is unfortunately still spreading across the globe.
Thoughts and prayers go out to all those who had been affected by the virus, including those who have fallen hill as well as their loved ones in their caregivers as always our top priority remains the healthiest safety of our mountaineers their families and our customers I want to acknowledge and thank my any mountaineers around the world well.
Mary challenges have kept their focus on ensuring that our mountain continues to move forward. During these uncertain times in doing so with a view towards safety.
This is all brought home to me again last week during a visit I need to northern New Jersey, So I could take our frontline teams personally.
One of our careers relayed how he is been serving a large metro New York health system everyday through the crisis and how thankful to customer is for our continued service.
Particular customer went so far just said one of their doctors to our facility to assist in the protocols and training to protect our staff for me. This is what it means to be an a true partnership with our customers.
Well so we continue to serve many customers. During this crisis as you would expect our second quarter results were impacted by disruptions due to office closures in other restrictions put in place as a result of Koby Nike.
Fortunately, 100% of our records management facilities, there now open and operating across the globe. However, many of our global customers continue to operate at significantly lower capacity due to existing restrictions depending on geography.
As a result global demand for many of our core service offerings declined during the quarter.
Looking back known could have anticipated the magnitude of the impact on this pandemic on the global economy in our own business. However, our team moved quickly to assess the risks I understand the consequences and take decisive action to ensure the safety of our employees customers and communities.
As I mentioned these various decisions have not been made lately and we are aware there consequences, especially for our mountaineers did have been impacted by furloughs and other temporary and in some cases permanent actions.
We told you would've made at approximately a third of our global workforce has been impacted by these actions in an effort to keep our labor costs in line with levels at service activity.
Fortunately, we have been able to bring in number about mountaineers back to work. So at this time. This number has decreased to approximately 20% of our global workforce. Furthermore, the mix has shifted over the past few months. So you are the impacted employees are on for a full furlough.
Yes, hi, or percentage of working reduced hours are using vacation or sick tax.
At this time, we have also reopened all our corporate offices with the exception of London, which we plan to open at the beginning of September we have practicing strict protocols around social dispensing and as such the majority of our salaried workforce is continuing to work remotely.
We should know we had been strong we it seems strong productivity rates from worked with working from home.
That being said given some of the increase stresses of working remotely we continue to monitor and care for our Mountaineers mental health and resiliency as part of our overall focus on wellness.
Turning to our financial performance, our continued navigation of this challenging and uncertain environment. It's the Liberty second quarter performance that further demonstrates improves the durability and resilience of our people and ultimately our business model.
Touching a few highlights here.
Q2 constant currency revenue declined $58 million, a 5.6% year over year, driven entirely by 21% decline in our service revenue.
This was partly offset by strong storage revenue growth, which increased 3.7%.
The early benefits of projects on that are evident as we delivered constant currency adjusted EBITDA line inline with a year ago level. Despite the revenue decline leading to a 200 basis point margin expansion.
Barry will review the rest of the Q2 financials in more detail.
Looking at our service business, we have seen improvements in activity levels across the various product line. Since the end of April as global economies are starting to reopen and customers are increasingly utilizing our core service offerings in many geographies.
However, the pace our recovery still remains uncertain, whilst the revenue decline wasn't as steep as we expected when we last spoke in early May we continue to see some risk around the second half depending upon what happens with the progression of the virus and possible additional restrictions on a country by country and state by state basis as they can.
Thank you to fight specific localized outbreaks of the virus.
Turning now to our core storage business total organic storage rental revenue grew 2.3% supported by strong revenue management contribution.
Moreover, we saw cash collections improved both in absolute terms year on year as well as by two days outstanding this level of organic revenue growth underscores the durability and essential nature of our storage business and our ability to continue to generate substantial cash flow.
Total organic volume declined 1.8 million cubic feet sequentially contributing to this decrease was in records management volume, partly offset hey, I 2 million cubic foot, increasing consumer and others.
Looking more specifically of records management organic volume this was down 3.92 million cubic feet compared to the first quarter there shouldn't be sooner I think based on the decline of incoming boxes in April and a decline of 45% for the quarter.
We had been asked by many investors as to what we see happening to physical volume post cobot. So let me take a step back and provide some further context on organic records management volume.
We estimate that the impact from coated in Q2 was somewhere between four and four and a half million cubic feet net of the slowdown in permanent withdrawals.
We continue to normalize Q2 for similar levels of volume in Q1, combined with our expectation for a pickup in permanent withdrawals volume would be flat to slightly up on a normalized basis.
To get to a total physical volume impact I will now factoring consumer performance in the second quarter. We added 2 million cubic feet. Analyzing this would imply we would be net positive 8 million cubic feet or approximately 1% volume growth on a basis total physical volume of more than 720 million cubic feet.
However, Q2 is a seasonally high point for consumer business. So this would be overly optimistic to assume for full year.
When we know this out in a post kobin world, we would expect physical storage volume growth to be roughly a half a percent with volume from records management flat to slightly up with a small net positive growth coming from consumer.
It should be noted that this is all before the contribution from our normal price increases, which generally at approximately 2% to 3% to the volume growth, yielding approximately 3% organic storage revenue growth from the physical side of the business.
However, when we will see this revision to post kobin normalized business environment remains uncertain and it's certainly not before the end at before the second half a 20 2021.
Despite the stress and strain from dealing with Covance impact, we had not let up on our investments in innovation specifically in the quarter. We had many instances, where we were able to serve our customers with a focus on delivering innovative solutions in order to help them navigate their challenges that have arisen from Kobin 19.
For example regarding the commercial impact in April pipeline, a more traditional offerings was down 40% versus the same period last year due to co bid in the resulting lower economic activity.
However, we recovered a third of this loss through new solutions. We recently launched that help address our customers' needs. During this time. This is just one demonstration of the resiliency and dedication of our Mountaineers as we expect many of these solutions to be additive to our top and bottom lines, even after our base activities rebound.
Turning now to our global datacenter segment. This business continues to perform exceptionally well delivering strong results in the second quarter.
In June we announced a 27 megawatt datacenter lease with a U.S. based fortune 100 customer in Frankfurt, Germany. This customer will occupy the entire Frankfurt facility, which should result in stabilization significantly sooner than we originally anticipated when we purchased delay on last year.
In addition, we signed a three megawatt datacenter leaves with a fortune Global 200 company in Singapore, another signal of strong momentum in that market. These bigger deals have been one alongside a series of smaller but significant agreements, including a number of new logos, we welcomed and online gaming platform is.
Okay, and he global logistics supplier.
Provider to the I am DC ecosystem in Q2 all of this has contributed to a strong performance in the first after the year with nearly 39 megawatts of new and expansion leases signed against our initial guidance of 15 to 20 megawatts for the full year.
Given this great success in the first half of the year, we now expect to be able to sign leases for a total of 45 to 50 megawatts. This year or an additional 10 plus megawatts of leasing in the back half I would like to congratulate the entire datacenter team for an exceptional first half performance. Thank you.
Based on the strength of our pipeline, we will continue to prioritize investment in datacenter growth. We are actively building our capacity across our global footprint with New development project started in Amsterdam, Singapore and Phoenix in early July we completed the first phase of four megawatts at our new building on our Northern Virginia.
At this end customers are already deployed.
As I mentioned earlier projects. Some it is already paying dividends no one could have predicted the debt or breadth of this pandemic. When we first announced project summit in October 2019.
Hopefully the decisive actions we took early in the program allowed us to reconfigure our cost structure as well as realign our organization to be more nimble in customer centric. These changes enabled us to be more responsive in delivering new solutions to our customer specific needs during the crisis as well as matching our cost to a changing demand.
Environment.
In addition to the cost reduction projects on it has achieved as demonstrated by our increased margin. We've also made progress on the next phase and improving our customer intelligence as well as simplifying our I T systems.
One such example, being our master data management initiative.
Through this initiative, we're improving the platforms and processes that handle all of our data. This intelligence will allow us to better understand and serve our customers, making data and asset for our business.
Finally, I'm also very pleased with the initial success, we have seen from the recent changes to our service delivery model the rollout of the so a change in the service level agreement changes, we discussed last quarter have gone smoothly. We have already seen the early benefits of denser routes and less frequent pick ups in deliveries our image on demands.
Service has seen an increase in activity as more customers look for solutions, which include the use of digital solutions and it has it helps them integrate more contact list process to reduce infection risk get their businesses.
A recent survey indicated that more of our customers are interested in converting to digital versus physical delivery in particular, our customers tell us they value speed of delivery ease of use insecurity as the most important considerations when evaluating the use of in the John demand.
To summarize there is no doubt that Kobin 19 pandemic has been a challenge to our business. However, this challenge provided confirmation that the changes we've made to our organization and the investments we have made in the recent past where the right. Once kobin 19 accelerated many workplace trends and we have demonstrated that we can provide the necessary. So.
Solutions to help our customers adapt to their new unexpected work environment.
Despite the unprecedented volatility of Kobin 19, we remain focused on long term growth in doing whats right for the health of our employees our customers in our business importantly, we have also recommited ourselves and our fight against racial injustice prevalent in our society's around the globe any creating an inclusive and diverse.
Workforce.
We are fortunate to have a strong balance sheet in a durable business model, which are helping us successfully navigate this challenging period, whilst providing us with the flexibility to continue investing in our long term growth plans, which go beyond projects summit.
As Barry shared with you last quarter, we are proactively managing expenses and have additional levers to further adjust our cost structure, if necessary and appropriate.
In closing also high degree of uncertainty remains as we look to the back half of the year, we're confident that the value of our offerings is more relevant to our customers today and we will continue to provide innovative products and services that address their evolving business needs. Our competencies further shared by our bondholders as evidenced by our $2.4 billion.
Issuance to refinance some of our notes strong investor confidence in demand allowed us to upsize that transaction as well as extend our maturity profile.
On behalf of the leadership team I wish to extend our heartfelt gratitude to our frontline Mountaineers, who have kept our operations running seamlessly to serve our customers stay safe and well with that I'll turn the call over to Barry.
Phil and thank you for joining us to discuss our second quarter results I want to Echo Bill's comments I Hope you all continued to be safe and healthy.
We're pleased with our results for the second quarter in a challenging macro environment. Our team delivered solid performance across each of our key financial metrics revenue adjusted EBITDA adjusted EPS and Epicel.
Before I go into the detail of the our results let me touch on the impact Cobot 19 has had on our service trends.
As we noted on our last conference call for the second quarter, we were planning for service declines consistent with what we experienced in April.
This proved to be slightly conservative.
While may was consistent with April we saw an improving trend across most of our service lines in June.
To provide investors with as much visibility as possible I wanted to share more information than we typically do including the monthly progression of service activity.
As compared to last year, our global service activities declined 37% in April 38% in May and 21% engine. This resulted in an average decline for the second quarter of 32% while trends have naturally varied. Some by market. These are generally representative of what we've experienced around the globe.
A notable call out as Latin America, we are consistent with macro headlines the businesses generally land the recovery elsewhere.
To put that in context. This region represents approximately 5% of our revenue.
In North America, we saw a year on year decline of 36% in April 37% in May and 22% in June.
Our core storage business, which accounts for nearly two thirds of our total revenue and a larger portion of our profitability has demonstrated its durability as we continued to grow organic storage rental revenue during the pandemic.
As a reminder, the stability of this business is built on the fact that over 97% of our annual storage revenue is generated by boxes that entered our facilities in prior years.
And now turning to enterprise results for the second quarter.
Revenue of $982 million decreased 7.9% on a reported basis year on year, reflecting service declines as well as the stronger dollar on a constant currency basis revenue declined 5.6%.
Total organic revenue declined 7.2% organic service revenue declined 23.1%, reflecting the cobot impact despite the macro headwinds total organic storage rental revenue grew 2.3% supported by revenue management.
Adjusted EBITDA declined 2.3% to $343 million.
Excluding the impact of foreign exchange rates adjusted EBITDA was inline with last year, despite a $58 million revenue decline.
During the second quarter, we incurred $9 million of costs as a result of cold 19 for items, such as PE and specialized cleaning of our facilities, which have been excluded from our non-GAAP measures.
Adjusted EBITDA margin expanded 200 basis points year over year to 34.9% the improvement reflects progress on our Sunit transformation revenue management unfavorable mix.
Adjusted EPS was 22 cents compared to 23 cents in the second quarter 2019, our full year expectations for tax rate in shares outstanding remain unchanged from our commentary last quarter.
AFFO was $249 million up 19% year over year as compared to adjusted EBITDA. The increase in at that though was primarily driven by tax refund.
Turning to segment performance, starting with the global Rim organization in the second quarter Records management experienced year on year declines of approximately 45% for new boxes in bounded and 43% for retrieval scenery files.
Permanent withdrawals declined 34% and Destructions were down 1%.
Data management, so less of an impact with activity down 10%.
Our global digital solutions business has continued to perform well with revenue consistent year on year on a constant currency basis.
Given the diverse mix of products and services in this business, we use revenue as the best indicator of activity.
In our shred business activity declined approximately 24%, which is also resulted in lower paper tonnage.
The industry saw an increase in the price for recycled paper in April and May which we believe was partially the result of elevated consumer purchases a paper products for the second quarter. Our average realized price was 15% higher than the prior year, which was a $2 million benefit to adjusted EBITDA.
Prices continued to be volatile with sequential declines in June and July.
The consumer storage business has seen an increase in demand in performed ahead of our expectations.
These service activity levels contributed to a total organic revenue decline of 7.5% in the global ring business.
The decline was partially offset by storage volume growth in faster growing markets and revenue management.
In the second quarter, we took aggressive actions, including furloughs and reduced work hours, which helped bring costs more in line with activity levels naturally we also experienced a level of fixed cost leverage.
As these cost actions are temporary in nature and distinct from product summit, we continue to expect them to come back as revenue recovers.
Our global rim business delivered adjusted EBITDA margin expansion of 240 basis points to 43.8%. This improvement was driven by project summit revenue management and favorable mix.
Turning to global data center.
The business delivered organic revenue growth of 7.6% driven by strong leasing in prior periods and low churn of 80 basis points. This was partially offset by a mark to market decline in Phoenix, resulting from an early contract renewal of a large legacy ill customer.
Global Datacenters adjusted EBITDA margin of 45.8% represents an increase of 140 basis points consistent with our long term goal to drive margin expansion as a platform skills.
As Bill noted that data center team delivered very strong bookings in the first half of the year, signing almost 39 megawatts of new and expansion leases, including pre leasing 100% of our Frankfurt facility currently under development.
As we've said before we are reviewing potential third party capital options, particularly related to stabilize assets and we will keep you updated in the second half.
Turning to our adjacent businesses. The fine Arts industry has continued to experience the impact of cultivated and we have seen activity down approximately 85% on the other hand, our entertainment services businesses showed resilience as activity has remained in line with precluded levels.
As to project summit in a second quarter, we recognized $39 million of restructuring charges and an adjusted EBITDA benefit of $40 million through the first half, we have delivered $65 million and benefit.
We continue to expect to deliver adjusted EBITDA benefits associated with project summit of $150 million and restructuring charges of $240 million in 2020.
This keeps us on pace to deliver $375 million of expected total program benefits exiting 2021.
Turning to cash flow in the balance sheet, we are confident in our balance sheet strength and liquidity position in the second quarter. Our team did a nice job driving cash cycle improvement of nearly four days year on year with benefits coming from both payables days and day sales outstanding we continue to see the opportunity for further cash cycle improvement over the long term.
With the cold it backdrop I think the team's performance, particularly on cash collections was very strong. Despite a decline in revenue our cash collections were up year on year in June.
I will note that given the pandemics impact on the macro economy, we took a prudent view regarding receivables and increased our bad debt expense in the quarter.
I'd like to briefly expand on the recent bond offering that Bill mentioned.
We appreciate the investment community strong support which resulted in our ability to upsize the transaction NGL into $2.4 billion. This leverage neutral offering increased our weighted average maturity by almost two years, while only modestly increasing our cost of debt.
In the second quarter, we recognize debt extinguishment charges of approximately $17 million related to a write off of unamortized deferred financing costs in call premiums.
Due to the timing of the pay off of one other note at quarter end, we had elevated levels of cash on our balance sheet. We paid off that no on July 2nd and as a result, we anticipate recording an additional $15 million of debt extinguishment charge in the third quarter.
Pro forma for this payoff, we had $1.2 billion of liquidity, which provides us ample runway to operate the business in this uncertain environment.
We've been able to maintain liquidity at this level since April even while continuing to fund innovation and growth initiatives as well as supporting our sustainable dividend.
We ended the quarter with net lease adjusted leverage of 5.4 times, which takes into account certain adjustments as described in our credit facility. Looking ahead, we expect to end the year with leverage of approximately 5.6 times, which would represent a slight decline year on year as we make progress toward our long term leverage range.
With our strong financial position our board of directors declared our quarterly dividend of 62 cents per share to be paid in early October.
Now, let me provide an update as to our expectations for the remainder of the year.
With the impact of coated we're planning for reported revenue to be down less than 5% for the full year compared to 2019.
This outlook includes a full year headwind from foreign exchange rate of approximately $75 million for revenue and almost $25 million for adjusted EBITDA as compared to last year.
Turning to our expectations for our storage and service businesses for the full year. We currently expect a decline in net organic storage volume of 1% to 1.5%. We expect reported storage rental revenue in the second half to grow on year on year at a rate that approach is what we delivered in the second quarter.
As to service our July activity levels were down 24% globally.
We are currently planning for third quarter activity to be consistent with what we experienced in July.
This implies a service revenue decline in high teens year on year in the third quarter.
With an expectation for gradual recovery in the fourth quarter, we're planning for full year service revenue declines in the mid teens.
We are approaching adjusted EBITDA margins with the level of conservatism and plan for both the third and fourth quarters to be flat to slightly up year on year.
This would result in us delivering full year adjusted EBITDA margin expansion slightly above 100 basis points relative to last year, which reflects an improvement as compared to our comments on our last call.
This reflects our solid first half performance benefits from revenue management project cement and other cost actions as well as a cautious outlook for the remainder of the year.
Turning to capital expenditures, we've increased our full your expectation to approximately $525 million or an increase of $50 million from the midpoint of our previous outlook.
You should expect this increase to be evenly split between recurring Capex and data center growth investment given a better than expected performance in core business as well as are growing data center pipeline.
As to at the FFO. The team is focused on delivering at a level approaching last year's results, including the benefit of our second quarter tax refund.
As it relates to capital recycling our outlook has not changed we continue to expect to generate proceeds of approximately $100 million. This year as we looked at the back half we have a strong pipeline of transactions and continue to see attractive valuations with historically low cap rates in the industrial real estate market.
While the second quarter was a challenging one for our service business, we're confident in its resiliency and the continued durability of our storage business I am proud of how the team has responded to these challenges in a strong results. They have delivered we look forward to sharing further progress with you on our third quarter earnings call and with that operator. Please open the line for couponing.
Thank you I will now begin my question answer session.
Through ask your question sorry.
Oh.
Verizon the speaker phone.
So George your question. Please press Star then so.
Please limit yourselves to one question. If you have further questions you may reenter the question.
At this time, we'll pause momentarily.
Yeah.
Today's first question comes from.
Wells Fargo.
Great. Thanks for taking the question.
Well.
That you would want some news the loosened for your customers in the quarter that help recover some of your sales losses and wondering if you could.
Maybe provide a little more color what type solutions, you're offering and any impact you think that could have.
And then I guess.
Just one follow up.
On the data center.
Buildout you'd mentioned that you were looking at third party capital option I'm wondering if that fully related currently or if there are potentially other assets that you could look.
To potentially joint venture thanks.
Okay, I'll, let I'll, let Barry answer the last one in more detail I think the but the answer to you at the short answer. Your question is that we continued to like the idea of third party capital for stabilized assets, but I'll, let Barry give you a full answer on that on the on the first one in terms. So thanks for the question Eric on on innovation and the importance of that.
Just in a post open world, but absolutely in the car environment, we continue to see traction on some of the things I highlighted last time in terms of what I call remote collaboration in rig and collaborating remotely like I gave the example last time I think on unemployment benefits, where we're actually facilitating folks to be able to be working away from home in both.
We received the application front employment and approve it and then also some of the areas around mailroom, which again I think I highlighted last time, one area and I would add in addition to that so we continue to see more and more traction for those kinds of solutions one area to that we've seen.
A good uptick in the recent past is what we call a clean start program and the clean Star program is something that we launched a year ago, which is really helping people to reimagine their their needs for their office space and get improve get information flows to be more seamless when they are at work and then also.
To get things off site, but things that they don't need around the office and allows us to work in a much more flexible way.
In when we came into Covre that actually got.
The breakup put on that because part of the clean start was we would go into offices in do surveys and working with their real estate people to help them reimagine and rebuild their their work processes and some of that the exhausted that process. Obviously is storage, but also some of the other services that we provide his iron mountain when we got into the core.
Basis, our real estate team product management sales and marketing team collaborated in they created a clean start kit in a box. If you will so what we've done as we've been able to put that together in a in a kit that allows us to deliver the same type of assessment in survey virtually without actually going into their offices and we just.
Recently for instance had a very large win with a global insurance company that was selling part of its insurance portfolio to a life insurance company, where we not only did.
Militated moving sensitive records, many can containing PII or personal identifiable information across to that knew that new owner or those policies and that information, but transfer a number of their employees across and at the same time help them re purpose there the real estate footprint that they were left with so it was.
Real estate optimization, helping them transfer business to another person transfer people and then take a step back and say how can we actually improve information flow and what they have left so.
So that just give you another flavor of the types of things that we're finding out there and Eric Hey, It's Barry. Thanks for the question just to add a little bit onto bills.
Comments there earlier in the are you know we noted that we were going to pause our third party capital look as we were working through the pre leasing activity. We noted at the pipeline was very attractive specifically on on Frankfurt, obviously, the team did a phenomenal job in the quarter with that as well as to just broader datacenter business. So.
We are looking at third party capital of Frankfurt in particular, but could not I would never say never as it relates other stabilized assets. We think it's at attractive way to improve returns for the company in.
We see a lot opportunity there I would say that implied in your question was the comment around JV, we do think that thats a attractive structure, you've seen that done in the industry before I now and I think at this point what will say is we will come back few quarter by quarter and give you an update as how we're progressing there.
Thanks for the question.
And our next question.
Shlomo Rosenbaum with Stifel. Please go ahead.
Hi, This is Adam on for a slow.
On the services business quickly the revenue declined.
As always we were thinking one what percentage of decline facilities accessible to the company's services business into how much to the paper price increases were prices also the volume decline.
The quarter.
Oh, Okay, Hey, Adam Thanks for a thanks for the question a couple of points. There I would say look our service business performed better throughout the.
In the quarter than we had anticipated as you know on last call. We noted that we thought we'd use April as a proxy going forward for their entire second quarter April and May generally speaking really across the world and across our various service activity lines were very consistent.
You know shred was down kind of high Twentys in April about 30 and May. It also recover just like the Directionally. The rest of the business was down in the vicinity of 10% on activity basis in June and kind of stayed at that level in in July.
I would say that that trajectory of improvement in June as I noted was really pervasive across all of our activities as it relates to paper price in particular, the way I would think about this Adam is on our last call.
We were well in the first quarter, we had a $10 million hit to EBITDA from paper prices as you recall in on our last call. We thought that we would have caught me a low to mid single digit dollar decline as result of paper price for each of the next couple of quarters, We actually had a 2 million positive to EBITDA as I mentioned on the on the call now I will say.
People prices have been very volatile and have been declining quite significantly over the last couple of months, you've probably seen that in the industry data I know you follow that and so our view for the back half is that it will be basically neutral year on year.
As it relates to EBITDA. So thanks for the question Adam.
Thank you our next question.
We will Mcgrath with Evercore. Please go ahead.
Hi, good good morning, I was wondering if you could comment on what percentage of then new data center leasing is from existing Iron Mountain customers just more details on synergies there and if you can comment on how the global sales relationship strategy might be going.
Okay. Good morning, Joe Thanks for the question. So so so first of all as we look at this quarter is most of the sales were from relative either from new logos or Hyperscalers that were the first time deploying it a hyperscale way if you know what I mean other as we most of the Hyperscalers, we're serving and some in some AD.
Specs, but not necessarily in large hyperscale deployments I think overall, though if you look at our pipeline I would say that whilst its right to say on in terms of volume that we sell these that one hyperscaler can kind of skew what that looks like is we're still seeing a good good mix. So I think last quarter, we were approaching back up to about 50% from.
Kind of existing iron mountain or existing datacenter customers. This quarter. It was a little bit lower, especially if you use the filter on saying.
Breaking the hyperscalers into two to two buckets, but overall I think we still continue to see the pipeline I think that some of the new logos that I highlighted that we brought in this time, where because of existing iron mountain relationships and say our data management business in the type of cross selling that you would see but if you look at specifically this quarter what were.
Most excited about this quarter is that we think we're we're beginning to be established in the in the deal flow. If you will for Hyperscale deployment in other words hyperscalers.
No that were out there and we see we're seeing the geography wise.
Just like everybody else's. So we're pretty excited so this quarter was kind of skewed I would say to kind of newish customers, but overall the pipeline is still kind of in that 50%.
Level.
Thank you, ladies and gentlemen, as a reminder, if you're going to ask a question. Please press Star then one.
Next question comes from mid crossing.
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Hey, good morning, guys couple of questions or the organic storage revenue it was up.
0.3% kind of wondering if you could speak to that a bit how much of that growth is coming from data centers now how much is coming from the rats.
And have you had any pushback on pricing increases during cold bid.
And then on the DC I'm, just wondering you worry that hearing Jade.
For the east that you're going to get credit for that growing.
Hey, this is Barry thanks for both questions.
So datacenter contributed 40 basis points to that number so it really speaks to the fact that its.
Nice contributor and and we expect obviously you that to ramp overtime is that is.
That is as you know big focus for the company, we see a long term trajectory for for continued growth there and as I said earlier. The team is doing really well and that also speaks I think to the fact that our records management business continues to see nice growth revenue management really contributing at very very well.
As it relates to credit.
As it relates to structure I think is a little premature to talk too much about what we do there as it relates a third party capital. We noted we're just evaluating but as it relates to stabilized assets. We do think that were.
Various rates are in terms of certain folks that are willing to invest in this kind of market. It. It makes for a very enhance returns and we we think it's also another opportunity help fuel incremental growth build did you have anything you want to give you don't really think Nate I would add on the on the pricing side. Thank you question I have questions a little bit in this environment do you still is still seeing the same sick.
Yes, the thing that that we knew they were in essential business based on government authorities as he said even at the peak we were 96% of our facilities were opened around the globe now, it's a 100%, but the one thing that we've seen is that we've been able to continue to get the price increases that we expected our customers really CSS essential as well and that's with further reinforce I think very high.
Lighted in his introductory remarks that in the month of June Youre, not only the Dsos go down year on year with another month of June with lower sales, we collected more cash than we did June last year. So in other words people really do see that our services are essential to keep their businesses opened in running so so we haven't seen any real.
Early noise around the price increases that were able to achieve last year in the current environment. Thanks for the questions Nate.
Our next question today comes from John Carroll with RBC capital markets. Please go ahead.
Thank you I've got a couple of questions on the data center side, if you could maybe comment on Amsterdam, and then Singapore each of which has seen some.
Non cobot related pauses or freezes in terms of new permitting.
It may or may not affect you equally in both markets, but just.
It has had some impact on your competitors and is there kind of any sort of an update as to the lifting of these pauses in each of those metro's. Thanks.
Thanks, guys. Good to good to hear this morning. So look I think first of all you know the mark extreme those both as mark extremely well so first on Singapore.
We're continuing to keep an eye on it because as you probably realize we're tracking on a on track that we're going to be sold out in Singapore pretty soon so you're right that the government has has put a pause on it we have heard the it just so happens that are ahead of Asia datacenter is a Singaporean based in Singapore. So he stays pretty close to the government we are.
Seeing that the government seems to be making noises to relax that a little bit sooner than they initially guided for a year ago. So were optimistic and obviously, we're starting to or we are have been for a number of months now looking at how we could actually expand our footprint in Singapore as I said, the where we're well on track to to fill out.
The old credit Suisse datacenter for fairly soon on Amsterdam interesting, we have actually quite a bit of land permitted. So we've been less engaged with the government trying to relax that on the other side. It's exactly as you said is we've seen even a number of.
People, who have their own datacenters and the fair market for instance, coming in and starting to look to add capacity in our and our facilities because of the the permitting issue that you described it obviously Amsterdam is a highly connected market in our facility as a high level of connectivity within it so it's actually playing to our strike both because we.
City in but the rest of the market is constrained.
Ladies and gentlemen, once more.
That's a question. Please press Star then one.
So there is next question comes from Sheila Mcgrath with Evercore. Please go ahead.
I guess I was wondering if you could give us a little more detail on projects summit, how its going versus your expectations and for the 65 million benefit realized thus far where those savings come from and what are some of the sources of the future saving and one last one for Barry what was the tax refund currently.
Just more detail on that.
Okay, Sheila good morning, and thanks for those questions first off we feel great about how somebody is doing I think the team is very aligned and a very focused on delivering.
I think that the total company is energized by the fact that this is.
Really an opportunity to transform the company and support our customers that much better.
In terms of how its stacking up in the second quarter of 40 million dollar benefit year on year was right in line if not a little bit ahead of what we were expecting so we're at 65 million year to date, obviously those are elevated levels as compared to what we're expecting earlier as we increase the the benefit this year last quarter. So we are.
Well on track to deliver $150 million a benefit this year.
My guess is that next year, we will have another 150 to 200 million of incremental benefit and we'll exit next year at a run rate that has all of the benefit the entire 375 million by 2022, so little small amount of incremental benefit there in 2022 to plan for your models in terms of where it's coming from.
It's generally been thus far probably in the vicinity of 70, 75% from SGN a in the balancing cost sales you'll note as you're looking at our performance this quarter, our cost sales, obviously down a lot more and that reflects the fact that we made those temporary cost cuts that we talked about in form of furloughs and cetera.
Going forward I think you'll see even more of summit coming from a more balanced approach in across the income statement as initially as Bill has commented before that the first.
Rounds of summit, we're really in the SGN area, there will be more going forward, but I think as a relative basis sort of last quarter. We talk some about the escalate changes, which by the way are going very very well those will continue to stack incremental benefits going forward and some of that obviously will be.
In the cost sales line as it relates to the tax refund I think that was the last question. We did have about $27 million of cash refunds in the quarter.
As compared to prior year last year, we actually paid more on a cash basis. So if you're looking at a AFFO, it's almost a $35 million swing year on year.
Thats, what one time and we.
Those are for prior year refunds that we were we received during the during the quarter. So thanks for those questions Sheila.
Our next question comes from Michael would be willing Merrill Lynch. Please go ahead.
Yes. Thank you for the question guys good morning.
Good morning.
Well.
Can you comment more on that.
Team.
On a monthly progression for customer churn.
And I didn't quite get the question Michael It was a customer churn on datacenter customer churn in the records business.
Yes, sorry about that on the on the records business. Please.
On the record on the records business, yet so look the customer churn is some is actually we think a little bit lower than normal. Then then we would see so thats when I made a comment in my introductory remarks that when we kind of normalize in a post kobin world on the on one side, we would expect.
The a pause another with we don't expect the same drag on incoming volume, but on permanent withdrawals is that we saw a downtick in this quarter because people are not in the office or or making active decisions to actually withdraw. So we expect it to kind of go back revert back to normal levels, but if you kind of look at overall volume I think the costs.
Sure behind your question is what do we think it's going to happen to to volume when we get out of covert. So on one side, we would expect permanent withdrawals to go up.
Back to normalized levels, but on the other side as we would expect incoming volume from our customers to come back up and so that give you kind of a bit of science around that if it's helpful is.
First of all kind of anchor on what we see with our customers right now in this environment in terms of activity So last week.
As in New York in New Jersey, and add a catch up with.
A one evening with the President and Chief operating officer of a large global Bank Thats based and in New York and eat we were comparing notes on how many people talking back the office et cetera, and what he shared with me is that at the depth of the crisis say in April they had less than 3% of their workforce coming into the office.
And where there is standing when I was meeting with the last week in July they invited 20% of the people to come back and only 6% came back and you're probably seeing similar things and BAML.
So then let's kind of say what how is that translated in the activity. We see in terms of incoming boxes, when I say that.
Where are we going to end when we have co bid in the rear view mirror. So if we look at incoming boxes in April. So if you remember like in their case only 3% of their people less than 3% of people are coming into the office, we were down 58% in North America by just taking North America. As an example is that.
As a proxy were down 58% on incoming box volume if we look at the quarter as Barry mentioned were down about 47% overall in North America in terms of incoming box now if you look at July were down about 38%. So basically July is about a 20% improvement from what we saw on average.
Page in in Q2, so if we were down say four four and a half million cubic feet due to in in Q2 from our records management business or net we said minus 3.8 million cubic feet.
Were four and a half million kewpie worse than normal, but let's say we were down eight negative 3.8 million cubic feet than we would say that based on a 20%.
The 20% improvement that we've seen in July is worst case scenario you project that forward is we're down about 3 million cubic feet a quarter right. So thats 12 million cubic feet on an annualized basis now we don't expect it to plateau at these levels, obviously, because we still only running it in financial services less than 6% of the people.
At our coming to work, but it was 6% even if we see plateau at the current levels were seeing is you'd be at 12 million annual drag a negative 12 million annual drag on our records management business in terms of physical storage and that's before adding consumer back in so when you net it all out is that.
Worst case, especially with the offset that we get from consumer is that we think that adding our normal price of 2% to 3%. It's manageable what it most likely scenario is will continue to see improvement people will start I don't think we're going to stay at 6% of the workforce coming to the office. It will go back up.
And that's why when I said in our remarks as we expect in a coat post Kobin world is will be kind of flattish to slightly up in the records management business and then consumer will drive additional growth on top of that I don't know if that's helpful.
Thank you.
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