Q1 2021 Iron Mountain Inc Earnings Call
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Good morning, and welcome to the Iron Mountain earnings Conference call.
All participants will be in listen only mode.
Should you need it and you just disciplined fleet to current constipation.
And with the stock key on the part.
Zero.
Today's presentation, there will be and opportunity to ask Christian.
Please note the skew things.
Being reported.
I would now like to turn the conference over to Grier obese AVP of Investor Relations. Please go ahead.
Thank you Irene good morning, and welcome to our first quarter 2021 earnings Conference call.
Alright, and form 10-K for a discussion of the major risk factors that could cause our actual results to differ from those and are forward looking statements.
In addition, we use several non-GAAP measures when presenting our financial results.
We have included the reconciliation to these measures and our supplemental financial information with that I'll turn the call over to the.
Thank you Greer and thank you all for taking time to join US I Hope you and your families are safe and well. We are pleased to of delivered a strong start to the year, we both revenue and profitability coming and ahead of our expectations for the first quarter. Despite the ongoing challenges of the pandemic and continued lockdowns and many parts of the world some of the key accomplishments of the quarter and.
<unk>, we achieve the record level of quarterly revenue pricing continues to yield strong results of highlighted by our organic storage rental revenue growth of one seven per cent year on year total organic volume grew from 2 million cubic feet versus the last quarter and we continue to forecast overall volume growth to be flat the slightly positive for the year.
We saw a strong performance from our growth areas. For example, digital solutions as shown year over year, and a growth of 11%, while secure asset disposition or sites had and shown 30% growth. We are and line was delivering over $50 million of revenue growth from these two dynamic areas of this year.
Our global datacenter team least nine megawatts and Q1 versus our guidance of between 25 and 30 megawatts for the full year.
And we continue to grow our footprint acquiring a new land parcels adjacent to our campus and northern Virginia, which will increase our total potential capacity and that key market to of 145 megawatts bring our total potential datacenter capacity globally to 445 megawatts.
Finally, adjusted EBITDA grew 2% year over year on a constant currency basis, and our margin expanded of 100 basis points and.
It should be noted the Q1. This year is even more impressive given that we are comparing it to a year ago, we of COVID-19 for the most part was affecting very few of our customers.
Whilst the impact from COVID-19. During this quarter continues with many of the 56 countries. We operate in to be in various stages of Lockdown. We are proud of the consistency and stability of our core business and we continue to deliver on our strategic plan.
And $375 million to our EBITDA through margin improvement projects and that will continue to enable us to invest and the growth areas, we identified and discussed last quarter further accelerating our growth and revenue as well as profit.
Some of these areas you will recall include digital solutions consumer storage and data center and sites at.
Examples to illustrate the impact of our focus on revenue growth can be seen from recent wins and digital services and <unk>.
One recent win and digital services was with a global insurance company, which was managing is the exposure from a large and complicated liability claim.
This customer desires and state was to streamline and underwriting and claims management processes by providing digital accessibility to records to quickly identify risk exposure reduced processing times improve SLA and ensure a chain of custody and gain scale ability for large.
The discovery audits.
Our unique solution was to integrate 440000 of their physical boxes with their digital information to provide a single view to search across and identify relevant and required information on demand by.
For about 2021 and beyond.
Now, let me switch gears and spend some time discussing our ESG commitments, including the sustainability of our products services and operations as well as our efforts focused on diversity equity and inclusion.
All right the annual corporate social responsibility report will be published later today and that report we share of sustainability goals is part of our ESG commitments to reduce our environmental impact well. So we've been extremely successful and achieving targets that were previously set including exceeding our science dates targets to reduce green.
<unk> gas emissions six years ahead of schedule, we have the we are introducing even stronger commitments to our planet our customers our employees and our communities.
Some highlights include we are committed to achieving carbon net zero by 2040 10 years ahead of the Paris climate of court. We are proud to be ranked number 81 on newsweek's list of America's most responsible companies and 2021.
By 2025, we are committed to building all of our newly constructed multi tenant datacenters to be certified to the Green Green building standard.
And in addition to contract and for renewable energy equivalent to of 100% of our data center electricity load worldwide and passing through the carbon reduction benefits to our customers who available themselves of our green power past, we of announced our first electricity supply contract that matches, our load of 24 seven with local renewable.
Generation for our facilities, and New Jersey and Pennsylvania.
Additionally, we shared with you are recommitment to diversity equity and inclusion not just because it is just but also because it is key to our strategic success and being a more creative and dynamic organization, which can deliver more value in tune with our customer needs.
For example by 2025, we have committed to increasing representation of women and our global leadership team to 40% from 31% today and people, who identify as bipod and R. U S leadership team to 30% from 19%.
Two of Bots web works existing data center, and Mumbai, which would result in a campus with 15 megawatts of total capacity.
We also continued to grow our platform organically with the recent purchase of a land parcel adjacent to our existing Northern Virginia campus. This parcel is expected to support 32 megawatts of capacity at full build out. In addition, we redesigned our Manassas campus and Master plan and can now support 30 megawatts of it.
Load at the two compared to <unk> 24 megawatts previously as well as an additional 35 megawatts of capacity at the campus.
With these design and scope changes our Nova campus capacity has increased more than 90% to of 145 megawatts with 16 megawatts built and 72% of at least our total data center of potential capacity globally. Now is 445 megawatts and for an increase of more than 18%, giving us a long.
Runway for future development and growth.
In closing, let me say, thank you to our mountain years and their families for their continued support and dedication and what has been a difficult and heart wrenching year for many.
We and our customers count on our essential workers every day and I personally always come back inspired after meeting with many of our teams around the globe.
Our results demonstrate accelerate accelerating earnings growth the resiliency of our business revenue growth and new areas and the benefits of our culture our.
Our culture supports customer first with an innovative mindset.
With that inner DNA, we will continue to climb higher together with our customers with that I will turn the call over to Barry.
Thanks, Bill and thank you for joining us in the first quarter, our team delivered solid performance that exceeded the expectations across each of our key financial metrics building on the improved performance, we delivered and the second half of 2020 revenue trends continued to strengthen and the first quarter. Our core physical storage business is demonstrating its resilience and momentum is building and our <unk>.
Areas.
We are confident and our projections and are pleased to raise our full year financial guidance.
Turning to our results for the quarter.
On a reported basis revenue of $1 1 billion grew one 2% total organic revenue declined 60 basis points.
Organic service revenue declined four 8% a marked improvement from prior quarters, representing our best performance since the first quarter of 2020.
While our service activity is still experiencing and impact from COVID-19 March was the first month since February 2020 with positive organic service revenue growth.
Our team continues to drive improving trends with growth and our global digital solutions business and revenue management and notable callouts.
Total organic storage rental revenue grew one 7% with continued benefit from pricing combined with a slight increase in volume.
Adjusted EBITDA was $381 million, we exceeded the projections, we shared on our last call as the team delivered stronger margin flow through together with the revenue beat.
First quarter EBITDA reflects progress on our summit transformation and revenue management offset by COVID-19 driven impacts of the business.
<unk> was $235 million or <unk> 81 on a per share basis.
As we mentioned on our prior earnings call <unk> reflects an increase in recurring Capex and we catch up on some projects that were deferred during the pandemic.
Our full year recurring capex guidance is unchanged.
Turning to segment performance and.
And the first quarter, our global rim business delivered revenue of $967 million and increase of $11 million from last year.
And on an organic basis revenue declined 80 basis points.
The team performed well with constant currency storage rental revenue growth of one 7% or one 6% on an organic basis.
<unk> was driven by pricing and volume.
While our traditional services have been impacted by the pandemic trends continued to improve during the first quarter.
We are focused on expanding our global digital solutions business and and the first quarter, we experienced strong growth building on the commercial successes, we delivered in 2020.
We are pleased with the continued performance and our consumer storage business, even with normal seasonality the business contributed nicely to our overall physical volume.
Global rim, adjusted EBITDA was $409 million and increase of $17 million year on year, adjusted EBITDA margin expanded 120 basis points, driven by pricing and project summit.
Taking a look and headline numbers for our global data Center business, we had another strong quarter of bookings with nine megawatts, we are well on track to deliver our full year target of 25% to 30 megawatts.
Total revenue grew 6% year over year in line with our projections.
As I mentioned on our prior call, we expect revenue growth and the datacenter business will be more back half weighted as the bulk of our 2020 bookings commenced and the second quarter and beyond.
We continue to project full year revenue growth and the range of low double digits to approaching mid teens with our strong prior year bookings we have good visibility.
And the second quarter, we anticipate and increase in both revenue and adjusted EBITDA compared to the first quarter.
In terms of margin, we expect the second quarter to be down two to three points sequentially. As a result of COVID-19 driven construction delays and one time build out services for a specific customer.
We expect margins to remain at that level and the third quarter before recovering in the fourth quarter.
And late April we formed a joint venture with live works of leading co location data center provider and India. We made an initial investment of approximately $50 million and exchange for a non controlling interest as we have previously disclosed we expect to invest an additional $100 million over the next two years, which we expect will result, and a majority ownership.
Position.
Turning to the project summit this quarter the team delivered $50 million of the incremental year on year of adjusted EBITDA benefit.
As a reminder, we expect summit to contribute $150 million of year on year benefit in 2021 with another $60 million of year on year benefit in 2022.
Total capital expenditures were $113 million with an investment of $85 million of growth Capex, along with $29 million of recurring capex.
Turning to capital recycling and the first quarter, our program generated approximately $12 million of proceeds with the highly favorable market backdrop, and our strong data center development pipeline, we remain committed to recycling of approximately $125 million of industrial assets for the full year.
Turning to the balance sheet at quarter, and we had approximately $1 8 billion of liquidity.
We ended the quarter with net lease adjusted leverage of just under five five times slightly better than our projection and down from last year.
As we have said before we are committed to our long term leverage range of four five to five five times for.
For 2021, we continue to expect to end the year within our target range near the high and which will be modestly down from year end 2020 on a pro forma basis.
With our strong financial position our board of directors declared a quarterly dividend of <unk> 62 per share to be paid in early July.
As we have said before we are fully committed to our dividend at the sustainable level. Our long term target for payout ratio is low to mid <unk> as a percentage of <unk>.
Turning to our outlook today, we are pleased to increase our 2021 financial guidance. There are two factors driving the improved the projections.
Our outlook for the business continues to improve with first quarter performance better than expected and increased confidence and our key growth drivers and the underlying business trends.
Second we've also factored in the benefit from two small recently closed acquisitions as well as the <unk> investment.
And I would note that we have been able to increase our guidance. Despite the ongoing impact of COVID-19 on our traditional services business and construction delays and Frankfurt.
For the full year 2021, we now expect revenue of $4 $3 65 billion to $4 $515 billion. We now expect adjusted EBITDA to be and a range of $1 $5 5 billion to $1 63 5 billion.
And at the midpoint this guidance represents growth of revenue growth of 7% and EBITDA growth of 9%.
We now expect <unk> to be and the range of $955 million to $1 $5 million and.
And <unk> per share of $3 and 28 to $3 45.
At the midpoint this represents 10% growth for both metrics.
Our guidance assumes global organic physical volume will be flat to slightly positive versus last year.
Our revenue management program will provide a significant benefit in 2021 and I will note that nearly all of the actions driving that benefit were in place by the end of the first quarter.
For services, we are prudently assuming some measure of continued COVID-19 impact, albeit the first quarter was another good proof point for the momentum building and our digital solutions business.
While we do not typically guide quarterly with the pandemic and we felt it would be helpful to share our expectations for the second quarter.
We expect revenue to approach $1 1 billion and adjusted EBITDA to approach $400 million.
We are confident and our outlook and the strength of our pipeline, we expect to grow revenue sequentially throughout the year.
In summary, the <unk>.
Year is off to a good start I am confident and the team's ability to continue to build on our momentum, we feel well positioned and with that operator. Please open the line for Q&A.
Thank you.
We will now begin the question and answer session.
You asked the question you might see Star and then one on your question time.
You are using a speakerphone please pick up your handset.
For some of the key.
Korea Christian Please press star and the two.
And I'm pleased the limit yourself to one question you may re queue for additional questions.
And Tom we will push down materially to assemble almost net.
All of those questions from George Tong of Goldman Sachs.
Hi, Thanks, good morning.
Last quarter, you made a push into the various growth markets. At this point can you summarize how big the video growth portfolio is.
Volume growth expectations for this growth portfolio have evolved over the past quarters since doubling down and TV series of growth verticals.
And perhaps how much funding you would need to put into your initiatives in order to accelerate the.
The growth and these and these growth markets. Thank you.
Hey, good morning, George Thanks for the question so taking back if you referred to last the last meeting over the last five years, we've been developing a number of new products and market approaches that really have taken us from the total addressable market for.
And where our products and services range up from 10 billion to over $80 billion. So the things that we've been doubling down of consistent with that roadmap and the picture that we highlight of last year and that $80 billion. I should highlight is also growing kind of low teens in terms of our organic growth rate. So if you think about highlighted size of that for instance, and digital services.
As of today, I mean, I wouldn't say that we've just been doubling down on them and the last quarter. As this has been a a continuous build with I would say acceleration as part of project summit and private projects and that you are seeing the $375 million net EBITDA improvement debt that we're delivering and committing to this.
Net of the investments that takes us that's required to actually invest in our digital services sides had the art continued investment and data center further acceleration and consumer for instance, so the.
The investment is already in there of the $375 million is the net number the that's coming out and I think you can expect as we said today is if we just look at our site.
And <unk> and digital services this year alone that will add.
Roughly $50 million of revenue on a year over year basis. So we feel pretty good and obviously, we just highlighted those two today, but across the board and you can see it also and data center with nine megawatts leased and this quarter. So we feel we feel pretty good about now aiming towards and 80 billion dollar market in terms of <unk>.
Revenue growth and that was part of the barrier.
Sizing the revenue guidance for the full year.
Our next fisherman Inc.
Carl.
Okay.
Hi, good morning, Thanks for taking the question.
Just one on the guidance I'm just wondering if you could parse out the guidance increase what's coming from really operational outperformance versus perhaps.
Slightly more favorable foreign exchange rates.
And you experienced in the quarter versus last year and then another question on the datacenter side. Just wondering as you look at future growth areas are there potentially any new markets, either domestically or internationally and that.
Could make sense for iron mountain to enter either via M&A or through new Greenfield development or do you think.
Youre just going to continue to develop and the markets that you have today. Thank you.
Hey, Eric Good morning, It's Barry maybe I'll take the first one and I'll, let bill take the second one.
I appreciate the question as prepared as compared to our prior guidance the increase of $40 million of revenue and $10 million of EBITDA is really driven by two factors as I mentioned on the call first it's our outlook on the business, which just continues to improve the first quarter performance. I think is a testament of that the team did a very well executed very well and the first quarter and we're continuing.
<unk> going to increase our confidence and our growth drivers and the underlying business trends and that's about $20 million of revenue and the guide up and probably seven round number $7 million of the EBITDA. The second point is we factored in the benefit from two recently closed acquisitions as well as the web works investment that's about combined 20 million.
<unk> of revenue in the year.
Note that we acquire and does in the second quarter, and then about call it $3 million of EBITDA.
And remind people that the web works acquisition is not consolidated so theres no revenue that comes along with that and our financials.
I would also just note that there is no change and our assumption as it relates to foreign exchange rates of the rates that we're using and the impact of that on our growth that.
And that we had and our prior guidance is unchanged and the current guidance. So the underlying business performance together with the couple of small deals. Thanks for the question Eric.
Yeah, and the other thing I would add Eric in terms of other areas of growth for for data Center for I. Appreciate the question.
Let me kind of parse it out into the theaters or parts of the world. So if we look at domestic if you know that we have a land bank in Chicago, we continue to like the Chicago market. So it's just a matter of where our priorities are and capital allocation and so I think you can expect at some point Chicago will be will be on the map also we continue to like the <unk>.
Potential opportunities to repurpose some of our our electricity meters. If you will in California, where we can actually buy wholesale power, which gives us an advantage in terms of power cost by taking a records management facility and repurposing that into a datacenter. So California continues to be an area of that.
Debt, we remain focused on his potential of market for further development on Europe as we highlighted a few calls ago that we started building Frankfurt and then sold the thing out of 100.
The 100% over twice that of megawatts, so Frankfurt as the market that we continue to look at further expansion to it because it's a key market sort of in Continental Europe, London Twos. As we noted is in full development, but thats also looking to be pretty boy and so we'll continue to look at if we need more capacity and London and then the last aspect I would.
And London as we have had a few of our customers approach us on looking at edge deployments and where we are considering actually repurposing some of our industrial real estate footprint and to data center. So if you think about we have of land bank for our data center business, which takes us up to 445 megawatts, but that's the.
Not including the 80 million square feet of industrial warehouses that we have around the world. The number of those are.
Suitable to be repurposed into data centers. So we continue to look at that mainly for us at the edge kind of deployment, which can be anywhere from let's say from two to six megawatts.
On the Asia front as Barry highlighted and I mentioned in my remarks, we're super excited about the joint venture that we have with web works, India. We think has a lot of potential and we're already seeing pent up demand, partly it's regulatory driven and partly it's just the the growth of the economy. So I think theres a lot more for us to do and India as you.
Wood of noted is that we're now of 100% sold out and Singapore. So we're working through the permitting process.
And finding additional capacity and that market and there are other areas in southeast Asia, which.
I think our early days that we're looking at countries that would be interesting to expansion and I would put Latin America and the same category is that there are a number of areas and Latin America that we're starting to look at but we're at earlier stages for those areas.
For all we reiterate of our commitment that we expect physical storage and the business to be flat to up for the full year again on and organic basis, and then you at three points of price to it so.
And and given the relatively slow growth of that business is not a lot of capex of going into it. So we feel really good because this is just effectively generating tons of cash that we're able to plow over two and best behind some of those growth initiatives that are targeted at the $80 billion total of vegetable market that I mentioned before as well as data center.
Of which we've been increasing our capital of allocation to over the last few years. So I think over time and and people are going to really understand that the physical volume physical storage business is alive and well and we're getting good price increase on top of that and of course as you alluded to some of the other new physical storage areas like consumer continued to.
[noise] deliver dividends and.
And then on the other aspect is the the revenue growth is starting to pick up from the investments. We've made over the last five years into new business areas. I think is starting to come through.
And the next question is from Panama and Bam.
Hi, Thank you very much for taking my question I kind of want to piggyback on the last one.
Just in terms of the organic storage rental and the one here and the the guidance is going up you guys do better.
<unk> growth range embedded and the guidance, though can change and I'm not sure. If it was just kind of of words, it's of rounding item or the growth is really coming outside of that and and I guess related to that is the sequential change in in and the physical records volume was the slowest decline of <unk>.
And all of a while and and I was wondering if you could point to what's going on over there is there a you know of.
More of an influx of boxes worth of the you know and issue with Destructions just used to give more detail and the slide that's that's not and there anymore. Maybe you could talk to these items.
Yeah. Thanks, so much for the I'll I'll talk about the physical volume side and and buried can give you are thinking around the guidance around the storage. So I think the on the physical volume.
Been watching the story for for a very long time, and the first of all that the record storage as just one aspect of our physical storage business right and at the end of the day it comes down to occupancy and our ability to drive cash.
Cash returns for those that business. So we feel that the I wouldn't say of large diversification, but a purposeful diversification of our physical storage business I think the and you can even see that and I data is showing the robustness and continuity of that that business of which we feel really good about specifically for your question on the sequential queue for the Q1.
We would consider using.
Kind of it's Barry and thanks for the question. So we certainly did as I mentioned and then last call include some level of what I would say is kind of normal inflation and the levels that were being talked about at the time, we don't see anything that is outside of our expectations that were embedded in the original guidance and that's the.
Part of the reason why we were able to continue to raise the guidance for the beat that we saw and the first quarter I will note that with our structure and our relatively high margins on both storage and service.
It doesn't result in with inflation and the opportunity to price that much more incremental profitability for us and as you know, we kind of price comparing to other logistics companies. So in some respect.
It helps a little bit with our revenue management program in terms of funding growth couple of thoughts one and obviously, we're continuing to expand EBITDA. Thanks to summit and the team's underlying performance, we will be doing our level of capital recycling. This year of call. It $125 million is what's embedded in the guidance I'll note that the market.
There is very favorable and we continue to like cap rates are.
And so those would be the principal things I'd mentioned and in terms of where.
Where the yield is and where the stock is we feel very good about our ability to fund our operations within our framework and so we will be funding from things like recycling and the growth and EBITDA.
Okay.
Our next question is from Jon Atkin of RBC.
Thanks.
The World and then you're the the the same thing and and New Jersey, It's a it's a high reasonable levels of absorption with the right balance of supply. So I think it's it's a mix of there are some cases, where it's purely on market dynamics and there are other areas, where we really liked the conversations we're having with the number of customers and especially around.
Some of our large campuses.
Okay, and then if you could.
Maybe just refresh.
On.
Going forward interest level and the.
Inorgasmic expansion and so whether that's uhm sales leaseback.
Try to read portfolios shelves that are occupied by cloud players and so forth I think there's been a little bit of Catholic compression recently, and and for instance, and the U S. But just interested in the.
And he update the thoughts on.
Types of it and the day that you would continue to and.
Entertain.
Okay, and yeah, they're kind of and I think I understand two parts of your question.
So first of all and the M&A, we feel really good about the platform that we have you know.
As it is today. So we don't anticipate any large M&A I mean, obviously the web works and India is what I would call a more of a brownfield uhm the.
Gration, where it's at the smaller M&A deal that gives us a platform for further greenfield build out and what we think is a is a really interesting and high growth market. Just like we did the egos switch a few years ago and the Amsterdam market, which are Dan was kind of of brownfields. So.
If we're talking about those types of things, where we do of make versus by situation for entering into of market are expanding and a market. We will continue to look at those kind of of what I would call small M&A deals, but large.
Add platform M&A day, we don't we don't see we really have the the need I think partly we were were already and 56 countries for many decades as a as a operator. So we feel we have good cultural fit and the countries that we operate in and we already have a pretty good international spread across our data and this is what we.
Feel really good on the capital allocation question I would just reiterate with what Barry said before as we feel that between EBITDA growth and opportunities to recycle capital of like what we're doing and our industrial portfolio, where the cap rates are we think really low we liked that trade of trading.
And it's for.
Those are on industrial right now and putting more capital at work in data Center.
Oh, no Christian you for calling out from shown on the physical.
I guess I'm too quick question margin improvement of 100 pieces prints for the positive how should we think about that and the year of progressive and is more of the improvement on cost of sales or S. T and a and my second question and spell you mentioned existing on sites could potentially be me position.
And for data Center, just wondering have you done that already or is any hang on their way.
No. Thanks, So she'll I'll answer your question on the.
On the edge datacenter deployments using our existing footprint at this point, it's only conversations of there are.
A couple of specific sites that we're looking at in Europe at the moment with customers and but it's still early days I would say, but the but I'm encouraged by the the conversations were having their and the flexibility that our industrial real estate footprint potentially gives us down the road.
Sheila Thanks for the question and it's Mary a couple of things certainly as we move into the second quarter. We're looking for EBITDA to the approaching 400 million, which is very nice growth rate and reflect to some extent and of course last year's COVID-19 impact and as you work through the model you'll find another continued.
Nice growth and EBITDA going forward I will say.
E. I think of notable callout, frankly, and the first quarter is the fact that our cost of sales are actually down about $15 million. Despite the sales being up and that is a testament to the team strong progress on projects summit as we talked about the four projects summit in 2021 is vastly going to the benefiting cost of sales as of.
Posted SG&A interest in light of the source of operational improvements that we talked about and highlighted the room and such as of service delivery changed is et cetera, and so you really saw that starting to come to fruition and the first quarter with the vast majority of that summit benefit year on year that I called out the and Pops of sales and that's the trend that we expect to continue for the remainder of the year.
And I appreciate the question is Sheila.
And you said Jean Tomorrow and that concludes the <unk>.
Thank you for attending today's presentation, you may know just kind of.
Everyone else has lots of the car.