Q3 2023 Iron Mountain Inc Earnings Call

Good morning, and welcome to the Iron Mountain third quarter 2023 earnings Conference call.

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I would now like to turn the conference over to Julian until then 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 tell me and <unk>, President and Chief Executive Officer, and Barry Heightening, 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 two of our presentation and our quarterly report on Form 10-Q for a discussion of the major risk factors that could cause.

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 every bill.

Thank you Julian and thank you all for taking the time to join US today to discuss another record quarterly result, 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 and all we do and sits at the core of Iron Mountain.

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.

The momentum we are building from project matter heart.

We have 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 two.

3% organic growth in our data center business, let's.

Let's get 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 that theres 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 our customers highly secure site, which indicates the trust and confidence our customers have enough.

By relocating and digitizing important record securely our customer can make faster and more informed decisions that are critical due to the sensitive nature of its work whilst also freeing up onsite space.

Public sector organization the value for each dollar they spend is a key concern for this customer and we continue to demonstrate that iron mountain is the partner of choice for their digital transformation journey.

In digital solutions. This business continues to gain momentum, especially with our ability to provide higher value technology enabled solutions to new and existing iron mountain customers.

Customer wins for our digital solutions are underpinned by three key differentiators.

First our unique ability to provide a unified end to end solution for our customers across their physical and digital assets.

Second our proven capabilities to operate at scale and complex regulated environments and industries.

But importantly, our ability to drive business outcomes for our customers leveraging our artificial intelligence platform, which translates unstructured data into actionable insights for.

For example, we have been awarded a contract by the TV and film production distribution Division of a major technology company with a storied history dating back almost 100 years, we are leveraging our insight platform to digitize archive and preserve over 200000 legal records containing the media rights for distribution in la.

Since then thousands of film entitled and TV episodes.

With all this data available through one cloud based digital platform, we can help our customer identify and develop new business opportunities by leveraging its rich intellectual property.

This latest deal builds on a growing portfolio of solutions, we are providing for this global customers different business units, including records management and I T asset disposition, the multifaceted and long standing relationship we have with this customer truly highlights the success of project Matterhorn and our cross selling efforts.

Now, let's turn to our continued success in winning government business around the world. We are supporting government agencies in Europe to digitize public services as part of an initiative to make their economies and societies more sustainable and resilient. Following the COVID-19 pandemic. This quarter, we won a two year deal to digitize around.

10 million files to accelerated backlog of pension payments for one national government Social Security Administration agency.

Warning Iron Mountain this contract the customer recognized the specialist nature of our solution, including our AI and human in the loop capabilities and our ability to quickly scale operationally to deliver this project within the required timeframe.

Also in the public sector. We are pleased to be working with a U S citizen and immigration services to help drive efficiency and reduce the backlog of applicants awaiting adjudication decisions become U S citizens.

Over the last 10 years, we've been a proud partner with this important government agency, having been entrusted with over 500000 cubic feet of files and high density tapes, our digitization solutions will enable remote adjudicated to have faster access to vital data, helping them make overall immigration decisions.

Turning to our asset lifecycle management business.

The projections, we shared last quarter pricing has been stable having hit a low level last February.

Whilst the industry projections are for significant price improvements in late 2023 and throughout 'twenty 'twenty. Four we have continued to take a prudent perspective and are only assuming marginal incremental price improvement for the remainder of the year. Our pipeline is robust and we have delivered solid results. This quarter that were in line with our expectations.

Also we are excited to share that we have signed an agreement to acquire regency technologies subject to customary closing conditions as we continue our rollout of the L. A market.

Regency at a little over 100 million dollar annual revenue business in the a L. M space based in Ohio, the long term customer relationships that regency brings to iron mountain are an excellent strategic fit to our L. M business Regency will add operational scale as we continue our growth journey in this fast growing sector as the world's need for both sick.

Cure and more circular solutions for end of life. The I T assets becomes more vital we are pleased to add to our capability in this category.

With that let us turn out of discussions for some individual wins within the a L. M space. This quarter I am pleased to share a particularly exciting win for our <unk> business with a large global technology company. The deep relationship and trust. We have built with this customer over many years was instrumental in iron mountain securing the significant deal serving.

<unk> business lines and geographies, but the customer. These geographies include India, where our presence and ability to service the customer with a decisive differentiator alongside our global footprint, the expertise and responsiveness of our L. M team and our reputation for data security and chain of custody.

Also in a L. M. We have signed a long term contract with a private U S insurance company that has been a long time customer of our U S. Shred secure shredding and destruction services last year, we began supporting this customer with one off I T asset destruction projects, which demonstrated the value of remarketing thousands of these assets.

The agreement we have now reached positions us as our customer strategic partner for its future end to end I T asset management needs by supporting the requirements of an organization with over 37000 leased I T assets that need returning from remote employees, we are extending the value of the solution.

We bring and have changed our customers' perception of what iron Mountain can offer.

Finally, we have a particularly exciting with the share we have secured a significant five year a L. M contract to support a leading pharmaceutical retailer in the U S to advance its commitment to zero waste by 2030 Iron Mountain will provide a circular economy solution by removing and recycling thousands of tons of pharmaceuticals.

<unk> bottles and pill bottles from thousands of its retail outlets across the U S. We are providing this leading retailer with an advanced recycling solution turning plastic into raw materials. This will enable the creation of new Virgin plastic helping this retailer meet their environmental goals. This is made possible by the scale of our physical presence.

Our highly experienced a L M team and a reporting platform for all of the confidential waves that we have managed for this customer since 2014.

We are pleased to be able to extend the value of our partnership with this new contract.

Moving onto our data center business, our pipeline continues to expand with positive pricing trends there.

Continuing strong demand for data center capacity continues to be driven by digital transformation and most recently the explosive demand for AI supporting the growth and expansion needs of our customers is paramount to our collaborative partnerships and we are pleased to provide this required capacity to our customers in the markets in which they.

They are keen to operate.

From a leasing perspective in the third quarter, we signed 65 megawatts. This means that through the end of the third quarter. We have already signed 120 megawatts far beyond our original projection for the year of 80 megawatts in the quarter 60 megawatts were signed across two leases to a single Fortune 500 technology.

G company at our campus in Northern Virginia. The deal provides is hyperscale customer with capacity across two buildings on our 142 acre 276 megawatt campus and represents the largest revenue deal and Iron Mountain data centers history.

We have also won a deal to provide nearly three megawatts of capacity at our Frankfurt data center for an existing North American cloud services customer looking to expand their European footprint. Our sales teams work closely with the customers technical team to agree on a strategic solution that meets the customers' unique infrastructure.

Needs.

Given the strong customer demand in our data center business, we are continuing to expand the reach of our platform to that end I am pleased to announce a couple of capacity additions first we are repurposing, our previous records management facility in Miami to datacenter use Miami is a key market, where a number of our customers are looking for.

Each deployment in this newly repurpose facility will add 16 megawatts to our data center portfolio with the portfolio.

Furthermore, we have acquired additional land in power this quarter growing our total data center capacity to 860 megawatts up 80 megawatts from last quarter.

In summary, the hard work dedication and execution of our Mountaineers continues to deliver strong results for our loyal customers and ultimately our company shareholders through.

Through our Matterhorn initiative fuelled by our enhanced operating model. Our team continues to achieve record sales growth by selling our entire mountain range of products and services to our longstanding 225000 customers.

Even in a tumultuous geopolitical climate, the resilience and strength of our business model combined with the dedication and customer first passion of our Mountaineers continues to drive us ever higher I would also like to express my deepest gratitude to our team for their hard work and continued focus as we.

Continue our growth journey with that I'll turn the call over to Barry.

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 projections.

A key highlight in the quarter is our organic storage rental revenue, which grew 10%. This reflects.

<unk> continued strong contributions from our revenue management datacenter commencement 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 airline business total company constant currency revenue growth would've 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've 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 E. L M business.

A S F O was $290 million or <unk> 99 cents on a per share basis up $2 million.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 a F. F. L would have been $294 million or $1 on a per share basis. Both ahead of our projections.

And now turning to segment performance.

In the third quarter, our global rim business achieved revenue of $1.18 billion, an increase of $92 million year on year or 8%.

Revenue management and positive volume trends contributed to strong organic storage rental revenue growth of 8%.

Global rim, adjusted EBITDA was $517 million, an increase of $33 million year on year.

Turning to our global data center business. The team delivered revenue of $128 million, an increase of over $27 million year on year organic.

Organic storage rental revenue growth was strong at 22% driven by Commencements and improved pricing.

The center adjusted EBITDA was $53 million up over $10 million or 25% year on year.

Turning to new and expansion leasing we signed 65 megawatts in the quarter, bringing total bookings year to date to 120 megawatts.

As Bill mentioned, we signed two leases with a client for a total of 60 megawatts. The leases are expected to commence in phases from late 2024 through mid 2025 and had a 15 year term.

With the strength of our leasing I'll note that our weighted average lease expiration is now 8.1 years, which is up a full three years from the third quarter of 2022.

As we've talked about before one of the key elements of our Matterhorn growth plan is to expand cross selling.

Our team is doing a great job in this regard for example, 95% of the megawatts booked in the quarter were a result of cross selling activity.

Mark to market was up over 11% in the quarter, reflecting the continuing trend of strong and improving pricing while churn was only 1%.

Turning to asset lifecycle management.

In the third quarter revenue was consistent on a sequential basis in line with the projections. We gave on our last call. We are seeing positive momentum across all three verticals of our a L M business Hyperscale enterprise and OEM.

A L M bookings have been running ahead of our projections.

And similar to data center, our commercial teams are doing a great job with our cross selling initiative for example of the new a L. M deals we signed in the quarter nearly all of them were cross sell wins I think this was an early validation of our strategy and supports our long term view that we can gain considerable market share by leveraging our deep.

Customer relationships and expanding <unk> capabilities.

Now I would like to spend a moment addressing component pricing.

Acts as expected pricing was consistent with the second quarter on a sequential basis.

At this point in the fourth quarter, there are indications that component pricing is beginning to recover.

For example, since the end of the third quarter, we have seen the pricing for memory rising week over week with it now up nearly 15% on a sequential basis.

As we've mentioned on our last call industry analysts had been forecasting rising prices by late this year with continued recovery in 2024.

Turning to our pending acquisition of Regency technologies as Bill mentioned, we are very pleased to have signed this deal.

We'd known regency for years and have always been impressed with the strength of their team range of capabilities and focus on sustainability productivity and customer service. We see this acquisition is an excellent strategic fit furthering our ability to serve our expanding a L. M customer base. The purchase price is 200 million.

With 125 million to be paid at close and the remainder due in 2025 subject to performance. There is also an earn out which could be payable in 2027.

On a trailing four quarter basis regency has revenue in excess of $100 million.

We are acquiring the business and an approximate seven and a half times EBITDA multiples, we expect the deal to close late this year or early in 2024.

We expect this will be immediately accretive to <unk> and have no impact on our leverage calculation.

Turning to capital in the third quarter, we invested $322 million of which $287 million was growth and $35 million was recurring.

Turning to the balance sheet with strong EBITDA performance, we ended the quarter with net lease adjusted leverage of five one times, we expect to exit 2023 at this level I think it is worth noting that this marks our lowest leverage level in a decade.

Our board of directors declared a quarterly dividend of 65 per share to be paid in early January.

We remain dedicated to our disciplined approach to capital allocation as we are funding our growth objectives, while continuing to drive meaningful shareholder returns.

And now turning to our projections.

For the full year, reflecting our year to date performance and strong outlook. We are pleased to reiterate our full year guidance.

For the fourth quarter, we expect revenue of approximately 144 billion, which represents 12, 5% growth year over year as revenue management actions and improving trends in a L M accelerate our growth.

I would like to call out using the same foreign exchange rates, we had in August 4th quarter revenue would've been $25 million higher in this projection.

Adjusted EBITDA of approximately $520 million or 10% growth.

<unk> of approximately $310 million, which is 8% growth in <unk> per share of approximately $1.05, which is 7% growth from the prior year.

With the same FX rates, we were using in August this projection would be approximately adjusted EBITDA of $528 million <unk> of $318 million and <unk> per share of $1 seven.

In conclusion, we are pleased to report another record.

Quarter of results our team is executing well driving considerable growth of revenue and EBITDA aligned with our Matterhorn plans.

To take the opportunity to thank our entire team for their efforts to support our customers and drive our growth and with that operator will you. Please open the line for Q&A.

We will now begin the question and answer session.

I ask a question you May press Star then one on your telephone keypad.

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We will limit analysts to one question and you can rejoin the queue.

At this time, we will pause momentarily to assemble the roster.

And our first question comes from George Tong of Goldman Sachs. Please go ahead.

Hi, Thanks, good morning Rhem.

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.

Yeah, Thanks, George and good morning. So I think 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 buy use revenue management.

Across the board in our and especially in our records management business, 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 it just says that customers really understand the value of that where 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 I just to add on to that I would say as you think about the fourth quarter, we have revenue manage.

And actions that have been put in place in the third quarter that will power, another 20 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 fourth quarter.

Okay.

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

Hey, 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 for Q.

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 <unk> 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 you can imagine they went through probably a similar growth.

Profile that we saw in a L M and they also have.

I would say hit the low point, probably about four months ago and since then they are actually growing kind of mid single digits over the last say 234 months and that they'd probably recovered a little bit faster than our business, but that's with a 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 you know that we have at Iron Mountain that we've acquired through IP renew so it's a good complementary fit but we also see that they've actually over the last few months have been growing single digits. Obviously the business will continue to ramp has the pricing across the board starts improving.

Nate Hi, it's Barry Thanks for those questions on our volume.

And as you saw in the quarter, we continued to grow volume both in our global records as well as in the corporate and other and as you know because you covered 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 were 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 a L. M business because in light of what was going on in the prior year. That's when revenue for a L. M was about 83.

$3 million in total in the third quarter of last year. It was 60.

And it was $56 million in the fourth quarter and this year was 42 million in the second quarter and in the third quarter and as Bill and I mentioned in our prepared remarks, we expect our <unk> business to be in the let's say low <unk> so that helps.

With the standpoint of turning around the comp that Youll see for the total company. The other thing is just in light of in project revenue for example, in our digital and our Global Records services, we have incremental project revenue in the fourth quarter and some are commencement on some longer term digital contracts occur.

<unk> here in the fourth quarter, which will help our additional service revenue and as favorable as it relates to the third quarter and as you know.

Some of that project revenue can be a little bit.

Bumpy quarter to quarter and that's that's one of the reasons why we are bullish on the sequential.

Improvement in total revenue in the fourth quarter, So youll see a little bit of an acceleration, thanks to <unk> getting better and easier comp as well is that trending.

As Bill mentioned last thing since you asked about component pricing, we've only factored in what I would call it marginal and 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 has 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.

Okay.

Next question comes from Jon Atkin of RBC capital markets. Please go ahead.

Thanks.

Was wondering if you could maybe put a finer point on helping.

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 EM segment. I think you had 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 and just the organic growth.

Any.

A different way to think about that targets. Thanks.

Yes, no. Thanks, Thanks, John So I'll, let me take the lab and then I'll, let Barry talk a little bit more about pricing and volume trends. So on the <unk> side, Yes, we haven't backed off from our from our multi year target that we shared at Investor day, a little over a year ago, we still see that the $900 million.

Has the is 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 it to ramp and as Barry said that we've seen.

Pricing is starting to come back well since 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 where we're moving in the right direction to get back towards the type of pricing that we saw a couple of years ago. So you put that altogether and now with the additional capabilities that we're getting from the regency acquisition is it both.

They do a lot more on the downstream processing, which quite frankly, we will not only allow us to harvest more value from the 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 altogether 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 <unk>.

Revenue management in the quarter within our global rim business I would tell you from if you look at the storage rental revenue growth there on an organic constant currency basis was 8%. So it was quite strong.

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 topline revenue growth as well so majority of that revenue management little some.

Mix and.

Some improving volume trends and going forward as I mentioned one of the earlier comments, we will see relatively speaking incremental revenue management actions are driving the business fourth quarter versus start thanks John.

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 <unk> business trajectory. Just what are you seeing in terms of like of volumes coming in and 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.

And like you said that it's $100 million of TTM revenue, but obviously was in a downward slope.

Similar to what you guys were seeing is there.

Our run rate that you can provide 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.

Okay. So 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 also comment pick up your point about what exactly regency, yeah. So in terms of the volume trends. If you look at the enterprise.

Prize side of our business is there the synergies and as Barry said in his remarks, almost 100% cross selling in terms of ARIA E. L. M 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 on the enterprise segment, we're seeing a really really good.

If you look at the Hyperscale, which is the part of the business that we acquired through a renew is the one that's most impacted by what we see on the pricing of the components, which as we said it's now just starting to move.

Move back North in the right direction is there we actually see.

Year on.

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 is starting to improve in and Barry can help you think through how to think about putting those two together as we as we project going.

Forward.

So 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 a both in government sector and retail, which I think is really interesting in terms because a lot of the equipment gets recycled.

But people dropping off at their retailers. So I think that's a really good capability there, but more importantly is they actually are able to recycle a lot of what I would call the things that can't be reuse directly into <unk> equipment. So things like we mentioned the plastics for a for a pharmaceutical retailer.

They do a lot more of that than we have historically and the other thing. The other aspect is that over the last couple of calls we mentioned, how we had signed up OEM.

Relationships, where these are laptop tablet manufacturers that are looking for people when their equipment comes off lease and needs to be recycled.

They come to us and other people to actually resell to refurbish and resell those products and regency has had much more capability than we do in that area, they've built up not only more expertise and refurbishing tablets and laptops than we have but they also have a very nice e-commerce platform, where they can add.

Resell those so they will really accelerate those.

Accelerate the sales through those channels that we mentioned the last on the last couple of calls signing up the OEM manufacturers, who I think their capability will be a nice complementary.

Fit to the contracts that we had already signed.

So Shlomo it's Barry I appreciate the questions specifically on how to model regency.

Just as a reminder, we are expecting to close around year end or early next year for when you want to add it to your model.

We noted 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 it did not see this sort of trough that our <unk> business did on the Hyperscale side, it's much more of an enterprise asset disposition sort of player.

And in that enterprise and government services that it does it 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.

The incremental capacity and so we can get synergy off of bringing iron Mountain enterprise clients too 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 twenties of an EBITDA margin business, we think that that has.

<unk> opportunity to expand as as relative pricing in the broader market expands.

And through incremental capacity utilization of the of the footprint of what they have there we've been very impressed with the team at regency for a long time, they built a very good business with.

Critically important relationships to clients.

Very strong focus on sustainability. So we feel very good about regency as a zoom out to a broader a L. M. Shlomo I would say just reiterate a point bill made the.

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 you know thats 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.

A market of course it has the.

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.

Okay.

The next question comes from Eric Loop.

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 movement in interest rates recently.

So I just wanted to touch on your deployment of Capex in the sources and uses of capital.

It does look like datacenter Capex as you mentioned before maybe you could touch on the trajectory there and that's probably.

Can it 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 datacenter deals it looks like those continue.

To move higher and how comfortable you are in terms of the excess returns youre 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 at 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 and the and the nature of your question, we have seen yields moved up and in Barry's prepared remarks.

Also in mind, I talked about the price improvement or the strength of pricing around data center is as demand continues to ramp. So historically, if you think about the journey that you've watched us on Eric has a few years ago, we would've said hyperscale or kind of seven to eight I think on the most recent.

As we said Hyperscale. These are cash on cash returns have been eight to nine and now you can you can expect that there are nine plus so where and these are all crude but you know pre leverage cash on cash return so.

So the returns are even with the ramp in the cost of bill while the cost of the builds 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 a 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 are the team continues to do very very well on data center and we have we have a lot.

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 too.

Contract as opposed to spec and so it is a situation where you will see us continue to be gradually rising the datacenter capex as we work to build into the contracts that we that we signed.

And I think it's a.

Credit to the team and the the customer wins that we've been having that we've been able to extend our lease expirations totaled to eight plus years.

On the backs of higher pricing and those returns improving so 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.

Once again, if you would like to ask a question. Please press Star then one.

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 a storage facility to a data center.

One are you fully scrapping the existing facility and just using a land or are you actually using the existing infrastructure and what do you see as the other opportunities throughout your portfolio too.

Convert other facilities for data center purposes.

Good morning, Brandon. Thanks for the question. So yes, so on 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 can get the most data.

Data center capacity into that facility, otherwise, we would've been leaving too much opportunity on the table. So it is 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 it all in basis, probably a 15% reduction in cost to build and obviously the spa.

Feed 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 so we think both in terms of speed and then 15% cost improvement which is.

Which is significant is really important and then 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 or 20, 15% to 20% of the properties that are under evaluation on any given day.

As we as we looked at it because so we're constantly screening of about 15% to 20% of our locations and looking at.

What customers' requirements are in and in some cases, having discussions with customers and thinking about which of those sites might be might be next and these are generally fit in very nicely for what I call. These kind of edge deployments are secondary cities like Miami, Alright, So there won't be the last one that we.

The first and the last is.

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.

Thank you for attending today's presentation and you may now disconnect.

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Okay.

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Sure.