Iron Mountain Incorporated

Good morning and welcome to the Iron Mountain fourth quarter 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. We will limit analysts to one question and you could rejoin the queue. Please note this event is being recorded. I would now like to turn the conference over to Mark Rupp, Senior Vice President of Investor Relations. Please go ahead.

Thank you Betsy. Good morning and welcome to our fourth quarter 2024 earnings conference call. On today's call we will refer to materials available on our investor relations website. We are joined here today by Bill Meany, President and Chief Executive Officer and Barry Heitman, our Executive Vice President and Chief Financial Officer. After prepared remarks, we'll open 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, and our annual and quarterly reports on Form 10-K and 10-Q for a discussion of the major risk factors that could cause our actual results that differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. We've included the reconciliations to these measures in our supplemental financial information. With that, I'll turn the call over to Bill. Thank you, Mark, and thank you all for joining us today to discuss our fourth quarter and full-year results. 2024 marked another year of record performance in double-digit growth for Iron Mountain. We achieved all-time highs for revenue, adjusted EBITDA, and AFFO for the year and for the fourth quarter. Our record results were also broad-based across all of our businesses. For the full year, revenue increased 12% to $6.1 billion, adjusted EBITDA grew 14% to $2.2 billion, and AFFO increased 11% to $1.3 billion. And in the fourth quarter, revenue increased 11%, adjusted EBITDA grew 15%, and AFFO increased 12%. These outstanding results reflect the strength of our highly profitable business model, broad and growing portfolio of solutions, long-tenured customer relationships, and the hard work and dedication of mountaineers across the world. The results also validate that Project Matterhorn has proven to be very beneficial to our business and we are exceeding the growth targets we established at our Investor Day presentation in 2022. I should also point out that a foundational element behind Project Matterhorn was to accelerate growth through embracing a customer-centric culture. Whilst we are still on a journey in this regard, it was pleasing to be ranked number one for customer satisfaction by the latest Wall Street Journal ranking of the top U.S.-listed companies. To this, I want to thank my fellow Mountaineers. Since 2021, we have grown both revenue and adjusted EBITDA at an 11% CAGR on a reported basis. On a constant currency basis, this growth is 13% annually, delivering a result on both a reported and constant currency basis well above the 10% targets we established. We are also performing above our targets for ASFO, which has grown at a 9% CAGR on a reported basis or 11% on a constant currency basis versus the 8% target. Our success and the momentum we have built over the past three years gives us increased confidence as we look ahead and is reflected in our guidance for 2025. Our portfolio of growth businesses, including digital solutions, data center, and asset lifecycle management, are collectively growing at a CAGR greater than 20% and becoming an increasingly larger portion of our revenue. If you recall at the beginning of our Matterhorn climb, our growth portfolio represented 15% of our total revenue. As we enter 2025, the growth portfolio represents 25%, which continues to build the momentum behind our consolidated growth goals. Together with our records management business increasing at mid to high single digit rate, we naturally expect to deliver consolidated growth in excess of 10% for the foreseeable future. Our growth is driven by three principal factors, the recurring nature of our revenue streams, both from our traditional as well as our newer business areas, the strong macro factors supporting double-digit demand for our portfolio of growth businesses, and the success we continue to demonstrate in cross-selling to our loyal customer base comprising nearly 250,000 customers, which includes 95% of the Fortune 1000. We are already the market leader in multiple businesses and are focused on building our scale, increasing our operating leverage, broadening our solutions offerings, and leveraging our commercial platform to capitalize on Iron Mountain's unique position as a truly end-to-end solutions provider, transcending both the physical and digital worlds. Based on our excellent results exceeding our expectations in 2024, and the strong confidence we have in our outlook for 2025, our Board of Directors has authorized an increase of our quarterly dividend by 10%. Let me now turn to an update of our key achievements and customer wins to showcase the success we are delivering against our strategic priorities, which are driving continued revenue growth in our physical storage records management business, delivering differentiated digital solutions which give truly transformative results to our customers in terms of revenue, cost, and cybersecurity, supplying differentiated data center offerings through our global scale and customer trust, and providing asset lifecycle management capabilities, which are both economic and environmentally sustainable. Let's begin with our records and information management business, which grew 7% in 2024. Our recent customer wins are a testament to the power of our solutions portfolio and success in cross-selling. In the U.S., we have secured a four-year contract with a Fortune 500 company, which included renewing and expanding the number of locations we serve for records management, as well as adding additional services from across our portfolio, underlying our continued focus on cross-selling. Our records management, asset lifecycle management, and digital solutions will provide comprehensive solutions to enable this customer to streamline internal processes to enhance efficiency. Our team's customer-centric approach successfully demonstrated the value of forging a partnership with one provider to support their broader needs. I am also excited to share recent accomplishments in our digital solutions business. Our digital solutions business achieved record revenue in 2024 with recurring storage service and software growing to more than 30% of digital revenue. We continue to see momentum and adoption of our SaaS-based platform, Insight Digital Experience Platform, or DXP, with emerging use cases that are enabling our customers to improve their ability to access, manage, govern, and monetize their physical and digital information to drive insights and intelligent decisions. On last quarter's call, we highlighted 24 DXP deals booked. In Q4, we signed 39 deals. Our customers are leveraging AI and machine learning-based capabilities within the DXP platform to automatically extract metadata and deliver business outcomes through process automation. Some of the use cases include consumer lending, compliance, HR and benefits management, and providing a platform which future-proofs the ability to search unstructured data. I'll highlight a couple of our recent wins in digital solutions. In the U.S., we secured a multi-year deal with a long-standing global financial services customer for our Insight DXP solution. Our client was looking for a solution to enhance its operational efficiency by automating metadata extraction, streamline exception processing within an integrated environment, and support long-term scalability. By integrating DXP into its workflow, the customer is able to seamlessly manage process exceptions, reducing manual intervention, and improving accuracy across its treasury operations. This is another example of a successful cross-sell. Our intelligent business process management solutions also continue to gain traction across regions due to our unique ability to provide unified end-to-end solutions across physical and digital assets with proven capabilities to operate at scale across various environments and industries. In Australia, a government department that has been a customer for more than 25 years has turned to Iron Mountain to improve processes related to records management and data retrieval while ensuring retention compliance. Our end-to-end solution includes document imaging and secure destruction under a five-year plan that will manage risk, drive efficiencies, and enable our customer to deliver best-in-class service and answering inquiries. Our proven track record and ability to deliver a comprehensive suite of services at scale enabled us to secure this important work. Turning to our data center business, industry demand for data center development remains incredibly strong. In 2024, we grew our data center revenue by 25% to a record $620 million. Also, given the strong demand for our data centers, we added to our land portfolio and now have a total capacity of nearly 1.3 gigawatts when fully built out. This is an increase of 420 megawatts year over year, or a growth of almost 50%. As it relates to leasing, we had a very good year of activity in 2024, our third consecutive year where we leased more than 100 megawatts, including 10 megawatts in the fourth quarter. Whilst we exceeded our original leasing projection of 100 megawatts with 116 megawatts, this was slightly below our updated view at mid-year. Given the continued strength and build of our pipeline as we entered 2025 and beyond, we maintained our underwriting returns expectations and decided to pass on a significant opportunity in the fourth quarter. For 2025, we expect another year of strong leasing activity with 125 megawatts projected. Our strong leasing activity shows that we are an attractive partner to customers looking for infrastructure that can support their very dense IT workloads associated with their AI-enabled services. I would also like to highlight the announcement today of our joint venture with Ordu, the publicly listed telecom and data center company which serves Qatar as well as the region broadly. This JV furthers our existing footprint in the Middle East by adding data center services to our portfolio. The Middle East is one of the fastest-growing data center markets globally. We will take a minority stake in the venture. The JV will serve their existing data center portfolio in Qatar, Kuwait, Tunisia, as well as the expansion across multiple markets in the Middle East region. Ordu is looking for a partner with global operating expertise in hyperscale data centers to assist with capitalizing on the significant market opportunity. This partnership is a testament to our operational strength and credibility within the data center market, as well as our relationships with the top global hyperscalers. Let me now turn to our asset lifecycle management business, which continues to represent a significant growth opportunity as we expand our capabilities and geographic footprint in this highly fragmented market. In 2024, ALM revenue increased 119% with nearly 30% organic growth. Regency Technologies had a very strong year, and our recent acquisitions of WiseTech and APCD are also performing well. We recently secured a long-term agreement with a large global healthcare company to manage the lifecycle of their IT assets. We will provide IT services and workstation deployment for end user devices, as well as data center infrastructure decommissioning and remarketing services. The combination of our global footprint in logistics infrastructure, operational scalability, and remarketing expertise enabled our team to deliver meaningful synergies to the customer. We have also secured our first significant asset lifecycle management contract in Canada. This is with a large North American insurance company for whom we provide a range of records management and digital services. We are now providing its Canadian subsidiary with ALM services, including laptop sanitization and end-user redeployment, helping to address inefficiencies in workstation management across 60 locations and supporting process automation and other cost optimizations. Our track record of delivery for this customer over many years helped secure this deal, as did our ability to offer a comprehensive, flexible, and streamlined solution that includes automation and security best practices. Staying with the ALM business, we are partnering with the U.S. state government to deliver a fully managed hard drive destruction program across its agencies. This deal builds on the existing records management and digital services we provide to this customer, demonstrating we have the compliance and security credentials and the operational expertise and scale to deliver a comprehensive range of information management solutions for our customers. This is a good illustration of the kind of work we do for governments in general, including the U.S. federal government. Given the recent interest in our federal business, as well as the growth opportunity that we believe DOGE will offer us, let me provide a bit more background. We work for more than 200 agencies of the U.S. federal government, both as a direct provider and subcontractor of services. The physical storage of documents accounts for approximately $10 million in revenue. Correspondingly, this represents about a half a percent of our total physical volume. We also generate $130 million in data center and digitization transformation services. We have been growing in both of these areas with the government over the last few years as we assist certain agencies with process automation and digitization. As the government continues to drive to be more efficient, we see this as a continued opportunity for the company. To conclude, I am very proud of the strong results our dedicated Mountaineers continue to deliver. At the core of our success is how our team meets the needs of and serves our nearly 250,000 customers around the world each and every day. As we look to 2025 and beyond, we continue to have a tremendous opportunity ahead of us and still just scratching the surface of the $150 billion of the total addressable market for our services. We have a very strong and growing foundation. and the momentum across each of our growth businesses is clear and tangible. As Barry will share in more detail, our guidance outlook represents another record year of double-digit revenue growth for Iron Mountain in 2025. With that, I'll turn the call over to Barry.

Thanks, Bill, and thank you all for joining us to discuss our results. As you heard this morning, our team continues to execute very well against our strategy. We delivered record fourth quarter and full year results across all of our key financial metrics, and we are entering 2025 with strong momentum. Turning to our financial results, during the fourth quarter, we achieved record revenue of $1.58 billion, up 11% on a reported basis and 12% on a constant currency basis. This was driven by 8% storage growth and 17% service growth on a reported basis. We delivered strong organic growth in the quarter of 8%. Total storage revenue in the quarter was $942 million, up $71 million year on year. We drove 9% organic storage growth, half of which was driven by revenue management trends in our global rim business and half from our data center business. Total service revenue was $639 million, up $91 million from last year. Organic service revenue increased 7% year-on-year, driven by our ALM and global-run businesses. Reported service revenue growth reflects the inclusion of our recent ALM acquisitions. Adjusted EBITDA was $605 million, a new record, and up 15% year-on-year. This was above the $595 million projection we provided on our last call and would have been nearly $610 million on the same FX rates that we used in that projection. The performance upside was driven by improved price margin realization and cost productivity across our company. Adjusted EBITDA margin was 38.3%, up 130 basis points year-on-year, which reflects improved margins across all of our businesses. AFFO was $368 million, up $40 million, which represents growth as compared to last year of 12% on a recorded basis and 14% excluding FX. AFFO on a per share basis was $1.24, up $0.13 from last year and also ahead of the projection we provided on our last call of $1.21. Now let me briefly summarize the full year. which marked our fourth consecutive year of record performance across all key financial metrics. Revenue of $6.15 billion increased 12% on a reported basis and 13% on a constant currency basis. Our full year revenue achieved the high end of our guidance range despite the negative effects we incurred throughout the year. Our commercial team's focus to sell across our entire range of products and services continues to be an important driver of our growth and We are still in the very early days of capitalizing on this large cross-selling opportunity. Adjusted EBITDA increased 14% year-on-year to $2.24 billion, an increase of $275 million. With this performance, we exceeded the high end of our full-year guidance. AFFO increased over 11% to $1.3 billion, or $4.54 on a per-share basis, and now turning to segment performance. I'll start with our global rim business, which achieved fourth quarter revenue of $1.26 billion, an increase of $66 million year-on-year. Revenue management continued to be a key driver in the quarter across storage and service, leading to adjusted EBITDA margin reaching a new all-time high. Organic storage was up in excess of 5%, driven by revenue management and consistent volume. Sequentially, it was down slightly due to the stronger dollar and our focus to drive operating performance in our consumer storage business. And I should note, our records management business was up sequentially and year over year in line with our normal trends. Organic service revenue was up 8% with contributions from digital and core services. Our digital business had another strong quarter, achieving record revenue. Global RIM adjusted EBITDA was $579 million, an increase of $45 million year-on-year. Global RIM adjusted EBITDA margin was up 130 basis points from last year, driven by operating leverage and revenue management. Turning to our global data center business, the team delivered revenue of $170 million, an increase of $33 million. This was a 24% increase from the fourth quarter of last year, driven by strong organic storage rental growth of 27%. For the full year, data center revenue grew 25% to $620 million, continuing the multi-year trend of accelerating growth. Our visibility to revenue growth and our pipeline both continue to be very strong. supporting our outlook for further acceleration in 2025. I'll also note that 94% of our under-construction assets are already leased, and as such, we have very high visibility to this revenue projection. Fourth quarter data center adjusted EBITDA was $88 million, up 51%. Adjusted EBITDA margin was up 930 basis points from the fourth quarter of last year and up 820 basis points sequentially. Improved pricing, recent commencements, and operating leverage were the key drivers of a strong margin expansion in the quarter. We saw a continued positive trend in pricing for new and expansion leases, with the full-year average price per kilowatt increasing more than 40% as compared to full-year 2023. Based on our visibility into commencements, we expect strong adjusted EBITDA margin improvement in 2025 with the full year increasing 400 basis points year over year as compared to the 45.6% achieved in 2024. Turning to asset lifecycle management, total ALM revenue in the quarter was $112 million, an increase of $60 million or 118% year over year. On an organic basis, our ALM team delivered double-digit growth, which was driven by expansion in our enterprise business. Regency Technologies performed very well this quarter with revenue of $34 million and strong profit contribution. Our recent acquisitions of WiseTech and APCD performed ahead of our expectations in the quarter. We are especially pleased with the continued improvement in ALM profitability, which is benefiting from Regency synergies, as well as improved efficiencies in both the enterprise and data center decommissioning channels. Turning to capital allocation, we remain committed to our strategy that is balanced between funding our growth initiatives while delivering meaningful returns to our shareholders and maintaining our strong balance sheet. Capital expenditures in the fourth quarter were $721 million with $685 million of growth and $36 million of recurring. For 2025, we are planning for capital expenditures to be similar to last year with approximately $1.8 billion of growth and approximately $150 million of recurring. Turning to the balance sheet, With strong EBITDA performance, we ended the year with net lease adjusted leverage of 5.0 times, which remains at the lowest level we have achieved since prior to the company's reconversion in 2014. For 2025, we expect to end the year at similar levels to year-end 2024. Turning to our dividend, our target payout ratio is low to mid-60%, and on a trailing basis, we ended the year at 60%. In light of our favorable outlook for AFFO, our board increased the dividend by 10% affected with the April payout. This marks the third consecutive year where we have increased the dividend. Now let me share our projections for a full year 2025. We anticipate another record year of performance across all of our key financial metrics. For 2025, we expect total revenue to be within the range of $6.65 to $6.8 billion, which represents year-on-year growth of 9% at the midpoint. On constant FX rates, this implies growth of 11% at the midpoint. This includes 10% organic growth for 2025, which is ahead of the 9% and 7% organic growth we delivered in 2024 and 2023, respectively, and reflects the growth across our portfolio. We expect adjusted EBITDA to be within the range of $2.475 billion to $2.525 billion, which represents year-on-year growth of 12% at the midpoint. On constant FX rates, this implies growth of 13% at the midpoint. We expect AFFO to be within the range of $1.45 billion to $1.48 billion, which represents year-on-year growth of 9% at the midpoint. On constant FX rates, this implies growth of 11% at the midpoint. And we expect AFFO per share to be $4.85 to $4.95. This represents year-on-year growth of 8% at the midpoint and on constant FX rates, this implies growth of 10% at the midpoint. Turning to the first quarter, we expect revenue of approximately $1.59 billion, adjusted EBITDA of approximately $575 million, AFFO of approximately $342 million, and AFFO per share of approximately $1.15. A couple last points for modeling. We expect AFFO growth to accelerate through the year as the phasing of cash taxes will be more first half weighted than last year. And we expect the FX impact on reported results will be less of a headwind as we move through 2025 based on the timing of the U.S. dollar strengthening last year. To conclude, we are pleased to have delivered another record year in 2024 and we are entering 2025 with strong momentum. I would like to express my thanks to our entire team for their continued dedication to serving our clients. And with that operator, would you please open the line for Q&A?