Morning, everybody. Thank you for joining us at the Stifel 2024 Cross Sector Insight Conference. My name is Shlomo Rosenbaum. I'm the business services analyst here at Stifel, and I wanna welcome Barry Hytinen, who's the CFO of Iron Mountain, who's gonna be up here with me, and also Gillian Tiltman, head of Investor Relations, is here in the audience. Thank you very much for joining us. We're gonna start this off. I have plenty of questions to ask Barry. Barry, who's known me for a little while, knows that I don't run out of these so quickly. But I'm gonna stop in the middle and poll. If anyone has any questions, I'm gonna encourage you to just put your hand up and let me know, and we're happy to take questions from the audience.
So with that, Barry, I just thought maybe just take a minute and just describe Iron Mountain today. 'Cause I would say that the company looks a little bit different than what people who used to look at it maybe 5 years ago, call me up, start kicking the tire and say, "What happened over here? The stock went from $30 to $70 to $80." And what, what has changed in the business? And maybe just give us a quick 1-2 minutes of the way you look at the company now.
Okay. Shlomo, thank you for having us, because we are always very pleased to be at this conference. We get great meetings here, so thanks for having us again. I would say... And you're very kind with those comments. I would say that over the last four or five years, we've been able to demonstrate is the team has been investing previously into growth areas that are now large enough that they are impacting the total company's growth. And we've been able to demonstrate a few other key tenets. First and foremost, our core business is quite strong, right? We have a revenue management capability in that business, which I think four or five years ago, people didn't really see.
It was still in the very early innings of our revenue management program, and I think over the last several years, we've demonstrated that that's a strong and consistent portion of improvement in terms of top line and bottom line. Secondly, if you go back to that time frame, volume was viewed as questionable in terms of physical volume, and as I like to remind people, we've never stored more physical volume than we're storing today, because the volume has been flattish to slightly up for the last several years in a row. That's on an organic basis, I might add. And so that gives us the ability to become even more productive as we, you know, maintain and slightly increase volumes.
So the core side of the business, I think, is now better understood that it's a durable, high profit, consistent grower. And then, as I mentioned earlier, there are. I usually encapsulate it currently as three distinct growth areas that were probably not nearly as visible four or five years ago. One is data center. And our data center business, you know, is a very fast-growing business. We are seeing good, consistent growth out of our colo business, where we were a legacy data center, kind of, operator of colocation locations, up until about three or four years ago, when we started becoming a trusted partner of choice to the hyperscalers. And that has resulted in our new leasing being on an accelerated curve, and I'm sure we're gonna talk more about that.
But that data center business is growing at a 25%+ clip rate, and we expect it to continue to do so because, frankly, we're growing our bookings faster than that. And then there's our digital solutions business, which goes very well off the core business. It generally starts with digitization, but we do digital mail rooms for clients. We do a whole host of digital services, and we are working on a digital platform that I think clients will very significantly benefit from. And that digital business is in excess of $400 million, and it's growing at about a 20% CAGR. By the way, the data center business last year was $500 million, it's growing, you know, north of that 20%+ CAGR. And then there's our asset lifecycle management business, which is a newer business for us.
The company started investing in ALM in 2017, but really, and it was growing, like, 30% compound, but off a really small base. And, and that was our enterprise asset lifecycle management business, where we were servicing our existing clients, a small portion of them, with recycle, reuse of IT gear. And that is a secularly growing portion of the economy, and we've made a couple of important acquisitions in that business. And while component pricing in our hyperscale decommissioning business was really challenged up until, recently, we have, we have endured that. And now I think as future prospects for component pricing is likely to be continuing to rise, it's gonna show that we are winning more volume in that business. We've got a pricing tailwind likely going forward, and we're winning a lot more business in the enterprise side. So...
That business is, you know, I think in our original guidance at the beginning of the year, we said, you know, it'd be about $355 million at the midpoint. We had a good 1Q, and pricing trends continue to be good. So what at its foundation, Shlomo, I think of us as an information management company. We have 250,000 clients around the world, and we aim to broaden our suite of products that we're selling to them. They all have at least one, but not that many have even two core lines of business with us.
As we continue to cross-sell, it gives us an opportunity to take warm leads off of our core, where we've been working with clients for a long time, and sell them a lot more.
Sounds good. Now, one of the key aspects is the story of the story is that revenue management in the core RIM business. And can you talk a little bit about it? You know, if you went back years ago, we didn't see much of it. We saw a certain amount. We're seeing more. A common question that I get from clients is: It's been an inflationary environment, so you've been able to take that pricing. As the inflationary environment subsides, what kind of revenue management can we expect out of that core business?
Yeah. So, our revenue management program was one that the company started, I would say, tiptoeing into about 6 or 7 years ago. And by tiptoeing, I mean, if you go back before that, there were years where revenue management probably didn't even keep up with inflation. But the company was growing on an organic volume basis, very precipitously, as it was, consolidating the market. And at this point, after several years of testing, you go back about 4 or so years ago, we started, you know, moving up the revenue management program because, frankly, I think we were underpricing for value for many, many years.
The nice thing about our business is when, in light of how much incoming volume we have and how many client relationships we have that have been working with us for years, if not decades, it's very easy for us to see relative elasticity. Frankly, I think it's a testament to the fact that we deliver a very compelling value to our clients, that as we have escalated revenue management, we have really not seen any meaningful impact whatsoever on volume. We have the ability to do sophisticated testing of doing various cohorts of cohorts of clients that look similar and see what happens with that sort of, you know, test of revenue management strategies.
At this point, I would say we were catching up some, and there was some, you know, the inflationary market notwithstanding. Our view is that, over the intermediate to longer term, you should be anticipating something like mid-single from us, at least on Revenue Management, year in and year out. I think that's a very reasonable target. Obviously, we've been running ahead of that for a few years. And, but from our perspective, while we could probably justify even more than that, the opportunity we have from cross-selling the rest of products and services that we have developed over the last several years, is even more compelling than trying to get a marginal incremental couple of points a year.
Has there been... You know, you talked about, you know, you're not really seeing elasticity there. Is that across the base, or is the pricing going on within a specific segment, or is it really has been tested and is moving through the entire base of the RIM business?
Oh, yeah, it is definitely broad-based and across the board, and at this point, across our global footprint as well. There are some markets where we naturally are, you know, continue to test, and particularly there are some important markets where we're still seeing a significant amount of net incremental volume coming in. So in those markets, we're a little, you know, let's say, earlier in the revenue management program, but the vast majority of our business, it's very broad-based at this stage.
Okay, and then could you talk about just. You know, I want to spend a little bit more time just clarifying on the RIM business, because this is really the kinda cash cow business that you have. Just the, the revenue trends, because several years ago, I used to see the revenue going down. It was more like flat to down 1%, and now we're talking about being flat to up a little bit. What is changing over there? Has the trend - what do the trends look like in developed markets versus not developed markets? You know, is it, is, is it something to do with the art storage? Like, maybe you could just elaborate on what are the trends being-
On volume?
Volume.
Okay. So we report volume too, we cut it, so it hasn't, it doesn't have anything to do with the art, because art volume, we have a small—for those who don't know, we have a small art storage and services business known as Crozier. That business is about, you know, 5 million, 5.5 million cubic feet of our 730-some million that we're storing. That business has also been growing, to Shlomo's point, but the rest of the business has also, the bulk, the core, has also been flattish to slightly up. And you can see that in our reporting each quarter, it's been flattish to slightly up, for several years now, running on a purely organic basis.
The underlying trends are there are some markets, as I mentioned, I'll take India as an example, where there is a tremendous amount of incremental volume up for, if you will, grabs. But in that market, for example, they have companies and the government have not embraced outsourcing as early as other markets like the U.S. or the U.K. or Western Europe, et cetera. Now, we are seeing, as we've got a nice business in India, and we're very focused on it. In fact, Bill, our CEO, is in India as we speak right now, visiting some of our clients there on the records side, as well as our data center business there. But India is a market where there are a couple of other key competitors, and we're seeing more outsourcing coming from both the governments as well as private industry.
We net income volume in a nice way in India, and I think it can be a much bigger business for us over in time. In fact, late last year, Bill hired an executive vice president, reports directly to him, that is, he is, Arvind, is based in Mumbai, specifically as a general manager of all of India. That's how much of a focus we have for that market. And there are other markets and other geographies like Latin America, other parts of Asia, where we see net incoming growth on volume and see opportunities for the businesses to get much bigger over time. And then in the developed markets, it tends to be more flattish.
So when you think about it, I should think of, like, India and some of those kind of markets are offsetting US, UK, and Canada? Is that the way to think about it?
Yeah, generally speaking, I think that's fair. Now, having said that, just to be clear about this, as you know, because you've been covering us for such a long time, a considerable amount of our volume is in those markets that you just mentioned, as well as Australia. I'd put that one in there as well. And so those businesses are all what I would consider as quite healthy, because we can't get to a flat to slightly up without them being healthy. And the reason that you referenced some years ago, where volume was kind of uneven to slightly down, you know, that I think has more to do with the fact that we have the turnaround there, has more to do with the fact that we've become very commercially focused.
We changed our operating model recently, and for the first time, now have a dedicated commercial organization. Most companies have that by the time they're the size of us, but we were really a general manager structure without a distinct sales force in that way. Bill and the leadership team, we've designed a new operating model, which incorporates a distinct commercial function. We started testing that in iterations of it about 4 years ago, and we have proliferated it now to our entire company. That has enabled us to be much more focused on cross-selling, of course, which we're talking about a lot, but also making sure we're servicing the clients and getting in there and getting more volume from them.
Because, frankly, almost all of our large clients still have volume that they might be sending somewhere else or they might be keeping themselves. And those are all opportunities for us to continue to grow and frankly, then service the client better.
Okay, great. I want to shift a little to data centers. The growth has been very strong in data centers. It looks like the growth is picking up, actually. And, can you talk about just what you're seeing on the pricing side and, what the yields look like? You know, are they getting more attractive, and how is that shaping up?
Yeah, sure. So, just to put a little context around our data center business, you go back about 4 years ago, it was about 6% of the company's revenue. To Shlomo's point, it's been growing fast. It's about 10% of the company's revenue or so this year, and our new leasing has been growing very fast. And as probably most people know, leasing, it comes ahead of the revenue. The revenue tends to lag because, in our case, we are basically, at this point, building a contract because we operate 250 megawatts in our data center platform today. We're about 96% leased, so not a lot of vacancy. We're under construction on a similar number of megawatts, like 240, let's say, and we're 96% pre-leased on all of that.
So as we finish construction, the clients, which in those cases are the largest cloud hyperscalers in the world, they will convert to revenue at that point. So it's a very predictable, and long-horizon view of being able to see continued growth, together with the fact, as you point out, that our bookings have been accelerating. Last year, for example, we signed 130 megawatts of leases. If you go back five years ago, we would've been doing, like, 10. So it's a big, big move. In terms of pricing, pricing has been improving, I'd say, both for us as well as the entire industry over the last couple of years. On our legacy colocation business, I would say mark-to-market has been up high single, pretty consistently for a while now.
On the hyperscale side, it has also been up quite nicely. You would see that in our price per kilowatt, because we've been doing so much hyperscale leasing, you can see that the price that we've been getting each quarter has generally been favorable. Returns, you asked about returns. Returns have very importantly been moving up quite nicely. If you go back about two or three years ago, I would say hyperscale contracts were being written on a cash-on-cash, unlevered return at, say, in the 7s-8. But at this point, we, and I'd say most other industry participants that I've heard, are talking about writing deals well into the 9s, if not 10, 11, 12, at times, on the same basis, cash-on-cash, unlevered returns for pure hyperscale deals.
Colocation, if you were gonna, you know, have a specific building designed exclusively for colo at this point, would be higher even still. But what we like about the hyperscale is we're dealing with the best quality tenants you could ever imagine having, and they pre-lease. So we know when we are dedicating this year, let's say, a $1.1 billion of capital into growth of data center, it's because we've already signed a contract. And those contracts with the hyperscalers tend to be very long duration, say 15 years, and so it's a, it's a very predictable cash flow stream.
Can you talk about the financing to build out? You have a lot of build coming.
And likely more, you know, more land purchases coming, I would assume. So, you know, right now, it seems like it's really coming through on debt borrowing. Would you be looking to increase the amount of, like, JVs or type of equity participation? And at some point in time, with the stock being up, would it make sense for you to do what other data center operators do, which is issue equity in order to go ahead and fund the build-out?
Yeah. Okay, thanks for those. So I would describe it as a high-class problem about the incremental build. We have a lot of builds underway, and we got more to come. And our commercial team on the data center side is just, you know, continuing to win deals. And I will just reiterate what I've said a few times on the last few quarterly calls, our pipeline continues to grow, and we are talking to clients about deployments that would be out multiple years. So it's a growing market. We're seeing AI be helpful to the pipeline, and there's a lot of activity. In terms of land, if today we built out everything we had for land and power assured, we'd get to about 861 megawatts.
That's what we estimate it can build out to. Now, last year, when I was here, I probably would have told you that was about 650 megawatts at that time, 'cause we've added a good amount of to our capacity. Again, remember, we're only operating 250 megawatts at this point, so we've got a lot of opportunity even in what we have. But you should, yes, expect us to continue to aggregate more land and power. We said this year, we thought we would lease maybe 100 megawatts at the beginning of the year. As I mentioned, we signed 30 megawatts in the 1Q alone.
One way I would suggest people think about it is, we're gonna at least recharge whatever we lease in any given year with at least that much incremental, because we see a very nice, you know, runway for future contracts in that business. In terms of funding it, the nice thing about our business is that we don't require equity. You know, so, you know, unlike some, we have that core business that we were talking about earlier, which is growing and generates very nice profitability, and it is very capital light.
So, you know, what that results in is we have this phenomenal cash flow stream that comes off of our, basically, the rest of the company, and then we can deploy that into both paying our dividend, our maintenance CapEx, and then that leaves a couple $300 million this year for incremental growth development. And then we have a target leverage range of 4.5x-5.5 x. If you go back about 4.5 years ago, we were about 6 times. So while we've been building out our data center fleet and investing heavily, and continuing to pay our dividend, we have taken a situation whereby we've reduced our leverage down to 5 x.
We've been at 5x for several quarters at this point, and that's the lowest we've been at, by the way, in about the last decade. So we aim to operate in a leverage range of 4.5x-5.5x. And if you look at our growth in EBITDA, which this year, at the midpoint of our EBITDA guidance, it would be $240 million, I believe, is the increase year-over-year. With 5x leverage, you get about, you know, $1.2 billion of incremental debt capacity, just if we held the leverage the same, which is what I've indicated will probably be about the same level year-over-year. So I guess we'd never say never, Shlomo, but I don't see...
As Bill and I have said many times, we don't see the need for equity. And if you look at us on a multiple basis and versus the kind of growth we're putting up, I would say we're still look like quite a value from an equity standpoint. Now, you did ask about JVs. We have selectively done a couple of joint ventures of specific assets in our data center portfolio, and I would describe those as additive to the funding plan, but not like plan A at all, you know. So when we can, both strategically and opportunistically, take advantage of a situation where we think we can boost the return, we'll go for it. We did that in a couple of sites in Virginia, where we sold a 45% interest at a sub-4.5 cap.
And as a result of that, we didn't have to. We took all of our cash out of that. We don't have to put up any cash to develop the sites. These were, these were just contracts. They, they were. We had not even broken ground. And through third-party debt, as well as the equity from the 45% owner, we'll fully develop the, the site, and then we'll manage it and get some fees and continue to own 55% ownership interest. So that's an example of what we could do. There are many other structures that folks in data center do on an asset level basis, but, we've got a fully funded plan. You should expect us to continue to ramp our investment in data center because we've got a lot of contracts to get fulfilled.
I want to switch a little to ALM, Asset Lifecycle Management. So it seems to be finally recovering. That was a kind of an issue for the last, like, six quarters or so. Can you talk about what's driving this improvement? And is the GenAI investment cycle benefiting these component prices? Like, what, how, how does that play into what we're seeing?
Okay. So in a little bit of context on our asset lifecycle management business, it's, there's kind of two businesses in there. There's hyperscale data center decommissioning, and then there's our enterprise asset lifecycle management. So let me take both in turn. On the hyperscale decommissioning, what we do is we have partnerships with several of the largest cloud hyperscalers, and in some cases, they're semi-exclusive, exclusive, or they may just be project-based, whereby they roll their racks out of the data center, put them on a truck, and bring them to us, where we wipe them, and we might destroy something that's been written to, and then we are physically disassembling them, and then we sell off the parts in a revenue share model, in which we don't take possession of the inventory.
So we don't have, like, inventory exposure for write-down on this business, but the margin is something like in a more steady state volume, would be teens to 20%, because what we're doing is we're getting a portion of whatever we sell, and the rest goes back to the, if you will, owner of the inventory, the hyperscaler. Now, what happens in that business is hyperscalers tend to renew the gear in the data center about every 5 years, and while they're renewing it before it goes obsolete, so there's that residual value, which we share in, and think we might get, like, 20%. Now, component pricing of that kind of gear, as well as new gear, had fallen dramatically.
Last February, for example, component pricing was down between 50% and 85% year-on-year, and it stayed at that level until about October, when it started to rise on a sequential basis, and it rose a little bit more in the 1Q, and industry prognostications are for that to continue to rise going forward this year. We've baked in a small amount of incremental rise, but, you know, it'd be great if component pricing were to continue to rise to the level that some folks are projecting. Volume is also rising.
So you put all that together, and we've got a pretty strong hyperscale decommissioning business that has a long visibility to incremental volume because the data center fleets that will be renewed this year were put in service five years ago, and next year, it'll be what was put in service four years ago, and those fleets keep getting bigger. So there's a larger and larger opportunity for decommissioning services to those cloud players, where we're already a very important, trusted partner. On the other side is our enterprise asset lifecycle management business. So I should have noted that the former goes very well cross-selling with our data center portfolio, where we have a lot of the cloud hyperscalers in our sites.
On the enterprise side, it goes very well with our records business because, you know, large enterprises and mid-sized enterprises, they are looking for a partner that they can work with to do end-of-life recycled reuse of lots of IT gear. You know, if you talk to CIOs and CISOs and CSOs and heads of ops at corporate America and around the world, you will find that they are increasingly very nervous about a risk related to privacy and as well as sustainability. And anything that's been written to, even printers, they want to have them wiped at this point. And so that's where we can come in and service them. We recently acquired a business in the U.S called Regency Technologies, that has eight processing sites for that.
Historically, what we were doing was just working with the client to pick up the gear, and then we'd outsource the processing of it. But with Regency, we can do end-to-end, which enables us to improve our margins, better utilize the Regency assets, and continue to grow our capability. Put this in some numbers: In the 1Q, we did $84 million of ALM revenue, that was benefited by the Regency transaction. That was up 103% year-on-year, but our organic business was up 25%. The combination of the hyperscale and the enterprise was up 25% organic. Part of that, the smaller part, was price and volume, was more than half of that increase, and we expect volume to continue to be rising through the year, and likely it's gonna be a positive pricing environment.
The interesting thing about ALM, for me, is that it is a really large TAM, $30 billion. It's very fragmented. There are not many companies that have size or scale doing this. In fact, I'd argue that we're probably the largest at this point. And since it's so fragmented, we see lots of opportunities to grow our relative share, both organically and potentially inorganically, because I'll note that we -- on the Regency transaction, we paid 7.5x trailing for that business, and, you know, it's a $100+ million revenue company with a 25% EBITDA margin.
Very good. And can you talk a little bit about the growth we should expect from the dividend? So the ratio right now, the payout is at the kind of the lower end of the 60%-65% range. Last year, in the 3Q, you raised it. Should we think about the dividend increasing on pace with the AFFO per share? Is the 3Q gonna be kind of a normal quarter to expect a dividend raise? How should investors be thinking about this?
Yeah, thank you for that one. So, for several years now, Bill and I have been saying that our target payout ratio for the dividend is low- to mid-60s%. And if you go back about 4.5 years, we were well above that. We were in the 80s%. So we... Even in COVID, we never cut the dividend, but we stopped growing it because we won't want it to grow into that payout ratio. And so as to AFFO has grown nicely over the last several years, we've dropped down into the payout ratio, and as you noted, we raised the dividend. We said repeatedly that once we get into that range, you should be expecting us to grow the dividend again for a couple reasons.
That percentage sort of approximates our REIT minimum in terms of what we need to pay anyway, but it also allows us to have a good amount of retained cash flow from the core business to fund development. So, going forward, yes, I think you should anticipate that as AFFO grows, the dividend should similarly, because while, you know, we, we have said we were gonna raise the dividend when we got into the range, we also don't need to fall out of the range. So, that's, that's the situation there. As it relates to timing, I, I never speak for the board.
Okay, so consensus, we should think about it as roughly that AFFO per share is the way that we should think about the growth of dividend?
I think so, because if not, then our pay ratio doesn't make sense. And we aim to, you know, do what we say.
Okay, great. I think I went over my time without taking any questions. I apologize, but I want to thank all of you for being here, and thank Barry for participating as far as our chat with me, and if anyone has any questions, I'm sure they can grab Barry on his way out over here. Thank you so much, everyone.