Iron Mountain Inc (IRM) — Q1 2023 Earnings Call Transcript

Thank you, Sarah. Good morning, and welcome to our first quarter 2023 earnings conference call. On today's call, we will refer to materials available on our Investor Relations website. We are pleased to have Bill Meaney, President and Chief Executive Officer, and Barry Hytinen, our Executive Vice President and Chief Financial Officer, with us today. After the prepared remarks, we will open the lines for questions. Today's earnings materials contain forward-looking statements, including our expectations. All forward-looking statements involve risks and uncertainties. Please refer to the earnings materials for a discussion of the major risk factors that could cause our actual results to differ from those statements. Additionally, we use several non-GAAP measures in our financial results and have included reconciliations in our supplemental financial information. With that, I'll turn the call over to Bill.

Thank you, Gillian, and thank you all for taking the time to join us today. Our team delivered another quarter of record results for the first quarter of 2023, exceeding our expectations. This performance reflects the resonance of our expanded product portfolio, our unmatched customer relationships, and the strength of our dedicated team. On a reported basis, in the first quarter, we achieved our highest-ever quarterly revenue of $1.31 billion, yielding 7.5% total organic revenue growth and EBITDA of $461 million. We continue to be encouraged by the increased demand for our services across key markets fueling these results as well as the success of Project Matterhorn, enabling our commercial teams to offer our customers access to the widest range of solutions in our company's history. We delivered organic storage rental revenue growth of 11% in the first quarter, and we drove high-teens organic growth in both our data center and digital services businesses. As we introduced last year with Project Matterhorn, our steady build-out of new products and services, as well as growth in these underlying markets, continues to accelerate us on our growth trajectory path. I would like to take this opportunity to highlight how we have been serving our customers with our solutions-based approach and our offerings across the Mountain range. Beginning with records management, we won significant new business in the United Kingdom with a major global industrial and aerospace company signing a contract valued at GBP 40 million. Following more than a year of conversations, the team entered into a bespoke 10-year agreement, providing the customer with several hundred thousand cubic feet of secure physical data storage, document digitization and management across multiple secure locations, radio frequency identification tagging for additional security, and a dedicated on-site team of experts working to Iron Mountain's industry-leading standards. I am pleased we could offer such a comprehensive solution that allows the customer to both digitize their data and protect their business. We are now discussing additional opportunities with the same customer in other European countries, North America, and Asia. In total, the potential contract value over 10 years is estimated to be GBP 90 million. Another win that highlights our ability to sell the entire Mountain range involves a state historical society, which turned to both Iron Mountain and our Fine Art Storage Business Crozier for help in preserving the history of its cultural heritage center, which is home to its underground archives in a museum. With budget as a key consideration for this customer, our unique solution was focused on reducing costs while leveraging our expertise and innovation to challenge the customer to think differently. Our combined art, library, archives and logistics expertise enabled our team to deliver a solution that met the state's needs. Also in the quarter, a financial services company based in Australia, a long-standing customer of Iron Mountain, turned to us for help with their compliance issues after being impressed by the information we presented at a Policy Center webinar back in 2021. Our suite of digital enablement solutions and software, including the InSight platform, will provide the customer with increased visibility into its archives, digital copies of selected records, auto generation of metadata, and auto reduction of personally identifiable information. Success stories such as this highlight the value we provide customers, not only in moving data from physical to digital storage, but also in improving the methods and capability to utilize the data. Another digital win was with the U.S. Department of Veterans Affairs. The U.S. Congress has requested that the VA advance the production of complete and accurate veteran records in a timely fashion, driving the need for the digitization of historical veteran documents, which are often dispersed across multiple storage locations. The customer required an experienced digital partner to increase their scanning capacity and also provide facility oversight, chain of custody logistics, and secure storage. The unique aspects provided by our high-security Boyers, Pennsylvania facility, combined with the skill of our staff, were key contributing factors to winning the deal. This is just the beginning of our work to aid in the delivery of medical records to enhance patient care for veterans. Also in Digital Solutions, we had a key win with an existing customer, His Majesty's Courts and Tribunal Service, on a digital mailroom solution to automate the indexing and classification elements of the mailroom function. The service, which will reduce the cost and time of processing court applications, will be delivered from our location where we have a well-established digitization and BPO facility. Turning to asset lifecycle management, or ALM, we divide this business into three verticals. The first of these is the hyperscale decommissioning business that we acquired from ITRenew. Our volumes grew in excess of 30% in this vertical year-over-year, reflecting our market-leading platform, the strength of our existing customer relationships, and our ability to win more new logos. Revenue is down, however, reflecting the record-low pricing the market has seen since the end of 2022 on both new and used components. In our enterprise ITAD vertical, we've been gratified to see more synergies with our existing customers. Since we have relationships with over 225,000 customers across our wider business, the opportunity to cross-sell our enterprise ITAD services has never been greater. The last of these verticals is the technology manufacturers. Here, we are winning business in terms of servers as well as end-user devices. We have invested in our sales force and obtained specific expertise in the OEM space, setting us up for success. This indirect relationship to decommissioning end-user products is a huge market opportunity. Examples of recent wins in the ALM business include a contract with an existing global asset management company to perform on-site hard disk and solid-state disk rotation and destruction while maximizing value from data center and corporate end-user assets. Continuing with ALM, a large global risk management company sought services to decommission two complete in two partial data centers. A combination of our strong existing relationship and performance, including guidance from a dedicated program manager, our remarketing solutions and capabilities, and the ease of use of our ALM portal contributed to the win. Finally, let's turn to our Data Center business. We are pleased to have finished the first quarter of 2023 with 52 megawatts of new leases signed, with a single hyperscale customer signing 2 deals for a total of 44 megawatts. You will recall that our guidance for the year is 80-plus megawatts. So to have leased over half of our target in the first quarter alone is a triumph for our team. In terms of the co-location wins this past quarter, one win I would like to highlight is with an existing U.S. federal home loan customer who sought to expand into a new data center market for disaster recovery options and selected our VA2 data center in Manassas, Virginia. The customer was impressed with the tour of our Virginia campus and the custom solution we developed to meet their needs. With their positive past experience with our data center services, we've bundled this expanded solution with a renewal at another of our data center sites. Also in the quarter, our team announced the win with a fleet management company, which for years has explored moving their internal on-site data center infrastructure to co-location. Our ability to provide a custom solution in our VA2 data center, including direct internet access, smart hands, and cross-connects, resulted in a powerful solution for them and the continuation of an important relationship that has the potential to expand to a disaster recovery solution at our New Jersey data center. Also noteworthy is a substantial win with an existing major semiconductor chip manufacturer who's taking advantage of all the Mountain range has to offer. The customer was seeking a data center partner to host their internal development cloud environment, and our data center and commercial sales teams worked closely to deliver a solution at our Arizona site, leveraging the customer's existing relationship. All three of these wins that I have noted are with long-standing customers, demonstrating our ability to source premium co-location deals with customers with whom we have had trusted relationships for decades. To conclude, we are more enthusiastic than ever about the growth in our business and our ability to offer our customers expanded and innovative solutions to meet their ever-evolving needs. Project Matterhorn is bearing fruit, and we continue to make great strides as our team climbs towards the highest peaks of our journey. With that, I'll turn the call over to Barry.

Thanks, Bill, and thank you all for joining us to discuss our results. In the first quarter, our team continued to deliver strong performance, exceeding the expectations we provided on our last call. We achieved an all-time record quarterly revenue of $1.31 billion, representing 5% growth on a reported basis. Organically, revenue grew 7.5%. Revenue was ahead of the expectations we shared on our last call as Global RIM and our data center businesses both outperformed. A key highlight in the quarter is our organic storage revenue growth of 11%. This marks an acceleration both sequentially and year-on-year. This reflects strong contributions from revenue management, data center commencements, and positive volume trends. Total service revenue increased 2% to $504 million, or 4% on a constant currency basis. Consistent with the commentary we shared on our last call, the year-on-year impact from the start of the more intense lockdowns in China impacted our ITRenew business. Excluding ITRenew, service revenue was up 11% on an organic constant currency basis. Adjusted EBITDA was $461 million, a new first quarter record. This represents growth of 7% year-on-year and 9% on a constant currency basis driven by revenue management and strong contributions from data centers. Adjusted EBITDA margin was 35.1%, an improvement of 60 basis points year-on-year with revenue management and mix being the key drivers. AFFO was $284 million, or $0.97 on a per share basis, up $20 million and $0.06, respectively from the first quarter of last year. This was well ahead of the expectations we shared on our last call, partially the result of the timing of some maintenance CapEx items between the first and second quarters. Now turning to segment performance. In the first quarter, our Global RIM business delivered revenue of $1.13 billion, an increase of $78 million from last year. On an organic basis, revenue increased 11%. Organic storage rental revenue growth of 9.4% reflects our focus on revenue management and solid volume trends. We reported organic service revenue growth of 13.6%, with that performance driven by digital solutions and core offerings. Global RIM adjusted EBITDA was $478 million, an increase of $29 million year-on-year. Turning to our global data center business. We achieved revenue of $112 million, an increase of $15 million year-on-year. From a total revenue perspective, we delivered 17% growth on an organic basis. Organic storage revenue growth was particularly strong at 24%, driven by commencements and improved pricing. As we projected, data center services were down year-on-year given the fit-out work we were performing in the first half of last year. Data center adjusted EBITDA was $51 million, representing 21% growth. Turning to new and expansion leasing. We had a very strong quarter with the team signing 52 megawatts. We expanded our relationship with a long-standing customer with a 40-megawatt contract. Later in the quarter, we extended this relationship further with another 4 megawatts. Both of these have an initial term of 7 years with multiple renewal options. We signed new deals across our portfolio with key wins in Scottsdale, Phoenix, Frankfurt, and London. In total, we signed 22 new logos within our data center business with strong cross-selling activity. Turning to asset lifecycle management. In the first quarter, ALM volume was ahead of our expectations, while component pricing was down significantly year-on-year. Importantly, we are now seeing pricing for components stabilizing. Given the current environment that Bill described, we are planning for ALM revenue to be consistent in the second quarter with the first quarter. And with the pipeline activity we are seeing, we are well positioned for improving trends in the back half of the year, driven by volume and new bookings. In particular, our OEM business is developing well with the team growing our pipeline and delivering key new wins. For example, we recently signed a deal with one of the largest technology end-user device manufacturers to partner with them in the decommissioning needs of their customers. Turning to capital. In the first quarter, we invested $302 million, of which $274 million was growth and $28 million was recurring. Turning to the balance sheet. With strong EBITDA performance, we ended the quarter with net lease adjusted leverage of 5.1x, reflecting a significant improvement from last year. This marks our lowest leverage level since 2017. We expect to operate within our target leverage range, which is 4.5 to 5.5x. Our Board of Directors declared our quarterly dividend of $0.62 per share to be paid in early July. On a trailing four-quarter basis, our payout ratio is now 64%, settling into our long-term target range of low to mid-60s percent. Now turning to our outlook. With strong performance in the quarter, we are well on track for the year, and we are pleased to reiterate our full-year guidance. For the second quarter, we expect revenue of approximately $1.35 billion, adjusted EBITDA of approximately $475 million, AFFO of approximately $270 million, and AFFO per share of approximately $0.92. In summary, our team is executing well on our Matterhorn growth initiatives. We are investing in our business. We remain focused on driving increased levels of cross-selling and exceeding the expectations of our customers. I would like to take this opportunity to thank our entire team for their continued dedication and commitment to Iron Mountain and our customers. With that, operator, would you please open the line for Q&A.

Organic revenue growth for the services businesses decelerated to 2% in the quarter. Can you elaborate on the factors behind the deceleration in services organic revenue growth? And discuss initiatives or factors that could drive a re-acceleration in growth in the coming quarters?

Thank you for the question, George. Overall, our service revenue growth has been quite strong in traditional areas. For instance, in the RIM business, our Global Organic RIM services grew by 14%, when adjusted for organic and constant currency. This demonstrates significant growth. On the other hand, the ALM side has experienced some challenges; however, the volume this quarter was up about 30% year-over-year, indicating we're starting to see the synergies within the company. Additionally, as Barry mentioned, we've recently secured a new OEM customer, which is encouraging as we observe positive traction in volume. Nonetheless, on the pricing front, similar to trends in the electronics industry, some components have seen price drops of up to 70%. While our gross margins remain positive, revenue is significantly affected by the semiconductor industry’s historically low pricing. Thus, we find ourselves in a mixed situation. Even though the ALM business shows volume growth, there's a decline overall in service revenue. In terms of RIM, our digital services have also seen high teen growth year-over-year, reflecting good progress.

Yes, George, it's Barry. Thanks again for the question. The only thing I would add is I think the team, to Bill's point on our Global RIM, is doing phenomenally well. And I think that's the way I would point you to look at the services because, of course, the ALM business is masking our total growth there in terms of what's happening with respect to the core. And at that 14% growth rate that Bill spoke about, that is up against some really big comps. So it's a very strong performance, and it is driven by the point that he made, the digital solutions, as well as other core offerings, which are all growing for us. The other thing I'd kind of call out is it's a small factor, but as you know, we were doing fit-out services in data centers in the first half of last year. We completed that in the second quarter, which makes the year-on-year comp harder, just as we explained it would be. So that is another factor that's weighing on that services total growth rate that you pointed to. I think as you move through and get into the back half, you'll see that growth rate accelerating meaningfully as we get beyond the challenges with respect to ALM, and the pipeline that Bill was speaking about really comes to fruition, and then we also get beyond that data center services comp in the first two quarters. Thanks for the question.

Congratulations on the momentum. Barry, it looks like typically, and I'm just going off the last two years, so maybe it's not fair, you can help me with this. But the sequential EBITDA lift in the last two years has been $24 million to $25 million, it looks like the Q2 is going to be about $14 million. So when we think about the puts and takes in the back half of the year, is that more project benefit from Matterhorn that allows you to reaffirm the EBITDA guidance? Is it better pricing? Maybe just help us understand the seasonality a little bit if I'm thinking about that right.

Yes. Thanks, Kevin. Appreciate the question. We feel very good about where we're trending. In fact, the first quarter came in right in line, if not a little bit better than what we were expecting, and our guidance for the second quarter is similarly strong, despite the fact that we've adjusted our expectations for ALM down somewhat in the second quarter. The reason we are able to achieve the numbers that we're putting up in the second quarter and our confidence in the back half is because of a couple of things you pointed out. We are seeing even better revenue management projections in the business. We have, as you've seen in our Global RIM business, very strong storage rental growth on an organic basis, almost 9.5%, which marked an acceleration sequentially and year-on-year. Our total organic storage rental growth was over 11%, which was also very strong. I can tell you that considering the fact that we are going to see more revenue management activities, we've recently passed some increases even in the second quarter, and we'll be passing more as we move through the year, together with the fact that data center pricing continues to improve, which is an industry phenomenon. You will see, together with that, our commencements are very strong in the back half. So data center will be accelerating as we get into the back half. There’s very strong visibility in that business, so it's a high-confidence point I'm making there. We feel very good about where we are. In terms of the specifics around the second versus the first quarter, I'll just note that in light of the timing of the U.S. dollar strength, we still have an FX headwind in the second quarter. In the first quarter, that was almost $30 million on the top line. But as we said on the last call, that becomes much more muted, and may even be a slight tailwind in the back half. We also get through a few items that are in the first half from an EBITDA standpoint that are comping over to the back half, and with our productivity initiatives and additional commercial investments we've made, we will get to a more favorable comp in the back half. So I’ll say, Kevin, we feel very well positioned about accelerating business even with more muted expectations around ALM.

Towards the beginning, you pointed out a number of wins with government agencies and large enterprises and so forth. I was curious to maybe get a little bit more color on the tone of discussion around the sales cycle compared to what you're accustomed to? And then the competitive set that you faced with those deals to the extent that you faced bake-offs or just kind of the decision to go with you is really more of a bilateral discussion, but maybe a little bit about the competitive dynamics and sales cycle would be helpful for both government and enterprise?

Okay. Well, thanks, Jon, for the question. The sales cycles for instances, the aerospace company that we talked about was like over a year, but this is a company that we've been doing bits of work for decades, right? It's a natural conversation that they start talking about wanting to do something different. In this case, they had an in-house vendor for part of it, but that company wasn't able to do the full range of services. They were looking for someone to take over full outsourcing and were very sensitive because if one of these things goes missing, aircraft around the world get grounded. So they were very sensitive about the security and reliability of their vendor. The other side of it, obviously, they've known us for decades in different areas that are very sensitive to them. We were able to bring a full range of services that we're able to do, not just storage, not just digitization, but also to give them the tools that they could visualize what was both stored physically and what was digitized, and they could do that in a consolidated basis, which is the big win for them. You can say that the sales cycle was over a year; I've been visiting with the sales team at the customer for over a year, but it's been part of an ongoing conversation, and that's the power of having 225,000 customers that we've had for decades. The government contracts, as I'm sure you're aware, have very long lead times. Both of those have been customers that we've actually been working for the last two or three years with, so there was a big investment, I would say, starting five, six years ago with both the VA and with the British government in certain segments. But that's now starting to become more of our normal course.

Barry, you alluded a few times on the call to good revenue management and improving revenue management. Can you talk a little bit about what the pricing lift in the quarter was and what investors should expect for 2023? And you guys had very good revenue management last year. Is the revenue management straight out being able to raise prices now? Or is there some kind of favorable mix going on? Maybe you could just give a little more color there.

Okay. So thanks for that question. I think our team is doing a phenomenal job with revenue management. It's been a real standout. When you look at Global RIM in terms of its storage rental organic growth, that was almost 9.5%. As you know, we saw good solid volume trends. It was up about $2.5 million on a cube on a trailing 12-month basis. The vast majority of the growth was driven by revenue management. Importantly, we feel very well positioned in terms of the whole year. I can tell you that in terms of the total storage rental growth rate we put up at 11%, which, of course, benefited from data center commencements with what we see on data center commencements through the remainder of the year. Together with the revenue management activities we've already put in place, I feel very confident that we are going to continue to see total company organic storage rental growth of this order, I think, 9%, 10%, or even 11%. The environment for revenue management continues to be strong. We will have relatively more revenue management this year than we did last year, a factor of what we're wrapping from last year as well as the activities we've had in this year. Importantly, we continue to see excellent customer retention, and I think that just demonstrates that we are bringing forward significant value for our clients in these areas. In terms of mix, I would say we continue, as we've talked about before, to expand the revenue management program beyond just storage. So you are seeing improving revenue management trends in our services, which is generally across all lines of service and core offerings, and we feel like it's on the right trajectory.

Maybe you can just remind us on the funding plan for development this year? What does the pricing look like for any debt needed? Would you do asset or company-level financing? And then I also wanted your updated thoughts on the dividend here with the payout, the lowest it's been in a while.

I appreciate the question. Let me take your last question on the dividend, and then I'll let Barry comment on the funding plan. As you know, our plan from when we talked about Investor Day, it's a fully funded plan, but I'll let Barry comment on that more. On the dividend, you're right to point out that we are now in that zone when we said kind of low to mid-60% payout ratio, which becomes a natural forcing function for increasing our dividend. So that's something that we're now starting to settle into that range. You can expect that it will just become a natural course of events as we reach that payout range, which on the REIT guidance rules will force a natural increase in the dividend. I think we're now in that area. So I think when we start getting into the back half of the year, and we start drifting down to the low 60s, then you can expect just a natural progression in the dividend.

Thanks for the question. When you work through our guidance, as Bill mentioned at the Investor Day, we have a fully funded plan for this year and going forward. We will be a routine debt issuer, and while the market has clearly moved up in terms of rate over the last couple of years with the Fed moves, I would say it's become a much improved market compared to where it was over the last couple of quarters, and we see generally a favorable outlook from the standpoint of issuance. I think from the standpoint of where we could issue today, that's improved some versus the last couple of quarters. To your point, there's a lot of interest in asset-level financing, whether for construction or otherwise. We're looking at all those options and making sure that we have the best plan for our shareholders. It's not something that we have to do as we see we have plenty of liquidity, but you should expect us to be an issuer on a routine basis. I just want to see what's out there from a market perspective. Clearly, rates are a little bit higher than a couple of years ago, but we still see them being very attractive, partly because pricing in data centers has continued to rise, and we see continued improvements. In fact, year-on-year, net new retail-type data center deals are up about 20%, consistently across our entire portfolio, trending toward around 30% by the end of the year, early next year, which is a significant move. On the hyperscale side, the whole industry sees cash-on-cash unlevered returns moving up, from high 7s or mid-7s to a lot of stuff now in the 8s or even higher. I think that's a good trajectory for the industry and it supports the point I was making earlier. So we feel really good.

I wanted to ask briefly about the ITRenew callout. You highlighted that services revenue growth would have been 11% organic, excluding ITRenew, which implies a pretty sharp deterioration quarter-on-quarter and year-on-year in that business, if my math is right. Could you maybe break that out into what degree that was driven by pricing versus ability to sell through into end markets? And any other dynamics that sort of give you confidence that, that will eventually recover?

Thanks for the question. I'll start, then I'll ask Barry to comment on how we see that trending as we go forward into the year. As I stated in my comments, if we just looked at volume holding pricing constant, quite frankly, Q1 would have been a great year for the ITRenew asset we acquired because, as you know, it was really focused on hyperscale. If we focus on that segment alone, we made very good progress in terms of expanding across our customer portfolio on the enterprise. But in looking at hyperscale, which is the ITRenew asset, volume was up over 30% year-over-year. So the volume growth is really good. However, and I'm sure you've seen this in some of the other companies that you follow, anything in the electronics industry shows that we are experiencing significant price decreases in that area. We are talking about a number of components down over 70%. So you're right to point out that we have seen a drop in revenue on the ITRenew portion of the business, even in spite of the fact that volumes are up 30% year-over-year. The good news is that we do see stabilization on those prices, and we see a number of the memory manufacturers and chip manufacturers taking capacity out of the market, which gives us further confidence that we've seen a stabilization of prices, which we've seen starting towards the end of February going into March. We don’t expect that the chip/memory CPU market will really start firming until we get into early next year. But Barry?

Alex, I appreciate the question. I'll provide a little more detail, which you can find in our filings. In the fourth quarter of last year, our total ALM business was about $56 million, and in the first quarter, it was $41 million, which compares against $70 million last year. In the second quarter of last year, it was the peak for our ALM business at $83 million in revenue, and we've assumed in our guidance for the second quarter that revenue is consistent with the first quarter this year. This creates a drag on the services growth rate in the first quarter, which will also be the case in the second quarter. If you want to sensitize our guidance, I'll tell you at the low end of our range, which I do not anticipate will happen, we would assume that it remains flat for the entire year. I don't see that happening considering the strong pipeline opportunities we have and the trends we're seeing in the business. What we think is probably going to happen is we will be slightly up sequentially. We're running ahead of my second-quarter projection. In the second half, we plan for the third quarter to be flat year-on-year, which implies a little bit of lift and another lift in the fourth quarter. I will tell you we have strong confidence in our ability to achieve that. I called out one deal in the prepared remarks around OEM, and maybe I’ll give you a bit more color. This is a situation where we're dealing with one of the largest manufacturers of devices in the world. There are several of those, as you know, and we're approaching all of them because we're finding with large multinationals that are looking for a partner to work with worldwide are looking for uniform standards and consistency, and we can provide them with the sorts of services they’re looking for, like data lifecycle management, recycling, and remarketing. Ultimately, we will be working with them on things like asset tracking and storage. So, again, we are diversifying and growing our ALM business, which bolsters our confidence. Importantly, this is a huge market for ALM. We really like this space. It's very fragmented, and we think we are in a good position to take a significant amount of market share over time. We are working through what everyone in the industry is facing, which is low component pricing, but we feel good about the opportunity.

I wanted to touch on data center demand. You're more than 60% towards your leasing goal for the full year, so a really strong start to the year. If you look, it looks like your in-place and development portfolios are pretty highly leased up. So maybe you could talk about your ability to accommodate additional demand, whether through future development of your land holdings or additional expansions? And if leasing continues to trend at a high level, could you accelerate some of your data center CapEx this year beyond what you initially guided to?

Thanks, Eric. I'll ask Barry to talk about how we think about being flexible or responsive on the CapEx side. In general, yes, we've had a really good start this year, as you point out. We reiterated the 80 megawatts for the full year, even though we've achieved more than half of that in the first quarter. I think you can appreciate, especially with hyperscale, timing is never fully under your control. I would say that some of the new leases we signed in Q1 were things we expected in Q2. I kind of think of it as two halves of the year rather than quarter by quarter, particularly when it comes to hyperscale clients. We signed 52 megawatts in new leases in Q1 with a single hyperscale customer signing two contracts for 44 megawatts. In regard to having enough capacity for further expansion, we are holding up to 747 megawatts of land, which is a significant increase from last year. We are making good progress. We're not standing still in that regard. In the last couple of months, I visited both our Northern Virginia campus with a potential customer and done two trips with our team in India since the beginning of the year. Both of those markets continue to develop. We're not standing still in ensuring we have more land and capacity to meet our growth. Year-on-year, the uptick we have for land is helping us to accommodate the ongoing demand. But Barry, you might want to talk about the flexibility around CapEx.

Thanks, Eric. It's good to talk to you this morning. I appreciate those kind words. We had a strong team effort, supported by continued strength in new signings and margin performance in our data center business. In terms of capital, we had projected to deploy about $850 million of growth CapEx this year with the majority of that going to data centers. Year-on-year, we increased CapEx in the first quarter significantly, and we can deploy more capital for data centers if our pipeline continues to sell. Yes, it's conceivable we will ramp our CapEx for data centers and, indeed, that's a high-class problem to have as the team continues to sell through our pipeline plans. Currently, we're planning to spend relatively more CapEx in the first half than we did last year. As you recall, last year, we spent relatively more toward the back half, while this year we're deploying considerable amounts in the first half, which we will continue in the second quarter. After midyear, we will review our pipeline's performance to see how we can increase CapEx, which is a positive development driven by strong organic growth rates from commencements. Our underdevelopment projects are over 90% pre-leased, and churn has been low. We expect that to remain the case for the year. Thank you, Eric, for your questions.

I wanted to discuss Project Matterhorn. I understand it's still very early days, but you indicated some large multiple vertical wins. I'm wondering how you expect that type of contract to trend in your revenue mix over the long term as Project Matterhorn gains more momentum. Do you expect to see a lot more of these large multi-vertical wins relative to a more fragmented customer base?

No. Thanks, Brendan. Project Matterhorn is customer-centric. We aim to provide a full range of services to customers. As mentioned, there is a significant service component in these wins, especially related to the digital side,along with co-location and physical storage. For example, with the aerospace company that I've referenced in multiple discussions, we offer everything from physical storage to digitization and visualization of their assets. It's a comprehensive set of services. You can expect that, and even if you look at our organic storage rental revenue growth of 11%, part of that comes from our traditional physical storage business, but a significant part comes from our data center growth. We see storage as one of the most profitable parts of our business. So we anticipate both data center storage and physical document storage to drive growth. When we talk to a customer, we're focused on solving their problems and typically provide a hybrid set of solutions, differentiating us as a one-stop shop for clients to manage their needs effectively.

Brendan, I'll just add that one of our key initiatives within Matterhorn is cross-selling. If you go back to what I mentioned in the prepared remarks, our data center team signed 22 new logos within the data center in the quarter, and when we segment that based on megawatt basis, 75% of that was cross-sell from our existing client base, those 225,000 clients. That's a good indicator of what we are driving with our Matterhorn initiatives around cross-selling.

Bill, if I don't ask about the underlying volumes in RIM, I may miss it. Can you provide a bit more color on the breakout like RIM adjacent businesses, consumer and others, just how are the underlying factors playing out and maybe talk a bit about developed markets versus emerging markets as well?

Thanks for the question. It follows a similar trend. In mature places like North America, volume is flat to slightly down. In Eastern Europe and some emerging markets, we see a continued positive volume trend. Every customer globally continues to send us new document storage requests as they arrive at our facilities. The growth areas for us are in Eastern Europe, Latin America, Asia Pacific, as well as some of the new storage areas we’re exploring for our customers. Our industrial real estate footprint boasts high utilization, thanks to our teams continuing to address the significant demand for physical storage solutions. Even in mature markets like the UK, we're unlocking new storage opportunities. It's now part of a broader conversation with customers about the range of services we provide. These developments show our ongoing positive trend across our operations. Thank you for the question.