Iron Mountain Inc (IRM) — Q2 2023 Earnings Call Transcript

Thank you, Andrea. Good morning, and welcome to our second quarter 2023 earnings conference call. On today's call, we will refer to materials available on our Investor Relations website. We're joined here today by Bill Meaney, President and Chief Executive Officer; and Barry Hytinen, 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 2 and our quarterly report on Form 10-Q for a discussion of the major risk factors that could 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. We have included the reconciliations to these measures in our supplemental financial information. With that, I'll turn the call over to Bill.

Thank you, Gillian, and thank you all for taking time to join us today for our discussion of our record second quarter results. Our team has once again exceeded expectations with performance reflective of our strong legacy of customer service, our laser focus on execution, and our dedication to finding innovative solutions to serve our customers as they evolve their businesses. I'm excited to share that in the second quarter we achieved our highest ever quarterly revenue of $1.36 billion and record EBITDA of $476 million. This performance is ahead of the expectations we provided last quarter. The enhanced operational model we created through Project Matterhorn has continued to prove successful as our commercial team is empowered to sell the entire Mountain range of products and solutions across our portfolio. We are pleased with the high quality and wide range of our offerings today which positions us to be a nimble partner to serve our customers' needs. To highlight some of our results in the second quarter, we delivered organic storage rental revenue growth of 11% and drove high-teens organic growth in both our data center and digital services businesses. We are also pleased to announce that our Board of Directors has increased our quarterly dividend per share to $0.65 or $2.60 per share annualized, commencing with our third quarter dividend to be paid in October. As we have said before, when our AFFO payout ratio reached the mid to low 60s as a percentage, we would increase the dividend. Our payout ratio at the end of the second quarter was just under 64%. I would like to begin our broader discussion of some of the customer wins, which led to our record second quarter results. Let me start with records management, where our success was derived from both new and existing customers. One significant win we would like to highlight this quarter was with a large not-for-profit hospital system, faced with rising lease costs, despite a shrinking storage footprint, the customer turned to us for an alternative to storing in their own space. Our Smart Sort solution will address their needs over the next three years. It will deliver cost efficiency and optimize storage space for the customer before they transfer their records to an Iron Mountain facility for secure future management. This win exemplifies our commitment to solving our customers' problems and providing them with tailored solutions. The COVID-19 pandemic has led organizations around the world to reassess their current real estate portfolios in order to accommodate remote and hybrid work. Our customers are optimizing their real estate to accommodate changing working practices, and we are able to offer solutions that demonstrate the breadth of our portfolio and the value of partnering with Iron Mountain across our products and services. One example is a customer who chose our Clean Start solution to remove and relocate records, office equipment, and IT assets from more than 60 offices across North America that are being closed or decommissioned over the next two years. Thanks to our Asset Lifecycle Management solutions, we are also helping this customer to decommission IT assets from these offices securely and sustainably. We continue to see growing momentum for our digital business with customers turning to us for solutions in areas such as public sector, industry-focused solutions, and end-to-end business process management. For example, we are proud to be supporting the digitization of real estate mortgage records held by the Helinick Land Registry in Greece under a two-year contract worth $35 million. We demonstrated our understanding of the public sector in Greece and of the European Commission's recovery and resilience facility, which is funding this project through the Greek government to support European economies as they transform the way they support their citizens. This is a breakthrough deal that will provide further opportunities to support similar digitization projects elsewhere in Europe. Another example of how our digital business is enabling us to develop and deliver transformational solutions for our largest customers is with one of the biggest financial service companies in the United States. This customer is outsourcing its noncore services and has selected Iron Mountain to manage all of its records. Our end-to-end solution ensures a secure chain of custody regardless of media format for this customer, leveraging our image on demand service and InSight platform to integrate seamlessly with their customer success management system. This game-changing deal demonstrates the power of partnering with Iron Mountain to accelerate our customer's digital transformation. Staying with our Digital Solutions business, our 25-year relationship with a Fortune 500 gas and electric utility company continues to be a powerful example of how our customers turn to Iron Mountain because of the range of solutions we can provide. To ensure our customer is compliant with all legal and regulatory requirements, we are digitizing around 20 million images from 8,000 boxes stored with Iron Mountain over the next three years. Having provided records management and data management services since 1998, our customer was confident in our Digital Solutions secure chain of custody, information governance expertise, and ability to scale up quickly to deliver this project. To conclude with records management, on June 29, we acquired the controlling interest in Clutter, a tech-enabled on-demand consumer storage company. We were previously a minority investor in Clutter and provided storage and operational services through a commercial partnership. This acquisition makes us the industry leader in valet self-storage services in North America. Turning to asset lifecycle management, we continue to see muted pricing for the largest part of this business, which relies on reselling used memory, hard drives, and CPUs we receive from hyperscalers. That being said, pricing has stabilized, and we do expect to see an improvement as we head into next year. Moreover, you will recall that our ALM business has three components: hyperscale decommissioning, which is highly dependent on component pricing; enterprise ITAD or IT asset disposition; and original equipment manufacturers or OEMs. In these later categories, we are seeing marked growth and traction. For example, in the enterprise segment, our focus on cross-selling the Mountain range of products has driven bookings up 175% versus the second quarter last year. For the OEM segment, you will recall that we signed our first Master Services Agreement in this area last quarter, and we have added another Master Services Agreement with a second OEM this quarter. Turning to specific wins in the ALM area, a good example of our cross-selling appeal comes from the health care industry. A customer which has benefited from Iron Mountain's records management solutions for many years has asked us to manage the recovery, decommissioning, disposal, and/or recycling of IT assets at over 2,000 locations in the United States. The strength of our relationship and our customers' inherent trust in Iron Mountain has resulted in an ALM contract and renewal of our existing services for the next five years. Also in ALM, our team secured a contract with a leading software and technology company to help them decommission racks of servers and nonessential IT equipment from their data center. Opportunities like this where we are able to extend the value we provide to customers have been significantly enhanced, thanks to the industry knowledge and expertise we have gained through our acquisition and integration of IT Renew. We remain very excited about ALM, whilst component pricing remains a drag for part of the business, the growth we are achieving in the services side of the business shows how Iron Mountain's brand strength around security and reliability is a differentiator in this fast-growing area. Moving to our data center business, through the first half of the year we leased 55 megawatts, which includes 2.7 megawatts this quarter. As we said in May, the first quarter was particularly strong as we signed some deals earlier than expected. Due to our strong pipeline, we now feel confident we will exceed our original projection of 80 megawatts in 2023. This confidence is thanks to our teams delivering record new sales in the first half as well as the size of our late-stage pipeline from some of our largest customers as they add new capacity with the growth of AI. For example, we are well positioned with nearly 120 megawatts of unleased capacity on our Nova campus with our fully secured. In this very important market, we are pleased to note that pricing is moving up appreciably. Staying with our business, I would like to highlight a win that demonstrates the exciting opportunities to expand our solutions and services for customers with a footprint in India and the value of our joint venture with Web Werks in the country. As we've discussed before, India is a key focus for our company's growth and our progress there is a major win for our business. In the second quarter, we closed a deal with a multinational media processing company to provide almost 1 megawatt of storage capacity at our Mumbai data center with the potential to add a further 5 megawatts at this facility and extra capacity at other locations in India. Our data centers team's experience of handling high-density racks, Iron Mountain's wider understanding of the media industry, and our expansion plans in Mumbai helped us to convince our customer that we are their best long-term partner as their capacity needs grow. Finally, I would like to mention an example of the success we are enjoying in our Crozier Fine Arts business as we build out one of the few globally integrated logistics, storage, and top-quality services businesses in the art world. Recently, we partnered with a major art gallery in the United Kingdom to support an exhibition by well-known artists. This involves detailed planning and preparations to pack and transport 61 fragile sculptures from the US, Mexico, and Continental Europe. We are proud of the unique expertise that our Crozier teams provide for our customers and to be associated with important exhibitions like this one. To conclude, we are proud of the record results we delivered this quarter as this is evidence that our strategy is working. As we continue to leverage the potential of our entire Mountain range, expand our footprint of storage and services, and deliver tailored innovative solutions for each of our customers, I could not be more grateful for the hard work of our mountaineers. Our Matterhorn program is showing the way and delivering consistently strong sales growth, whilst fueling AFFO growth and our dividend. We are more energized than ever to continue reaching new peaks. And I’m excited for the bright future ahead. With that, I will turn the call over to Barry.

Thanks, Bill, and thank you all for joining us to discuss our results. In the second quarter, our team achieved solid performance across all metrics, exceeding the projections we shared in May. Revenue grew to a record $1.36 billion, up 5% year-on-year on a reported basis and 6% on an organic and constant currency basis. Revenue was above the expectations we provided on our last call driven by outperformance in both our Global RIM and data center businesses. For me, a key highlight in the quarter is our organic storage rental revenue, which grew 11%. I'll note, this performance was on top of a stronger year-on-year comp and represents an acceleration in the rate of growth. This reflects strong contributions from revenue management, data center commencements, and positive volume trends. Total service revenue was $527 million, down 1% on a constant currency basis. This was consistent with our projections, which factored in the previously discussed year-on-year component price declines. Importantly, component pricing was consistent in the second quarter on a sequential basis. While this represents a significant headwind year-on-year, we are pleased that pricing has stabilized. As a reminder, that affects our IT renew business most prominently. Excluding our ALM business, service revenue was up 8% on a constant currency basis. This would have resulted in total company revenue growth of 9%. Adjusted EBITDA was $476 million, a new record, up 5% year-on-year with revenue management and strong data center commencements being the key drivers. Adjusted EBITDA margin was 35%, in line with our expectations, driven by revenue management and mix. AFFO was $277 million or $0.94 on a per share basis, up $6 million and $0.01 respectively from the second quarter of last year. This was well ahead of the expectations we shared on our last call. Now turning to segment performance. In the second quarter, our Global RIM business achieved revenue of $1.16 billion, an increase of $89 million year-on-year, reflecting organic revenue growth of 9%. Revenue management and positive volume trends contribute to strong organic storage rental revenue growth of 9.2%. We delivered organic service revenue growth of 9.3%, driven by Digital Solutions, which were up 20% year-on-year and continued strength in core offerings. Global RIM adjusted EBITDA was $499 million, an increase of $30 million year-on-year. Turning to our global data center business, the team delivered robust performance. From a total revenue perspective, we achieved 17% growth on an organic basis. Organic storage rental revenue growth was particularly strong at 22%, 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. As a reminder, the second quarter of 2022 represented the last quarter of these specific fit-out services. We will have a more normalized comp on this line going forward. Data center adjusted EBITDA was $54 million, representing 27% growth. Turning to new and expansion leasing, we signed 2.7 megawatts in the quarter, bringing total bookings year-to-date to 55 megawatts. As Bill mentioned, we are well on track to achieve our leasing projection for the full year of 80 megawatts. And in fact, with the strength of our building pipeline, we have line of sight to exceed this projection. Turning to asset lifecycle management, in the second quarter, revenue grew 4% on a sequential basis, slightly ahead of the projections we gave on our last call. We are seeing positive momentum across all three verticals of our ALM business, which include: hyperscale decommissioning; enterprise ITAD, and OEM. You will recall that China was mostly free of restrictions in the first half of last year, but it returned to tight lockdowns in the second half. As a result, as we anniversary the second quarter comparisons going forward will be much more favorable. While we are diversifying away from China, it is the largest market into which we sell components today. At the beginning of this year, as lockdowns eased, while component volumes increased, pricing declined to record low levels. Industry analysts project March improvement in pricing by the fourth quarter and even more significantly in 2024. To be prudent we have not factored any pricing improvement into our outlook for 2023. Turning to capital. In the second quarter we invested $320 million, of which $287 million was growth and $33 million was recurring. In 2023, we now expect total capital expenditures to be approximately $1.2 billion, up $200 million from our prior expectations. This reflects an increase to our data center development plans given our strong leasing year-to-date and building pipeline that I mentioned. Turning to the balance sheet. With strong EBITDA performance we ended the quarter with net lease adjusted leverage of 5.1 times, reflecting a meaningful improvement from last year. We have remained at this leverage level for the past three quarters and at March our lowest leverage level since 2017. Importantly, we expect to exit 2023 at this level even with our increased investment in data center. Turning to our dividend. On a trailing four quarter basis, our payout ratio was now 63.9% and approximately 400 basis points improvement from this time last year. As you saw earlier today, we are pleased to announce that our board of directors has authorized an increase to our quarterly dividend of 5%, bringing it to $0.65 per share to be paid in early October. This is consistent with our long-term commentary that as our payout ratio settles into the mid to low 60s as a percentage of AFFO, you should expect the dividend to rise. 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 performance in the first half and strong outlook, we are pleased to reiterate our full-year guidance. For the third quarter, we expect revenue in excess of $1.4 billion, adjusted EBITDA of approaching $500 million, AFFO of approximately $290 million, and AFFO per share of approximately $0.99. I would like to provide a bit more context for our guidance. In terms of revenue, our third quarter projection equates to growth of 9% as compared to the prior year. To frame that, I would recommend investors consider the following points. First, the prior year comparable in our ALM business is much easier in the third and fourth quarters of this year as compared to the first half. Second, we have incremental revenue management actions, which will go into effect in the third and fourth quarters, and will provide a nice tailwind. Lastly, if you consider the underlying trends in the rest of the business, growth has been accelerating for several quarters now. Our Matterhorn efforts are driving performance. For example, excluding our ALM business, the rest of the business's growth rate was 8% in the first quarter, 9% in the second quarter, and our projection is for 10% in the third quarter. And just as a reminder, the fourth quarter of 2022 is our easiest growth comparable this year. To conclude, our team continues to execute well and remains focused on driving our growth agenda. We have a growing and well-diversified pipeline and we are positioned to achieve our objectives. I would like to take this opportunity to thank our entire team for their efforts and contributions. And with that, operator, would you please open the line for Q&A.

Hi. Thanks. Good morning. In the ALM business, performance was impacted by component price declines. And you noted that you saw signs of stabilization in component prices. Can you elaborate a little bit more on that? What trend specifically did you see on component prices, and how would you deconstruct ALM growth between pricing and volumes?

Hi, George. This is Barry. Thank you for the question. Let me assist you with that. Regarding the decommissioning and component pricing business this year, as you may know, at the beginning of the year and late last year, component prices were declining significantly. By February, they reached historic lows across various components, including memory and CPUs, which had a considerable impact on Iron Mountain and others in the technology sector. Importantly, many OEMs have significantly cut back their production of new components, limiting supply in the market. Consequently, used component prices tend to follow the trends of new components. Since component prices hit their lows around February, we have seen more consistent pricing, with some components showing slight increases, particularly in certain memory types. However, for our outlook, we are maintaining component pricing at these record low levels, which we believe is a prudent strategy. Industry analysts predict that component prices may start to rise as 2023 progresses, with substantial increases expected next year due to supply and demand dynamics. We are not incorporating these projections into our 2023 outlook for cautious reasons. We expect our total ALM business to increase slightly on a sequential basis in the third quarter, with further growth anticipated in the fourth quarter. This aligns with the positive bookings reported in our enterprise ITAD business in the second quarter. We are experiencing growth in decommissioning business and important wins from our OEM teams, setting us up well for the medium to long term in the asset lifecycle management sector. Volume on a sequential basis has remained stable, which we consider favorable. We believe we are moving past the toughest comparisons of the year. Last year, we generated $72 million in revenue for ALM in the first quarter and $83 million in the second quarter, which significantly dropped to $60 million in the third and about $55 million in the fourth. This highlights that the comparisons are becoming easier as pricing stabilizes or rises, making us feel well positioned. Thanks, George.

Thank you. So is it fair to say, I guess, that the service revenue growth year-over-year, like, this is the low quarter in 2Q? And that we should expect maybe it to trend out from here? And then maybe just comment on storage rental growth that still remains very strong. Can you maybe just speak to recent customer conversations and your ability to push price?

Thank you, Nate. This is Barry. Regarding services, you are correct in your assessment. The overall service revenue growth for the company was significantly impacted by the ALM business, which generated only half the revenue compared to the previous year. This reduction, amounting to around $40 million, heavily affected our total service revenue, as all ALM revenue is categorized under services. However, if we look at Global RIM, our service revenue there increased by over 9%. Moving forward, the company's service revenue should see improvement, with positive results expected in the third quarter and even more in the fourth quarter when ALM will no longer hinder our revenue. In fact, there’s a possibility that it may contribute positively to the service growth rate by the fourth quarter. On the topic of storage rental revenue growth, we've had strong performance, and our revenue management initiatives have been well received. We're committed to delivering value to our customers and demonstrating the significant benefits Iron Mountain offers, including our core records management services and various cross-selling opportunities like enterprise IT asset disposition and data center services. Regarding storage rental revenue growth, the volume has aligned with our expectations and remains modestly positive, which we expect to continue. From a total revenue perspective, we anticipate ongoing solid performance. As mentioned in my prepared remarks, we have additional revenue management strategies set for the third and fourth quarters that will enhance our growth rate, particularly in the fourth quarter. Last year, a greater portion of our revenue management actions occurred in the third quarter, but this year, it's more balanced. These new strategies will serve as a beneficial addition to our previous plans and should positively impact our growth rate. Thank you for your question, Nate.

Yes. And just one thing I would add for Nate on the storage trend sort of volume, you probably picked up from some of the wins we highlighted is that, as companies are shifting their use of space as the workforce is more remote or hybrid. That's yielding both increased volume for our storage facilities as they clean out or decide that they want to have it depoed rather than in an office that people don't visit as much or at all anymore. As well as, as Barry pointed out, there is evidence behind this 175% year-over-year increase in ITAD bookings, both because as companies are kind of cleaning out, it's a tailwind both on the storage in the ITAD business.

Yes, hi. This is Alex Hess standing in for Andrew Steinerman. Can you remind us what percentage of storage revenues are linked to CPI and what the current price floor and lease terms look like? Also, regarding Clutter, how does that affect your outlook and what are your thoughts on that business, which we understand has faced cash flow challenges as an independent entity? Thank you.

Hello, Alex. It's Barry. Thank you for your questions. For proprietary reasons, we typically don't provide detailed characterizations of our contracts. However, as you are aware from following the company for a long time, we have over 200,000 client relationships. Most of these operate under our standard agreements that allow us to manage revenue effectively, independent of any indices. There are some custom contracts with a small number of our largest clients that may include specific terms, but these are limited in number. Regarding Clutter, which you may not be as familiar with, we have had a minority stake in it for some time, about 25% before the transaction mentioned this morning. Clutter operates in valet self-storage and has been focusing on building its brand and attracting consumer demand, mostly through tech-enabled solutions. In total, we will pay a little over $20 million to acquire the business while contributing various assets, which will appear in our financial statements. For modeling purposes, the revenue we will recognize from Clutter will be over $10 million on a quarterly basis, likely increasing as we enter the New Year. In terms of EBITDA, Clutter has been experiencing a modest loss of a couple of million dollars each quarter, but we expect to reach breakeven and eventually positive EBITDA by 2024 as we create operating synergies after combining our businesses. Previously, Iron Mountain had been generating positive EBITDA from our relationship with Clutter, so the current negative impact is solely due to Clutter's brand-building phase. Lastly, we have reiterated our guidance and remain confident about it, even considering the slight drag from Clutter in the second half. Thank you for your questions.

Hi. Thank you very much. Could you talk a little bit about the gross margin trends? They were down particularly in the services, down like 200 basis points year-over-year. Does that have to do with something from ALM or something else? I saw the labor costs were up almost 10% year-over-year. And, also, I thought maybe you could just comment. Bill, I always add you about talking about the underlying trends in the volumes in the wind business. If you could just comment on that, are you getting more positive trends in the historical mature markets than what we've seen before. You mentioned, like, that hospital contract. Is that something that was going to lead to more positive volume trends in an area that historically been a little bit more of a weaker trend?

Let me begin with the labor costs and the volume trends. First, regarding the volume trends, as I mentioned earlier, the overall volume is flat and slightly increasing, which indicates a positive direction. While this isn't a drastic change, we're noticing trends in some new storage areas and the shift towards hybrid or remote working. This is leading to more traction for our Smart Sort and Clean Start solutions, which uncover additional storage options and allow us to serve employees wherever they are, eliminating the need for them to visit the office for information, whether it's provided physically or digitally. This shift is driving increased bookings in the enterprise ALM segment and contributing to the 175% growth we've observed. Overall, we're optimistic about these trends, but it's important to note that even significant macro trends across our global footprint of 730 million cubic feet do not drastically alter our overall trajectory; however, they do provide a supportive factor for our business. Regarding labor costs, yes, they have risen. Some of this increase is due to our expansion into new areas and ramping up projects ahead of time. It’s crucial for us to ensure our employees, whom we refer to as mountaineers, are well taken care of, as they represent our company to customers. The current global inflation environment has posed challenges for many of our colleagues.

Yeah, Shlomo, this is Barry. Maybe I'll just pick up there on your question. You would have seen a similar increase in the first quarter when we made the actions as it relates to improved wages that Bill was just referring to. And then, I would point out on a sequential basis, labor was up about 2%, while service revenue was up 5% on a sequential basis, reflecting the challenges you noted. As your question alluded to, that has all to do with our component pricing, IT renew, because when you think about it, we are still processing a considerable amount of volume, yet we are recognizing a much lower price. And so, if you excluded the impact of component pricing, actually service gross margins were up quite nicely, which speaks to the ongoing trend in the rest of the core and frankly to the productivity that the team is driving in asset lifecycle management. So when you think about what could happen with our gross margins as pricing recovers, we've got a lot of operating leverage in that business. So I feel good about the forward look if the industry projections are anywhere close to accurate for where pricing will be next year, I think we're going to see a really nice lift there. So thanks, Shlomo.

Thank you. Couple of questions. First, just interested in how to kind of frame the exposure in your data center business to certain vulnerabilities where there's a lease in Phoenix. And then, interested in just the data center development pipeline and kind of the opportunities ahead and your thoughts about bringing in third-party capital to maybe co-invest. There was obviously a recent transaction in India and in other countries where third-party capital is being sought in the development projects of some of the established players and your thoughts on pursuing that route from a capital standpoint? Thanks.

Thank you, Jon. I’ll begin by discussing the outlook for our data center business before handing it over to Barry. We’re really pleased with the ongoing growth in our data center sector. As you closely follow the industry, you’ve likely noticed that pricing has significantly increased in markets like Northern Virginia, particularly within the hyperscale segment, where we’re seeing a rise of around 40%. This trend is enhancing our returns. Regarding our investment pipeline, Barry mentioned an additional $1 billion on top of the existing $1 billion allocated for 2023. Given the strength of this pipeline and our global success, we remain mindful of how to fund our projects. Fortunately, our records management and other services businesses are financial powerhouses that generate substantial cash flow, supporting both our dividend and development capital for data centers. Thus, we’re not solely reliant on the data center segment for funding. We maintain a growing, albeit mature, business that provides considerable capital due to its high operating leverage, allowing us to utilize profits to support our development efforts. We have accessed third-party capital for stabilized or nearly stabilized assets in the past and will continue to do so as parts of our portfolio become stabilized. We anticipate capital recycling opportunities when they arise. Overall, looking at our plan from last September's Investor Day, we’re slightly ahead in data center growth due to the momentum from the first half of this year and the robust pipeline. We feel confident that we have a well-funded strategy in place. If future opportunities arise to acquire third-party capital for stabilized assets, we will pursue those, as they generally enhance our long-term returns.

Hey, Jon. It’s Barry. Thanks for the question. For natural reasons, we don’t usually comment on individual clients. However, as you noted, there are public records and filings that confirm they are our clients in Arizona. This is a long-standing relationship that predates our ownership of one of the data centers we acquired there. I mention this because it is a long-standing contract with pricing that has been established for a while and is somewhat customized for them, so it isn’t a significant concern. In Arizona, we are essentially fully leased now in Scottsdale, and on the second facility we’re constructing, phases 5 and 6, we are fully leased as well in terms of prelease. So it's not a particularly large revenue client, Jon. Beyond that, I don’t want to comment further, but you will see the relevant credit amount in the filings between the two entities. I feel confident about our position regarding pricing. In general, on hyperscale pricing today, we are seeing a 40% increase on a triple net basis. We feel good about the macro trends in the data center market and our current standing. Additionally, to build on what Bill mentioned, we are operating about 220 megawatts and are nearly fully leased on that capacity. We are also constructing another 200 megawatts and importantly, we are not building to lease anything, as we are 91% preleased on all that we have. We're doing an excellent job and working diligently to identify which additional facilities to begin construction on, especially as our pipeline continues to grow significantly. We feel really good about the direction of our data center business, Jon. Thank you.

Great. Thanks so much, and thanks for the disclosures. Hey, Barry, can we unpack the guidance a little bit? I just want to make sure understand, because it seems like you reiterated the full year. But if I think about the puts and takes, it sounds like the pricing is a lot better. The CapEx is going up a lot. And, again, that may not be revenue that comes in. It looks like the Q2 is a little better. It looks like the Clutter is going to have some incremental revenue modestly. Is that offset the ALM business, or is it just a little bit of conservatism? And just, as you put that all together, how should we think about cash flow for the full year, not operating, but just what the use of cash should be, particularly given the step-up in the CapEx.

Thank you, Kevin. I appreciate that. Our revenue management program is performing exceptionally well, and our storage rental revenue growth continues to increase. Some of our growth rates are actually accelerating, and this is thanks to both our Global RIM teams and our data center teams, as we have seen strong commencements. You mentioned that CapEx is up; this is intended to build out our preleased data center portfolio. We are working hard to meet all customer demand, which is continuing to grow. You are correct that Clutter adds a relatively small amount of revenue. We might be a bit more cautious with ALM in the second half compared to the beginning of the year, as component pricing was still declining earlier, while it has now stabilized. We have noted these stable pricing levels, and this may turn out to be a conservative approach as the year progresses, but we are just halfway through. We prefer to be cautious at this stage. Regarding cash generation and the accumulation of additional CapEx, I want to emphasize that we have reaffirmed our leverage expectations, projecting to be at 5.1 times by year-end, consistent with our current level and a multi-year low. We are optimistic about the cash generation of our business. We're achieving higher returns in the data center on our CapEx investment. Returns on hyperscale have improved from the seven to eight range to around eight to nine, and our retail cash on levered returns remains strong. Overall, we are nearing low double-digit returns on a combined basis. We feel positive about our trends, Kevin, so thank you for your questions.

Hi. Thanks for the questions. Two, if I could. So, just wanted to touch again on the data center pipeline. Any requirements you see that you think are tied to this wave of generative AI demand we're hearing about in the industry? And does that change at all how you design your data center for some of the higher densities that are required for these types of deployments? And then secondly, on the hyperscale ALM business. I know you talked about China COVID shutdowns impacting that business. Has there been any move to kind of diversify your end markets to resale beyond China to help reduce the concentration there? Thank you.

Thanks, Eric. Regarding the trends we're observing, I believe you, like me, have noticed that about a year ago, while high growth was still present in hyperscale, the approach was somewhat cautious. Now, we are witnessing a significant surge in growth as companies strive to keep up with the computing power needed to operate various large language models linked to AI initiatives. We have seen all of our largest hyperscale customers approaching us for more capacity, which supports our confidence in exceeding our initial annual guidance for leasing activity. It is indeed robust. Additionally, the type of deployments they require has changed, with a much greater focus on density. A year or a year and a half ago, we had no customers requesting water cooling in racks to accommodate higher densities, but now we have multiple deployments that necessitate such designs. Fortunately, our designs are adaptable, and for these large-scale projects, we tailor the design to meet specific customer requirements, allowing us to easily manage the increased density. However, it is true that with the density some clients are aiming for and the power they wish to allocate to a rack, we are employing various cooling methods, including water cooling in racks to fulfill these needs.

And Eric, it's Barry. Regarding our efforts to diversify away from China, this remains a priority for our team. We have expanded our organization in ALM, particularly focusing on diversifying our downstream channels, and while we're making consistent progress, it's slow since China is still our primary market in this area. We are exploring opportunities throughout Southeast Asia and believe there are chances for growth in India in the intermediate term. Additionally, we have been increasing our component sales in the U.S. and Europe, which is also a key focus, along with the Middle East. We are building those channels. Furthermore, concerning hyperscale decommissioning, we typically decommission data centers that were established about five years ago on average. The current significant increase in hyperscale data center development related to AI will add another growth avenue for our decommissioning strategy in the next five years. Historically, I've received questions about how our decommissioning business continues to grow over time. This year, we will be decommissioning components installed around five years ago, while next year will focus on those from four years ago. As data center platforms expand, they create larger opportunities for future decommissioning. It's important to note that the growth in AI will drive a significant increase in hyperscale decommissioning opportunities going forward, and as the leader in this sector, we have a positive outlook for the future.

Hi. Good morning. Thanks for taking my questions. I wanted to inquire about the retention rate in the Global RIM business. It appears that it has decreased by about 100 basis points year-over-year, reaching one of its lowest levels in recent years. I understand that the storage business has experienced significant growth driven by pricing, but could you explain how these dynamics relate to each other?

Thank you for the question, Brendan. I want to point out that the metric is based on a trailing four-quarter basis. What you're observing includes some effects of COVID, as we saw reduced client activity in terms of switching or disruption during that time and even afterward when we thought COVID was behind us. This is somewhat of a recovery phase. However, if you examine this metric over the last 15 years, as indicated in our historical disclosures, you'll see that it remains within a normal range compared to pre-COVID levels. I appreciate your inquiry, and I can assure you that our customer relationships are strong. Regarding revenue management, we are committed to educating our customers about the significant value we provide consistently. Moreover, the positive trend in our volume is a good indicator of our performance with customers.