鐵山公司 (IRM) 2021 Q2 法說會逐字稿

Good morning, and welcome to the Iron Mountain Second Quarter Conference -- 2021 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Greer Aviv, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Debbie. Good morning, and welcome to our Second Quarter 2021 Earnings Conference Call.

On today's call, we will refer to materials available on our Investor Relations website. We are joined here today by Bill Meaney, President and CEO; and Barry Hytinen, our EVP and CFO.

Today, we plan to share a number of key messages to help you better understand our performance, including our Q2 outperformance, the increased momentum in the business, our updated outlook for 2021 financial guidance, the continued growth in our data center business, and the strong performance in our growth areas. 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 annual report on Form 10-K 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, Greer, and thank you, all, for taking time to join us. I hope you and your families are safe and well.

This morning, we reported record second quarter financial results with revenue of more than $1.1 billion and EBITDA of $406 million. This strong performance in both Q2 and the first half of the year reflects the breadth and depth of our products and solutions and the strength of our deep customer relationships.

Our second quarter results especially reflect increased demand for our services across our key markets and is based upon these strong results and the increased momentum in the business that has caused us to increase the midpoint of our financial guidance, as well has increased the expected bookings in our data center business.

As we celebrate and honor Iron Mountain's 70th anniversary this month, I am extremely proud of what our team has accomplished in growing our relationships with our large and diverse customer base in spite of the continued challenges due to COVID. Our Mountaineers across the globe have conquered every obstacle with tenacity in an innovative mindset, all with a focus on accelerating growth in services to assist our customers.

Before we dive into our record results and the positive momentum in our business, I want to take a moment to reflect on the current situation with the pandemic and new variants still wreaking havoc in many parts of the world. In addition to operational complexities, we're also dealing with the realities of the workplace and a world changed forever by the COVID-19 pandemic. In Iron Mountain, we're thinking how we can move forward instead of getting back to normal, all whilst remaining diligent to ensure the physical and mental health as well as the overall safety of our teams, their families and our customers.

As I mentioned earlier, this year, we celebrate 70 years of Iron Mountain. It's a legacy with a rich inspired past, which continues inspiring the future. Since that day on 24 August 1951, we have built, evolved and expanded our trusted relationship with our customers to include not just the leading storage platform of physical assets but now includes a rapidly increasing range of business services. These new services are centered around data center colocation, information security, data insights, IT asset disposition and business process management.

And today, with this broadened portfolio of services and storage capabilities, we have become an innovative and global leader in our field with more than 225,000 customers, including more than 95% of the Fortune 1000, a global footprint of more than 1,450 facilities with a presence in 58 countries and 24,000 dedicated Mountaineers across the globe. And doing all this with -- in an energy sustainable way with 100% of our data centers powered by renewable energy. Many of the things about us have changed in 70 years. What hasn't changed is our core values and commitment to building and delivering on the trust our customers have come to count on.

Over the last 2 quarters, we shared with you that we now have an expanded total addressable market, or TAM, of more than $80 billion. And against that expanded TAM, we've identified the building blocks for growth that will enable future growth and success. And in fact, you can already see evidence of this expansion through our year-on-year digital service revenue growth, together with secure IT asset disposition or ITAD. In this quarter versus a year ago, these business lines have grown over 37%, resulting in $25 million of incremental growth.

I want to highlight a few examples which illustrate our progress in helping our customers through utilizing new technologically-enabled approaches and products to not only protect, but unlock value from what matters most to them. The first win I want to highlight is in Singapore with a multinational banking and financial services corporation. We won a $750,000 annual recurring revenue digital mailroom contract over their current service provider.

At first, the bank didn't believe that Iron Mountain could solve this need for them as they had only known us to support their storage and scanning requirements. However, the account team pursued the opportunity and highlighted Iron Mountain's strength utilizing a new technologically-based approach, which allows us to assist in managing the very start of much of the information entering the bank while securely facilitating a hybrid office and home working model. As we are already this customer's partner for business process outsourcing and processing much of the bank's critical information, the mailroom is a key additional service, which will yield further security and simplicity for the bank.

Turning to another area representing part of our expanded TAM, I want to touch briefly on Secure ITAD. Think of this as an area where we apply our highly secure chain of custody with a service that allows our customers to dispose securely in an environmentally responsible way their IT assets, which are at end of life. We have continued to see good momentum in our Secure ITAD solution following a number of big wins last quarter. We won a deal with one of the world's largest banks to recycle corporate laptops, monitors, and outdated IT equipment across over 400 corporate offices, 4,000 conference rooms and 5,000 retail offices, which we expect to generate annual run rate revenues greater than $5 million. This is a valuable offering given our expertise in chain of custody and compliance, helping customers securely dispose of their IT equipment.

Turning to our data center business. We want to share not only our continued growth in top and bottom line, but some recent exciting developments in the last month which has led us to increase our guidance for expected 2021 leasing from 25 to 30 megawatts to over 30 megawatts, not including additional leasing expected from the recent acquisitions in Frankfurt and India.

Our increased guidance around leasing activity is based upon the momentum we have seen in the business in the first half of the year as well as the pipeline. Today, we announced not only the 3.6 megawatts of new leases we signed in the second quarter, but also a 6-megawatt lease with a new logo to our platform that was signed post Q2 in Northern Virginia. Taken together, along with our strong results in Q1, we have recorded a total of 19 megawatts of new and expansion leases in the first 7 months of the year. This is a great launching off point for the remainder of the year, and we feel confident we will achieve leasing activity above the top end of our original guidance.

Turning back to Q2, it should be noted, of the 3.6 megawatts we leased in the quarter, the majority was in the retail and enterprise segments. This resulted in attractive pricing for the quarter which increased 14% sequentially. Our strongest markets in terms of new and expansion leasing were Phoenix, Singapore and Northern Virginia.

Finally, in terms of development you likely saw from our recent press releases, our data center business is expanding rapidly in Europe. We have a new 27-megawatt greenfield build in London, adjacent to our existing London-1 facility as well as the pending acquisition of a multi-tenant colocation data center in Frankfurt. Taken together, this will increase our total potential capacity in Europe to more than 88 megawatts and will provide access to important interconnection markets for new and existing customers looking for a reliable, flexible and secure data center location.

As always, sustainability continues to be a top priority. And as part of our commitments, we will power our new buildings in London and Frankfurt with 100% renewable energy.

Before I hand the call over, I also wish to touch upon some new product areas which are leading to more growth in our traditional storage areas. One of these newer product offerings is Clean Start, which is a service that helps customers navigate today's changing workplace requirements from reconfiguring the office for social distancing to office closures or moving to a more digital way of working.

Since its inception, the Clean Start product has generated over $19 million in revenue and has uncovered 1.1 million net new cube over a 3-year period. In 2020, we decided to expand Clean Start globally with all regions engaged in growing the program. Since taking the business globally, we have seen an acceleration in bookings. Specifically, in the first half of 2021, Clean Start has delivered $5 million of new revenue or some 25% of the total revenue from this program since its inception 3 years ago.

A specific customer example in this quarter includes a $1.8 million deal with a leading global hotel chain over the next 5 years. Due to challenges from the pandemic, the customer needed solutions to help with compliance and storage of materials. This customer has been with Iron Mountain for years at an individual hotel level and its corporate team saw the value in our scale, breadth of offerings, compliance expertise in risk reduction solutions. This prompted their decision to deploy our services across 103 hotels, plus an additional 15 one-off sites as required. We were able to manage much more than just their record storage, also meeting the destruction needs and providing image on demand services, all of this being done company-wide at a scale unmatched by any other provider.

Another example which showcases our innovative new products which drive record volume and services growth is Smart Sort. Our customers want to reduce cost and risk by defensively destroying records as they meet retention requirements, which is difficult to do if records are not stored by the destruction eligibility date.

For example, many health care accounts store records by patient number or last date of visit and not by retention requirement. With Smart Sort, we organize the records by destruction date so the customer knows what they can destroy and when. Our team understood a pervasive customer problem, took a customer-centric approach and proactively came up with a solution to solve it with Smart Sort.

Just in the last year, we've had 10 health care vertical wins for Smart Sort with our most recent win with Johns Hopkins Medical Center. The agreement is a 5-year term which includes a $1.2 million Smart Sort move project, bringing an additional 160,000 cubic feet of inventory, representing over 4 million individual patient records.

Reflecting some of these successes, total global volume grew to a record 733 million cubic feet this quarter. In spite of organic volume being down 10 basis points in the second quarter versus the first quarter, total global organic volume was up 1.6 million cubic feet in the first half of the year, and we continue to expect organic volume to be flat to slightly up for the full year. This expected organic volume, together with continued strong price increases, sets us up well for continued strength in organic storage revenue growth from our physical business areas.

In closing, I want to say thank you to the 24,000 Mountaineers who've done an outstanding job navigating through the pandemic. I'm extremely proud of their relentless dedication to each other and our customers. With a resilient business model, ongoing market share growth and strategic investments to transform the company, we are excited about the significant opportunities ahead of us, which continue to exceed even our ambitious targets.

With that, I'll turn the call over to Barry.

Thanks, Bill, and thank you for joining us.

The second quarter exceeded our expectations across each of our key financial metrics. Continuing the trend we have seen over the last few quarters, revenue continued to strengthen with a strong recovery in service revenue and activity levels. Our core physical storage business performed well, and we are seeing great progress in our growth areas. Reflecting that progress and the outperformance in the first half, we increased the midpoint of our financial guidance.

Turning to our results for the quarter. On a reported basis, revenue of $1.1 billion grew 14%. Total organic revenue increased 10%. Organic service revenue increased $81 million or 26%, and was ahead of our expectations. Our team drove strong growth in both our Global Digital Solutions business and Secure IT Asset Disposition. Total organic storage rental revenue grew 2.5% with continued benefit from pricing, together with positive trends in volume. Adjusted EBITDA was $406 million. We exceeded the projections we shared on our last call as the team delivered better-than-expected Project Summit savings, together with the revenue beat.

AFFO was $246 million or $0.85 on a per share basis. If you recall, last year's AFFO benefited from a $23 million tax refund. Adjusting for this, AFFO would have increased 8% year-over-year. As we mentioned on our prior earnings call, AFFO also reflects an increase in recurring CapEx as we catch up on some projects that were deferred during the pandemic. Our full year recurring CapEx guidance is unchanged.

Turning to segment performance. In the second quarter, our Global RIM business delivered revenue of $993 million, an increase of $116 million from last year. On an organic basis, revenue increased 9.1%. The team performed well with constant currency storage rental revenue growth of 1.9% or 1.6% on an organic basis. Growth was driven primarily by pricing and volume. We added about 4.5 million cubic feet from our acquisition in Indonesia, which closed during the quarter.

Our traditional services business continued to recover from the pandemic with revenue growing 24% year-over-year and 4% from the first quarter. Our Global Digital Solutions business continued to display strong momentum, growing 24% year-over-year.

Global RIM adjusted EBITDA was $430 million, an increase of $47 million year-on-year. Adjusted EBITDA margin declined 50 basis points year-over-year as a result of mix given the strong service revenue growth. Sequentially, EBITDA margin increased 110 basis points due to Project Summit benefits and the contribution from pricing.

Turning to our global data center business, where the team continues to perform exceptionally well. We booked 3.6 megawatts in the quarter, and through the first half, we have booked 12.6 megawatts. Subsequent to the end of the quarter, we signed a 6-megawatt lease in Northern Virginia. Based on the year-to-date performance and the strength of our pipeline, we increased our full year leasing target to more than 30 megawatts, which would represent a 23% increase in bookings.

In terms of revenue, as we projected, growth accelerated sharply to 15% year-over-year. We continue to plan for full year revenue growth in the range of low double digits to approaching mid teens. The combination of our strong prior year bookings and the team's leasing performance year-to-date provides high visibility.

Adjusted EBITDA margin of 43.4% increased 60 basis points from the first quarter and was ahead of our expectations. As compared to our prior outlook, the improvement was driven primarily by timing related to the Frankfurt build-out we discussed last quarter, which has been modestly delayed. As a result, we now expect more of the work associated with that project to occur in the second half, which will result in a temporary impact on segment margins on the order of 3 points relative to the second quarter level.

Turning to Project Summit, this quarter, the team delivered $42 million of incremental year-on-year adjusted EBITDA benefit. With the strength of the team's performance year-to-date, we now expect year-on-year benefits from Summit to approach $160 million, with another $50 million of year-on-year benefit in 2022.

Total capital expenditures were $136 million, of which $100 million was growth and $36 million was recurring.

Turning to capital recycling. As we have said before, we view the market for industrial assets as highly attractive as a means to supplement our growth capital. With that backdrop, in the second quarter, we upsized our recycling program and generated approximately $203 million of proceeds. Year-to-date, we have generated $215 million in proceeds compared to our previous guidance of $125 million. With our strong data center development pipeline, we are now expecting to generate full year proceeds of approximately $250 million.

Turning to the balance sheet. At quarter end, we had approximately $2.1 billion of liquidity. We ended the quarter with net lease-adjusted leverage of 5.3x, slightly better than our projection and down from both last year and last quarter. This marks our lowest leverage level since year-end 2017.

As we have said before, we are committed to our long-term leverage range of 4.5 to 5.5x. For 2021, we expect to end the year within our target range and estimate we will exit the year at levels similar to the second quarter.

With our strong financial position, our Board of Directors declared our quarterly dividend of $0.62 per share to be paid in early October.

Turning to our outlook. Today, we are pleased to increase the midpoint of our 2021 financial guidance. There are 3 factors driving the improved projections. First, operational performance in the second quarter was better than expected, and we have good momentum in our key growth areas. Second, we have identified additional benefits from Project Summit, primarily related to opportunities that our commercial team has been able to uncover. And third, we have acquired a small records management business in Morocco that will add about $5 million in revenue.

Conversely, as compared to our prior guidance, there are 2 headwinds I would call out. First, we divested our Intellectual Property Management business in early June. Compared to our prior guidance, this represents a reduction of approximately $20 million of revenue and $15 million of EBITDA. Second, since May, the stronger U.S. dollar is more of a headwind by nearly $20 million for revenue and $7 million for EBITDA.

For the full year 2021, we now expect revenue of $4.415 billion to $4.515 billion. We now expect adjusted EBITDA to be in a range of $1.6 billion to $1.635 billion. At the midpoint, this guidance represents growth of 8% and EBITDA growth of 10%. We now expect AFFO to be in the range of $970 million to $1.005 billion. And AFFO per share of $3.33 to $3.45. At the midpoint, this represents 11% and 10% growth, respectively.

Our guidance assumes global organic physical volume will be flat to slightly positive versus last year. And with continued benefit from pricing, we anticipate low single-digit growth in total organic storage revenue. For services, we expect to maintain positive revenue growth through the remainder of the year.

With the ongoing pandemic, we believe it is helpful to share our short-term expectations. For the third quarter, we expect revenue and EBITDA to both increase approximately $10 million sequentially from the second quarter levels. We expect AFFO to be slightly in excess of $250 million in the third quarter.

In summary, our team is executing well. We have seen positive trends in the macro environment, and our pipeline continues to build. The momentum we had entering the year has strengthened, our addressable market continues to expand, and we feel confident in our ability to drive growth. We feel well positioned and look forward to updating you on our progress during -- following the third quarter.

And with that, operator, please open the line for Q&A.

(Operator Instructions) The first question comes from Sheila McGrath with Evercore.

The services rebound was very strong in the quarter, and I understand that it's based on some new products, which you called out. Just wondering if there's more leverage as people return to the office in some of your services businesses that have been held back from the pandemic or people working from a home, is there more leverage for those businesses to increase as people return to office?

Sheila, thanks for the question. So first, I appreciate the call out. We're really pleased with the organic service revenue approaching 26% in this quarter, which we thought was just a very strong result. And as you pointed out, that was really driven by a lot of our new digital solutions, which was well north of 30% growth if you take ITAD and digital services combined.

I think your question on the traditional service side is a good one because what we've seen actually is an increase in the backlog of incoming cube, which quite frankly, we haven't been able to get at in some countries because of continued rolling lockdowns or intermittent lockdowns. So we do expect, as some of the lockdowns get eased, that on the traditional service lines, that we know that there's a backlog of income in cube that we haven't been able to access the offices for. So I think there will be some in the medium term in that area. How big, it's hard to judge right now.

The next question is from George Tong with Goldman Sachs.

My question is on Project Summit. You mentioned that you're realizing additional benefits from Project Summit that's causing you to raise your guidance. And you talked about expectations of $160 million savings, with another $50 million next year. So how much of the upside in savings represent the pull-forward from future periods? Or would you say this is like an increase in total savings from Project Summit? And can you just sort of map out the entire time line of when you would expect to realize the full amount of project savings over the next couple of years?

And maybe related to that, the Project Summit savings, how does your increased investment into growth initiatives impact the flow-through of Project Summit savings in terms of margin expansion opportunity?

Okay. George, it's Barry. Thanks for the questions. So we feel really good about the way the team is progressing with respect to Project Summit. The full program, we anticipate generating $375 million of benefit. You'll recall that last year, we generated about $165 million of benefit. And year-to-date, together with last year -- so program to date, we're at about $257 million of benefit. We will end the year with all of the run rate savings in the numbers. So we expect to be exiting the year at the full program benefit.

That leaves about $50 million of year-on-year benefit next year. And so you should be penciling something about $70 million of incremental year-on-year benefit in the back half, probably split pretty equally this year with that $50 million remaining. So we feel great about the way the program is progressing. The team is executing well.

You asked about investments. What you will see is we certainly did, as part of Summit, invest in certain areas like our commercial organization, innovation, our global strategic accounts organization, and you would see that in our SG&A expenses this year. If you look at our SG&A year-on-year, it's up -- excluding stock compensation expense, it's up about $16 million. And actually, more than all of that is in the commercial organization supporting growth.

And so we -- both in the form of increasing that organization as well as some variable costs that go along with the great sales performance year-on-year like variable compensation expense. So you are seeing those expenses in the numbers already, and we expect that you will continue to see very good performance out of the team on Summit.

Yes. And the only thing I would just add to it, Barry, I think Barry's last point is important is the $375 million is a net number. Obviously, we're making a lot of investments to transform the business, but the $375 million is net of all the investments we're making.

The next question is from Shlomo Rosenbaum with Stifel.

I just want to focus a little more on the services business. Obviously, that seems to be doing a lot better. You have new products and things coming to market. And I was just wondering, is there some impact on the margin from the mix of the newer products? It just seems like the gross margin was down sequentially despite higher revenue. Is that kind of a ramp thing that's going on? Or maybe you could just give us a little bit more color on how that's going through?

Sure. Shlomo, it's Barry. Thanks for the question. We feel really good about the way the team is performing in our services organization. As you know, the revenue is up considerable amount both year-on-year and sequentially. While the gross margin is a tick down, call it, 40 basis points, I'll note that, that is driven by the fact that revenue in that line outstripped our projections.

As I mentioned in the prepared remarks, if you look at versus our projections last quarter, for the quarter, we beat revenue by about $25 million, round numbers. The vast majority of that was in services. So we certainly did to maintain customer service, and we did have some level of what I would consider like surge expenses related to servicing that uptick in demand. And I think you should expect that, that will even out as we move forward. The decline in gross margin is about $1 million. So it's not a tremendous amount. We feel good about the margins we're generating off the new product offerings, to Bill's point on our Global Digital Solutions and our Secure IT Asset Disposition, those are very nice margins.

The other thing I'll note is our -- if you work through the numbers in our services area on EBITDA, the EBITDA margin in that business was actually up 100 basis points sequentially. And that was up 640 basis points year-on-year. So we feel good about the way our services are performing. Thanks for the question.

The next question is from Nate Crossett with Berenberg.

A couple of data center questions, if I may. There's over $6 million of leasing per megawatt that you did in July, was that a single hyperscale lease, maybe you can give some detail on that?

And then also, if you could talk about your outlook for pricing for the data center business, more specifically on renewals and mark-to-market over the next few years? Because I think there's been some cross currents in the space and your data center peers have said different things when it comes to that. So I'm curious to hear what you're seeing in terms of the outlook for renewal pricing.

Nate, I appreciate the question. So first, on the 6 megawatts, yes, we're really pleased to say it's a single customer for our Northern Virginia campus, hyperscale, and it's a new logo to us. So on just a number of fronts, it's just a great -- it's a great customer win. And as you can see, our -- we keep expanding capacity in our Northern Virginia campus based on the pipeline that we see even beyond that. So really, congratulations to the team.

I think in terms of the pricing, you noticed this month, we were up slightly. So we thought that was actually a good trend. I think, generally, what we -- we're blessed being, in that sense, a relatively newcomer to the data center space, so we don't have as many historical customers that were originally sold in at higher than what today market prices are. So most of our customers, because we've been growing very quickly over the last few years, are relatively new customers that are at what I would call new and -- the new pricing level. So we don't have as much pressure as some of our older peers that have had that.

With the exception, we've called out the last few quarters from time to time when we did acquisitions. We knew we were acquiring some customers that had been with our acquired companies for a long time and that those were rolling up. So generally, we feel pretty good where we are on pricing. You noticed that this quarter, we were on the 3.6 megawatts. We were up quarter-on-quarter on pricing, and that was really more about mix that we were highly focused on colocation or retail and enterprise customers, which obviously come at higher pricing. So generally, we don't see a big change in the pricing on customers that we've acquired or brought into facilities that we've acquired.

The next question is from Michael Funk with BofA.

Just wanted to refocus on the RIM business for a moment. You made a comment seen as a backlog of incoming cubes. I'd love to get more thoughts there on how that might impact volume moving forward. But then also looking at the last quarter, would love any kind of commentary just on the volume trends you're seeing, whether that's a gross additions for churn? And then how acquisitions also impacted the volume in the quarter?

Thanks for the question. I think that a couple of things I would say is that, first of all, if we look at on the records management business, we see a very -- if you look at quarter-on-quarter over the last, say, 4 or 5 quarters, we see kind of pretty much the same kind of trends, it bumps up and down. So we don't see a big change in terms of the net volume trends in that part of the business.

I do think that because of the shutdowns that I referred to earlier in a number of our countries, we have seen a significant increase in backlog, waiting for people to be able to get back to office to allow us access to bring that in. So that's positive.

But if you just look overall in terms of our total physical storage business, we're really pleased with how that's coming out. Because if you look across the portfolio of our physical storage businesses, the first year -- the first half of the year, we're up organically in terms of volume. We expect the second half of the year in terms of our physical storage business to continue that trend. So overall, the year, we say flat to slightly up. But as I said, we're up slightly in the first half, and we expect the second half to look the same, and then we had the normal price increase on top.

So we feel really good in terms of where we're sitting on the general trends, and the trends within each of those segments of our physical storage business seem to be relatively consistent. As I said, I think there will be a short-term uptick once we can access some of the boxes that were -- that have been ordered for us to pick up. But I think that's more to do with a one-off transition as we hopefully get out of COVID.

(Operator Instructions) Our next question comes from Rob Simone with Hedgeye Management.

One of my questions is already answered. But your company obviously has a larger workforce than a typical REIT. So I was wondering -- and you touched on some of the costs and how it's expected to even out over the balance of the year. But I was wondering if you could just talk a little bit about the ease or the lack thereof that you guys are able to source new employees -- retained employees? And also to what degree wages are moving up? And do you expect that to accelerate in the back half?

I appreciate the question. So maybe what we'll do is I'll answer the first bit in terms of the acquisition of employees because it's a really good point. And then I'll let Barry comment on the inflation that we see across our business, not just on labor.

I will just say, inflation for us generally is our friend because we have such high -- 75% -- 70% to 75% gross margin business, but obviously -- and we're able to price pretty aggressively against that. So it generally creates a tailwind towards our margins.

On accessing talent, look, it is -- luckily, we're blessed with a very strong culture. So if you look at our employees, and I'm referring mainly to our frontline employees who really are the heart and soul of the company. These are the people that you see our trucks out on the road or people see our folks coming into the facilities or these are the people to keep the lights on in our data centers. They are very long-term employees. Culture is very strong. And we have very low churn. For a service company, we have probably one of the lowest churns in the industry. So we're blessed that we don't have a lot of outflow of employees.

That being said, the growth that we're seeing in a number of our service areas as well as our data center means that we are actively going out there and acquiring talent. And I'll be honest with you, it's tough sometimes, but our biggest reference are our current core employee growth. So we haven't seen a situation where we haven't been able to grow with the demand, except for the backlog I mentioned because we just can't access facilities.

And there has been some short-term blips that Barry called out in terms of -- we had to use some expedited labor in a couple of cases so that we could meet the demand. But generally, we feel that our culture has been our friend in terms of being able to acquire the necessary talent.

Rob, it's Barry. Thanks for the recent pickup of coverage. We appreciate that. On your question as it relates to inflation, I'll say that at the beginning of the year, I would say we were quite prudent with respect to our guidance on inflation. Obviously, that's a topic that's very much in the popular culture right now.

We -- one of the reasons we can be confident in our guidance and increase the midpoint today is that what we are seeing is not out outside the realm of what we baked into our original guidance. And if you look at our cost of service labor, for example, you actually see that we're generating productivity there, both sequentially and year-on-year. And so we feel good about where we are and appreciate the interest. Thank you.

The next question is from Eric Luebchow with Wells Fargo.

Wondering on the capital recycling front. So you guided to $250 million this year, and it seems like cap rates continue to be pretty attractive in the kind of low 4% range. So if I recall, I think you have just north of $2 billion of industrial real estate in your portfolio. How much of that over time do you think you can potentially sell? And given the attractive valuation environment, I mean, do you think you can do even more in the near term than you had previously guided?

Eric, it's Barry. Thank you for the question. We certainly continue to view the market for capital recycling on industrial assets as quite favorable. That's one of the reasons why we did complete the transactions that I spoke about in the prepared remarks. We have doubled the level of recycling for this year that we had in the original guidance. You'll recall, it was originally $125 million, and I've just increased it to $250 million.

Most of that is already done, I might add, so you can put that in the model. I think from a standpoint of going forward, you are thinking about it the right way. We've got a large portfolio, and we see the opportunity to opportunistically continue to recycle a relatively small amount.

Without giving forward guidance, we've historically said use something in the order of $100 million a year, maybe even $125 million a year as a planning posture. Obviously, our recycling efforts are back in circumstances driven, both based on what's out there in terms of cap rates as well as what we need from a development pipeline.

I will say that one of the benefits of our business is in light of the growth in EBITDA and the cash generation of our core business, which is just tremendous. We see the opportunity to continue to fund our development, both from internal growth of EBITDA and cash generation as well as the sort of modest recycling. So that's the way I would think about it, and I appreciate your interest.

Next, we have a follow-up question from Shlomo Rosenbaum.

Want just a question in understanding the volume -- physical volume trends in the aggregate. There's just over $5 million of volume from business acquisitions in the quarter. And I was trying to -- does it -- is that all in the RIM business? And if I kind of assume that, it looks like the RIM sequentially went down by 2.8 billion -- $2.8 million.

And I'm just trying to understand, the last quarter, we kind of leveled out a little bit. It seemed to come down a little bit more this quarter, and I'm just trying to get a sense of is there a stabilizing trend, a continued trend with a little bumps here and there and just basically trying to understand that? And with the understanding that the other businesses seem to be outgrowing it in terms of the adjacent business in concern of other, but I'm just trying to get a sense of that RIM side.

Shlomo, it's Barry. Thanks for the question. Let me clarify that. Of the $5 million, about $4.5 million is in the core. That's from the small deal we did in Asia, which is about $4.5 million a cube. The rest is in the adjacent business category. And so when you work that through the model, you should find that the core was down just about 30 basis points, which to your point is and in Bill's earlier comments, very consistent with what we've been seeing, even a little bit better than where we were, let's say, 1 year, 1.5 years ago in terms of sequential performance.

We continue to feel good about our core business and expect it, as we guided earlier, to be flat to slightly down on an organic basis for the full year. And in light of the dynamics that Bill mentioned in terms of the backlog for incoming cube and likely for the pandemic to continue to ease over time, we expect that, that performance will continue to bump along and maybe even slightly improve. So we feel really good about where we are there.

This concludes our question-and-answer session and the Iron Mountain Second Quarter 2021 Earnings Conference Call. Thank you for attending today's presentation. You may now disconnect.