Good morning, and welcome to the Iron Mountain First Quarter 2022 Earnings. Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Gillian Tiltman, Senior Vice President and Head of Investor Relations. Sir, Tilman, please go ahead.

Thank you, Brenda. Good morning, and welcome to our first quarter 2022 earnings conference call. On today's call, we will refer to materials available on our Investor Relations website. We are joined 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. Our team delivered exceptional results for the first quarter of 2022, exceeding the expectations we provided on our last call. This record performance is reflective of our broad offerings, deep customer relationships, resilient business model, and dedicated team. Whilst we are thrilled to report these results, its important to take a moment to acknowledge the events happening in Ukraine and impacting the world at large. As we navigate this devastating conflict, we continue to prioritize our Mountaineers and their families. To that end, I am comforted to share that all 65 of our colleagues from Ukraine continue to check in with our global risk, safety and security team on a daily basis and all are safe. Some families have made the difficult decision to migrate to other countries. And I am proud of how our fellow Mountaineers in the region have offered assistance in providing comfort and resettlement. I continue to be both inspired by and grateful to all the teams in Ukraine and the surrounding countries who have united to support each other in this crisis. I visited the region twice recently and I remain humbled by the strength of our colleagues. And we remain committed to supporting our effective Mountaineers and continue to hope and pray for a rapid resolution of this war. Now if I may, let me begin our discussion of our first quarter results, a record for the company. We achieved our highest ever quarterly revenue of $1.25 billion, exceeding our expectations of $1.2 billion, yielding 10% or total organic revenue growth and an all-time record EBITDA of $431 million. We continue to be encouraged by the increased demand of our services across key markets fueling these results. As pricing and…

Thanks, Bill. And thank you all for joining us to discuss our results. In the first quarter, our team delivered strong performance exceeding the expectations we provided on our last call. On a reported basis revenue of $1.25 billion grew 15% year-on-year with total organic revenue up 10%. Revenue was over $20 million ahead of the expectations we shared on our last call. To me, a key highlight in the quarter is our - organic storage revenue which grew 6.8% in the quarter, reflecting our strong pricing and data center commencements. Total service revenue increased 33% to $497 million, driven equally by the ITRenew acquisition and our core service offerings. In fact, organic service revenue increased $59 million or 16%, driven by strong growth across our service lines, including digital solutions. As revenue associated with our traditional transportation services was still down 10% from pre-pandemic levels, we are even more pleased with this performance. Adjusted EBITDA was $431 million, up 13% on a reported basis and up 15% year-on-year on a constant currency basis. We have strong contributions from revenue growth, driven by pricing and data center storage, along with ongoing productivity improvements resulting in EBITDA growth of $50 million. The higher level of EBITDA was despite the impact of the stronger US dollar and the disposition of the software escrow business last June. Combined those two items are about $14 million of year-on-year headwind. Partially offsetting those, is the recent ITRenew acquisition. With solid flow through first quarter EBITDA exceeded the expectations we shared on our last call by $6 million. Adjusted EBITDA margin was better than we projected. And while it was lower year-on-year driven by the inclusion of ITRenew, our core Iron Mountain business continue to deliver improved profitability year-on-year, even with investments to fund further growth.…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question we have on the phone lines comes from Sheila McGrath of Evercore ISI. So please go ahead. I have opened your line.

Yes. Good morning. You mentioned the addressable market for Iron Mountain expanding? I just wonder if you continue to look at M&A opportunities like ITRenew? And how would you look at financing those types of acquisitions? Would it be sale leaseback or non-core dispositions? Or would you consider common equity as making sense, given the share price gains?

Good morning, Sheila. Thank you for the question. So, I think the first is that we feel really good about the platform, not only the $120 billion total addressable market that we have, but the platform that we have in each of the poor - parts of the portfolio that attack that, if you will, or address that. So we don't see a need to do any, you know, large M&A type deals, like the ITRenew, because I think we now have market leading platforms pretty much in each of those - those areas that we're addressing. So we don't really see that. And we still think that we have a long ways to run in our share price.

Thank you.

Thank you. The next question comes from Kevin McVeigh from Credit Suisse. Your line is open.

Great, thanks so much. And congratulations on the results. Hey, the storage growth was really, really impressive, the organic, can you maybe unpack that a little bit in terms of what's kind of the pricing, the volume? And then how are you thinking about that, I guess, organically for the balance of the year?

Thanks, Kevin.

Hey, Barry.

We appreciate the comments. And we feel really - we feel really good about how things have been trending. If you look at our Global RIM storage rental revenue growth of 4.6% organic, the vast majority of that is prices, as you can see our organic volume is right in line with what we've been expecting. And so you know, it's been very good performance on pricing. And importantly, we continue to see more opportunity for pricing and, and that's the - on that expectation, I would advise you to think about pricing continue to be at this level or better for the remainder of the year. The other thing that really helped the total company's storage growth is our data center. You would note that our data center storage revenue was up considerably in the quarter. And they are two in light of both the team's phenomenal performance in terms of historic leasing, as well as recent deals and commencement. We expect to see considerable growth on that data center storage line, the entire year, as we were talking about last quarter. So we feel very well positioned, Kevin and appreciate the question.

Sure. And then just Barry, real quick. It looks like you took up the CapEx guidance. What was the free cash flow in the first quarter and how should we think about that for the full year?

Yeah, Kevin, I will tell you that - thanks for the question on the CapEx. I'll draw people's attention to the fact that we did increase the CapEx guidance by about $100 million versus our prior expectation. That reflects the fact that our data center development CapEx is up about $100 million. So I'm currently planning for $625 million or so of data center development CapEx for the full year. And that's reflecting the fact that the new leases that we've signed, together with continuing to be opportunistic about building the platform, you know, as you've seen, we've had phenomenal new leasing. And so it's sort of a great situation to be able to continue to invest in that business where we're seeing very nice returns. When you think about the model, I would say that you should be seeing a very considerable amount of free cash flow before discretionary in - when you work through our CAD, and we feel very good about how the - how the business is performing.

Great. You just Barry, it was 525 before going up to 625 on the data center, right?

That's correct, Kevin.

Thank you.

Thank you. We now have the next question from Shlomo Rosenbaum from Stifel. Please go ahead when you're ready.

Hi, good morning. Thank you for taking my question. Hey, Bill, you'd miss me, if I didn't ask you this. But the RIM sequential volumes seem to have gone down about $1.7 million from 4Q to 1Q. I know last quarter, when I asked about it, there seem to be in a certain seasonality in terms of destructions and things like that from 3Q to 4Q. I'm just wondering if you could give us some more color on 4Q to 1Q, I understand that the company's got very strong pricing and being able to offset that in that way. But you know, the expectation was for the year - to end the year, you know, flat to potentially up on the volumes, I want to get some more color on, you know, the reason for kind of sequential decline? And whether you still expect bonds [ph] to be flat?

No, thanks. Thanks, Shlomo. Good morning. So at least I know that you're on. No. And well, first of all, the - in terms of physical volume, we said it's flat to slightly up to the year. But that's looking at our - across our portfolio of everything that we put in our warehouses around the globe, right. So in terms of managing the organic utilization of our facilities based on organic visible volume growth, we still expect that to be flat to slightly up and you know, in this quarter it was up as you see. So looking within records management, we always kind of consider that to be more flat to slightly down. And if you look at the trend, even between Q4 and Q1, and as you watch the business for a long time, you know that both Q4 and Q1, usually have a little bit of noise. And then because people tend to do their destruction programs, either at the end of the year, and some of that goes into the beginning of the year. So you'll always see a little bit noise. But I think if you look at the last say, you know, four quarters, you'll see a very consistent trend on what's happening to our physical volume around the records management. So, we feel really good where it's at. You know, it's kind of staying in that kind of flat to slightly down records management. Our other areas, in terms of physical volume storage is growing quite nicely. So overall, you know, we'd still remain kind of flat to up for the year in physical volume. And then of course, pricing takes that up.

Really, well. I mean, you know, we do have very strong pricing power. And, as we've always said that, you know, inflation, you know, whilst you know, we feel for folks, I mean, inflation is really hurting all of us in many different ways. For the business, it's actually a net positive because we're able to price ahead of inflation, and we have a high gross margin business, so it naturally expands the margins of the business.

Thank you. We now have a question from Andrew Steinerman of JPMorgan. Please go ahead when you're ready.

Hi. Barry, I just want to check on here how you think about the – of EBITDA divided by the low end of revenues and low end - the high end of EBITDA by the high end to revenues, I get 351 [ph], so above 35%. And then, you know, obviously, we just did 35 - 345, and they implied, you know, same approach for the second quarter to be 346. And so if you're looking for 351 for the year, and of course, I'm going to ask you is that the right way to think about it, you're talking about much higher than 35% EBITDA margins in the second half of the year to make 351, for the full year, and so you can imagine I'm going to ask you, why will the second half margins be notably higher than the first half this year?

Thanks, Andrew. You are thinking about that correctly. A couple things to think about. As we move through the year, we have improved mix coming through the business. We do naturally have, as you traditionally have seen in our business, since you followed us for so long, a level of upfront, first kind of quarter costs which ease, we have a level of improved mix going forward. We get more price as we move through the year. We also see very good flow through coming on the data center business. As I mentioned earlier, last quarter, we expect the data center margin to be slightly up year-on-year, and we see good flow through coming through in the back half there as well. And then, generally speaking, we will continue to comp with positive benefit from Project Summit and other ongoing productivity initiatives. So, you know, I would say first off, I should remind folks that in the first quarter, we did better on a margin basis than we anticipated. That's because the core Iron Mountain business performed very well in terms of productivity and pricing. And we see that trajectory continuing through the year. So sitting here, after one quarter, I feel quite good about where we are in the margin trajectory, Andrew.

Thank you. We now have a question on the line from Nate Crossett of Berenberg. Sir, please go ahead when you're ready.

Operator, maybe put up the next question.

The next question we have comes from Eric Luebchow from Wells Fargo. Please go ahead when you're ready.

Hi. Good morning, everyone. So I was interested in the 72 megawatt data center, shell and land and MEP lease you mentioned. I imagine that's a pretty capital efficient lease structure, given its size. But maybe you could kind of give us some color on the returns you'd underwrite, to under that type of structure, the capital intensity? And then whether you're seeing more of these shell type deals versus a typical turnkey lease that you could do here in the future?

Hi, Nate [ph] So no, thanks for the question. Yeah, as you say, we were very pleased to sign this deal for our data center campus in Northern Virginia. There is a couple bits, we'll go into more detail on the second quarter call, because you can imagine that we just signed this agreement, as we come in. But as I said, it's - it's a near build to suit. I mean, we don't - we're not providing all the MEP. And we'll actually go into a little bit more details in terms of how the pieces come together. But besides the 72 megawatts, the other thing that we were very excited about, it allowed us to build further infrastructure on that side, bringing on a substation onto the campus, which is going to drive benefits, both in terms of upscaling the capacity, but also the cost to deliver on that on that campus. So there's a number of different pieces there that make this deal very attractive. But we'll give you more information on the second quarter call. But you're right to say that it's a very capital efficient structure. And with a great tenant on the backside for 15 years, so it allows us to finance it in a very efficient way.

Okay, great. That's helpful. And then one more for me, Barry, you mentioned service revenue associated with kind of the legacy transport business was down about 10% from the pre-pandemic level. So, I mean, have you seen any improvement in that over the last few quarters? And do you expect that to recover back to pre-pandemic levels at some point? And if it does, kind of what will it take to get there, is it more return to office or any other kind of macro related metrics we should be looking at?

Thanks for the question, Eric, and appreciate the continued interest. Of course, we have seen that line continuing to perform better over the last several quarters and kind of consistently, that's been trending better. And we do - I will say, you know, if you look at our service activities, since the early days of the pandemic, we obviously were down a lot in the early days and then moved appreciably better sequentially, quarter-by-quarter. We are far in advance of return to office and I would say we continue to outpace return to office. The way I think about it is, it likely has a continued tailwind going forward. I don't think any of us expect office to be at the same level of occupancy going forward, as it was pre-pandemic. But even still, as the levels continue to rise over the coming quarters, I think that becomes a little bit of a tailwind for our service. The other thing I'll just point out is the new service offerings that we've been delivering to our customers like in IT asset disposal and digital solutions. They have been doing phenomenally well, as Bill highlighted in his prepared remarks. And we see that trend continuing. And it's really strength to strength in that line, Eric. And those are very good profitability for us as well. So we feel quite well positioned on the service line. And then you will see additional service obviously coming through with our recent ITRenew acquisition, as that business continues to build.

Thank you. We now have the next question on the line from Shlomo from Stifel. Sir, please go ahead.

Hi, thank you for putting me back in. Just on the storage business, the storage rental gross profit section has facilities costs going up about you know, $17 million or so sequentially. I don't know if there was a build and put in place that went in over there. Is there - can you give us a little bit more color on that because storage gross rental margin went down 110 basis points and just want to see if that's - what's driving it?

Yeah. Thanks, Shlomo. It's a good question. Appreciate that one. So the way to think about it is, we have both for service growth - storage rental gross margin, there's a factor of both sale leaseback, but you are specifically asking about other facility costs. And on that line, that's also where our power for data center pass through goes through, and so that was actually - naturally up both sequentially and year-on-year. Incidentally, just to give you a frame [ph] if you normalize for sale leaseback and excluded the power, we basically have storage rental gross margin up in both sequentially, as well as year-on-year by about 40, 50 basis points. So we feel quite good about the way the business is trending. And the other thing I'll say is, our guidance naturally assumes a healthy, as I mentioned last quarter, a healthy amount of inflation. And we continue to track at levels that are below what we were projecting earlier in the year. And of course, the pricing is doing better. So that's part of the reason why the profitability in the core business continues to outperform.

[Operator Instructions] We now have George Tong of Goldman Sachs. Please go ahead.

Hi, thanks. Good morning. You talked about favorable traction in your ALM business. Can you elaborate on how ITRenew performed in the quarter on revenue and EBITDA relative to your initial expectations?

Yeah, thanks. Thanks, George. It's Barry. It performed right in line with our expectations, maybe even a little touch better than the expectations we shared on the last call. Obviously, that's just for the first two months of the acquisition. And as we see it, and that's both on revenue and a EBITDA basis. As we see it playing out for the year, I continue to project in our guidance, the same level call it around $450 million in that same profitability level that I mentioned. And as we see the business being growing considerably over time, I will tell you that one of the nice things that we see in that business is the building level of backlog, as many of our upstream clients are building their backlog for decommissioning, as we move into the later part of the year, in light of the fact that there's been some level of supply chain disruption for a new gear, we do see their backlogs building. So that is, I think, a favorable view for us going forward.

Thank you. We now have a question from Sheila McGrath of Evercore. So please go ahead, I have opened your line.

Thank you. I was wondering if you could talk about rising interest rates and near term impact to Iron Mountain, where do you think you could raise debt capital for a 10 year bond now versus maybe fourth quarter?

You know, Sheila, hi, it's Barry, you know, the good news about our model in light of the fact that as you saw in my guidance, we expect the leverage to be kind of inside our range and essentially flattish to maybe even slightly down by the end of the year from where we are now. We were in the fact that we have no near term maturities. I really don't need any long term at this point. As you know, we did the bond in December for the ITRenew transaction, so I'm pleased with the timing of that in light of where we were able to price it. I feel very good about where we are with respect to the capital markets for you know debt and don't have any need at this point or for the next few years, really

Thank you. We have no further questions raised. [Operator Instructions] We have had no questions registered. So I'd like to hand it back to the management team.

Thank you for joining us today and you can all disconnect.

You have been removed from the call. Good bye. This does conclude today's call. Thank you again for joining. You may now disconnect your line. Thank you for attending today's presentation.