Iron Mountain Incorporated

Good morning and welcome to the Iron Mountain second quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. We will limit analysts to one question and you can rejoin the queue. Please note, this event is being recorded. I would now like to turn the conference over to Jillian Tiltman, Senior Vice President and Head of Investor Relations. Please go ahead.

Thank you, Chad. Good morning and welcome to our second quarter 2022 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 Meany, President and Chief Executive Officer, and Barry Heitman, 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 used several non-GAAP measures when presenting our financial results. We have included the reconciliations to these measures in our supplemental financial information. And with that, I'll turn the call over to Bill.

Thank you, Jillian, and thank you all for joining us today to discuss our second quarter results. Our team delivered another quarter of record results, further demonstrating our resilience and pricing power as the world navigates difficult market conditions and global instability. Our dedicated team continues to develop new and innovative solutions for the ever-evolving needs of our customers. Our durable business model and strong customer relationships consistently drive value for our customers and ultimately our shareholders. Our record second quarter results delivered our highest ever quarterly revenue of $1.29 billion, representing 13% total organic revenue growth and an all-time record for EBITDA of $455 million, in spite of significant FX headwinds. These results are further proof of why we continue to be so encouraged by the increased demand for our services across key markets. Pricing and positive volume trends continue to benefit us in this quarter as we reflected in our organic storage rental revenue growth of 8.2%. As we have been sharing with you over the past few quarters, we have been growing quickly, even faster than our own expectations. A major driver of this growth is a direct benefit from our continued innovation, which has increased the size of the total addressable market for our products and services by 12 times to $120 billion, most of which is in faster-growing sectors. Accordingly, we are forecasting revenue growth to continue to accelerate in the back half of the year, driven by strong revenue management in our global RIM business unit, growth in our data center business, digital information management solutions, and improving trends in downstream demand for our hyposcale asset lifecycle management, or ALM, business, which we acquired through the acquisition of IT Renew in January of this year. I now would like to take this opportunity to share a few highlights of our customer wins. To begin with, our records management business, we have had a longstanding relationship with a major global accounting organization for more than 20 years. They were in the midst of reviewing their records management program when they learned of our smart sort solution. We calculated that SmartSort could help them classify and destroy commingled records that have various retention schedules in a much faster and more cost-efficient way than if they were to do so in-house. This led to a proof of concept to demonstrate the power of our tools and techniques, which resulted in a deal that closed months sooner and expanded the records management program we performed for them across not only the outsourced records, but their in-house records as well. Moreover, this win has already led to other exciting conversations with the customer about digital transformation opportunities. The deal has also opened more opportunities with the customer in Europe and the Asia-Pacific region. On the digital solution side, we recently won a contract with a large insurance and financial services company in the United States. They had previously only used us for shredding services. Aligned with the acceleration of their digitization initiatives, They needed solutions to help them create greater business efficiencies whilst maintaining data security for the sensitive information their company handles every day. We provided a cloud-based solution to further support their work-from-anywhere initiatives by delivering information to their associates wherever they are in a secure and easy-to-access manner. Our team listened to the customers' needs and tailored a near-site digital mailroom solution to effectively meet their needs by leveraging an Iron Mountain owned and operated records center located near the customer's headquarters. As a result, we will digitize and distribute 10 million pieces of mail annually. As part of the special handling process, we will also leverage our Insight solution for checks and other items deemed to be sensitive. Over time, we expect to leverage the full suite of Insight solutions to process all of their mail leveraging workflow automation through the use of our embedded artificial intelligence and machine learning capabilities. This innovative solution will dramatically improve mail processing times through automated routing as well as classification and governance. These wins demonstrate the merits of strong customer loyalty coupled with our solution-oriented approach in serving our customers. We are sharply focused on understanding their job to be done in delivering solutions which are both innovative and impactful. Now to switch gears, I'd like to share a recent data restoration and migration win that led to an ALM win thanks to a deep and trusted relationship with one of our customers, a large Australian bank. They have been growing through acquisition and as part of their integration plans have been decommissioning their data centers to move to a large cloud provider. To help enable this transition, we recognized that they would benefit from better access to their data on tape, leading to one of our biggest data restoration and migration services contracts. This is in and of itself a great win, but it led us to an even larger opportunity to assist this longstanding customer. Based on our strong partnership, we were able to help the customer manage their decommissioned data center assets by offering an introduction to our ALM services. This win is an important entry point and shows our ability to help our customers solve multiple business challenges. It also reinforces the cross-sell opportunity in ALM. In our ALM segment, in addition to the Australian Bank, this quarter we closed a deal with another large global bank whereby Iron Mountain will provide on-site media destruction and data center equipment recycling to 42 data centers, campus locations, and branch offices. The program will also expand to corporate end user assets in multiple global locations. This customer contacted Iron Mountain in January of 2022 to inquire about our secure IT asset disposition services due to poor performance from their incumbent vendor. Our team engaged with the bank's key stakeholders to discuss their service requirements, data security policy, and pain points in order to best position our solution. Our best in class logistics, Asset processing capabilities, data security practices, transparent reporting, and strong client relationships were critical to securing the win. Moreover, our acquisition earlier this year of IT Renew and the resulting ability to insource all asset processing capabilities in the U.S. convinced this customer that we had the strongest capability set to service them. We are also pleased to report another ALM win with a large cloud customer, wherein we were awarded part of a $60 million global RFP. The customer currently uses a multi-vendor approach with a vendor assigned per region. ITRenew was the largest provider to them in North America for value recovery and on-site drive destruction. Now that Iron Mountain has completed the acquisition, The customer has additionally awarded us their Irish business, along with expansion of the North American business to include shredding and recycling hard disk drives. We won this business in part due to our track record of achieving the highest value for the resale of decommissioned components, our global footprint, and our excellence in asset tracking. We are very encouraged by the continued growth of IT assets contracted to us for disposal, as well as the wins with new and existing clients. However, Like all global businesses exposed to computing equipment, the latest COVID-19 shutdowns in China have had a negative short-term impact. This impact has been most particularly pronounced in May and June. There is a higher than normal backlog of material, which we hold on consignment, that cannot be sold until we can deliver it to the manufacturers in China who are using the recycled components in their goods. Whilst China's zero COVID policy makes it hard to predict when manufacturing rhythms will return to normal, we do expect to see an acceleration of our sell-through once the situation does indeed normalize. In summary, the continued growth we have seen in the upstream supply of IT equipment needing to be securely and safely recycled further increases our excitement about this sector once downstream demand for recycled IT components reverts back to its usual levels. Finally, our data center business has been extremely active this quarter and we successfully completed 83 megawatts of leasing. This included a 72 megawatt lease for two buildings on our Northern Virginia campus. Both of these facilities are effectively stabilized as we have pre-leased 100% of the capacity to a Fortune 100 company. Today, we are happy to announce a joint venture for these assets with a subsidiary of HANA Financial, a global real estate firm. Full build out of these two sites is expected in the third quarter of 2025, and Iron Mountain will be responsible for managing the design and development of the data center shell, as well as administrating the leases. Also in this quarter, we signed a hyperscale tenant on our Phoenix, Arizona campus. With this new lease, the customer has existing capacity in three of our locations. This win increases their geographic presence with us, as well as introducing the client to the Phoenix market for the first time. We've also been active on co-location this quarter in our data center business. We had a new customer win with one of the largest managed service providers, which has existing data centers in North America and Europe, and we're looking to gain entry into strategic emerging markets such as India. To that end, we were able to accommodate this customer through our WebWorks JV in Mumbai for data center capacity. When we originally entered India through this JV, we operated in three markets. We have spent much of the last year focused on securing land to expand our footprint in our existing markets as well as two additional new markets now. We believe as we work through planning and permissioning on these parcels, we will have over 100 megawatts of sellable capacity in the Indian market over the next couple of years. Having personally visited India already twice this year, I and we remain very excited about the opportunities we are seeing in this exciting market, both for data center as well as our business more broadly. These wins show how our focus towards building an extraordinary set of synergistic and customer-centric solutions combined with our global reach and footprint both differentiates and propels our growth forward. As we have discussed before, we are focused on driving commercial activity, including cross-selling our solutions to our customers, and this quarter, nearly all of our data center bookings were signed with existing customers of Iron Mountain. To conclude, I am incredibly proud how our team has continued to build on our growth momentum, expand our portfolio, and not only meet but exceed our customers' evolving needs. This is evidenced by our outstanding and record results this morning, including our highest ever revenue and all-time record EBITDA, as well as the highest rate of organic revenue growth in the last 25 years. We expect to continue to build on these results as we further the growth of our business based upon a strong global footprint, a powerful portfolio of products and services, and our deep customer relationships. We have a very exciting future, and I can't wait to see all we continue to accomplish together. With that, I'll turn the call over to Barry.