Q4 2020 Iron Mountain Inc Earnings Call
Good morning, and welcome to the Iron Mountain fourth quarter 2020 earnings Conference call.
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I would now like to turn the conference over to Greer Aviv Senior Vice President Investor Relations. Please go ahead.
Thank you Andrew.
And welcome to our fourth quarter 2020 earnings Conference call.
We have provided the user controlled slides on our Investor Relations website.
We will also be providing the link to today's webcast and earnings materials.
We are joined here today by Bill Meaney, President and CEO, and Barry Heightening, our EVP and CFO.
Today, we plan to share a number of key messages to help you better understand our performance, including how we have successfully navigated the COVID-19 pandemic.
And we continued to execute on project summit, and the resulting transformation across the organization.
And we have accelerated momentum in our datacenter business.
And how we are increasing our commitments to diversity and inclusion and other sustainability initiatives.
After our prepared remarks, well open up the lines for Q&A.
Today's earnings materials will contain forward looking statements, including statements about our 'twenty 'twenty, one and longer term expectations.
As you know all forward looking statements are subject to risks and uncertainties. Please.
Please refer to today's earnings materials, the Safe Harbor language on slide two 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.
Haven't included the reconciliations to these measures as required by Reg G. In our supplemental financial information with that sales would you. Please begin.
Thank you Greer and thank you all for taking the time to join US Let me start by saying I Hope you and your families are safe and well as we close out a year, which has been marked by a first quarter delivering near record gross.
Gross to our remaining year, where we had to manage headwinds from Covid I want to take a few minutes to reflect on where we've been and where we're going.
First I want to pause and acknowledge that we continue to fight COVID-19, and we maintain making the safety of our employees their families and our customers are first priority. Whilst we are optimistic of the positive impact the rollout of vaccines will have we continue to believe that 'twenty 'twenty, one will look similar to 2020.
Albeit in reverse in terms of the macro economic landscape.
However, 2020 was also a year, where there was much to celebrate which came out of the creativity and resiliency demonstrated by our teams I couldn't be more proud of my fellow mountaineers around the world in terms of the way we responded to the COVID-19 pandemic in a phrase we manage the crisis.
Crisis didn't manage us.
We continued to serve our customers where throughout the depths of the crisis more than 96% of our facilities remained open.
We maintained our focus on project summit, where we increased our targeted sustained annual cost savings from $200 million to $375 million and have already achieved over $200 million on an annual run rate by the end of 2020.
We accelerated our growth in data center with 58, and a half megawatts of new leases announced in 2020 versus 16.9 megawatts in 2019.
We continued our investment in new products and innovation with a focus on supporting our customers remote Workforces. These services led to growth in our digital solutions year on year of 8% excluding FX.
And we continue to see good returns from our global strategic accounts organization and maintained our focus on shifting our culture as part of project summit to be one more in tune with accelerating our revenue growth through new services and solutions.
This continued focus on expanding our service offerings to our customer base of 225000 customers and organizations. In spite of Covid has allowed us to guide to organic revenue growth of 2% to 6% in 2021, the highest level of gross in the past decade.
This is a significant investment in innovation and new product development is supported by our purpose to be our customer's most trusted partner for protecting and unlocking the value of what matters most to them in innovative and socially responsible ways.
Our strategy is highlighted by an important balance between accelerating growth driven by developing end to end solutions to help our customers unlock value from their content as well as sustaining growth in physical storage and data center in other words being both the lock and the key to many of our customers' physical and digital.
Little data assets.
This strategy is underpinned by our high performance customer obsessed culture, and our strong customer connection with not only 225000 customers at over 950 of the world's largest 1000 companies.
It is not simply investment in products that has given us accelerated revenue growth, but a deliberate focus on shifting our culture as part of project summit.
This shift in culture is marked by a singular focus on our customers as our north star and acceleration in our commitments around diversity and inclusion not just because it is just but also because it is a key to our strategic success and being a more creative and dynamic organization, which can delay.
Ever more value in tune with our customer needs.
And an increase in our commitments to carbon neutrality Twenty-twenty Cyrus continued to secure a renewable energy to meet the power needs of 100% of our Datacenters, even with the rapid increase in bookings and new facilities operating.
Some examples of our laser focus on how we have responded to our customer the customer's needs and more creative ways included processing unemployment benefits to get them into the hands of people in need during the crisis and setting up 12 digital mail rooms around the globe are customers, who didnt know how they were going to stay connected.
Their remote workforce.
On a phrase we helped our customers when they needed it most.
What that what that all means to me is that we came out of 2020 stronger than ever a company with a new sense of momentum that will fuel, both our top and bottom line growth.
For the next few minutes allow me to illustrate for you what I mean by momentum.
If resilience was the word for 2020 growth is the word for 'twenty 'twenty. One we're already seeing evidence on this growth in data centers for example, and expect this to continue.
As we have discussed before we are also seeing good growth in digital solutions as well as physical storage. Both from the continued durability of our records management business together with an expanding consumer business and believe this growth should continue.
This change in revenue growth trajectory is a direct result of the investments we have made in new product areas, coupled with changes we have made in our commercial engine.
One of the fundamental changes we've made in our commercial approach is that we are investing in creating more time for our salespeople to engage differently with our strategic customers.
This extra time with customers has allowed us to uncover new revenue opportunities not just for additional physical storage in new datacenter customers, but for digital services, which provides both greater visibility for dark data as well as driving much more value from data borne both physically and digitally.
As a result, you can see both from our performance last year as well as the guidance. We've provided today for 'twenty and 'twenty one our company is more and more seen by our customers as a partner who yes protection manages all of their physical and digital assets.
It also gives our customers the key to integrating their information unlocking its value as well as accelerating their own digital transformation journey.
For 70 years, we've offered protection for the assets our customers value. Most we know more and more catalog index govern and manage complete information across physical and digital domains securely storing what customers need disposing of what they do and helping them on earth the insights that drive.
Business transformation.
Let's now explore some exciting growth opportunities ahead of us. These are areas, where we see great opportunities for growth as we position ourselves to unlock greater value for our customers and include data centers Fine Arts and entertainment services consumer storage secure I T.
Asset disposition or sites had small and medium business content service platform. Our CSP think of this as electronic content management or ECM on steroids and secure offline storage or highly secure air GAAP data storage for cost effective protection.
Against brands from attacks.
Let's go into a little bit more detail about a couple of these areas and.
In data center, we have built a strong global platform with 15 operating facilities across three continents. Since 2017, and we just announced an agreement which once closed will mark our entry into the very fast growing Indian market through our investment in web works. The total addressable market for our data centers globally is 20 billion.
And is growing at over 10% for co location on a retail customers and over 40% from the Hyperscale segment.
If you look at Fine Arts storage and Entertainment service services, it's roughly a 2 billion dollar market for both together just two months ago. The L. A times wrote an article about our entertainment services business, they called US the Fort Knox of Hollywood.
The article highlighted how we are driving a different level of growth in that business through not just storage, but how we facilitate more opportunities for the studios and artists and distributing their assets to viewers and listeners.
In consumer we've grown the business in one year from about 2 million cubic feet of storage to more than 7 million cubic feet of storage. So three times as big in just 12 months. The total addressable market for consumer storage is more than 35 billion and it is growing at about 5% to 6% per year.
I'd note that our segment focus is on valet storage, where our logistics expertise gives us a strong competitive advantage as well as being a nice sub market, which represents a significant opportunity for future growth.
Our site to add business has an addressable market of $10 billion and we have seen strong growth in this business over the course of 2020.
More importantly, we have found that our strong heritage around data security and chain of custody is proving a differentiator as we recently took on the global responsibility for sites and on behalf of two large financial institutions.
So hopefully this helps you appreciate why we are so excited about the growth opportunities as we look to 'twenty 'twenty, one and be on <unk>.
Together, the seven areas I highlighted earlier represent a significant market opportunity for us on.
Can you put some context around that if you look back to 2015. The total addressable market. We competed in was $10 billion and on average those markets had low growth rates.
Over the last five years as we've listened to customers built expertise and develop new products and solutions. The addressable market. We now compete in is over $80 billion, Yes, 80 billion. Additionally, those products and services that we've developed expertise and are growing at a 13%.
Organic growth rate so not only has the addressable market for expanded service has grown by over eight times, but these new areas have double digit industry growth rates, which helps facilitate our entry.
Let me now shift gears and briefly review our performance in the fourth quarter and throughout 2020.
At a high level, we couldnt have been more pleased with the way our mountaineer has navigated the challenging environment in 2020 brought on by COVID-19 throughout the pandemic, we were laser focused on execution and controlling those factors that we could leading to outperformance against our own internal expectations through the last three quarters of <unk>.
'twenty 'twenty.
This resulted in continued strength in total storage rental revenue, which grew nearly 4% on a constant currency basis, and two 4% organically.
While service revenue declines continued to offset the solid storage growth. We grew adjusted EBITDA, one 3% when adjusting for currency and our margin expanded 110 basis points in 2020.
This all in spite of total revenue being down $115 million due to service activity declines.
I want to thank our teams across the globe, who stayed focused in the face of so many obvious distractions. Our success is a reflection of our mountaineers dedication and most importantly, I have been inspired by the way our teams looked after both the physical and the mental health of each other as they navigated the threats.
From Covid, both at work and at home.
Turning now to our physical storage business total global organic volume was essentially flat compared to the third quarter contributing to this was a $1 9 million cubic foot increase in consumer and adjacent businesses offset by a similar decrease in records and information management volume for.
For the full year total global organic volume was flat, which is a good outcome considering the environment in which we were operating.
This year, we expect total global organic volume to be flat to slightly up.
Looking more specifically at rim organic volume this was down $1 9 million cubic feet sequentially for the full year organic volume declined one 1%.
And our global digital.
Solutions business in 2020, we were actually able to grow service revenue, 8% year over year, excluding FX. Despite the pandemic. Our team grew revenue. This goes back to the different mindset I mentioned earlier, we see a further acceleration in our digital solutions business going into 2021.
One and expect to exceed $300 million in revenue for the year.
Turning now to our global data Center segment. The team had a phenomenal year blowing it's leasing targets out of the war out on the water quarter after quarter for the full year, we leased more than 58 megawatts remember our target coming into 2020 was 15 to 20 megawatts I want to underscore that.
That success was not just a result of leasing to hyperscale or we had a very good we had very good commercial momentum in our core enterprise retail co location business, which represented 12 megawatts of the 58 megawatts are close to 40% of our bookings excluding Frankfurt.
We attracted 73, new logos to our platform during 2020, adding to our broad and diverse base of more than 1300 datacenter customers. This should enable us to strengthen our network ecosystem and increase the stickiness of our deployments.
We also had a busy year in terms of development with more than 10 megawatts commissioned across multiple data centers and geographies, increasing our leasable megawatts to 130, our team is actively adding to our development pipeline to ensure we have the right capacity in the right markets to meet robust customer demand and we are excited for the opera.
<unk>, we see ahead of us in 2021, where we expect to end the year with over 170 leasable megawatts.
One of those opportunities is further expanding our datacenter footprint into new fast growing markets as I mentioned earlier. This morning, we announced entering into an agreement for a strategic JV with web works, which once closed would expand our reach to India, including Mumbai, Pune in Delhi.
The data center market in India is projected to grow rapidly in the coming years in India is the second largest telecommunications market in the world. We are excited to be an early mover into an emerging market, where the demand is high and the supply is low.
Turning to project summit, we generated adjusted EBITDA benefits of $165 million in 2020, consistent with our most recent expectations and significantly ahead of our initial estimates at $80 million, reflecting strong execution in swift and decisive actions activity actions on early initiatives.
This gives us an exit rate of annual savings of over $200 million heading into 'twenty and 'twenty one.
As you will hear from Barry in more detail. We are fully on track to recognize the estimated 375 million of adjusted EBITDA benefiting this year and we are expecting we are and we are excited for the tangible benefits. We will experience. This year as we continue to enhance our technology and processes.
Before I wrap up I'd like to provide a little more detail about our continued commitment to cut our carbon emissions I referenced earlier, we were one of the first 100 or so corporations worldwide to have an ambitious carbon reduction goal approved by the science based targets initiative as being aligned with the Paris climate accord.
Already in 2019, we reported that our goal to cut 25% was more than doubled by delivering a 52% reduction six years sooner than our 2000 and twenty-five commitment as.
As we did this while growing our global data center business one of the most energy intensive industries in the World. We continue to flex our innovation muscle around energy consumption as well as having introduced the green power passed to our customers. This is the first solution of its kind and allows us to pass the benefits of 100% renewable energy day.
The center platform to our customers for them to use to meet their sustainability targets. We're confident based upon the momentum. We are building in this area that we can achieve a 100% carbon neutrality well before 2050 in spite of our rapidly growing data center business.
To summarize I've never been more optimistic about our opportunities for growth and any other time in our history, even with the anticipated continued headwinds due to COVID-19 impacting our traditional service areas and I've never been more proud of how we've behaved as an organization over the course of 2020 and through the pandemic.
We went above and beyond for our customers and our teams and embrace new collaboration tools and changed how we work our mountain years truly live our values day in and day out I'm excited to be on this journey with you all and I can't wait to see the future together with that I'll turn the call over to Barry.
Thanks, Bill and thank you for joining us to discuss our full year and fourth quarter results in a challenging macro environment. Our team delivered solid performance across each of our key financial metrics for.
For the full year revenue of $4 $1 billion declined two 7% on a reported basis, which includes a 100 basis point impact from foreign exchange.
Total organic revenue declined three 3% organic service revenue declined 12, 8%, reflecting the continued COVID-19 impact on our activity levels.
The macro headwinds total organic storage rental revenue grew two 4% driven by more than two points of revenue management on a constant currency basis, adjusted EBITDA increased one 3% year on year to 1.48 billion.
Reflecting the team's strong progress with project summit and revenue management EBITDA margin expanded 110 basis points to 35, 6% representing the best margin performance in the company's history importantly, we see opportunity for profitability to continue to expand over time.
<unk> increased two 4% to $888 million or $3 seven on a per share basis before I go into more detail. Let me draw your attention to slide 13 of our earnings presentation. We.
We have made some refinements to our non-GAAP measures spurred by feedback from the investment community at some of our non-GAAP measures are difficult to compare it appears.
This includes changes to how we account for unconsolidated ventures stock based compensation and a portion of growth capital.
To ensure comparability and transparency, we have provided our results on both the former and new methodology of course, the prior method would be comparable to current consensus estimates for example, under our former methodology full year 2020, adjusted EBITDA was 1.4 of $5 billion, which compares to the current consensus of 144 6 billion.
More detail is available in our earnings slides and on our Investor Relations website.
Now turning to our results for the quarter, which are based on our updated non-GAAP net definitions.
On a reported basis revenue of $1 $1 billion declined one 8%, which includes a 40 basis point impact from foreign exchange.
Total organic revenue declined three 4% organic service revenue declined 12, 1% overall.
Overall, we continue to see service declines moderate with the fourth quarter, reflecting a modest improvement in service trends.
Total organic storage rental revenue grew one 7% driven by revenue management.
Adjusted EBITDA was $374 million under both our new and former definition, we exceeded the projections we shared on our last call as revenue trends, both in storage and service were better than planned.
Fourth quarter EBITDA reflects progress on our summit transformation revenue management and favorable mix offset by Covid driven impacts to the business.
<unk> was $191 million or <unk> 66 cents on a per share basis in line with our prior projections.
<unk> reflects an increase in recurring capex that had been deferred earlier in the year and higher cash taxes turning.
Turning to segment performance.
In the fourth quarter, our global rim business had strong storage revenue growth driven by volume growth in our faster growing markets and revenue management. This was offset by declines in service revenue, albeit at moderating levels compared to earlier in the year, leading to total organic revenue decline of three 6%.
In our shred business, the combination of lower tonnage and an 8% decline in paper price versus last year resulted in a net $3 million reduction in adjusted EBITDA.
While theres been a slight step up in the index prices in January recycled paper prices have remained low at recent levels. We anticipate paper prices will result in EBITDA headwind of slightly over $10 million in 2021.
We are pleased with the continued momentum in our consumer storage business as it becomes a more meaningful contributor to our overall physical storage volume growth.
Global rim adjusted EBITDA margin expanded 40 basis points, driven by revenue management and project summit.
In the fourth quarter, we continued to see fixed cost deleverage as we ensure we are staffed to the appropriate level to fully support our customers.
We also had a step up in facility expense as we invested in maintenance that we had delayed over the prior two quarters.
Taking a look at headline numbers for our global data center business full year bookings came in at $58 five megawatts, excluding the full building lease in Frankfurt, we leased 31.5 megawatts, representing bookings growth of 26% total revenue grew 9% year over year. We are pleased with our datacenter performance for the year and expect to continue to see an improving trajectory.
Rectory, thanks to the strong commercial success.
In 2021, we expect at least 25 to 30 megawatts, which at the midpoint would result in more than 20% annual bookings growth.
Feel good about the state of our pipeline both from a hyperscale perspective, as well as our core retail co location.
We project full year revenue growth in the range of the low double digits to approaching mid teens with our strong prior year bookings, we have good visibility to revenue.
For the first quarter, we expect growth rates similar to the fourth quarter as the bulk of our 2020 bookings come in in the second quarter and beyond.
Turning to project summit as a reminder, we expect total program benefits of $375 million of which we delivered $165 million in 2020, we expect an additional $150 million benefit in 2021 with the balance in 2022. This.
This quarter the team delivered $52 million of adjusted EBITDA benefit.
As to capital expenditures in the fourth quarter, we invested $163 million, bringing the full year to $446 million in line with our prior expectations.
In 2021, we expect total capital expenditures to be approximately $550 million consisting of approximately $410 million of growth Capex of which we plan to allocate approximately 300 million to data center development, we expect $140 million of recurring Capex.
Turning to capital recycling in the fourth quarter, our program generated approximately $451 million of proceeds which includes the Frankfurt data Center joint venture, we mentioned last quarter for the full year, our capital recycling program generated approximately $475 million I would like to call out the sale leaseback transaction, we announced in December.
From which we sold a portfolio of 13 industrial facilities generating gross proceeds of $358 million. This portfolio was sold at a cap rate some nicely below four 5%.
This was a compelling opportunity for us to monetize a small portion of our owned industrial assets, while effectively maintaining long term control of the facilities through an initial 10 year lease with multiple renewal options among other favorable terms.
On a leverage neutral basis. This transaction freed up approximately $260 million of investable capital that we intend to redeploy into faster growing areas, including our datacenter business.
We plan to make these investments in 2021, so our year end net debt balance reflects these proceeds.
With the highly favorable market backdrop, and our strong data center development pipeline. We are planning to continue to recycle industrial assets in 'twenty 'twenty. One we are planning for $125 million of recycling.
Turning to the balance sheet at year end, we had approximately $2 billion of liquidity. We ended the year with net lease adjusted leverage of five three times down from five seven times at year end 2019.
Pro forma excluding the investable proceeds from our lease back leverage would have been slightly under five and a half times as we've said before we are committed to our long term leverage range of four and a half to five five times for 2021, we expect to end the year within our target range near the high end.
With our strong financial position our board of directors declared a quarterly dividend of <unk> 62 cents per share to be paid in early April as we've said before we are fully committed to our dividend at this sustainable level. Our long term target for payout ratio is low to mid <unk> as a percentage of the <unk>.
Now to give you more details as to our outlook for 2021, we are pleased to reinstitute financial guidance, reflecting the strength of our business our teams strong execution and improved visibility.
For the full year 2021, we currently expect revenue of 4.325 billion to 4.475 billion.
We expect adjusted EBITDA to be in a range of 1.575 billion to $1.6 billion to $5 billion at the midpoint. This guidance represents revenue growth of 6% and EBITDA growth of 8%.
At the midpoint, our guidance implies about 75 basis points of EBITDA margin improvement year on year.
We expect <unk> to be in the range of 945 million to $995 million or $3.25 to $3 42 per share at.
At the midpoint this represents 9% growth for both metrics.
Our guidance assumes global physical volume will be flat to slightly positive revenue management would be a significant benefit in 2021 and I will note. The majority of those actions have already been taken as we speak to you today and nearly all of them will be in place by the end of the quarter.
As Bill mentioned, we are planning for a continuation in the strong trends we are seeing in digital solutions combined with a slight recovery in our service activity across the year.
In terms of EBITDA. Our expectations include the benefit from revenue management and top line growth as well as project summit savings, partially offsetting those benefits is a prudent outlook for inflation a step up in costs from prior COVID-19 driven discretion rent from our sale leaseback transactions and innovation spend.
While we do not typically guide quarterly with the pandemic, we felt it would be helpful to share on expectations for the first quarter.
On a dollar basis, we expect revenue and adjusted EBITDA to be consistent to slightly up from the fourth quarter results.
In summary, our team is executing well visibility is improving and our pipeline across the business has been strengthening over the last several months, we feel well positioned as we move into 2021 I am confident in the team's ability to continue to build on our momentum and with that operator. Please open the line for Q&A.
Yeah.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
The first question comes from George Tong of Goldman Sachs. Please go ahead.
Hi, Thanks, good morning.
You highlighted growth opportunities from Datacenters fine art consumer storage secure IP asset disposition and other services can you describe your go to market strategy to penetrate these growth markets and what proportion of revenue you expect this growth portfolio to evolve to over the next three to five years.
Hi, George Thanks. Thanks for the question I think this year most of the growth will be around the digital services, which I highlighted so I said last year. We did 8% then we see a further acceleration in net growth rate going into this year and on site CAD, you'll you'll continue to see its relatively small portion of the business but.
As I said to give you some idea of the scale those two global contracts that we've signed early in this year to serve a financial service institutions. Those two combined are.
Probably in the order of about 15% year on year gross so its pretty high levels of growth on what traditionally was smaller parts of our business, but over time over the next year. What you can expect us over the next year or two we'll start guiding more and more to those individual pieces of business, but if you think about it what this all means is more on a consolidated.
Databases. It gives us the confidence on guiding to say that you know as we said that 2% to 6%.
On a growth in terms of top line range. If you take the midpoint, that's 4%. It just gives us much more confidence as we go forward debt. We can really start driving bottom line growth not just through margin expansion, but through top line growth because of the the.
The resiliency and the attractiveness of these new segments.
Got it very helpful. Thank you.
The next question comes from Shlomo Rosenbaum of Stifel. Please go ahead.
Hi, Thank you Hey, Barry maybe you could help me parse just the the 2% to 6% organic revenue growth.
When I look at it.
The adjacent adjacent businesses versus the the core business if theyre growing.
Roughly 13 percentage is in line with the end markets that seems to be it would be a little bit above 3% growth.
What what is the embedded assumption for.
The balance in other words, the core business and the storage is that assuming youre going to get no consistent 2% to 3% pricing and is there any FX that's involved in that as well.
Sure Shlomo. Thanks for the question you know if I take the total revenue guide, which is 4% to 8% that's a little over $250 million at the midpoint or slightly over 6%. We're expecting data center as I mentioned in the prepared remarks to be up kind of double digits approaching mid teens. So that's call it $40 million of a pure.
Our revenue growth be a small amount of FX on that number since you asked about that and then turning to the global rim business. We're projecting in a 200 plus million dollars of total growth now that's assuming revenue management of the normal levels that we've been experiencing 2% to 3%, maybe even a little bit closer to the high end as we continue to roll that out.
And as I mentioned in the prepared remarks, certainly the vast majority of those actions will be in place by the end of the quarter were certainly expecting COVID-19 with Covid for planning to flat to slightly up volume and Bill mentioned, the digital solutions, which would be probably in the vicinity of as much as $50 million of year on year benefit in that.
Results in a very slight service activity recovery for the balance of our services on an adjacent businesses, we're continuing to see the the business improve but I'd say, we're being a little bit conservative and prudent with respect to the COVID-19 impact as we continue to see those underlying markets recover I will note that we did see from the second quarter in a row and very nice.
Volume out of our adjacent businesses and that's the.
Entertainment services business, continuing to see improving trends bill anything you'd like to add there.
Covered it well the only other element.
Shlomo I would add is from an FX perspective, it'd be about call. It a point and a half in total of about four to eight something of that order in light of where FX rates are in terms of hub forward projection on banks the bank views. So thanks for the question.
The next question comes from Nate Crossett with Baron Berg. Please go ahead.
Hey, good morning, two quick questions if I could.
I was curious on the stack.
The new JV, how much will you guys own how did it come about.
And is this the kind of platform, where there'll be opportunities over time.
And then also just a question on capital recycling I think you mentioned 125 million I'm just curious how much of your industrial portfolio would you be willing to recycle the long term.
So thanks for the questions. Nate So you know coming on on the web works JV that we announced this morning. It's a great question. So we're super excited about India, I mean personally I've been to India I don't know how many times over the last three years, specifically looking for a data center the right data center entry because it's been on our radar.
Green for quite some time and with web works, we found a very good partner that already has a presence in Mumbai, Pune in Delhi, which are three of the key regions and they have a roadmap to expand that to Bangalore, Hyderabad in Chennai, So, which which we really think gives us a very good.
Platform, because deli as you know there's not a single location.
In terms of the way why we chose web works is that first of all the the team. It's a entrepreneurial brothers that actually built the company and they have always had a very strong focus on telecommunications interconnects and in fact, that's how they started their business. So we think that actually they built a good ecosystem around the.
<unk> that they already have a they understand the market and the business extremely well. So we're also buying into effectively a management team and as we alluded to in our press releases that the the way. The JV is structured is we start on a minority and they have about four megawatts that are actually running as we sit.
Sit here today on those three locations, but they have both.
Both brownfield expansion capacity as well as land for further green field expansion and the 150 million that we announced will be put in over time on a cost basis as we build out that expansion. So you can think of it as a way that we paid a slight premium for our entry to get the initial four megawatts and the.
<unk> team and then that $150 million that goes it in over the next two or three years will lead to us to have a majority ownership and that will be on a cost basis that money and put it in so it will effectively.
Slide down towards a cost that is approaching.
The actual cost to build the facility. So we're really excited about the market.
It is the second largest telecommunications market in the world.
Has probably about 10% of datacenter running in India has northern Virginia, So and it's you know, it's just a very fast growing market and we've got a great.
Management team that comes along as part of the deal and we have a clear roadmap to expand and build a truly Indian footprint.
And thanks for the question. This is Barry on the recycling point, we as you know seen recycling of industrial assets as highly attractive as as we see the valuations is really good and at these levels and.
Together with our development pipeline and datacenter among others. It's a it's a really good move for us to invest in faster growing opportunities. The way I'd think about it is industrial assets continue to increase in terms of valuation. So the level of recycling that we've assumed in the plan. This year would kind of be a mid single digit percent of purely.
The industrial asset base. So we've got all that and that is obviously a base that continues to expand in terms of value in light of what's going on in asset prices out there. So over time I think planning for something in this level of annually is not a bad place to plan. If I were you and I would also note that if we.
We continue to see opportunities on both sides on the industrial side as well as incremental opportunities and development pipeline, we would not be afraid to continue to recycle even out a little bit of a higher level, but for the year were planning on 25. Thanks for the question.
The next question comes from Michael Funk with Bank of America. Please go ahead.
Yeah, Hi, good morning, Thank you for the question.
Couple if I if I could so first you know thinking about the.
The pension potential impact.
Wage inflation on the business with the $15 minimum wage.
You know being pushed through wondering how that might impact your proposed cost savings.
Thanks, Thanks for the question Michael It's you know.
I think it's a it's an important topic and wage inflation, just a crop even absent of the $15 minimum wage in terms of our frontline staff, especially our careers we've been doing that.
I would say a highly competitive environment for the last four or five years at least with the boom of of ecommerce. So for us the $15 minimum wage is less of an issue most of most if not all of our workers are kind of north of that.
The bigger issue for us is quite frankly, the pressure on E. Commerce for similar types of jobs that being said, we've been able to manage our our churn pretty pretty well and the one thing Ive spent personally a fair amount of time traveling around the country as well as in Europe and in.
In Mexico speaking to our frontline staff, many of whom we had to furlough during the depths of the crisis just to take the temperature and their connection to the company their loyalty the gratitude in terms of the way our leadership teams have managed the crisis and also.
Tried to support them and their families both.
Mentally health wise and monetarily has been.
Highly appreciate it so I think.
I still remain very core.
Mountain years are really mountain errors, we look after each other but the inflation that you're referring to is less for us driven by the minimum wage it's more driven by just the the boom in e-commerce, but it's a good point.
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The next question comes from Sheila Mcgrath of Evercore. Please go ahead.
I guess good morning, we do sometimes get questions how iron mountain competes in the data center business versus pure play players I was wondering if you can provide more insights on how you answer that question any details behind the benefits of Iron Mountain and cross selling and what just what makes you more.
And was there much competition on that India joint venture.
Okay no. Thanks, Sheila for for both both questions. So first I guess my my Flippant answer to your first question is I think 58 and a half megawatts. This year says that where we're pretty competitive. So that's from my congrats to our team who are really really dug in and I think the other thing what I would say, it's just another proof point that out.
I'll say, how we're competing is that if you look at our especially on the sales side, but also on the operation side of our data centers. Most if not all of these folks come from leading what I would call pure play data center companies and so you could almost say to me. It's not you measure the success of your offering in two dimensions.
One is do customers buy it right, which is the 58 net half megawatts. This year of leasing activity on new leases signed I think is a pretty good proof point on the other side is are willing are people willing to bet their careers and their livelihoods by coming to join you who are specialists in the field and I have to say that Mark Kidd, who leads that business better.
Remarkable job in terms of attracting really I would say top tier focus datacenter talent now in terms of the synergies between the business, which goes into the secret sauce, which you alluded to is still 40 for about 40% of our Colo leads come from our traditional records management.
On sales force and Thats youre seeing that even more and more now that we set up strategic account. So I don't go to a strategic account meeting where they where they pulled a strategic account executives pulled me along where we're not speaking about datacenter opportunities I mean, just last week, Barry and I were with.
With the number two executive from a global bank and he brought up data center, even before we could we buried I was with one of our strategic account executives. So it's a people definitely see the connection the the decades. You know this is our 17th year. The decades of trust that we've had with financial service institutions.
And it's the reason why the likes of Goldman Sachs and credit Suisse have trusted us with their co location.
Installs so.
Definitely the trust is a big factor and.
The team seems to be really getting great traction in the market.
The next question comes from Kevin Mcveigh of Credit Suisse. Please go ahead.
Great. Thanks, so much.
Can you help us just understand how much the EBITDA methodology changes impact the 2021 EBITDA if at all just based on the debt.
The free cash to the add back of stock based comp and growth capital and then the JV.
Sure. Thanks, Kevin a couple of them, there's a lot of material on our slide deck, but let me go through a couple of things from an EBITDA standpoint.
The stock comp year to year is very similar I will note like most companies we have a performance element in our grant. So it is conceivable that depending upon where performance is those grants could go higher or lower so I would be planning for that to be very modestly up year on year on the unconfirmed ventures.
As it relates to how that impacts EBITDA, there's two things there as you know our consumer joint venture, where we have a higher ownership, but the business and while the businesses are performing better year on year as our plan, it's still in a loss position so that'll be a little bit more of a headwind and then we'll add on the Frankfurt joint venture, where we own 20% is <unk>.
You know when that starts up as we've mentioned before the lease commences at mid year and ramps over time as the client gets into the lease so that I would say the unconsolidated ventures portion is fairly similar year on year slight improvements so net to EBITDA very similar to the 2020 level of the add back that you see in the documents.
P S. In F F O with flow Similarly to EBITDA and then from an <unk> standpoint, Youll note that there is less impact. There then EBITDA since we were already adding back stock comp. So that has no change to <unk> and the portion of growth capital is essentially at the same level.
And I already mentioned the on consolidated joint venture so an add back of kind of a high single digit million dollar benefit to <unk> year on year not unlike what we had again in 2020. Good question. Thanks for the thanks for the question.
The next question comes from Eric <unk> of Wells Fargo. Please go ahead.
Hey, Thanks for taking the question.
Bill I think you said that post Covid, you expected organic physical volume storage volume growth would be about 50 basis points or so and it seems like you'll be pretty close to that range. This year. So is that still the right way to think about the business. Once we get beyond Covid and then related to that have you seen any impact this year from the decline.
Coming boxes that you talked about last year as a result of the pandemic and have those declines kind of more or less normalized at this point or is there still some impact to the business. Thanks.
Yeah, I think to your first question I would say, yes, and part of that debt recovery is based on the success that we've had in consumer.
As I mentioned on my remarks is that we went from 2 million cubic feet to 7 million cubic feet. This year or last year I should say in 2020 in terms of.
The incoming volume, we still see the similar trends as we saw pre COVID-19 at this point, we haven't seen a we have and you can almost you can see that in our supplemental we haven't seen an acceleration in that and that headwind that we're getting but we're still for sure going through what I would I think I described on a few calls previously made was a year ago.
Called the second derivative.
Action in other words virtually all our customers are continuing to send us new boxes, but some of our you know.
Historically fastest growing and largest verticals are sending them in at slower rates. So we continue to see that what I call. The second derivative drag on.
Volume coming in slower than boxes aging out at their normal kind of 15 year life span. So we expect to continue to have what I would call. The same pre COVID-19 headwinds on the on the traditional document side of the business more than offset by the.
The growth in consumer.
The next question comes from Stephanie <unk> with J P. Morgan. Please go ahead.
Hi, Thank you I also had a question about incoming boxes.
As people were trying to work maybe later on the here would you expect the incoming boxes to kind of pick up to pre COVID-19 levels.
On.
Kind of along with that as income.
On past boxes picked up with constructions also pick up on people are back on the off more.
Hi, Stephanie Thanks for the question.
It.
That would be our expectation right, but I think it's I don't think it's going to be a sharp change because I think the people's transition back into the office will be more gradual than that but I would expect that again when you net those two things out we don't expect a marked change in the trend I mean, if you think about it during the course of last year is that.
That is basically a flat storage story and then you add pricing on top of that it's actually not a bad story at all.
So we don't see either an acceleration.
In either direction of that of that trend, but but I think what you describe is would be I think a reasonable expectation, but I think they probably will fairly closely net each other out.
The next question from from John.
Atkins of RBC. Please go ahead.
Thanks, very much I'm on.
The data center side, I guess I just wanted to.
Get a sense on on what competition you're seeing.
When entering new markets versus.
Data center peers financial sponsors.
Thoughts on just your updated thoughts on preferred path for joint ventures versus out.
Outright acquisitions and then.
When it comes to two.
On a related question do you have.
Any any kind of general thoughts on build to suits.
<unk> sale leasebacks.
Okay no. Thanks, John for the questions quite quite a bit in there. So let me kind of start about how we think about the jv's or.
Hughes, India as an example, so India is a country that we're pretty comfortable and that's why specifically, it's actually been more than three years actually I think five years I go to India at least a couple of times a year, but I would say five years ago I started going there with a focus on finding the right data center entry, even though we have a little less than 2000 people working on.
The records management side in India. So it's a market. We know is for US it was important to find the right not just physical opportunity for entry the right footprint, but also the right team that we could build on and.
With web works, we found that I think from a web work standpoint. They also appreciate it is that we are not a financial sponsor or were not a newbie in the Indian market. So you know that.
They see how we operate in India alrighty today culturally we're attuned to the challenges that they have and are very supportive of their journey and so that and in this case Deutsche Bank brand the process, but I think.
One of the reasons why we won was the relationship we were able to build with the entrepreneurs in the way we the way we operate so that to me is part of our secret sauces that we are a company that is in 56 countries around the world over 20000 Mountaineers around the world. So that we can make those connections and then also it's not <unk>.
Last on these entrepreneurs in this particular case that we we were actually refusing datacenter demand we had a number of customers. They were asking for capacity in India and quite frankly, we just couldn't deliver for them. So that we can bring that that network to bear I think if you kind of think more broadly on build to suit has we build out our.
And with some of the large hyperscale player. So as we now see the Frankfurt started off not as a build to suit, but ended up being a build to suit effectively because we had that debt interesting data center assets and there was a hyperscale of debt needed. The whole 27 megawatts. So the design and engineering got modified to satisfy them and that was one reason why we put it into the type of.
<unk> venture structure that we did because it turned out to be a completely stabilized assets from from day. One. If you will that has also led us to have.
Yeah, we haven't done any at this point, but you know there is more and more that are approaching us to look at build to suit opportunities and quite frankly, where we just look at the returns if the campus supports that and it allows us to actually further expand or even upgrade the the capacity of a of a of a campus by bringing in more power.
On the back of a built to suit opportunity then we absolutely entertain it but the last thing I would say is that we are starting to see more pipeline now whether or not we execute on that as interesting as debt.
When I was talking about the Frankfurt situation is that.
The customer they are admitted to me that he really does see us as one of those handful of suppliers that he looks too when he's need.
Needing third party capacity. So just naturally we are starting to see those kinds of opportunities whether or not we actually execute on them. It really is going to depend on the types of returns and the specific campus opportunity.
This concludes our question and answer session and the Iron Mountain fourth quarter 2020 earnings Conference call. Thank you for attending today's presentation. You may now disconnect.
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