Q4 2022 Iron Mountain Inc Earnings Call
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To the Iron Mountain.
Corner of 20th 22 earnings Conference call.
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I would now like to turn the conference over to you Gillian Tillman Senior Vice President Buster.
Buster relation. Please go ahead.
Thanks, Sarah Good morning, everyone and welcome to our fourth quarter 2022 earnings Conference call on today's call, we will refer to materials available on our Investor Relations website.
Today by Domine, President and Chief Executive Officer, and Bury heightened in our executive Vice President and Chief Financial Officer. After prepared remarks will open up the lines for Q&A.
Today's writing materials contained forward looking statements, including statements regarding our expectations.
I'll forward looking statements are subject to risks and uncertainties.
Refer to today's earnings materials, the Safe Harbor language on slide too in 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 reconciliation to these measures in our supplemental financial information and with that I'll turn the call over to Bill.
Julian and thank you all for taking the time to join US today. We are pleased to have delivered record performance for both the fourth quarter and the full year. These exceptional results are reflective of our broad product portfolio synergistic business model deep customer relationships and committed team before I dive into the drivers of our strong performance I would like to take.
A few moments to relate how deeply saddened we are all feeling by the devastating in recent earthquakes in Turkey, and Syria or.
Thoughts and prayers are with our fellow mountain ears customers and all of their families living and working in the region.
The safety and security of our employees is our number one priority and we are committed to supporting our colleagues in the region as they navigate this challenging time.
Now let me begin our discussion of our recent performance.
Proud to report that Iron Mountain has had another outstanding year.
In the fourth quarter, we achieved quarterly revenue of $1.28 billion, yielding 11.3% total organic revenue growth and record adjusted EBITDA $472 million up 10%.
For the full year, we delivered record resolves across the board revenue of $5.1 billion adjusted EBITDA of $1.8 billion in a F. S O of $1.1 billion, representing growth of 14%, 12% and 10% respectively.
This performance as a direct result of our close relationships with our customers and our commitment to innovation. So we can provide them with expanded products and services to meet their needs.
For the full year, we delivered organic storage rental revenue growth of 9%, reflecting continue benefit of pricing combined with positive volume trends, we drove double digit organic growth in our data center business as well as our digital services and asset lifecycle management business areas capping off another excellent ear.
Or continue to drive to build an ever expanding suite of synergistic and customer centric solutions together with global reach and scale deals are accelerated growth consistent with the Matterhorn Excellence model, we unveiled last autumn let.
Let me share a few examples of how we've been enabling our customers success and growth through the diverse solutions and unmatched customer service we offer.
Beginning with our records management business really reported as substantial cross Selwyn with a large non-profit healthcare provider, which has been an iron mountain customer for more than 20 years.
The wind, resulting in a new 10 year contract covering records management.
L M data management secure storage of non records and document Digitization services, taking this customer from two and a half million dollars per year to $5 million annually.
Just a few years ago, we would have been able to unable to provide such a broad range of services and solutions to this long tenure customer today with a broad offerings, we not only cross all the new services and solutions, but we increased our share of wallet for our records management services and solidified our position as a trusted.
And strategic partner.
We also provided a solution for a large U S bank to develop a simple and cost effective process to manage its vast inventory of over $24 million mortgage files.
This partnership involves meeting stringent compliance obligations mitigating risk and reducing cost.
Also in the quarter, we want new business, serving the Australian government through this work, we will drive considerable cost savings for one of Australia's largest government agencies.
Iron Mountain, we will have a dedicated team to pack enter data and transport 375000 cartons to our new facility in Melbourne.
And digital solutions, a key when I would like to highlight is with a branch of the U S Federal government as.
As a result of the enormous success of our original projects with the customer to digitize 177000 reels of microfilm and less than the prescribed year. We have executed a sole source follow on contract to digitize. Another hundred 33000 reels of microfilm.
This when is the result of the strategic development of a best of breed a machine learning solution to auto classify and automate data capture.
In addition, we worked with a large global medical equipment and electronics manufacturer to navigate an extensive global medical product recall the.
The customer needed inefficient partner to assist with the recall in order to meet regulatory requirements and avoid further legal ramifications.
Customer also required rapid response in tight turnaround times and was seeking a single partner the.
The wind includes several service offerings delivered by a single point of contact and illustrates the early success of our new commercial operating model that we introduced with project Matterhorn.
Turning to <unk>. Another noteworthy when this quarter was with a health insurance provider, which selected Iron Mountain has its dedicated asset lifecycle management partner.
Due to the unique nature of their business the customer has constant nutrition throughout the course of the year and consequently, they were seeking a dedicated LLM partner to provide collection wiping imaging secure storage and redeployment of technology assets.
The customers previous positive experience with Iron Mountain in our team combined with our strong solutions lead to mutual success.
Our services resolve their challenges around collection ease of use and reporting and tracking this illustrates our commercial team strength and ability to cross sell our set of solutions across the mountain range and is another example of our increased focus and success and driving commercial engagement is part of our Matterhorn.
Klein.
Moreover, we are especially proud to say that we renewed our largest <unk> contract. This quarter. This is the fourth contract renewal with this client one of the largest technology companies in the world. We have worked with them for the past 12 years and are proud of this relationship the continuation of which demonstrates the potential for longevity.
<unk> in this area of our business.
We continue to be excited and encouraged by the total addressable marketed the asset lifecycle management category. Despite the headwinds we have faced this year as a result of enduring COVID-19, Lockdowns in China.
In spite of this our legacy iPad business continues to perform well and has we gain momentum on our Matterhorn climb we continue to focus on moves to accelerate this growth.
Finally, turning to our data center business. We are pleased to finish the year with 139 megawatts of new leases sign exceeding our original booking guidance of 50 megawatts in our most recent target expressed in the third quarter of 130 megawatts in the fourth quarter, we successfully completed 14.
Megawatts of leasing this area of our business has gone from strength to strength over the past several years and we continue to see tremendous opportunity and serving both hyperscale and co location customers insignificant growth potential for our data center footprint.
With 37% year on year bookings growth excluding are large leafs in Virginia for a five we will continue to prioritise data centers with our capital program more details of which Barry will provide and his remarks.
One customer when in our data center business that I would like to share is a six megawatt expansion leaves that are Phoenix campus with an existing global fortune 100 customer that.
The customer, which is a long term strategic relationship with iron mountain across service lines and as existing capacity and several of our other locations needed space to expand in Arizona.
Our customer was able to leverage our Phoenix data center their expansion and we look forward to supporting them in their future growth.
Also in the quarter, our team announced a win for a joint venture at the <unk> two data center, which is connected to our mum by one data center one of the most robust carrier hotels in the country, providing superb connectivity and flexibility for our customers.
<unk> partnered with a global content delivery network company to expand their presence in Mumbai. They required a robust network ecosystem backed by reliable power infrastructure, which we were able to provide.
Another win to highlight our ability to cross sell across business segments involves our existing relationship with one of the largest German banks. This resulted in a new partnership with our data center team, who leveraged their excellent network within the German financial network market and demonstrated proficiency and it's high regulatory standards customer buying <unk>.
<unk> structures and the data center competition in Frankfurt the.
The customer felt confident in our team's expertise in our ability to support a highly regulated environment to meet their needs.
This is yet another excellent example of our ability to listen to our customers and find ways to meet their needs.
To conclude I am incredibly proud of our dedicated team are unmatched customer dedication and relationships and our solutions, which continued to drive our transformation and excellence the.
The reorganization, we completed in 2022 through the initiation of Matterhorn has established a strong foundation, which is already delivering double digit growth.
It is this foundation built by Matterhorn, which will continue to fuel our growth trajectory and to realize our greatest ambitions.
Turning towards 2000 twenty-three this momentum will continue to drive the opportunities ahead with another year of double digit top line growth expected Barry will speak in detail about our guidance for the year ahead, our goals are well within sight as we climb on with project Matterhorn and beyond with that I'll turn the call over to Barry.
Thanks, Bill and thank you all for joining us today to discuss our results.
Before I begin I would like to Echo Bill sentiments with regard to the tragedy of the earthquakes in Turkey and Syria.
Turning to our financials in the fourth quarter. Our team continued the trend of delivering strong performance exceeding expectations for both adjusted EBITDA and <unk>.
On a reported basis revenue of $1.28 billion grew 10.3% year on year or 14.2%, excluding the effects of the stronger U S. Dollar.
Total organic revenue grew 11.3% revenue was in line with the expectations. We shared when we reported the third quarter in November .
A key highlight in the quarter is our organic storage revenue, which grew 11% and represents a sequential improvement of 130 basis points.
Total service revenue increased 17% to $510 million driven by organic growth of 12% <unk>.
These results reflect the strong performance of our commercial team and their focus on selling the entire mountain range of products and solutions.
Adjusted EBITDA was $472 million, a new record up 10% on a reported basis and up 13% year on year on a constant currency basis.
As compared to the rates, we were using at the time of our last guidance. The dollar's strengthened in November which resulted in incremental headwind in the fourth quarter of several million dollars to adjusted EBITDA.
Justin EBITDA margin was better than we projected at 36.9% and improved 40 basis points sequentially driven by revenue management and next.
<unk> was $287 million or 98 cents on a per share basis up $20 million.06, respectively from the fourth quarter of last year.
This was well ahead of our of our projections, partially due to the timing of a nearly 10 billion dollar cash tax item, which is now incorporated into our 2023 guidance.
Now, let me briefly summarize the full year.
Revenue of $5.1 billion increased 14% on a reported basis and 17% on a constant currency basis ajar.
Adjusted EBITDA increased 12% year on year 2182, $7 billion, an increase of $192 million a year on year exceeding the projections given on our last call a.
<unk> increased 10% to $1.11 billion or $3.80 on a per share basis I'd like to briefly compare our results to our financial guidance.
As we have noted throughout the year FX rates had been more of a headwind and we ended initially planned in fact using the same at that's right. We had in our projections in February of 2022, we would have exceeded the high end of our guidance for EBITDA <unk> and a F F O per share.
Now turning to segment performance.
In the fourth quarter are global in business delivered revenue of $1.08 billion, an increase of $61 million from last year or 6% on a recorded basis. This equates to a 10% increase excluding the effects of the stronger U S. Dollar.
On an organic constant currency basis revenue increased 11%.
Global Ram adjusted EBITDA was $486 million, an increase of $39 million a year on year driven by revenue management.
Turning to our global data Center business. We are pleased to report another successful quarter.
From the total revenue perspective, we delivered 15% year on year growth on a reported basis and 19% year on year on a constant currency basis.
As a reminder, in the second half of 2021, we provided unique stayed out services for our Frankfurt joint venture in the fourth quarter of 2021, those services resulted in approximately $9 million of revenue.
Excluding those stayed out services on a like for like basis or total data center revenue grew in excess of 27%.
And we are now back to a more normalized service revenue run right.
Our data center storage revenue grew 25 per cent year on year or 28% on a constant currency basis.
Turning to new an expansion leasing we completed 14 megawatts in the fourth quarter and 139 for the full year. This is well ahead of our updated leasing projection of 130 for the full year.
Excluding are large build to suit lease in Virginia, we least 67 megawatts for the full year.
With our increasing pipeline and the depth of our customer relationships for 2023, we project leasing 80 megawatts or more for the full year. This represents 20% bookings growth.
We are continuing to expand our data center platform into new markets and as we discussed in November we close the Madrid data center transaction early in the fourth quarter.
Turning to our asset lifecycle management business, we continue to be pleased with the results of our legacy I tab business, which grew approximately 30% for the full year and we're happy to report that we have seen strong growth in our pipeline.
For the Hyperscale decommissioning portion of the business, we are conservatively planning the year with an expectation for continued impact from COVID-19 and China.
For example at the midpoint of our revenue guidance range. We have assumed revenue from our total <unk> business is consistent year on year. As a reminder, the decommissioning market was performing better through the first half of 2022 and slowed down sharply following more intense lockdowns in China and.
And as we are planning for ramping performance through the year, we anticipate the first quarter of 2023 revenue in R. L M business to be consistent with the fourth quarter of 2022.
With that we will naturally have some impact on our organic growth rate in the first two quarters of the year as the anniversary the I T renewed transaction in January .
Turning to capital for the full year 2022, we invested $820 million of growth capital and $142 million a recurring for.
<unk> 2023, we project capital expenditure can be approximately $850 million of growth with the vast majority of that dedicated to data center development and $145 million up recurring.
Turning to the balance sheet with strong adjusted EBITDA performance, we ended the quarter with net lease adjusted leverage of five one times better than our projections and an improvement versus last quarter. I think it is worth noting this marks our lowest leverage levels since 2017.
As we have said before we expect to operate within our target leverage range, which is four and a half to five and a half times for 2023, we expect to exit the year at similar levels two year and 2022.
Our board of directors declared our quarterly dividend of 62 cents per share to be paid in early April .
On a trailing four quarter basis or payout ratio is now 65% approaching our long term target range of low to mid sixties per cent now let me share our projections for the full year of 2023.
We expect total revenue to be within the range of $5.5 billion to $5.6 billion, which represents between eight and 10% growth year on year on consistent F X rays. This implies growth of 9% to 11%.
We expect adjusted EBITDA to be within the range of $1.94 billion to $1.975 billion, which represents 7% year on year growth at the midpoint on consistent FX rates. This implies growth of 8% at the mid point.
We expect <unk> to be within the range of 1.15 billion to one $175 billion, which represents 5% year on year growth at the mid point on.
On consistent F X rays, this would be 6% growth at the mid point, we expect a F F O per share b $3.91 to $4. This represents growth of 4% at the midpoint and on consistent F X rates. This would be six per cent growth at the midpoint R.
Our guidance for both <unk> and a F. A full per share includes the timing of the approximately 10 million dollar cat cash tax item I previously mentioned from the fourth quarter of 2022 into the first quarter of 2023.
This represents approximately two points of growth on both metrics.
I would like to share some commentary to help investors better understand our guidance in terms of F. X. We are using current rates in our projections for 2000 twenty-three while the U S. Dollar has weakened some recently, we currently expect to F X to be nearly a 40 million dollar headwind to revenue for the full year I would like to further note that at these levels ethics.
Will be more pronounced headwind in the first half of the year.
We expect revenue management will continue to be a significant benefit and I will note. The vast majority of the actions. We have plan for in 2023 have already been implemented at this point.
Turning to the first quarter, we expect revenue in excess of $1.3 billion adjusted EBITDA of approximately $460 million a F. F O of approximately $270 million in a FFL per share of approximately 92 cents to conclude we are pleased to have delivered a strong year in 2022.
And are realizing our growth ambitions that we outlined at our recent Investor day.
I'd like to take this opportunity to once again express my thanks to our entire team for their continued dedication serving our customers and delivering on our collective commitments and with that operator would you. Please open the line for Q&A.
We will now begin the question and answer session.
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Okay. Next question comes from George tongue like Goldman Sachs. Please go ahead.
Alright, thanks, good morning.
Services organic revenue growth remained in the double digits of 12% you're you're in for Cuba to celebrate it from 22 per cent growth in three Q can you discuss the put them take just being with respect to services organic revenue growth trends.
Yeah no. Thanks, George So first of all we're very pleased with the continued growth, especially where we just started matterhorn last year. So if you look at overall in terms of your organic growth through the year and an increase in terms of total revenue growth as we progressed. So we're we're very pleased to your specific question on service is one of the <unk>.
<unk> factors in terms of when you're looking at the Euro your year over year comparison, if you recall a year ago, we had the big fit out for data center in Frankfurt. So that's the the biggest factor in terms of that slight drop or that noticeable drop when you look at the <unk> year over year.
Still double digit growth, but that was the biggest factor I dunno bear if you want to add anything you know George the only other thing I would add I suppose is that it was right in line with our expectations. When we set the projections because of course, we as we signalled last quarter. We we obviously knew that we had to anniversary over the fade out services. So we're very pleased with the way services performed.
And I will just tell you that as we look forward. We've got very good pipeline on things like digital solutions are legacy I T asset disposition business is ramping and we have as I mentioned in the prepared remarks, very nice pipeline, there and we will see some incremental benefit from revenue management. So we feel very well positioned George thanks for the question.
Alright next question comes from Kevin Macneil credit. Please. Please go ahead.
Great. Thanks hate so it seems like F X was an incremental headwind as was I T renew dishes for Berry.
Where would the offsets because obviously the revenue look pretty good in EBITDA, but just with the offsets on the revenue management or anything else.
Thanks for the question, Kevin I would say I T renew actually performed consistent with our expectations and I'll just provide a little more color there.
As we said before with the Lockdowns that we were experiencing that everyone's experiencing in China, we had been seeing I T renew declining through last year and in fact in the fourth quarter. It stabilize was actually slightly up on a sequential basis, which we view as a positive now we are.
I think being prudent with our expectations for renew going forward because as you've probably seen in the press China continues to while the restrictions are off they continue to have a lot of challenges with COVID-19, there and so we haven't seen the market develop a meaningfully yet but we are we are cautiously optimistic so we are.
Are planning for the first quarter expectation for <unk> business to be consistent with the fourth quarter.
Revenue levels, and then ramping over the course of the year as it relates to the rest of the business that you were pointing out we had very strong contribution from revenue management as you would have seen in the in the supplemental report in fact that ramped nicely on a sequential basis, and we feel very well positioned as.
It relates to revenue management as we move here through 2000 twenty-three because as I mentioned in the remarks all of our revenue management actions are essentially already in market. So we feel very very good about how things are trending the other thing I'd call out which was a really.
Really nice performance was in our data center business. He saw the growth rate continue to be very strong on the storage side high twenties and from standpoint of bookings also ahead of our expectations. So that gives us very strong visibility into 2000 twenty-three and <unk> in terms of revenue Jan.
<unk> I'll tell you the pipeline continues to build so I appreciate the question. Thanks, Kevin.
Alright next question comes from Andrew Sangamon with J P. Morgan. Please go ahead.
<unk> just for the sake of precision could you just indicate what the organic constant currency revenue growth is at the mid point of your first quarter and twenty-three guide and it definitely seems like you're expecting faster growth for the full year kind of after first quarter or maybe compared to first quarter and just maybe you know go over.
That dynamic more unless unless you feel like you've you've already addressed that.
Okay. So a couple of points. Therefore, you Andrew as it relates to how to think about the first quarter when I mention that we'd probably have something approaching $40 million of of ethics challenge for the full year. The vast majority of that is gonna be in the <unk>.
First quarter. So I think we'll probably have something like 30 plus million, maybe even more than that of revenue headwind from F X in the first quarter just based on where rates are now versus last year. The other thing to be thinking about is that from a standpoint of I T renew <unk>.
That will go into our organic growth rate this quarter in fact, as you know we <unk>.
Closed that transaction at the end of last January and so it's organic for February and March and last year I don't mind, giving you. This number for your modeling purposes. I may have mentioned it last year I T. <unk> was about $60 million in the quarter and then it was $65 million in the in the second quarter and since I'm planning it to be.
Really consistent on a sequential basis, that's about call. It 45 that Cindy So I think that will have about round numbers, a couple of point impact to organic growth, but from there. If you work through the model you're going to see organic continue to improve.
<unk> through the year and really at that point, you don't have any additional acquisition revenue of any substance in the number. So you essentially very close to the constant currency growth and I think that auto without pencil for you on the on the model.
Okay, and if you'd like to ask a question. Please press sorry, then one.
My next question comes from Slam asthma with T. Bone. Please go ahead.
Is that a parent it out first level, what was the pricing with on the corner and what should investors expect for 2023.
Thank you for the question. It was very strong as you probably noticed organic revenue growth on storage was.
11% and overall it was 11.3% and so with volume being as we plan just slightly down on a sequential basis, but by the way up better than our projection for the full year. It was a very nice <unk> contribution and we.
Had $8 nine per cent on that metric for the full year. So it shows you the ramp that we've been seeing through the year in terms of <unk> for 2023.
We continue to expect revenue management to be a very nice contributor and be thinking probably in at least the mid single digit range for the whole year, if not a little bit higher in light of what we've got in market and we feel quite good about where things are and I guess I'll also add that.
From a volume perspective since it goes a little bit to the question you are asking from a volume perspective, we are continuing to be good friends, there and we would expect for the full year 2023, very similar projection to what we did last year, so something like a consistent to slightly up.
Thank you for the question.
This concludes that question and answer session and the Iron Mountain Fourthquarter 2022, and a conference call. Thank you for attending today's presentation. You may now disconnect.