Durable Business Drives Cash Flow and Dividend Growth. September 2018

Size: px

Start display at page:

Download "Durable Business Drives Cash Flow and Dividend Growth. September 2018"

Toby Dennis
5 years ago
Views:

1 Durable Business Drives Cash Flow and Dividend Growth September 2018

2 Safe Harbor Language and Reconciliation of Non-GAAP Measures This presentation contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws and is subject to the safe-harbor created by such Act. Forward-looking statements include, but are not limited to, our financial performance outlook and statements concerning our operations, economic performance, financial condition, goals, beliefs, future growth strategies, investment objectives, plans and current expectations such as 2018 guidance, 2020 Plans and statements about our expected investment and other goals. These forward-looking statements are subject to various known and unknown risks, uncertainties and other factors. When we use words such as "believes," "expects," "anticipates," "estimates" or similar expressions, we are making forward-looking statements. Although we believe that our forward-looking statements are based on reasonable assumptions, our expected results may not be achieved, and actual results may differ materially from our expectations. In addition, important factors that could cause actual results to differ from expectations include, among others: (i) our ability to remain qualified for taxation as a real estate investment trust for U.S. federal income tax purposes ("REIT"); (ii) the adoption of alternative technologies and shifts by our customers to storage of data through non-paper based technologies; (iii) changes in customer preferences, and demand for our storage and information management services; (iv) the cost to comply with current and future laws, regulations and customer demands relating to data security and privacy issues, as well as fire and safety standards; (v) the impact of litigation or disputes that may arise in connection with incidents in which we fail to protect our customers' information; (vi) changes in the price for our storage and information management services relative to the cost of providing such storage and information management services; (vii) changes in the political and economic environments in the countries in which our international subsidiaries operate and changes in the global political climate; (viii) our ability or inability to manage growth, expand internationally, complete acquisitions on satisfactory terms, to close pending acquisitions and to integrate acquired companies efficiently; (ix) changes in the amount of our growth and maintenance capital expenditures and our ability to invest according to plan; (x) our ability to comply with our existing debt obligations and restrictions in our debt instruments or to obtain additional financing to meet our working capital needs; (xi) the impact of service interruptions or equipment damage and the cost of power on our data center operations; (xii) changes in the cost of our debt; (xiii) the impact of alternative, more attractive investments on dividends; (xiv) the cost or potential liabilities associated with real estate necessary for our business; (xv) the performance of business partners upon whom we depend for technical assistance or management expertise outside the United States; (xvi) other trends in competitive or economic conditions affecting our financial condition or results of operations not presently contemplated; and (xvii) other risks described more fully in our filings with the Securities and Exchange Commission, including under the caption Risk Factors in our periodic reports, or incorporated therein. You should not rely upon forward-looking statements except as statements of our present intentions and of our present expectations, which may or may not occur. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 2 Reconciliation of Non-GAAP Measures: Throughout this presentation, Iron Mountain will discuss (1) Adjusted EBITDA, (2) Adjusted Earnings per Share ( Adjusted EPS ), (3) Funds from Operations ( FFO Nareit ), (4) FFO (Normalized) and (5) Adjusted Funds from Operations ( AFFO ). These measures do not conform to accounting principles generally accepted in the United States ( GAAP ). These non-gaap measures are supplemental metrics designed to enhance our disclosure and to provide additional information that we believe to be important for investors to consider in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as operating income, income (loss) from continuing operations, net income (loss) or cash flows from operating activities from continuing operations (as determined in accordance with GAAP). The reconciliation of these measures to the appropriate GAAP measure, as required by Regulation G under the Securities Exchange Act of 1934, as amended, and the definitions are included in Supplemental Financial Information. Iron Mountain does not provide a reconciliation of non-gaap measures that it discusses as part of its annual guidance or long term outlook because certain significant information required for such reconciliation is not available without unreasonable efforts or at all, including, most notably, the impact of exchange rates on Iron Mountain s transactions, loss or gain related to the disposition property, plant and equipment (including of real estate) and other income or expense. Without this information, Iron Mountain does not believe that a reconciliation would be meaningful. Note: All financial projections and forward looking statements included herein are current as of reporting the company s second quarter results on July 27, Selected metrics are defined in the appendix of our Q Supplemental Financial Information.

3 Iron Mountain Investor Presentation 3 1. OVERVIEW OF THE BUSINESS 2. DURABLE AND CONSISTENT BOX TRENDS 3. DRIVING EBITDA GROWTH 4. REAL ESTATE VALUE CREATION 5. PRUDENT CAPITAL ALLOCATION FRAMEWORK 6. APPENDIX

4 Leading Global Information Management Brand Global Footprint Business Mix 4 Other (1) 10% Data Center 5% Revenue: $4.2B (2) Shredding 10% 53 COUNTRIES 6 CONTINENTS Data Protection 12% Records Management 63% 225,000+ customers 95% Fortune 1000 companies 85MM+ SF of real estate 1,400+ Facilities Note: Statistics as of 12/31/17 unless otherwise stated (1) Other revenues include Fulfillment Services, Information Governance and Digital Solutions, Technology Escrow Services, Consulting, Entertainment Services, Fine Art Storage, Consumer Storage and other ancillary services (2) Annualized Q revenue

5 Provider of Mission-Critical Storage and Services 5 $17 BILLION+ Owned real estate globally 680 MILLION+ Cubic feet of hardcopy records archived DIGITAL SOLUTIONS 627 million images scanned annually SECURE DESTRUCTION ~10% of total global revenue 30 MILLION Film and sound elements protected and preserved IRON CLOUD TM Data protection, preservation, restoration and recovery 98 PERCENT Customer retention rate ~285 MEGAWATTS Existing and potential data center capacity # 1 TRUSTED GUARDIAN OF PRECIOUS ASSETS

6 Balanced Strategy to Drive Growth 6 Grow Durable High-Margin Business Sustainable Growth in Cash Flow and Dividends per Share Extend Business Model to Fast-Growing Businesses Sustainable Growth in Cash Flow and Dividends per Share Build on Customer Relationships and Trust to Leverage Brand

7 Shifting Mix Accelerates EBITDA Growth 7 82% Developed Portfolio North America and Western Europe 1H 18: ~3% Internal Revenue Growth 1H 18 Revenue Mix 18% Growth Portfolio Emerging Markets, Data Center and Adj. Businesses 1H 18: ~7% Internal Revenue Growth 2020 Revenue Mix 70% Developed Portfolio North America And Western Europe ~3% Internal Revenue Growth 30% Growth Portfolio Emerging Markets, Data Center and Adj. Businesses ~10% Internal Revenue Growth ~3.6% Internal Revenue Growth ~5% Internal Revenue Growth + Margin Expansion + Margin Expansion ~4.0%+ Average Internal Adj. EBITDA Growth ~5%+ Average Internal Adj. EBITDA Growth Note: Emerging Markets is Other International, excluding Australia and New Zealand

8 Healthy Revenue Growth Trends 8 Internal Total Revenue Growth Rolling 3-Year Average 0.5% 0.2% 0.8% 1.2% 1.7% 2.0% E (1) 62% of Total Revenue Internal Storage Revenue Growth Rolling 3-Year Average Internal Service Revenue Growth Rolling 3-Year Average 38% of Total Revenue 2.7% 2.4% 2.3% 2.4% 3.0% -2.5% -2.8% -1.5% -0.6% -0.4% (1) Based on midpoint 2018 of Internal Total Revenue Growth guidance as of 7/27/18

9 Delivering Robust Margin Expansion 9 Total Adjusted EBITDA Margins (1) 34.7% 32.8% 29.6% 29.7% 30.6% 31.0% E (1) 81% of Total Gross Profit 67.7% Storage Adjusted EBITDA Margins 69.5% 69.7% 69.2% 69.7% 25.0% 20.0% 21.0% Service Adjusted EBITDA Margins 17.5% 16.5% 17.5% 19.5% 19% of Total Gross Profit 15.0% % (1) Based on midpoints of 2018 EBITDA and revenue guidance range as of 7/27/18

10 Box Retention Drives Durability 10 IRM Retention Rate North America 100% 80% 60% 40% Recall divestiture impact 51% of boxes that were stored 15 years ago still remain ~35% of boxes that were stored 22 years ago still remain 20% 0% Box Age (Years) Source: Iron Mountain Propriety Safekeeper Plus Inventory Management System, as of 8/31/18

11 Organic Global Cube Growth Every Year 11 Net Volume Growth (CuFt in MM on TTM Basis) Change Excludes All Business Acquisitions Since (1) (1) 684 MM CuFt including acquisitions

12 Large Unvended Opportunity 12 BCG Estimated Un-vended Opportunity at ~720MM CuFt (1) Survey of >700 existing and potential respondents, as well as 70 in-depth interviews with large North America customers across six verticals, excluding government Wholly Un-Vended Vended In-House with Vended Customers Total ~1.9 B CuFt with only ~700 M CuFt Vended (1) Excludes government and SMB (<250 employees), except Legal which includes 100+ employees. BCG analysis is as of April Source: BCG document storage survey; Avention; BCG analysis These materials were designed for the sole use by Iron Mountain. No other party may or should rely on these materials for any purpose whatsoever. To the fullest extent permitted by law, any party accessing these materials hereby waives any rights and claims it may have at any time with regard to such party's use of and/or reliance on these materials, including the accuracy or completeness thereof.

13 Strong Execution of Emerging Markets Strategy % Internal Storage Revenue Growth in 1H 2018 STORAGE VOLUME GROWTH CuFt in MM ADJUSTED EBITDA MARGIN 27% 25% 22% 21% 19% Intake Loss/Destructions Net Growth Expanding EBITDA margins through targeted investment and leveraging enterprise scale Executing on value creating M&A to achieve market leadership in major markets Emerging Markets defined as Other International excluding Australia and New Zealand

14 Data Center Investments Support Business Diversification 14 Driven by organic and external growth Leverage REIT structure Faster growth and higher margin supports 2020 Plan ~10% of Total EBITDA by 2020 (1) Focus on Top US and Global Markets Focused on markets with high absorption (top 10 U.S. and top 10 Globally) Presence in 8 U.S. and 3 Int l markets (1) Multi-pronged Scaling Approach Conservative stabilization assumptions Projected 10 13% stabilized cash-oncash returns Can address colocation and hyper scale Invest in Greenfield Development Execute on Accretive M&A Pre-stabilized properties with expansion capacity Recent M&A to be modestly accretive to 2019 AFFO Sale-lease-backs with day 1 income and lower expansion costs Double digit stabilized cash-on-cash returns (1) Reflects closing of EvoSwitch data center, assumes organic growth.

15 Competitive and Diversified Data Center Business 15 Among Top 10 Data Center Companies Worldwide (by MW) Significant potential represented by strong relationships with 17K Data Management customers 2018 PROJECTED REVENUE OF $220M 1 Geographical Diversification (by Existing Capacity in MW) New Jersey Interconnect capability Amsterdam 58 Carriers Phoenix 29 Carriers Dedicated to sustainable energy sources - 100% Green Power at YE 2018 Phoenix Singapore Amsterdam NoVA London Boyers and Other Denver (1) Data Center forecast of ~$220mm of revenue and ~$110mm of normalized Adjusted EBITDA in 2018, as of 7/27/18

16 Large Platform with Growth Potential Global Data Center Presence in Top Markets Snapshot as of 6/30/ wholly-owned data center facilities 3 spanning the U.S., Europe and Asia 100MW current capacity with 288MW total potential capacity 0.9M+ square feet 1,100+ data center customers Data Center Expansion Timeline 90.1% occupancy NoVa Facility 1 +60MW Fortrust +16MW 2 I/O Data Center +91MW 2 CS Assets +14MW 2,3 EvoSwitch +34MW 2 Phoenix Facility Expansion +48MW 2,4 Development in progress: 22% preleased Sep 2017 Jan 2018 Mar 2018 May 2018 July 2018 WALE of 3.4 years Data Center Platform estimated market value of $2.4B 5 Source: Company financials as of 6/30/18 (1) Phase 1 of Manassas VA data center facility of 10.5MW; Total development capacity of 60MW (2) Based on existing and potential MW capacity (3) Includes Singapore on long term ground lease and facilities with purchase options (4) Represents Phase 2 development at IO data center facility (5) Source: Eastdil, as of 6/30/18

17 Large, High Quality Real Estate Portfolio 17 Owned Portfolio Overview as of 6/30/18 Seattle Detroit New Hampshire 315 properties spanning 30M square feet 2 Omaha Chicago Boston US: 55.3% SF located in the top 25 MSAs and 67.4% SF located in top 50 MSAs 3 Owned facilities larger vs. leased facilities (95K SF vs. 53K SF on avg.) San Francisco Los Angeles Denver Louisville Philadelphia Baltimore/ Washington DC Hartford New York Northern New Jersey Includes wholly-owned data center portfolio of 12 properties 2 Phoenix Dallas Atlanta $188M of data center development to add 23 MW capacity 4 Houston SF: >2,000K >1,000K >500K >250k Attractive market locations Top 5 US Markets Top 5 International Markets # Market SF owned % 5 1 Northern New Jersey 2, % 2 Boston 1, % 3 Chicago 1, % 4 Dallas 1, % 5 Los Angeles 1, % Top 5 Markets 7, % Other US Markets 13, % Total US Markets 21, % (1) Based on Eastdil valuation of U.S. owned RIM properties and IRM valuation of international RIM properties and data centers (2) Includes Singapore on long term ground lease and facilities with purchase options (3) Top MSAs defined as MSAs with the largest populations according to 2010 Census (4) Based on total expected investment as of 6/30/18 (5) Based on total 29.8M owned square feet as of 6/30/18 # Market SF owned % 5 1 London, UK 1, % 2 Paris, France % 3 Montreal, Canada % 4 Buenos Aires, Argentina % 5 Mexico City, Mexico % Top 5 International Markets 3, % Other International Markets 4, % Total International Markets 8, %

18 Significant Value in Owned Real Estate 1 18 Data Center (2) Valuation of US real estate portfolio based on analysis performed by Eastdil U.S. RIM buildings ex. racking assumes average market rent of ~$5.50 and 6.3% cap rate 14% Non-U.S.RIM buildings ex. racking assumes estimated market rents and cap rates from JLL major market research Global racking value based on above-market NOI at 11% cap rate Rest of the World RIM 32% 54% Data Center value includes 6.3% cap rate on stabilized NOI; CIP +15%; land value at cost US RIM Total Value: $17.2B (1) Source: Eastdil, as of 6/30/18 (2) Includes global data centers; includes Singapore on long term ground lease and facilities with purchase options

Value Creation Through Capital Recycling 19 Real Estate capital recycling strategy IRM buys and sells with an ROI focus, and recycles

opportunities Case study Disposition of Deanston Wharf Canning Town, London Warehouse in East London experiencing significant regeneration

0M Excess or inefficient real estate Better/best use Sale generates outsized return Higher-use real estate alternatives Building

19 Value Creation Through Capital Recycling 19 Real Estate capital recycling strategy IRM buys and sells with an ROI focus, and recycles capital to create long-term value for shareholders Liquidity recycled into other real estate and data centers Capital recycling opportunities Case study Disposition of Deanston Wharf Canning Town, London Warehouse in East London experiencing significant regeneration Under Contract to sell to residential redeveloper 35.0M Sale Price, 8.8M NBV Operations to be relocated at estimated cost of ~ 4.0M Excess or inefficient real estate Better/best use Sale generates outsized return Higher-use real estate alternatives Building improvements Data center development / expansion Emerging market expansion / M&A Target IRR: 15% Target IRR: 15% Target IRR: >15% Rendering of neighboring Royal Wharf redevelopment

20 Storage Compares Favorably vs. Industrial Peers, IMDC Competitive vs. Data Center Peers 20 Iron Mountain Storage Industrial Iron Mountain DC Data Center Annual Rental Revenue/SF ~$36 ~$5 ~$250 ~$102 Tenant Improvements/SF N/A ~$2 - $4 N/A N/A (1) Recurring Capex ~3% 8% ~3% 3% Average Lease Term Large Customers: 3 Yrs Small Customers: 1 Yr ~5 Yrs 3.4 Yrs ~4 Yrs Customer Retention ~98% ~76% 90-95% ~93% Customer Concentration Very Low Low Medium Medium Stabilized Occupancy (Building & Racking Utilization) Building: 80% to 85% Racking: 90% to 95% 97% 90%+ 90% (2) EBITDA Margin 70-75% 73% 50% 52% Source: Company filings as of 12/31/2017. Note: Peer statistics represent FY 2017 numbers. Industrial peer group includes PLD, DRE, FR, EGP and STAG; Data center peer group includes DLR, EQIX, COR, QTS and CONE. (1) IRM non-growth CapEx as a percentage of total revenue. (2) EBITDA Margin for IRM is Storage Gross Margin; (Adjusted) EBITDA Margin for IRM at Q was 34.8%.

Rate, 74% Fixed Net Leverage Across REIT Sectors Source: J.P.

21 Well-Positioned Capital Structure 21 IRM Weighted Avg. Maturity is 6.6 Years, with 4.8% Avg. Int. Rate, 74% Fixed Net Leverage Across REIT Sectors Source: J.P. Morgan REIT Weekly U.S. Real Estate report July 23, 2018 and company reports. All figures as of 6/30/18.

22 Prudent Investment for Future Growth 22 $ in MM 2018E Adjusted EBITDA $ 1,435 $ 1,485 Non-cash stock compensation / other (including non-cash permanent withdrawal fees) Adjusted EBITDA and non-cash expenses $ 1,480 $ 1,530 Less: Amortization of capitalized sales commissions Cash interest and normalized cash taxes Total maintenance CapEx and non-real estate investment Customer inducements and acquisition of customer relationships (1) Cash available for dividends and investments $ 735 $ 815 Expected common dividend to be declared Cash available for core and discretionary investments $ 60 $ 140 (4) Incremental Capital Needed for 2018 Discretionary Investments from Borrowings and ATM $490 $650 $100 Sources (3) $335 $185 $200 $155 Discretionary Investments (3) (1) Customer inducements and acquisitions of customer relationships are not deducted from AFFO as they represent discretionary growth investment (2) Includes core growth racking and excludes Northern Virginia Data Center development under capital lease (3) Excludes price of IO Data Centers acquisition, which closed on January 10, 2018 and possible future data center acquisitions. (4) Based on guidance as of 7/27/18 Note: Iron Mountain does not provide a reconciliation of non-gaap measures that it discusses as part of its annual guidance or long term outlook because certain significant information required for such reconciliation is not available without unreasonable efforts or at all, including, most notably, the impact of exchange rates on Iron Mountain s transactions, loss or gain related to the disposition of real estate and other income or expense. Without this information, Iron Mountain does not believe that a reconciliation would be meaningful. in $MM $335 Credit Suisse and EvoSwitch Data Center Acquisitions Data Center Expansion Real Estate Inv. $75 Net of Sales; Innovation 2 $150 $140 Base Acquisitions

23 Key Takeaways 23 Leading Global Information Management Brand with a Durable, Growing Business Strong Cash Flow Generation with Increasing Margins Increasing Exposure to High Growth Markets with Powerful Secular Tailwinds Strategic Plan Drives Sustainable Dividend Growth and Future Investments Disciplined Capital Allocation Designed to Maximize Returns

24 Appendix

25 2020 Plan (1) : Profitable, Sustainable Growth 25 Worldwide Revenue ($ in MM) AFFO Growth (2) ($ in MM) $3,846 $4,600 $4, Actual 2020E $752 Projected Minimum Dividend per Share (3) $1,000 - $1, Actual 2020E Adjusted EBITDA ($ in MM) $2.35 $2.54 $1,260 $1,680 $1, E 2020E Projected Lease Adjusted Leverage Ratio YE 2017 Actual 2020E 5.5x ~5.0x 2018E 2020E (1) Updated to reflect 2017 actuals and 2018 Guidance as of 7/27/18, including adoption of revenue recognition standards and expansion of data center business ranges at 2018 C$ rates. (2) Assumes Real Estate and Non-Real Estate Maintenance CapEx and Non-Real Estate Investment of 4% of Total Revenue for (3) Assumes 287 million shares outstanding for 2018 increasing to 295 to 300 million shares outstanding in 2020, reflecting long-term incentive comp and potential issuances under existing ATM program.

26 Q Financial Performance Snapshot 26 Growth $ and shares in mm Q2-17 Q2-18 R$ C$ Internal Growth Revenue $950 $1, % 10.8% 4.1% / 4.6% excl. term fee (1) Storage $590 $ % 10.1% 1.9% / 2.7% excl. term fee (1) Service $360 $ % 11.8% 7.6% Adjusted Gross Profit (2) $541 $ % Adjusted Gross Profit Margin (2) 56.9% 57.6% 70 bps Income from Continuing Operations $83 $ % Adjusted EBITDA (3) $318 $ % 14.8% Adjusted EBITDA Margin (3) 33.5% 34.8% 130 bps Net Income $81 $ % AFFO (3) $217 $ % Dividend/Share $0.550 $ % Fully Diluted Shares Outstanding % (1) Reflects adjusted gross profit, excluding Significant Transaction Costs; reconciliation can be found in the Supplemental Financial Information on Page 5 (2) Reconciliation for Adjusted EBITDA and AFFO to their respective GAAP measures can be found in the Supplemental Financial Information on Pages 13 and 15, respectively

27 1H 2018 Financial Performance Snapshot 27 Growth $ and shares in mm YTD-17 YTD-18 R$ C$ Internal Growth Revenue $1,889 $2, % 9.4% 3.3% / 3.6% excl. term fee (1) Storage $1,163 $1, % 10.4% 2.8% / 3.2% excl. term fee (1) Service $726 $ % 7.7% 4.2% Adjusted Gross Profit (2) $1,061 $1, % Adjusted Gross Profit Margin (2) 56.2% 57.3% 110 bps Income from Continuing Operations $142 $140 (1.7%) Adjusted EBITDA (3) $611 $ % 14.4% Adjusted EBITDA Margin (3) 32.3% 33.9% 160 bps Net Income $140 $139 (0.7%) AFFO (3) $388 $ % Dividend/Share $ $ % Fully Diluted Shares Outstanding % (1) Internal growth figures excluding impact of early lease termination fee recorded in data center business in Q2 17 (2) Reflects adjusted gross profit, excluding Significant Transaction Costs; reconciliation can be found in the Supplemental Financial Information on Page 5 (3) Reconciliation for Adjusted EBITDA and AFFO to their respective GAAP measures can be found in the Supplemental Financial Information on Pages 14 and 16, respectively

28 Significant Data Center Expansion Opportunity 28 (MW as of 6/30/18) Existing Capacity Under Construction (12-18 months) Planned and Future Expansion Total Potential Capacity Boyers and Other Denver Northern Virginia Sub-Total as of 12/31/ CS London CS Singapore CS Sub-Total (closed 03/08/18) IO Phoenix IO Scottsdale IO New Jersey IO Ohio IO Sub-Total (closed 01/10/18) EvoSwitch (closed 5/25/18) Total Data Center Portfolio Significant expansion capacity

Q Quarterly Results Conference Call. April 26, 2018

Q Quarterly Results Conference Call. April 26, 2018 Q1 2018 Quarterly Results Conference Call April 26, 2018 Safe Harbor Language and Reconciliation of Non-GAAP Measures This presentation contains certain forward-looking statements within the meaning of