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

Thanks Sarah. Good morning and welcome to our third quarter 2022 earnings conference call. On today’s call, we will refer to materials available on our Investor Relations website. We’re joined here today by Bill Meany, President and Chief Executive Officer, and Barry Hytinen, our Executive Vice President and Chief Financial Officer. After prepared remarks, we’ll open up the lines for Q&A. Today’s earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainties. Please refer to today’s earnings materials, the Safe Harbor language on Slide 2, and our quarterly report on Form 10-Q for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. We have included the reconciliations to these measures in our supplemental financial information. With that, I’ll turn the call over to Bill.

Thank you Gillian, and we appreciate everyone taking the time to join us for our third quarter results. We are pleased to share with you another outstanding quarter, representing the durability and growth of our business model as we continue to navigate successfully through significant headwinds, including the strength of the U.S. dollar, COVID shutdowns in China, and ongoing global tensions. Our team of 25,000 dedicated Mountaineers continues to empower our customers with solutions to enable them to transform their businesses. In the third quarter on a reported basis, we delivered revenue of $1.29 billion, representing 14% total organic revenue growth. We are pleased to have achieved all time record adjusted EBITDA of $469 million. Since last year, the U.S. dollar has strengthened significantly, and excluding its impact on a like-for-like basis, this quarter our revenue was approximately $1.33 billion and EBITDA was $484 million, representing growth of 18% and 16% respectively. These results demonstrate the inherent growth and strength of our business and are further proof of why we continue to be so encouraged by the increased demand for our services across the markets in which we operate. Positive volume and revenue management trends continued to benefit us this quarter, as reflected in our organic storage rental revenue growth of 9.7%. As we shared with you in September at our investor event, we are executing well on our new Project Matterhorn operating model, the next transformational phase of Iron Mountain’s growth journey. Building off an already solid foundation, we believe Matterhorn is a cornerstone initiative that will allow us to maintain and capitalize on the positive momentum we have seen over the last several quarters. Through our fully funded plan’s ability to invest 16% of revenue over the next four years, we believe we will further strengthen Iron Mountain…

Thanks Bill, and thank you all for joining us today to discuss our results. In the third quarter, our team delivered solid performance, meeting top line projections while exceeding expectations for both EBITDA and AFFO. On a reported basis, revenue of $1.29 billion grew 14% year-on-year, or 18% excluding the effects of the stronger U.S. dollar. A key highlight in the quarter is our organic storage revenue, which grew 9.7% and represents a sequential improvement of 150 basis points. Total service revenue increased 28% to $527 million, driven by organic growth of 22%. These results reflect the strong performance of our commercial team and their laser focus on selling the full suite of products and solutions across our portfolio. Adjusted EBITDA was $469 million, up 12% on a reported basis and up over 16% year-on-year on a constant currency basis. As the dollar strengthened significantly since the time of our last call, I think it will be helpful to provide a bit more context. As compared to the rates we were using in August, the stronger dollar resulted in an incremental headwind in the third quarter of approximately $10 million to revenue and $3 million to EBITDA. Under the same FX rates we were using in our August projection, third quarter revenue and adjusted EBITDA would have been approximately $1.3 billion and $472 million respectively. Adjusted EBITDA margin was better than we projected and improved 120 basis points sequentially, driven by revenue management and mix. AFFO was $288 million or $0.98 on a per-share basis, up $25 million and $0.08 respectively from the third quarter of last year. Due to the strengthening dollar, there was an approximate $3 million impact to AFFO versus the rates we used in our August projection. Now turning to segment performance, in the third quarter…

[Operator instructions] Our first question comes from Shlomo Rosenbaum with Stifel. Please go ahead.

Hi, thank you for taking my question. You mentioned last quarter that you were talking about doing a third quarter pricing increase, and it’s usually something that happens, I think, more at the end of the year. Could you give us a little bit more color around the success of your ability to put through some more pricing and its implications for 2023?

Okay, thanks Shlomo - this is Barry. Appreciate the question. We did put in place those revenue management actions we talked about on the last call, so those went into effect in September and you see that beginning in the quarter to take hold in the results. As you would have noted, the implied growth from revenue management, it accelerated in the quarter and that’s been ramping through the year, so think on our global RIM business, it was probably in the 6.5 range - that’s up from about 5 earlier in the year and making steady progress. I would expect in light of the macro environment and the reception that we’ve been seeing with respect to revenue management activities, that that would--we would continue naturally to be at this level as we move into 2023, so we are preparing similar revenue management actions going forward and the reception has been consistent with what we’ve seen over many years. I think it demonstrates the value that we’re driving for our customers. Thanks for the question.

Our next question comes from Kevin McVeigh with Credit Suisse. Please go ahead.

Great, thanks so much. Barry, can you just--I just want to make sure I have the numbers on ITRenew. How much is in the full year guidance versus where you initially guided, and was the offset the data center deal or--because obviously you’re maintaining despite, it sounds like, a little bit of run-off in IT and FX. Where’s the offset on the guidance?

Okay, thanks Kevin, good morning. Thanks for the questions. On ITRenew, we certainly, as we’ve said throughout the year, been experiencing challenges, like so many other companies that sell into China. With the COVID lockdowns that have persisted and then at one level or another throughout the second half and really throughout the year, that has been a challenge as it relates to our revenue, as Bill and I mentioned in the prepared remarks, we’ve assumed that ITRenew will be and total ALM business will be pretty consistent third quarter and fourth quarter at this level. In total, ITRenew was of the order of about $45 million of revenue in the third quarter, and that was, as I said in the prepared remarks, down about $5 million, $6 million from the projection we were using at that time. Thanks for the call-out as it relates to the total business continuing to perform well. You mentioned the data center deal - just to be clear, that business is only 3 megawatts today, so that is not a driver of revenue performance in the fourth quarter at all, although we are really bullish on that opportunity because Madrid is a market that we’ve wanted to play in for some time and it’s a unique market, as I’m sure you know, from the standpoint of where it is with the energy grid. It’s not constrained like so many other markets in Europe, and we think it is, as a market, one that has considerable opportunity. Our pipeline there is quite good, so we’ll be developing that site and we feel really good about the asset. In terms of the fourth quarter and our ability to continue to deliver strong growth, that’s a testament to our teams’ strong performance across our operations, so in our global records business we’ll continue to see benefit from revenue management, as I mentioned. We’ve had very strong services performance, and we continue to see a ramping business in our data center. Thanks so much for the question, Kevin.

Our next question comes from George Tong with Goldman Sachs. Please go ahead.

Hi, thanks. Good morning. Wanted to drill into the services revenue performance. The growth was very strong in the quarter, up 22% organically. I wanted to see what the sustainability of the drivers are, if you could talk a little bit about contributions from the growth portfolio, particularly digital services, overall services revenue growth, and any other factors such as paper prices or traditional service trends that might impact the outlook for services revenue performance. Thank you.

Thanks George for the question. We feel really good, as you would have noted, that over the last number of quarters, we’ve been consistently showing north of 20% growth both on our IT disposal business - you know, the traditional part or the organic portion of our asset life cycle management business has consistently been 20% or better, and our digital service business continues to go from strength to strength again, north of 20%. Those are really two of the key drivers driving that overall level of service growth. If anything, we see in both of those areas, the interest in customers, whether it’s helping them at the end-of-life in some of their assets, make sure that it is destroyed in a way that’s secure, or in the digital service business, we see more and more customer interest and actually customer contracting on us helping them with their digital transformation. I think the current environment, we see more rather than less of both of those things, so we feel really good about being able to maintain that kind of level of growth, which is all part of the Matterhorn project that we outlined at our investor event a few weeks ago, that when you put it all together, it drives what we see over the next coming years - you know, consistent growth rates that turn into a CAGR of 10% or better.

Our next question comes from Eric Luebchow with Wells Fargo. Please go ahead.

Hi, thanks for taking the questions. Two, if I could, and probably both for Barry. Just wanted to return to your investor day from September. Maybe you could give us a little color - the $450 million of cash costs you expect to incur over three years as part of Matterhorn, a little more insight into what those costs are, where they’ll be spent to help drive some of the growth rates you laid out longer term. Then secondly, just as you think about capital allocation, if you could talk about you funding plans to achieve the longer term capex guide. I know your long-term debt yields are above 7% today, and obviously the forward curve on short term rates continues to march higher, so just wondering how you’re thinking about managing fixed to floating mix as you fund your elevated data center capex pipeline. Thank you.

Okay, thank you Eric for the questions. A couple of ones in there. On Matterhorn, the costs that we spoke about, as you know, we’re moving to a new operating model that Bill just touched on briefly, that being with a global commercial organization, also a global operations function. In those cases, that is a pretty substantial change for us in terms of the way we go to market. On the commercial side, it’s really putting together an organization that is singularly focused on serving our customers on a solution basis and really developing a tremendous amount of excellence around all things commercial. Then, we are also constructing a global operations function which is meant to serve our customers effectively and drive significant customer satisfaction and high quality service, while also creating and furthering the shared services backbone that we have to support the entire organization. As well, we are moving to a business unit function, that being, as we discussed at the investor day event, storage and asset life cycle management and data center, as you know, so those are pretty substantial changes. We think of it, as Bill mentioned, as a transformation, and with that, probably about one-third of those costs, Eric, will be maybe slightly less, will be specific to enablement to align and transform into that commercial operating function. Then the bulk of the cost will be around in fact transforming the broader operating model, which would include costs that you would expect with respect to that kind of transformation, including activities such as restructuring and furthering our transformation. Thanks for that question. I guess I’ll just note, as I said at the investor event, we would expect to be approaching the run rate of that level in the fourth quarter as we continue to move…

Our next question comes from Wendy Ma with Evercore. Please go ahead.

Good morning everyone. Thank you for taking my questions. For 3Q, the leasing of data centers seemed a little bit softer compared to historical levels. Could you please talk about the demand trends in your key markets given the current slowing down economic environment, and also, how should we think about the leasing activity maybe heading into 2023? Thanks.

Good morning Wendy, thanks for the question. We remain really excited and very bullish about our data center businesses. As we said, if you look at--you know, we’ll exceed the 130 megawatts that we had laid out or forecasted on our last call, so we continue to build past that and we see similar momentum as we go into next year, so we don’t see any change in terms of our pipeline that turns into leasing activity as we start approaching 2023. We continue--there’s always a little bit of lumpiness because these are fairly large contracts when you look at quarter to quarter, but we see continued strength and momentum as we go into next year. I think we are also in key markets - that’s why we’ve expanded in Phoenix, where I mentioned that we’re pretty much fully leased or committed on our current campus in Phoenix, and we’ve expanded there. As Barry mentioned, whilst there is 3 megawatts that comes with the north of 70 megawatts of capacity that we’ve purchased in the Iberian Peninsula, specifically in Madrid, is that comes with a pipeline of activity because we’ve been clearly speaking to our customers and anticipating that move. We continue to see that we’re going from strength to strength in that business and building really strong momentum as we go into 2023.

Our next question comes from Andrew Steinerman with JP Morgan. Please go ahead.

Hi. Barry, when talking about the fourth quarter revenue guide of $1.3 billion, could you tell us how that shakes out in terms of organic constant currency revenue growth, and if you could make a comment between storage and service?

Sure. Hi Andrew, good morning, and thanks for the questions. When we look at the fourth quarter revenue rate, that being of the order of high teens growth on a constant currency basis, and something of the order of 17%, 18%, so very strong continuation of trend. I’ll note that that’s basically the rate we’ve been running at through the year, so it’s a very good continuation of trend. From the standpoint of storage and services, as Bill mentioned in response to one of the earlier questions, our services business continues to go from strength to strength. That’s thanks to things like our digital solutions and our historic IT asset disposition business, which is growing in excess of 20% - I think 25% in the most recent quarter, very strong performance. We view many of our businesses as playing in markets that are quite large, growing secularly at double-digit rates, and that we expect to continue to take market share in, so for the fourth quarter, you should expect continued strong performance from both storage and services throughout the business. The only thing I would further underline is that for ITRenew and ALM in general, we’ve assumed it would be consistent on a sequential basis, so you can work into the organic if you’d like from that. Thank you for the question.

Again, if you’d like to ask a question, please press star then one. Our next question comes from Brendan Lynch with Barclays. Please go ahead.

Good morning, thanks for taking my question. I wanted to just dig in a little bit on your power cost exposure for the DC business. I believe you’re largely hedged, but maybe you could just give us a bit of color on how you hedged for this exposure and what the order of magnitude is that you expect for costs to go up for your customers specifically. Thank you.

Okay, maybe I’ll take the first part of that, and if Bill wants to add, he can. Thank you Brendan for the question, and appreciate those points that you’re asking about. I think our team has done quite an effective job with respect to hedging and getting us into a place where we’re in a very good position as we work into 2023 as it relates to power. To give you a sense, Brendan, obviously this is a little bit based on forecast of next year, but we estimate that we were in excess of 95% locked in terms of pricing at this point for power; in fact, it’s probably closer to 99%. I would say the other important point is when you look at our customer base, we have the ability to directly pass power pricing onto roughly 90% of the customers, and that’s either through pass-through or surcharge, for example to retail customers, and in many cases that’s month to month as we’ve highlighted before. For those that we don’t have that direct ability, of course we have the ability to adjust pricing on renewals, and that’s principally in the retail portion of our business. As you know, those are relatively shorter contracts, so we have the ability to price quite frequently or consistently with power, so it’s not a huge headwind. I think the fact that the team has continued to drive gross margins to being consistent, in fact in the most recent quarter up several hundred basis points in our data center business, is a very good testament to the fact that we’re managing the impact of power, which as you know is a margin drag as its increasing, so we feel very good about where we are going into next year as it relates to power. As it relates to pricing more broadly, the thing I would point you to is if you look at our mark-to-market, it has continued to improve throughout the year, and as you know, that’s a lagging indicator in light of when the contracts for renewals were signed, so we continue to see a very healthy environment for pricing within data center, at least within the markets that we operate in there, generally speaking. I would say there’s more demand than supply. We feel very well positioned as it relates to the assets we have and our ability to continue to price. I’ll also note, of course, that construction costs are up and so when you look across the platform of our data center business, we feel very good about how the team is performing.

The only thing I would add, you were asking about how we manage with the customers, because this has been a pain point for our customers. As Barry said, you can see our margins continue to improve, so as we’re building out operational leverage in the business, which is first and foremost, but we’ve been able to manage the price increases in line with energy costs, so it hasn’t been a drag for us. But for our customers, it’s been a pretty big pain point. Recently, I can say speaking to a customer--a large ecommerce customer in Asia, we actually serve them around the globe but based in Asia, and a large global financial institution, even though we have the-and they do pass the power costs to them, is having the uncertainty in the budgets is difficult with them, so we have been working with a number of those customers to actually buy power in advance, or contract forward for some power that we could give them certainty in terms of what their energy bill is going to be on a rolling 12-month basis. We have been working with our customers to try to minimize the volatility and the pain that they are experiencing, so so far, so good.

This concludes our question and answer session and our Iron Mountain third quarter 2022 earnings conference call. Thank you for attending today’s presentation. You may now disconnect.