51 slides from Iron Mountain Incorporated (delaware)'s proxy contest presentation, Mar 10, 2011
Slide 1: Schedule 14A - Iron Mountain Incorporated
SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant ¨ Filed by a Party other than the Registrant x Check the appropriate box: ¨ Preliminary Proxy Statement ¨ Conf
Slide 2: Schedule 14A filing fee information
¨ Fee paid previously with preliminary materials. ¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule
Slide 3: Presentation may be provided to stockholders by Elliott
The following presentation may be provided to stockholders of Iron Mountain Incorporated (the “Company”) by Elliott Associates, L.P. and Elliott International, L.P. (collectively, “Elliott”):
Slide 4: Iron Mountain Incorporated: Great Business Model, Significant Incremental Opportunity
Iron Mountain Incorporated: Great Business Model, Significant Incremental Opportunity March 9, 2011
Slide 5: Disclosure Statement
Disclosure Statement The information contained in this presentation is for informational purposes only and does not constitute an agreement, offer, a solicitation of an offer, or any advice or recommendation to enter into or to conclude any transaction or confirmation thereof (whether on the terms s
Slide 6: Iron Mountain: Leader in Information Storage Services
Iron Mountain: Leader in Information Storage Services Significant Opportunity to Generate Shareholder Value Iron Mountain (NYSE: IRM) provides records management, information protection and recovery, and data destruction services to more than 150,000 corporate clients • Market-leading core business-
Slide 7: Incremental Opportunity for IRM
Incremental Opportunity for IRM Business Improvements + REIT Conversion = Potential $52-$77 Stock Price $80 $70 High Implied $77 Dividend Yield $60 5.0% (1) $50 High $50 Mid Implied $40 High $52 Dividend Yield $41 6.4% (1) Mid Mid $30 $34 + $39 = $20 Recent Recent Recent Recent $25 $25 $25 $25 $10 $
Slide 8: Market-Leading Core Business - North American Physical
Market-Leading Core Business -North American Physical 5
Slide 9: IRM has a Great Business Model
IRM has a Great Business Model NOAM Physical is a Profitable and Sustainable Core Business IRM has a market-leading position in a great business North – American Physical document storage • Strong execution track record • Buy/lease by the square foot, monetize by the cubic foot • Annual revenues fro
Slide 10: NOAM Physical is Core Business
1 NOAM Physical is Core Business 2 3 69% of Revenues, 86% of OIBDA, 96% of Cash Flow 2 2010 Revenue 2010 OIBDA2 2010 OIBDA - Capex 1% 2% 3% Digital Int'l 7% Physical 12% Int'l Physical 23% NOAM Physical -96% NOAM Physical -69% NOAM Physical -86% (1) Iron Mountain’s reportable operating segments are
Slide 11: NOAM Physical is a Cash Cow
NOAM Physical is a Cash Cow Margin has Expanded & Cash Flow Nearly Doubled in Last 3 Years 1 1 Revenue ($MMs) & Growth (YoY) OIBDA ($MMs) & Margin OIBDA –Capex ($MMs) & Margin1 $2,300 16% $1,000 45% $900 40% 14% $2,100 $900 43% $800 12% 36% $1,900 10% $800 41% $700 $1,700 8% 32% $700 39% $600 6% $1,
Slide 12: As NOAM Physical's Revenue Growth Has Slowed, Attractive Opportunities Have Decreased
As NOAM Physical’s Revenue Growth Has Slowed, Attractive Opportunities to Invest Have Decreased (1) (1) Revenue & Internal Revenue Growth (YoY) Incremental Invested Capital ($MMs) 30% $550 Revenue Growth Internal Revenue Growth $500 Acquisitions 25% Capex $450 20% $400 $350 15% $300 10% $250 5% $200
Slide 13: New Initiatives Earning Minimal-to-Negative Returns
New Initiatives Earning Minimal-to-Negative Returns 10
Slide 14: $0.7B+ Invested in Digital, Minimal Return to Date
$0.7B+ Invested in Digital, Minimal Return to Date Uncertain Growth and Low Margins with Strong Tech Co. Competition Why invest profits from a high margin business into one with uncertain growth and low margins? How is IRM better positioned than existing and emerging tech titans? Digital Revenue ($M
Slide 15: $1.9B+ Invested in Int'l Physical, Minimal Return to Date
$1.9B+ Invested in Int’l Physical, Minimal Return to Date Slow OIBDA Growth and Low Margins Despite Continued Investment IRM has spent $0.6BN in International Physical Capex& Acquisitions from 2007-2010 and segment OIBDA has actually decreased International Physical Revenue ($MMs) International Phys
Slide 16: NOAM Physical vs. Int'l Physical
NOAM Physical vs. Int’l Physical Int’l Physical Productivity & Margins are Much Weaker (1) 2010 Revenue per Employee ($Ks) 2010 OIBDA Margin $250 50% $200 40% Int’l Physical OIBDA employee Margin in productivity Int’l Physical $150 is less than 30% is 18% vs. half of 44% in NOAM NOAM Physical Physic
Slide 17: Market Appears Skeptical of Management's Vision
Market Appears Skeptical of Management’s Vision 14
Slide 18: Valuation Has Declined to an All-Time Low
Valuation Has Declined to an All-Time Low… IRM EV / LTM EBITDA EV / Share 16x EBITDA Price 16x $62 15x $57 15x 14x $52 13x $48 14x 15x $57 14x $52 13x $48 13x 12x $43 11x $38 12x 11x 10x 9x 8x 7x 6x Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 15
Slide 19: Turnover of the Shareholder Base Reflects Uncertainty
…andTurnover of the Shareholder BaseReflects Uncertainty IRM - Stock Price & Volume $30.00 50MM “Growth-oriented investors Price (LH Axis) have become increasingly Volume (RH Axis) 45MM frustrated with the evasive $27.50 40MM revenue growth reacceleration and the 35MM $25.00 additional pressure on 3
Slide 20: Market is Questioning Management's Strategy
Market is Questioning Management’s Strategy… Comments from 2010 Investor Day Elliott Believes Recent Corporate Actions Are Insufficient “With your stock price near an all-time • Increased quarterly dividend in 4Q low, with interest rates near all-time 2010 from $0.0625/share to only lows…you couldba
Slide 21: Management Continues To Pursue Growth For The Sake of Growth
…Yet Management Continues To Pursue Growth For The Sake of Growth April 2010 Letter to Shareholders 18 Source: Iron Mountain Incorporated 2009 Annual Report
Slide 22: Opportunities Exist To Create Incremental Shareholder Value
Opportunities Exist To Create Incremental Shareholder Value • Implement business improvements to achieve operational efficiencies, increase margins and maximize cash flow available to equity holders —Focus on return-on-invested-capital (ROIC) for all growth- related initiatives • Optimize corporate
Slide 23: Implement Business Improvements To Achieve Operational Efficiencies
Implement Business Improvements To Achieve Operational Efficiencies 20
Slide 24: Incremental Opportunities for Operational Efficiency
Incremental Opportunities for Operational Efficiency Improve Expense & Capex Management $80 $70 High Implied $77 Dividend Yield $60 5.0% (1) $50 High $50 Mid Implied $40 High $52 Dividend Yield $41 6.4% (1) Mid Mid $30 $34 + $39 = $20 Recent Recent Recent Recent $25 $25 $25 $25 $10 $0 IRM Stock Pric
Slide 25: Business Improvements Can Provide Significant Upside
Business Improvements Can Provide Significant Upside Reduce Capex, Improve Int’l Margins, Rationalize SG&A $45 $3.72 $40 $2.98 + = High $41 $35 $3.45 + Sales, Mktg. & AM $5.47 G&A $30 + (1) Mid $34 Int'l Margins $25 + Capex $20 $15 Recent Recent $25 $25 $10 $5 $0 IRM Stock Price IRM Stock Price Sour
Slide 26: Reduce Capex by ~20%
Reduce Capex by ~20% $5.47 Per Share Opportunity • Management has said maintenance Capex is 2%of revenues • Elliott scenarios reduce total Capex from 7.6% of $5.47 revenues (Company guidance) to 6.0%of revenues (in Elliott Mid-case) • Primary reductions to come from: Capex — Int’l Physical investmen
Slide 27: Int'l Physical Margin Expansion
Int’l Physical Margin Expansion $3.45 Per Share Opportunity • Int’l Physical OIBDA margin is 18% vs. 44% for NOAM $3.45 Physical • Management to focus on increasing capacity utilization to drive OIBDA margins Int'l Margins • Need to start monetizing investments after several years of building capaci
Slide 28: Marginal G&A Reduction Can Provide Meaningful Benefit
Marginal G&AReduction Can Provide Meaningful Benefit $2.98 Per Share Opportunity $2.98 • Reduction in corporate overhead is in line with a maturing business High $41 • G&A as a %of total sales increased to 15.3%in 2010, G&A from a low of 13.6%in 2002 Mid $34 General & Administrative Savings ($MMs) M
Slide 29: Reduce Sales & Marketing Costs
Reduce Sales & Marketing Costs $3.72 Per Share Opportunity $3.72 • Sales & Marketing costs have increased to 9% of sales recently from 6% earlier in the decade • A 150-250bps reduction by scaling back sales and Sales, Mktg. High marketing effort is in line with declining growth & AM $41 outlook Mid
Slide 30: Optimize Corporate Structure For Tax Efficiency
Optimize Corporate Structure For Tax Efficiency 27
Slide 31: Incremental Opportunity Through REIT Conversion
Incremental Opportunity Through REIT Conversion Potential Tax Savings & Cap Rate Improvement $80 $70 High Implied $77 Dividend Yield $60 5.0% (1) $50 High $50 Mid Implied $40 High $52 Dividend Yield $41 6.4% (1) Mid Mid $30 $34 + $39 = $20 Recent Recent Recent Recent $25 $25 $25 $25 $10 $0 IRM Stock
Slide 32: REIT Structure Can Result in Significant Value Creation
REIT Structure Can Result in Significant Value Creation $60 $13.97 $50 High = $50 $40 $10.58 + Cap Rate Improvement Mid $30 $39 + Tax Savings $20 Recent Recent $25 $25 $10 $0 IRM Stock Price IRM Stock Price 29 Source: Elliott estimates
Slide 33: Potential REIT Structure
Potential REIT Structure Storage IRM Lease Payments IRM (REIT) Customers Payments for Services Services ServiceCo (TRS) • Services business contributed to ServiceCo, which elects to be treated as a taxable REIT subsidiary (TRS) • Customer contracts remain with IRM • IRM adopts REIT status and makes
Slide 34: Significant Benefits of a REIT Structure Deserve Careful Analysis
Significant Benefits of a REIT Structure Deserve Careful Analysis Elliott has devoted considerable resources to exploring the benefits and challenges of a REIT structure • Worked exhaustively with lawyers, industry consultants and other advisors using publicly available information to establish esti
Slide 35: Tax Savings and Cap Rate Improvement Per Share Opportunity
Tax Savings -$10.58 Per Share Opportunity Cap Rate Improvement -$13.97 Per Share Opportunity $10.58 • Elliott estimates $148mm of tax savings from REIT conversion • Implies a FCF benefit of $0.74 per share Tax Savings Benefit from Cap Rate Compression -- Incremental to Tax Savings of $10.58 $13.97 R
Slide 36: Incremental Opportunity: Detailed Cash Flows
Incremental Opportunity: Detailed Cash Flows 2011E Detailed Cash Flows Mid High ($MMs) Business REIT Business REIT Status Quo Improvements Conversion Combination Improvements Conversion Combination NOAM Physical OIBDA 972 1,013 972 1,013 1,040 972 1,040 Int'l Physical OIBDA 135 178 135 178 219 135 2
Slide 37: Incremental Opportunity: Implied Share Price Based on Equity FCF Yield
Incremental Opportunity: Implied Share Price Based on Equity FCF Yield Implied Share Free Cash Flow to Equity Yield Price - Based on Equity FCF Yield 7.00% 6.50% 6.36% 5.50% 5.02% 800 $57.11 $61.48 $62.87 $72.66 $79.53 774 $55.24 $59.46 $60.81 $70.28 $76.92 750 $53.54 $57.64 $58.94 $68.12 $74.56 700
Slide 38: Align Management Compensation Incentives With Shareholder Value Creation
Align Management Compensation Incentives With Shareholder Value Creation 35
Slide 39: Align Compensation Incentives with Shareholder Value
Align Compensation Incentives with Shareholder Value Emphasize ROIC and FCF Rather Than Growth Performance-based incentives are heavily weighted towards financial targets that favor growth ahead of efficient capital allocation and shareholder value • In 2010, the CEO and Chairman’s financial targets
Slide 40: Elliott's Slate of Independent Director Nominees
Elliott’s Slate of Independent Director Nominees 37
Slide 41: Elliott's Slate of Independent Director Nominees
Elliott’s Slate of Independent Director Nominees • Our slate consists of four highly qualified and motivated individuals who are fully prepared to explore all options to maximize shareholder value — All nominees are independent of Elliott • These individuals have exceptional experience in the critic
Slide 42: Contacts
Contacts Investors Elliott IRM Team Tel: 212-974-6000 Press Scott Tagliarino Tel: 212-478-2620 Email: stagliarino@elliottmgmt.com 39 Source: Iron Mountain Incorporated disclosures
Slide 43: Appendix
Appendix 40
Slide 44: Business Improvements - Detail
Business Improvements -Detail 41
Slide 45: Capital Expenditure Savings
Capital Expenditure Savings - Management has said maintenance Capex is 2% of revenues - Elliott scenarios reduce total Capex from 7.6% (Company guidance) to Management’s 5-yr 6.0% of revenues (in projection for Capex in 2009 Annual Elliott Mid-case) Investor Day - Primary improvement/ presentation r
Slide 46: G&A Costs Have Risen And Leave Room For Significant Improvement
G&A Costs Have Risen And Leave Room For Significant Improvement General and Administrative Costs (as % of Revenue) • G&A costs have increased to 16.0% over 15% of sales recently, from 15.5% 15.3% 15.3% 13.6% earlier in 2002 15.0% 14.7% • Elliott believes 14.5% a 100-200bps cut 14.3% 14.1% by consoli
Slide 47: Sales and Marketing Cost Savings Consistent with Lower Growth
Sales and Marketing Cost Savings Consistent with the Lower Growth of Attractive But Mature Business Sales, Marketing and Account Management Costs (as % of Revenue) • Sales & 9.5% 9.1% 9.2% Marketing costs 9.1% 9.0% 9.0% have increased 8.7% 8.7% from ~6% of 8.3% 8.5% sales earlier in 8.0% the decade,
Slide 48: REIT Conversion - Detail
REIT Conversion -Detail 45
Slide 49: Physical Storage Business is a Compelling REIT Candidate
Physical Storage Business is a Compelling REIT Candidate - Stable, annuity-like rental income streams (Low organic growth in core business) 2 - High margin physical storage business generates ~80%of total IRM OIBDA - Business elements not consistent with REIT requirements can be placed into a taxabl
Slide 50: Public Market REITs Trade at Significantly Lower AFFO Yield vs. S&P500
Public Market REITs Trade at Significantly Lower AFFO Yield vs. S&P500 Companies Investors appreciate certainty of cash flow 47 Source: Green Street Advisors, Inc.
Slide 51: Elliott Valuations Imply a Meaningful Discount to Comparable REITs
Elliott Valuations Imply a Meaningful Discount to Where Comparable REITs Trade 2011E AFFO Yield 6.5% 6.0% Market Value = AFFO x AFFO Yield 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% Industrial Data Center Self Storage GSA Average IRM - High IRM - Mid Source: Industrial, Data Center, Self Storage and GSA Average