Iron Mountain Inc (IRM) — Q4 2021 Earnings Call Transcript

Thank you, Emily. Good morning, and welcome to our fourth quarter 2021 earnings conference call. On today's call, we will refer to materials available on our Investor Relations website. We are joined here today by Bill Meaney, 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 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 reconciliations to these measures in our supplemental financial information. And with that, I'll turn the call over to Bill.

Thank you, Gillian, and thank you all for taking time to join us today. We are pleased to have delivered record performance for both the fourth quarter and the full year. These record results are reflective of our broad offerings, deep customer relationships, resilient business model and our dedicated teams. Despite the challenges associated with the pandemic and most recently with the Omicron variant, our Mountaineers around the world have continued each and every day to put our customers first, now with renewed and invigorated focus on growth. Our historically high revenue and profitability are a testament to our Mountaineers' commitment. Speaking about our Mountaineers, I wish to begin my remarks by stating that we are all saddened by the overnight events in Ukraine. Our thoughts and prayers are with our customers there and our fellow 60 Mountaineers and their families living and working in Ukraine. I am sure for all of us, given the current events in Europe, it feels in many ways inappropriate discussing our financial results with this backdrop. Yet at the same time, it is in keeping with our Mountaineer spirit. With that, let me begin our discussion of our remarkable and record year. In the fourth quarter, we achieved our highest ever quarterly revenue of $1.16 billion, yielding 8.5% of total organic revenue growth and record EBITDA of $431 million. For the full year, we achieved record revenue of nearly $4.5 billion and EBITDA of $1.6 billion. These results were fueled by increased demand for our services across key markets. For the full year, we delivered organic storage rental revenue growth of 2.6%, reflecting continued benefit of pricing combined with positive volume trends. We drove double-digit growth in digital offerings, including data center services, our digital transformation services, and secure IT disposition, now referred to as ALM, or asset life cycle management. Our digital services and ALM businesses continue to build momentum, growing over 20% in the fourth quarter and capping off an excellent year of growth. Further to our recent success in the ALM area, we are also pleased to report that the acquisition of ITRenew, announced in December, closed in January. This acquisition will accelerate our growth trajectory in this $30 billion market, which is growing over 10% per year. Our newly created ALM division will absorb our historical secure ITAD business line. This enlarged division not only helps us provide chain of custody for our customers' IT assets but assures our customers that their IT assets are wiped of any data at the end of their life and destroyed and recycled in a responsible way. On this last point, in terms of recycling, our expanded offerings in this space around a circular economy are important for both IRM's and our customers' ESG goals leading to carbon neutrality. This expanded ALM division also strongly complements our fast-growing data center business, bringing capabilities to serve some of the largest and most innovative companies in the world in a more cradle-to-grave way, consistent with the best security and ESG practices. This expanded ALM platform will directly benefit from Iron Mountain's 225,000 loyal customer base, which includes 95% of the Fortune 1000. This global customer base is supported by 25,000 Mountaineers across 1,450 facilities in 63 countries. Our recent expansions in data centers, machine learning-driven data analytics and insights, and now ALM are just some of the examples of how we continue to invest in growth to capitalize on our many opportunities ahead, serving a customer base which has been loyal to Iron Mountain for decades. I have shared with you previously how in the last 5 years, these investments have taken the total addressable market, or TAM, of our products and services from $10 billion to some $80 billion. I am happy to report our continued build-out of new products and services in the last year as well as growth in these underlying markets has now taken our TAM to over $120 billion. Our continued drive in building an ever-expanding set of synergistic and customer-centric solutions, together with global reach and scale, is the fuel behind much of the acceleration in our growth. Let me share a few examples of how we've been empowering our customers' success in growth through our diverse solution offerings and unmatched customer service. Our recent customer win with a large aerospace company, where we won a backfile digitization deal of over $20 million, is a superb example of collaboration among our entertainment services, technology organization, and our global records organization, or GRO. In order to achieve its goal of being a 100% model engineering company and to most effectively use designs and data from historical archives to refine new designs, this aerospace company sought help with the digitization and auto-classification of over 50 million digital engineering assets. We were tasked to store, classify, and utilize machine learning to identify relevant information whilst maintaining compliance with International Traffic in Arms Regulations, known as ITAR. To this end, we developed and implemented an ITAR-compliant solution using our InSight machine learning platform operating in the AWS government cloud environment. Iron Mountain is uniquely positioned to assist our partner with this initiative with our storage capabilities, our understanding of ITAR compliance complexities, our machine learning-trained analytic engines, and our technological support to ensure efficiency and success. Moreover, this project enables us to deliver critical insight into engineering data, not just to this company but also to other manufacturing and engineering customers across the globe. Another key win worth highlighting is with a branch of the U.S. federal government. We concluded a Phase 1 contract and have also been awarded a Phase 2 contract for this branch. The agency originally planned to select three vendors for the first contract due to the high volume of microfilm reels needing to be processed, but our solution surpassed the customer's expectations, and Iron Mountain was awarded the exclusive contract to process all 177,000 microfilm reels or over 2 billion records needing analysis. This win was based on our unique splitting technique, proprietary machine learning, automated QA process, and processing scalability that helped us to differentiate our offer from the competition. These technology innovations for the customer have enabled future use cases, which rely on advanced pattern recognition at scale, including OCR microfilm processing projects, applying machine learning extraction techniques for digital mailroom, invoice processing, and extracting information from claims documents, to name a few. Another example of how Iron Mountain is working with customers to support their digital transformation is our recent partnership with a production and development company operating in the U.K.'s North Sea. We've undertaken a significant back scan of their legacy archive records to meet their regulatory obligations to the U.K. oil and gas authority in order to relinquish their license to operate on 230 wells they wish to abandon. They're required to digitally upload all information assets to the National Data Repository. Using the InSight platform, we were able to solve the problem of having enormous amounts of data to sift whilst consolidating physical and digital data in disconnected information silos, resulting in millions of dollars of annual savings. Moving back above ground, recently in our Crozier Fine Arts division, we won a contract to provide comprehensive storage solutions and logistical support for the museum operations of the Academy Museum of Motion Pictures. We were excited and proud that, based upon a foundation of long-term partnership and trust built up through many years of support from Iron Mountain's Entertainment Services division, they came to us to meet their evolving needs where Crozier services were an ideal match. Now turning to wins in our data center business. Recall that our bookings target for the year was 30 megawatts. We are pleased to have finished the year with nearly 49 megawatts of leases signed with over 27 megawatts of leases in the fourth quarter alone. This includes the new 20-megawatt lease in our Manassas, Virginia data center announced in December. This lease is expected to commence in phases from mid-2022 through mid-2023. We continue to see strong demand for comprehensive data center solutions from our existing customer base. This lease is indicative of our ability to meet that demand and reflects our commitment to strategically partnering with our customers to meet their individual requirements. Based on current design plans, we now expect that the VA2 facility to support 36 megawatts, up from 30 megawatts previously. With these changes and other additions to our portfolio, our total capacity is now in excess of 600 megawatts. Finally, we continue to be recognized for our leadership around ESG. This has been an important focus for us for many years, having produced annual sustainability reports outlining our commitments and progress since 2013. Some of our past recognitions have included: 100% of our data center power is generated by renewables; we were the launch provider of Green Power Pass, which allows our customers to report reductions in their carbon footprint when using our data centers; we were a co-signer with Google to expand our commitment to green-powered data centers to 24/7 carbon-free electricity; and we were one of the original signatories of the UN Global Compact on Sustainability back in 2016. More recently, we announced, in addition to their RE100 program, we have joined the Climate Group's EV100 initiative and reached a key milestone in electrifying our global vehicle fleet in line with our climate pledge commitment to achieve net zero carbon emissions by 2040. We have made real progress towards our carbon reduction goals. Since establishing our first science-based targets, we have reduced absolute greenhouse gas emissions by over 60% from our 2016 baseline whilst growing the business. We believe that our commercial growth and ESG initiatives make us stand out, and we suspect they were a major factor in our being ranked amongst the top 100 on Newsweek's list of America's most responsible companies. In summary, our future ahead is bright. We are building on our growth momentum as we expand our portfolio to meet our customers' evolving needs. And with our strong footprint, powerful portfolio, and deep customer relationships, we are confident that we can continue this momentum as we ascend our mountain range and provide another set of performance records this year and the years ahead. With that, I'll turn the call over to Barry.

Thanks, Bill, and thank you for joining us to discuss our results. In the fourth quarter, our team delivered strong performance, exceeding the expectations we provided on our last call. Before I dive into our results, I would like to take a moment to thank our dedicated Mountaineers for their outstanding performance and continued commitment to Iron Mountain. On a reported basis, revenue of $1.16 billion grew 9.4% year-on-year with total organic revenue up 8.5%. Revenue was $10 million ahead of the high end of the expectations we shared previously despite the U.S. dollar strengthening and being more of a headwind in the quarter. As an example of the momentum we are building, on a 2-year basis, our total organic revenue growth continued to accelerate in the quarter. Organic storage revenue grew 3.6% in the quarter, reflecting our strong pricing and data center commencements. Organic service revenue increased $65 million or 17.6%, driven by continued strong growth in digital solutions and asset life cycle management. As revenue associated with our traditional transportation services were still down nearly 10% from pre-pandemic levels, we are even more pleased with this performance. Adjusted EBITDA was $431 million, an increase of $56 million from last year. As a result of strong flow-through driven by pricing and productivity, fourth-quarter EBITDA exceeded the high end of our expectations by $6 million despite additional FX headwind. AFFO was $267 million or $0.92 on a per-share basis, up $76 million and $0.26, respectively, from the fourth quarter of last year. In both cases, we significantly exceeded the high end of our expectations. Now let me briefly summarize the full year. Revenue of $4.5 billion increased 8% on a reported basis and over 6% on an organic constant currency basis. Adjusted EBITDA increased 11% year-on-year to $1.635 billion, an increase of $159 million year-on-year. We achieved the high end of our full-year guidance. AFFO increased 14% to $1.01 billion, or $3.48 on a per-share basis, in both cases, exceeding our full-year guidance ranges. Now let's turn to segment performance. In the fourth quarter, our Global RIM business delivered revenue of $1.02 billion, an increase of $76 million from last year or 8% on a reported basis from last year. On an organic basis, revenue increased 7%. Constant currency storage rental revenue growth of 4.2% or 2.5% on an organic basis reflects our focus on revenue management and solid volume trends. With positive volume trends and growth in our adjacent and consumer businesses, total physical volume was in line with our expectations for the quarter and the year. Global RIM adjusted EBITDA was $453 million, an increase of $49 million year-on-year. Adjusted EBITDA margin was up 160 basis points year-on-year, reflecting continued pricing strength and productivity. Turning to our global data center business. Our team booked 27 megawatts in the quarter. For the full year, bookings came in at 49 megawatts, significantly exceeding our full-year guidance of 30 megawatts. We are very pleased with the team's leasing performance. To give some historical context, we leased 10 megawatts in 2018, 17 megawatts in 2019, and excluding our joint venture in Frankfurt, 31 megawatts in 2020. In terms of revenue, as we projected, fourth-quarter growth accelerated to 25% year-over-year. Storage revenue grew 18% year-on-year, and service revenue was up sharply and in line with our projections. As a reminder, service revenue in the second half includes fit-out services we are providing to our Frankfurt joint venture. We expect that activity will be completed early in 2022. Even with the large service component, EBITDA margin increased sequentially with strong commencements. We are pleased with our data center performance, and our pipeline has continued to strengthen, both in terms of hyperscale and retail colocation. In 2022, we expect to lease 50 megawatts, which would represent 28% annual bookings growth. We project full-year data center revenue growth in a range of high teens percent year-on-year with even higher growth rates on storage. With our strong prior year bookings and recent commencements, we have very good visibility to revenue. With pricing and improved mix, we expect data center margin for the full year to be up modestly compared to 2021. Turning to Project Summit. This quarter, the team delivered $30 million of incremental year-on-year adjusted EBITDA benefit. For the full year, as compared to 2020, Summit delivered $160 million of benefits. We continue to expect another $50 million of year-on-year benefit in 2022. Total capital expenditures were $219 million, of which $173 million was growth and $46 million was recurring. For the full year, total capital expenditures were $606 million, of which $309 million was growth capital related to data center development. In 2022, we expect total capital expenditures to be approximately $850 million. We are projecting approximately $700 million of growth CapEx, with data center development representing about three-quarters of that. We expect recurring CapEx to approach $155 million. Turning to capital recycling. As we have said before, we view the market for industrial assets as highly attractive as a means to supplement our growth capital. With that backdrop, in the fourth quarter, we upsized our recycling program and generated approximately $63 million of proceeds, bringing the full year to $278 million. Turning to the balance sheet. We ended the quarter with net lease adjusted leverage of 5.3x, in line with our projection and modestly improved compared to last quarter. As we have said before, we are committed to our long-term leverage range of 4.5 to 5.5x. For 2022, with the closing of the ITRenew transaction, we expect leverage to tick up modestly in the first quarter. We expect to exit the year at levels within our target range. In December, thanks to strong support from the fixed income community, our team successfully issued 10-year notes to support the ITRenew transaction. From a cash perspective, I would like to recognize our team for driving strong collections, improving our days sales outstanding, and resulting in year-on-year improvement in our cash cycle. The collective performance has resulted in a 5-day improvement from pre-pandemic levels. With our strong financial position, our Board of Directors declared our quarterly dividend of $0.62 per share to be paid in early April. Also, as you may have seen, we are pleased to announce an important strategic milestone related to our unconsolidated joint venture focused on the fast-growing valet consumer storage market. MakeSpace recently completed a merger with Clutter, a similarly sized business also focused on valet storage. We expect the combination will result in considerable benefits, including a focus on a single brand, Clutter, broader reach, and natural synergies. Iron Mountain will continue to provide storage services to the business, and our ownership interest will be nearly 25% of the combined entity. We are excited about the opportunities that lie ahead and expect continued benefit to our total physical volume. Now turning to our outlook. For the full year 2022, we currently expect revenue of $5.125 billion to $5.275 billion. We expect adjusted EBITDA to be in a range of $1.8 billion to $1.85 billion. At the midpoint, our guidance represents revenue growth of 16% and EBITDA growth of 12%. We expect AFFO to be in the range of $1.085 billion to $1.12 billion, which represents 9% year-on-year growth at the midpoint. We expect AFFO per share to be in a range of $3.70 to $3.82. Our guidance assumes organic global physical volume will be consistent to slightly positive year-on-year. We expect revenue management will be a significant benefit, and I will note that 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 and our organic ALM business, combined with a slight recovery in our service activity across the year. Our guidance also assumes the contribution from our acquisition of ITRenew. As we closed the deal at the end of January, we are including 11 months of the results in our guidance. Our guidance includes approximately $450 million of revenue from ITRenew. We estimate the stronger U.S. dollar will result in foreign exchange headwinds to revenue of approximately $60 million year-on-year, with the vast majority of that in the first half. In terms of EBITDA, our expectations include the benefit from revenue management and top line growth, the contribution from ITRenew, as well as Project Summit benefits. Our EBITDA guidance also assumes a prudent outlook for inflation, rent from our recent sale leaseback transactions, increased innovation spend, the stronger U.S. dollar, and the divestiture of the software escrow business, which we sold in late second quarter. With the ongoing volatilities in the market associated with the pandemic as well as the closing of the ITRenew transaction during the quarter, we felt it would be helpful to share our expectations for the first quarter. We expect total revenue to be in excess of $1.2 billion. We expect EBITDA to be approximately $425 million. We expect AFFO to be in excess of $250 million. In summary, our team is executing well. Our pipeline continues to expand, and momentum continues to build across our business. Our addressable market has grown significantly over the last several years, and we expect this to continue to expand. We feel confident in our ability to deliver higher levels of growth. Thanks to our team's collective efforts, together with our strong customer relationships, brand position, and investments in innovation, we feel very well positioned as we enter 2022. And with that, operator, please open the line for Q&A.

The revenue growth that you're targeting in 2022 is very strong. I was wondering if you could give us a little more detail on the drivers of that growth. And if it's more momentum in services, how should we think about the EBITDA margin in 2022 as compared to 2021?

Thanks for the question. So I think I'll talk about, first of all, where the revenue growth comes. And then I'll let Barry comment a little bit on the EBITDA margin, the impact that has. So I think we continue to see 2022 to have the same kind of momentum that we had in 2021. And the momentum that you saw in 2021 was driven by two things. First of all, a very solid foundation from our GRO business across the globe. So that continues to drive low single-digit growth and highly profitable. And then a continued acceleration in terms of our new areas, which are everything that includes data center, the digitization platform, which uses the artificial intelligence, machine learning InSight platform, as well as the acceleration in asset life cycle management. So we still see that to be strong double-digit growth in those new service areas. Some of those have a different margin associated with it, but that's where we see the fuel of the revenue growth. And maybe, Barry, you want to comment in terms of what that does in terms of EBITDA progression.

Thanks for the question. So we feel great about where we're positioned as it relates to profits and revenue and really see the business building quite well. The things I would call out to add to Bill's comments are you're right, there's a fair bit of services. On a total EBITDA margin, you will see the margin mix down, but that's the contribution of ITRenew. I'd say for planning purposes, if I were you, what we're using in our model is that business, as you would have seen from prior disclosures, is kind of a mid- to high-teens EBITDA margin. But when you get underneath that and back that out, you'd see that our core Iron Mountain margins are actually continuing to improve, and that's driven by the fact that we have very strong pricing contribution this year. From a planning posture, we kind of assumed 2 to 3 points. But as you probably saw in the most recent results, we're seeing the upper ends of that and probably more going forward, so feel very good about our revenue management program. Our data center business is doing phenomenally well, as you've seen, and that is a margin benefit as we move forward. As I mentioned in the prepared remarks, we expect our data center profitability to be up modestly year-on-year as a lot of revenue growth is coming out of our storage side of the data center business. Of course, our Summit contributions continue to roll in. We'll have $50 million or more from Summit, thanks to the team's very strong contributions. You would have noticed from seeing our most recent results that our services' gross margins and EBITDA margins are at very high levels. You can think like up 500, 600 basis points year-on-year in the fourth quarter. I expect that we will continue to see very strong service margin out of the core going forward. So we feel very well positioned, Sheila, and I appreciate the question.

Barry, maybe I could just piggyback off the last comment on the services business and the services margin. Can you talk about what drove the gross margin improvement? You had very strong services revenue. Maybe you could talk about how much of that was maybe Frankfurt versus some services that might still be coming back versus just new wins that you've got. And then it's a pretty significant margin improvement sequentially as well. If you could talk about where it's coming from and particularly in the face of inflation and wage inflation and how you're managing that.

Thank you, Shlomo. I appreciate that. First, I want to clarify that the revenue from Frankfurt is not a primary contributor because those are essentially pass-through revenues for our services business, which actually impacts our margins negatively. This is one reason why our data center margin has been somewhat subdued. However, as we complete these services early in 2022, we anticipate a year-on-year margin increase due to a larger contribution from our storage operations and a decrease in service revenue from data centers. The core business is driving this improvement. For several quarters, we've highlighted that Project Summit and enhanced productivity from our operations have been quite beneficial. Our gross margin increased by approximately 550 basis points year-on-year and 400 basis points sequentially, demonstrating strong operating leverage. There is also some mix impact, and as Bill discussed, our digital solutions and asset lifecycle management are contributing positively. We have also implemented revenue management on our services line. Regarding inflation, I reiterated our cautious approach in our guidance last year, incorporating a healthy expectation of inflation similar to the prior year. Although inflation persists in the economy, our fixed structure and revenue management program allow us to enhance productivity and significantly improve our pricing performance. We are confident about our current position in services and our overall guidance.

Yes. I want to add that in our services, we're providing more value-added offerings. More of our digitization services now include machine learning components, such as auto-classification and other advanced analytics, which contribute to higher margins. Most of the new projects we’re taking on have some aspect of this, leading to naturally higher profitability. Although inflation impacts various sectors, it doesn’t negatively affect us as much because our business operates at a high margin. This pricing strategy tends to enhance our margins further. Overall, we are optimistic about the progress we are making.

Congratulations on ITRenew, and our thoughts are with your Ukrainian employees as well. Barry, if you mentioned this, I missed it, but could you clarify how we should think about free cash flow in 2022, considering there’s a significant increase in CapEx, which seems to be related to the data center?

Thank you, Kevin. I appreciate your question. To start with CapEx, our total guidance is $850 million, with $700 million allocated for growth capital. As you mentioned, most of this increase is directed towards our data center. We plan to allocate $550 million to data center development, an increase from approximately $300 million in 2021. This increase is necessary due to the strong leasing activity and the solid pipeline we have as our team continues to secure significant deals globally. We're pleased with the data center team's planning. Regarding free cash flow, even though CapEx will rise, I want to point out that our Summit costs are now behind us, Kevin. Last year, we incurred over $200 million in costs related to Summit, which will not impact us this year. There will be slightly higher cash taxes due to our ITRenew services business and increased service revenue. However, as you analyze your model, you should see significant growth in free cash flow even before accounting for growth. Thank you for your question, and we look forward to demonstrating the strength in our cash flow moving forward.

The secure IT asset disposition industry has typically grown in the strong double digits. Can you elaborate on how quickly you expect your new ALM business to grow and what key drivers you're leaning on to support that growth?

Thanks, George, for the question. We've been experiencing strong double-digit growth, around 20%, with some quarters seeing increases up to 30%. We're generally in the high teens to low 20s growth rate range and continuing to evolve in that direction. We are pleasantly surprised by the rapid growth of our book, particularly because the ITRenew business has strong connections to the hyperscale market, which positively affects our data center team. We're gaining additional momentum beyond what ITRenew contributes through discussions between our data center and ITRenew teams with hyperscalers. Conversely, our traditional customers in sectors like financial services and insurance are placing greater importance on how they dispose of IT assets, ensuring security and environmentally sensitive practices. Therefore, with our expanded platform, we anticipate maintaining similar organic growth rates to the past year, which were in the upper teens approaching 20%. We'll keep you updated on our progress, and we're pleased with the synergies emerging from integrating the two teams.

So I wanted to touch on the data center business. Barry, I think you said that the target leasing outlook is 50 megawatts for this year. So that probably means you had pretty good visibility and some larger hyperscale wins. So maybe you could talk about or maybe disaggregate that outlook into larger hyperscale versus more traditional enterprise sales. And then on the return side, any changes in the return targets on the higher capital spend this year based on any supply chain or inflationary impacts in the data center space?

I will begin with the leasing activity, and then Barry can provide more insights. You're correct that with the hyperscale companies, we have greater visibility. On the retail and colocation sides, we can expect to see annual growth in the teens of megawatts. We're pleased with that segment, as the deal flow and pipeline remain strong. Additionally, we are quite enthusiastic because a few years ago, we were relatively new to the hyperscale market. If you examine last year's performance, we almost reached 50 megawatts, and this year, we anticipate another 50 megawatts. We are making significant progress. We are beginning to resemble a typical industry player in the data center sector, where approximately 60% to 70% of our volume comes from hyperscale, with the remainder from colocation and retail.

I would like to add that while we are experiencing some inflation in costs, as mentioned by others in the industry, we are also seeing strong pricing. Therefore, we expect our mark-to-market results to remain flat or improve. We are achieving good pricing on new deals and feel very well positioned. I am pleased to report that we anticipate our margins will increase year-on-year. Thank you for the question.

Barry, I was hoping you could give us an organic constant currency revenue growth for the '22 guide. I definitely heard you that ITRenew is $450 million of revs and FX is $60 million headwind. I assume this is still a little bit more revenue from other acquisitions that you did as well. And so if you could just kind of total it out for us and give us organic revenue growth for the '22 guide, that would be helpful.

Thank you, Andrew. Let me break it down for you. ITRenew is expected to contribute $450 million. The overall impact of our other mergers and acquisitions in 2021 adds about $25 million year-on-year, which is relatively small. You may have expected this figure to be higher, but it's important to note that we sold our software escrow business in June, which creates a revenue headwind. Additionally, we acquired a small data center in Frankfurt and made a minor acquisition in the Middle East, resulting in the net $25 million year-on-year impact. In the first quarter, this is around $5 million, with a similar amount in the second quarter, and the remaining balance in the third quarter. From an EBITDA perspective, since the software escrow business had a high profit margin, we anticipate about $5 million of EBITDA from this additional revenue. Currency exchange is posing a $60 million headwind as of yesterday, translating to around $25 million in EBITDA impact. If we analyze these factors, it leads us to strong organic growth, supported by our solid pricing visibility. As Bill mentioned regarding our services, we're experiencing robust growth in our digital solutions, likely increasing by at least 20%, along with the data center and storage segments also growing in the 20% range. We feel very well positioned. Thank you, Andrew.

Yes. Bill, you called out a number of wins in your prepared remarks with government contracts and other customers. I was wondering if you can help us understand if the legacy traditional storage offering was part of the mix with any of those contracts. Or just what were the different components of Iron Mountain's business offering that helped you win that business?

Thank you, Sheila, for the question. I just returned from a trip to D.C. a couple of weeks ago. I would say it's a mix of yes and no. Yes, regarding the brand, as we have been a trusted partner operating government-approved facilities for physical storage for many years. The brand recognition with the U.S. federal government has been exceptionally strong. However, the recent contracts I mentioned involve us providing digital services, such as auto classification analytics for some documents, and handling documents that are already in digital form which we are not storing for the federal government. Moving forward, we are increasingly offering purely digital services. Still, I would not underestimate the positive impact of our brand's reputation for trust and security in our work with Iron Mountain.

Bill, I think you've missed it if I didn't ask you a question about the RIM volume changes quarter-to-quarter. So I want to bring that up a little. There's a slight decline, and it looks like there was also 30 basis points of sequential decline in records retention. Were there any strong document destruction projects in the quarter? Or how should I be thinking about that in terms of just the movements quarter between quarters?

First of all, I thought you were asleep this morning and noticed someone had taken your voice. We're really pleased with the progress in our records management business because it is actually getting stronger sequentially. The slight negative impact on the records management business is really a secondary effect. As this effect diminishes, we start to see stabilization, and indeed, we're seeing improvements in the trends of records management. Regarding total volume and physical storage, our other storage areas and adjacent business areas have more than compensated for those flattening trends. Additionally, there is typically a slight uptick in document destructions in the fourth quarter, similar to how people do their spring cleaning, as it feels like a time for fall housekeeping in our business. We didn’t notice any significant changes in this pattern this year. Barry, you may want to provide more specific insights on the trend.

Yes. I would like to add that I typically analyze the records management retention rate on a year-over-year basis rather than sequentially due to the points made earlier. Compared to the year-end 2020 figure, it has increased by 40 basis points. We are quite pleased with how the record retention rate concluded the year. Additionally, if we consider the organic growth of storage rental revenue, it increased by 3.6% in the quarter. This growth is comprised of two-thirds from our core business and one-third from the data center. When we break down the two-thirds from our core, the increase stems from both pricing and enhanced volume trends since the organic volume for the full year was actually up. We are optimistic about the current trajectory and anticipate our volume will remain steady or even increase in 2022. Thank you for the question.

So I just wanted to touch on the capital allocation outlook for this year. So Barry, you said that leverage should be within the range by year-end, but just wanted to know what was embedded in that. Do you expect to do any incremental acquisitions? Should we expect any additional asset sales as a funding mechanism? And then based on the strong AFFO per share outlook, you'll be in the mid-60s from a payout ratio. At what point would you consider starting to grow the dividend again?

Thank you, Eric. Let me address a few points. We are not including any additional mergers and acquisitions in our guidance for this year, so that should not be part of our planning. As we have stated previously, we are committed to our leverage range and expect to return to that range by year-end. Regarding other aspects to include in the model, I suggest planning for around $150 million in capital recycling. As I noted earlier, the cap rates are exceptional, even dipping below 4%. This presents a very favorable environment. Additionally, we are primarily engaged in sale-leaseback transactions, which we consider advantageous because we maintain ownership-like interests in the properties while monetizing them at these appealing cap rates. This allows us to strategically manage our capital allocation. Concerning your inquiry about the adjusted funds from operations payout ratio, in our guidance, we anticipate being just above the mid-60s by year-end. We have consistently indicated that our target is to keep that in the low to mid-60s over the long term. At that stage, we would be looking to increase the dividend, and we would be nearing the REIT minimum under specific scenarios at that level. Therefore, you can likely expect dividends to rise in line with the growth of adjusted funds from operations per share.