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(Rule 14a-101)
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Iron Mountain Incorporated
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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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”):
 Iron
Mountain Incorporated: Great Business Model,
Significant Incremental Opportunity
March 9, 2011 |
 2
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 shown
or otherwise). The information contained herein is made based upon publicly
available information. None of Elliott Associates, L.P. and Elliott
International, L.P. (collectively, "Elliott"), their affiliates or any of their
respective officers, directors, employees, stockholders, consultants, agents, or
controlling persons, or their respective officers, directors or employees, is making any representation or warranty, express or
implied, as to the accuracy or completeness of the information contained herein, and
each of Elliott Associates and each such other person expressly disclaims any
and all liability to any other person that may be based upon or relate to the information contained herein. This
presentation contains forward-looking statements. These statements may be
identified by the use of forward-looking terminology such as the words
“expects,” “intends,” “potential,” “opportunity,” “believes,” “anticipates” and other terms with similar meaning indicating possible
future events or actions or potential impact on the matters described herein.
These forward-looking statements are based on current expectations and
assumptions that are subject to risks and uncertainties that could cause actual results to differ materially. Accordingly, you
should not rely upon forward-looking statements as a prediction of actual
results. Elliott intends to make a filing with the Securities and Exchange Commission of a proxy
statement and an accompanying proxy card to be used to solicit proxies in
connection with the 2011 Annual Meeting of Stockholders (including any adjournments or postponements thereof or any
special meeting that may be called in lieu thereof) (the “2011 Annual
Meeting”) of Iron Mountain Incorporated (the “Company”). Information
relating to the participants in such proxy solicitation is contained in materials filed
by Elliott with the Securities and Exchange Commission pursuant to Rule
14a-12 under the Securities Exchange Act of 1934, as amended. Stockholders are advised to read the proxy statement and
other documents related to the solicitation of stockholders of the Company for use at
the 2011 Annual Meeting when they become available because they will contain
important information, including additional information relating to the participants in such proxy solicitation. When
completed and available, Elliott’s definitive proxy statement and a form of proxy
will be mailed to stockholders of the Company. These materials and other
materials filed by Elliott in connection with the solicitation of proxies will be available at no charge at the Securities and
Exchange Commission’s website at www.sec.gov.
The definitive proxy statement (when available) and other relevant documents filed by
Elliott with the Securities and Exchange Commission will also be available, without
charge, by directing a request by mail or telephone to MacKenzie Partners, Inc.,
105 Madison Avenue, New York, New York 10016 (call collect: 212-929-5500; call toll free: 800-322-2885). |
 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
-
North
American
Physical
(“NOAM
Physical”)
—
Sustainable, recurring revenue stream with 44% OIBDA margins
—
Well
penetrated
vended
market
–
IRM’s
growth
and
scale
have
made
it
a
mature business
•
New initiatives have generated minimal-to-negative returns
—
Worldwide
Digital
business
struggling
with
uncertain
growth,
low
margins
and significant competition from leading technology firms
—
International Physical business has had slow OIBDA growth and lower
margins (vs. NOAM Physical) despite continued investment
Incremental opportunities exist to create significant 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 structure for tax efficiency
•
Align management compensation incentives with shareholder value creation
Iron Mountain: Leader in Information Storage Services
Significant Opportunity to Generate Shareholder Value
3
Source: Iron Mountain Incorporated disclosures and Third-Party Analyst
Research |
 Incremental
Opportunity for IRM Business Improvements + REIT Conversion = Potential $52-$77
Stock Price 4
(1)
Assumes dividend equals 100% of equity free cash flow
Source:
Elliott
estimates;
See
page
33
for
additional
details
on Elliott estimated stock price calculations shown above
Implied
Dividend Yield
5.0%
(1)
Implied
Dividend Yield
6.4%
(1)
+
=
$0
$10
$20
$30
$40
$50
$60
$70
$80
Recent
$25
Mid
$52
High
$77
Business Improvements
Improvements + REIT
IRM Stock Price
Recent
$25
High
$41
REIT Conversion
Mid
$34
Recent
$25
Recent
$25
Mid
$39
High
$50 |
 5
Market-Leading Core Business -
North American Physical |
 IRM has a
Great Business Model NOAM Physical is a Profitable and Sustainable Core
Business 6
Source: Iron Mountain Incorporated disclosures and Elliott estimates
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 from fixed periodic storage fees have grown for 22 consecutive
years
The document storage business benefits from structural forces that create
stability in the face of digitization trends
•
Base of existing boxes represents >90% of revenues with high switching costs
—
Conversion of existing boxes to digital format costs 20-30x annual physical
box storage costs
—
Average life of a box >10 years
•
Multi-year contracts and built-in price escalators protect against price
pressure •
Regulatory
requirements
for
document
retention
drive
significant
percent
of
box
volumes
While existing box storage market is well penetrated, the remaining
unvended segment is 3x IRM revenue |
 NOAM
Physical 1
is Core Business
69% of Revenues, 86% of OIBDA
2
, 96% of Cash Flow
3
7
Source: Iron Mountain Incorporated disclosures
(1)
Iron Mountain’s reportable operating segments are North American Physical
Business, International Physical Business (“Int’l Physical”) and Worldwide Digital
Business (“Digital”). NOAM Physical and Int’l Physical segments offer
physical records management services, data protection & recovery services and information
destruction services, in their respective geographies. The Digital segment includes
online backup and recovery solutions for server data and personal computers,
digital
archiving
services,
eDiscovery
services
and
intellectual
property
management
services
and
is
not
limited
to
any
particular
geography.
(2)
OIBDA represents operating income before depreciation, amortization, corporate
expenses, goodwill impairment and (gain) loss on disposal/writedown of property,
plant and equipment, net (3)
Calculated as OIBDA (before corporate expenses) –
Capex
2
2
2010
OIBDA
NOAM Physical -
86%
Int'l
Physical
2%
12%
NOAM Physical -
96%
3%
2010
OIBDA
-
Capex
1%
2010 Revenue
NOAM Physical -
69%
Int'l Physical
Digital
7%
23% |
 8
(1)
For NOAM Physical; Solid bars correspond with left-axis, trend lines correspond
with right-axis Source: Iron Mountain Incorporated disclosures
35%
37%
39%
41%
43%
45%
2010
2009
2008
2007
24%
28%
32%
36%
40%
2010
2009
2008
2007
0%
2%
4%
6%
8%
10%
12%
14%
16%
2010
2009
2008
2007
$1,100
$1,300
$1,500
$1,700
$1,900
$2,100
$2,300
$500
$600
$700
$800
$900
$1,000
$400
$500
$600
$700
$800
$900
NOAM Physical is a Cash Cow
Margin has Expanded & Cash Flow Nearly Doubled in Last 3 Years
Revenue ($MMs) & Growth (YoY)
OIBDA ($MMs) & Margin
OIBDA –
Capex
($MMs) & Margin
1
1
1 |
 9
(1)
NOAM Physical, pre-2004 figures reflect Elliott estimates based on Company
disclosures;
Internal
Revenue
Growth
defined
as
weighted
average
y-o-y
growth
of revenues, excluding acquisitions, divestitures, and FX fluctuations
(1) NOAM Physical
Source: Iron Mountain Incorporated disclosures and Elliott estimates
As NOAM Physical’s Revenue Growth Has Slowed,
Attractive Opportunities to Invest Have Decreased
Revenue & Internal Revenue Growth (YoY)
(1)
0%
5%
10%
15%
20%
25%
30%
Revenue Growth
Internal Revenue Growth
Incremental Invested Capital ($MMs)
(1)
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
2007
2008
2009
2010
Acquisitions
Capex |
 10
New Initiatives Earning Minimal-to-Negative Returns
|
 $0.7B+
Invested in Digital, Minimal Return to Date Uncertain Growth and Low Margins with
Strong Tech Co. Competition 11
Source: Iron Mountain Incorporated disclosures and Elliott estimate of 35% for
tax rate (1) NOPAT = Net Operating Profit After Taxes
Why invest profits from a high margin business into one with uncertain growth
and low margins?
How is IRM better positioned than existing and emerging tech titans?
Digital Revenue ($MMs)
2007
2008
2009
2010
Digital OIBDA, ex. Corporate ($MMs)
2007
2008
2009
2010
CAGR = 12.3%
$0
$50
$100
$150
$200
$250
CAGR = 2.4%
$284MM Goodwill
Impairment in 2010
$0
$10
$20
$30
$40
$50
$60
Digital
Acquisitions
&
Capex:
$0.7BN+
2010
NOPAT
1
:
-$5MM,
Implied
ROIC:
Negative |
 $1.9B+
Invested in Int’l Physical, Minimal Return to Date Slow OIBDA Growth and Low
Margins Despite Continued Investment 12
Int’l
Acquisition
&
Capex
1
:
$1.9BN+
2010
NOPAT
2
:
~$31MM,
Implied
ROIC:
~1.6%
CAGR = 2.3%
Source: Iron Mountain Incorporated disclosures and Elliott estimate of 35% for
tax rate (2) NOPAT = Net Operating Profit After Taxes
IRM has spent $0.6BN in International Physical Capex
& Acquisitions from
2007-2010 and segment OIBDA has actually decreased
(1) Since inception
International Physical Revenue ($MMs)
2007
2008
2009
2010
International Physical OIBDA, ex. Corporate ($MMs)
$0
$25
$50
$75
$100
$125
$150
$175
2007
2008
2009
2010
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
CAGR = -0.5% |
 NOAM Physical
vs. Int’l Physical Int’l Physical Productivity & Margins are Much
Weaker 13
(1) Number of employees based on IRM’s 2009 Investor Day Presentation
Source: Iron Mountain Incorporated disclosures
(1)
2010 Revenue per Employee ($Ks)
$0
$50
$100
$150
$200
$250
NOAM Physical
Int'l Physical
2010 OIBDA Margin
0%
10%
20%
30%
40%
50%
NOAM Physical
Int'l Physical
Int’l Physical
employee
productivity
is less than
half of
NOAM
Physical
OIBDA
Margin in
Int’l Physical
is 18% vs.
44% in NOAM
Physical |
 14
Market Appears Skeptical of Management’s Vision |
 IRM EV / LTM
EBITDA 6x
7x
8x
9x
10x
11x
12x
13x
14x
15x
16x
Feb-02
Feb-03
Feb-04
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Valuation Has Declined to an All-Time Low…
15
EV /
Share
EBITDA
Price
16x
$62
15x
$57
14x
$52
13x
$48
15x
$57
14x
$52
13x
$48
12x
$43
11x
$38 |
 …and
Turnover
of
the
Shareholder
Base
Reflects
Uncertainty
16
IRM -
Stock Price & Volume
$15.00
$17.50
$20.00
$22.50
$25.00
$27.50
$30.00
0MM
5MM
10MM
15MM
20MM
25MM
30MM
35MM
40MM
45MM
50MM
Price (LH Axis)
Volume (RH Axis)
“Growth-oriented investors
have become increasingly
frustrated
with the evasive
revenue growth
reacceleration and the
additional pressure on
margins.”
–
J.P. Morgan
10/6/2010
During 6 month period
between Sep ’10 and Feb
’11, over 306MM shares
traded, representing
approximately 150% of
shares outstanding |
 “You’ve got a rather miniscule dividend.
With lack of big acquisition opportunities,
no need to reduce debt, why not
establish a really significant payout ratio?
You’re a slow growth company.”
“On the dividend strategy…it’s basically
$50MM. Your business throws off $300MM
of cash, just seems like a very small
amount given the growth nature of the
business.”
“With your stock price near an all-time
low, with interest rates near all-time
lows…you could
basically buy back 25% of
the company and still be within your
[target leverage] range.
Have you
thought about that?”
Market is Questioning Management’s Strategy…
17
Source: Iron Mountain Incorporated disclosures
Comments from 2010 Investor Day
Elliott Believes Recent Corporate
Actions Are Insufficient
•
Increased quarterly dividend in 4Q
2010 from $0.0625/share to only
$0.1875/share
•
Increased amount authorized under
share repurchase program from
$150MM to only $350MM (total ~7% of
outstanding shares)
—
In 2010, repurchased only
4.8MM shares for $112MM |
 18
…Yet Management Continues To Pursue Growth For The
Sake of Growth
Source: Iron Mountain Incorporated 2009 Annual Report
April 2010
Letter to
Shareholders |
 19
•
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 structure for tax efficiency
•
Align management compensation incentives with shareholder
value creation
Opportunities Exist To Create Incremental Shareholder
Value |
 20
Implement Business Improvements To Achieve
Operational Efficiencies |
 Incremental
Opportunities for Operational Efficiency Improve Expense & Capex
Management 21
+
=
Implied
Dividend Yield
5.0%
(1)
Implied
Dividend Yield
6.4%
(1)
$0
$10
$20
$30
$40
$50
$60
$70
$80
Recent
$25
Mid
$52
High
$77
Business Improvements
Improvements + REIT
IRM Stock Price
Recent
$25
High
$41
REIT Conversion
Mid
$34
Recent
$25
Recent
$25
Mid
$39
High
$50
(1)
Assumes dividend equals 100% of equity free cash flow
Source: Elliott estimates; See page 33 for additional details on
Elliott estimated stock price calculations shown above |
 Business
Improvements Can Provide Significant Upside Reduce Capex, Improve Int’l
Margins, Rationalize SG&A 22
(1) International margin improvement reflects higher capacity utilization not cost
reductions in SG&A $0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Recent
$25
Mid
$34
High
$41
Sales, Mktg.
& AM
G&A
Capex
IRM Stock Price
+
+
=
IRM Stock Price
Recent
$25
$2.98
$3.45
$5.47
+
Int'l Margins
(1)
$3.72
+
Source: Elliott estimates |
 Reduce Capex
by ~20% $5.47 Per Share Opportunity
•
Management has said maintenance Capex is 2%
of
revenues
•
Elliott scenarios reduce total Capex from 7.6%
of
revenues (Company guidance) to 6.0%
of revenues (in
Elliott Mid-case)
•
Primary reductions to come from:
—
Int’l Physical investments with low ROIC
—
Growth Capex in NOAM Physical
—
Minimal new Capex in Digital
•
A disciplined capital allocation approach can deliver
further upside to current levels
Capital Expenditures Savings ($MMs)
Mid
High
Capital expenditures - savings as a % of sales
1.6%
2.4%
Capital expenditures - savings
53
77
Capital expenditures - valuation
appreciation 751
1,095
Capital expenditures - valuation appreciation per share
3.75
$
5.47
$
See page 42 (Appendix) for more detailed analysis of Capital
Expenditures Source: Iron Mountain Incorporated disclosures and Elliott
estimates Capex
$5.47
23 |
 Int’l
Physical Margin Expansion $3.45 Per Share Opportunity
24
International Physical Margin Expansion Savings ($MMs)
Mid
High
Int'l Physical OIBDA - margin benefit as a % of sales
5.0%
10.0%
Int'l Physical OIBDA - margin benefit
37
74
Assumed tax rate
35.0%
35.0%
Int'l Physical OIBDA benefit - after-tax savings
24
48
Int'l Physical OIBDA - valuation
appreciation 345
691
Int'l Physical OIBDA - valuation appreciation
per share 1.73
$
3.45
$
$25
$3.45
Int'l Margins
Source: Iron Mountain Incorporated disclosures and Elliott estimates
•
Int’l Physical OIBDA margin is 18% vs. 44% for NOAM
Physical
•
Management to focus on increasing capacity
utilization to drive OIBDA margins
•
Need to start monetizing investments after several
years of building capacity |
 Recent
$25
Mid
$34
High
$41
G&A
$2.98
25
Source: Iron Mountain Incorporated disclosures and Elliott estimates
General & Administrative Savings ($MMs)
Mid
High
General and administrative - savings as a % of sales
1.0%
2.0%
General and administrative - pre-tax savings
32
64
Assumed tax rate
35.0%
35.0%
General and administrative - after-tax savings
21
42
General and administrative -
valuation appreciation 298
596
General and administrative - valuation
appreciation per share 1.49
$
2.98
$
See page 43 (Appendix) for more detailed analysis of G&A
costs Marginal
G&A
Reduction
Can
Provide
Meaningful
Benefit
$2.98
Per
Share
Opportunity
•
Reduction
in
corporate
overhead
is
in
line
with
a
maturing
business
•
G&A
as
a
%
of
total
sales
increased
to
15.3%
in
2010,
from
a
low
of
13.6%
in
2002 |
 Recent
$25
Mid
$34
High
$41
Sales, Mktg.
& AM
$3.72
Reduce Sales & Marketing Costs
$3.72 Per Share Opportunity
26
Sales, Marketing & Account Management Savings ($MMs)
Mid
High
Sales, marketing and account management - savings as a % of
sales 1.5%
2.5%
Sales, marketing and account management - pre-tax savings
($MMs) 48
80
Assumed tax rate
35.0%
35.0%
Sales, marketing and account management - after-tax savings
($MMs) 31
52
Sales, marketing and account management
- valuation appreciation 447
745
Sales, marketing and account management -
valuation appreciation per share 2.23
$
3.72
$
See page 44 (Appendix) for more detailed analysis of Sales and
Marketing costs Source: Iron Mountain Incorporated disclosures and Elliott
estimates •
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
marketing effort is in line with declining growth
outlook |
 27
Optimize Corporate Structure For Tax Efficiency |
 Incremental
Opportunity Through REIT Conversion Potential Tax Savings & Cap Rate
Improvement 28
+
=
Implied
Dividend Yield
5.0%
(1)
Implied
Dividend Yield
6.4%
(1)
$0
$10
$20
$30
$40
$50
$60
$70
$80
Recent
$25
Mid
$52
High
$77
Business Improvements
Improvements + REIT
IRM Stock Price
Recent
$25
High
$41
REIT Conversion
Mid
$34
Recent
$25
Recent
$25
Mid
$39
High
$50
(1)
Assumes dividend equals 100% of equity free cash flow
Source: Elliott estimates; See page 33 for additional details on
Elliott estimated stock price calculations shown above |
 29
REIT Structure Can Result in Significant Value Creation
$0
$10
$20
$30
$40
$50
$60
Recent
$25
Mid
$39
High
$50
Tax Savings
Cap Rate Improvement
IRM Stock Price
+
+
=
IRM Stock Price
Recent
$25
$10.58
$13.97
Source: Elliott estimates |
 Potential
REIT Structure Services
IRM
(REIT)
IRM
Customers
ServiceCo
(TRS)
Lease Payments
Payments for
Services
30
•
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 arm's length payments to ServiceCo (TRS) for the
services provided by ServiceCo to IRM customers
•
If necessary for REIT compliance, IRM could IPO a percentage of its ownership stake in
ServiceCo (while maintaining voting control)
Storage |
 Significant
Benefits of a REIT Structure Deserve Careful Analysis
31
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 estimates for value creation, cash flow
and other metrics
•
Detailed analysis of potential commercial, operational, governance and tax
implications
Elliott
believes
IRM's
physical
storage
business
is
a
compelling REIT candidate
•
Stable, annuity-like rental income streams (low organic growth in core
business) •
By converting from a “C”
Corp to a REIT, IRM can retain more of the income from
over 1,000 owned and leased facilities
—
Elliott
estimates
tax
savings
equivalent
to
approximately
60%
of 2011 Net Income
guidance provided by Company
•
Recent IRS guidance offers the ability to adapt standard IRM customer
arrangements
to
the
requirements
of
a
REIT
without
assignment
or
renegotiation
of customer contracts
Elliott's analysis demonstrates sufficient potential for enhancing shareholder value
to justify further careful review by the Board
•
Only a full analysis by a reinvigorated Board can properly measure the potential
benefits of a REIT conversion against the potential challenges
|
 Mid
$39
High
$50
Cap Rate Improvement
$13.97
32
Source: Elliott estimates
Benefit from Cap Rate Compression -- Incremental to Tax
Savings of $10.58
EBITDA Multiple (for TRS business)
$13.97
5.0x
6.0x
7.0x
8.0x
9.0x
5.0%
$40.06
$41.07
$42.08
$43.09
$44.09
5.5%
$32.39
$33.40
$34.41
$35.42
$36.43
6.0%
$26.00
$27.01
$28.02
$29.03
$30.04
6.5%
$20.60
$21.61
$22.62
$23.62
$24.63
7.0%
$15.97
$16.97
$17.98
$18.99
$20.00
7.5%
$11.95
$12.96
$13.97
$14.98
$15.98
8.0%
$8.44
$9.44
$10.45
$11.46
$12.47
8.5%
$5.33
$6.34
$7.35
$8.36
$9.37
9.0%
$2.58
$3.59
$4.60
$5.61
$6.61
9.5%
$0.11
$1.12
$2.13
$3.14
$4.15
10.0%
-$2.11
-$1.10
-$0.09
$0.92
$1.93
REIT
Cap Rate
Tax Savings -
$10.58 Per Share Opportunity
Cap Rate Improvement -
$13.97 Per Share Opportunity
•
Elliott estimates $148mm of tax savings
from REIT conversion
•
Implies a FCF benefit of $0.74 per share
Tax Savings
$10.58 |
 1
Incremental Opportunity: Detailed Cash Flows
33
Source: Elliott estimates
2011E
Mid
High
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
219
Digital OIBDA
28
29
28
29
30
28
30
Total OIBDA, ex. Corporate
1,135
1,220
1,135
1,220
1,289
1,135
1,289
Corporate Expense
(179)
(147)
(179)
(147)
(115)
(179)
(115)
Interest
(200)
(200)
(200)
(200)
(200)
(200)
(200)
Taxes
(161)
(202)
(12)
(21)
(237)
(12)
(32)
Operating Cash Flow
595
672
743
852
737
743
942
NOAM Physical Capex
(106)
(87)
(106)
(87)
(78)
(106)
(78)
Int'l Physical Capex
(93)
(75)
(93)
(75)
(65)
(93)
(65)
Digital Capex
(16)
(5)
(16)
(5)
(5)
(16)
(5)
Corporate Capex
(31)
(25)
(31)
(25)
(20)
(31)
(20)
Total Capex
(245)
(192)
(245)
(192)
(168)
(245)
(168)
Distributable Cash Flow
350
479
498
660
569
498
774
Distributable Cash Flow per Share
$1.75
$2.39
$2.49
$3.30
$2.84
$2.49
$3.87
Incremental Equity FCF
-
129
148
310
219
148
424
Equity FCF Yield
7.00%
7.00%
6.36%
6.36%
7.00%
5.02%
5.02%
New Market Cap
5,005
6,846
7,840
10,383
8,131
9,918
15,399
New Share Price
$25.00
$34.20
$39.16
$51.87
$40.62
$49.54
$76.92
Detailed Cash Flows
($MMs)
(1) Includes taxes payable at both TRS and Int’l Physical businesses
1
1
1 |
    34
Source: Elliott estimates
Free Cash Flow to Equity 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
$49.97
$53.79
$55.01
$63.57
$69.59
660
$47.11
$50.72
$51.87
$59.94
$65.61
600
$42.83
$46.11
$47.15
$54.49
$59.65
569
$40.62
$43.73
$44.71
$51.68
$56.56
550
$39.26
$42.27
$43.22
$49.95
$54.67
498
$35.58
$38.30
$39.16
$45.26
$49.54
479
$34.20
$36.82
$37.65
$43.51
$47.62
450
$32.12
$34.58
$35.36
$40.87
$44.73
400
$28.55
$30.74
$31.43
$36.33
$39.76
350
$25.00
$26.91
$27.52
$31.81
$34.81
Current Share Price
$25.00
Mid
High
Business Improvements
$34.20
$40.62
REIT Conversion
$39.16
$49.54
Improvements + REIT Conversion
$51.87
$76.92
Implied Share
Price - Based
on Equity FCF
Yield
Incremental Opportunity: Implied Share Price
Based on Equity FCF Yield |
 35
Align Management Compensation Incentives With
Shareholder Value Creation |
 36
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 were based two-thirds on
gross revenues and contribution (OIBDA) and one-third on achievement of
corporate goals, including, but not limited to, ROIC
•
Focusing on revenues and OIBDA risks promoting the acquisition of revenues and
earnings at the expense of ROIC and shareholder value
Executive compensation plans should be designed to align interests of
management and shareholders
•
Operationally –
Focus on returning cash flow to shareholders and ROIC
•
Compensation
Structure
–
Optimize mix of long-term equity incentive compensation
and cash
Source: Iron Mountain Incorporated disclosures |
 37
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 critical areas affecting
IRM: capital allocation and operational efficiency
•
The Company will benefit from fresh, independent perspectives and additional
insights to the Board’s review process
Harvey Schulweis
•
Brings a career-long focus on
optimizing corporate investment
decisions and return on capital
•
Co-Founder and Managing
Director of Niantic Partners, a
real estate investment company
•
President and sole shareholder
of Schulweis Realty, Inc.
•
Former Chairman and CEO of The
Town and Country Trust, a
publicly traded REIT
•
Led the conversion of Town and
Country into a REIT
•
Former GP at Lazard Frères &
Co.
Ted R. Antenucci
•
Deep warehouse/industrial
property experience, both
domestic and international
•
Current President and Chief
Investment Officer, ProLogis
Trust
•
Former President of Catellus
Commercial Development
Corp., responsible for
development, construction
and acquisition activity
•
Helped lead the conversion of
Catellus into a REIT
Allan Z. Loren
•
45-year veteran of building
successful organizations
•
Has extensive strategic,
technology and operational
experience
•
Former Chairman and CEO of
D&B; led successful
turnaround
•
Has held senior executive and
technology positions at
American Express, CIGNA,
Galileo International and
Apple Computer U.S.A.
Robert J. Levenson
•
Has extensive experience as
an executive in the data
processing industry
•
Managing Member of Lenox
Capital Group, a private
venture capital investment
company, since 2000
•
Has held numerous senior
executive positions in leading
firms in the business services
space, including Automatic
Data Processing, Inc. and First
Data Corp.
38
Elliott’s Slate of Independent Director Nominees |
 Contacts
39
Elliott IRM Team
Tel: 212-974-6000
Investors
Source: Iron Mountain Incorporated disclosures
Press
Scott Tagliarino
Tel: 212-478-2620
Email: stagliarino@elliottmgmt.com |
 40
Appendix |
 41
Business Improvements -
Detail |
 Capital
Expenditure Savings 42
-
Management has said
maintenance Capex is
2% of revenues
-
Elliott scenarios reduce
total Capex from 7.6%
(Company guidance) to
6.0% of revenues (in
Elliott Mid-case)
-
Primary improvement/
reduction from low ROIC
Int’l Physical Capex and
Growth Capex in NOAM
Physical
-
Cut new investments in
Digital
Management’s 5-yr
projection for Capex
in 2009 Annual
Investor Day
presentation
Source: Iron Mountain Incorporated disclosures |
 43
•
G&A costs have
increased to
over 15% of sales
recently, from
13.6% earlier in
2002
•
Elliott believes
a 100-200bps cut
by consolidation
of facilities and
reduction in
corporate
overhead should
be achievable as
growth is
deemphasized
General and Administrative Costs (as % of Revenue)
Source: Iron Mountain Inc. disclosures
13.6%
13.7%
14.3%
13.7%
14.1%
14.0%
14.7%
15.3%
15.3%
13.0%
13.5%
14.0%
14.5%
15.0%
15.5%
16.0%
2002
2003
2004
2005
2006
2007
2008
2009
2010
G&A Costs Have Risen And Leave Room For Significant
Improvement |
 Sales and
Marketing Cost Savings Consistent with the Lower Growth of Attractive But Mature
Business 44
Sales, Marketing and Account Management Costs (as % of Revenue)
Source: Iron Mountain Inc. disclosures
6.0%
6.5%
7.4%
8.3%
8.7%
9.1%
9.2%
9.1%
8.7%
9.0%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
•
Sales &
Marketing costs
have increased
from ~6%
of
sales earlier in
the decade, to
~9%
recently
•
Elliott believes
a 150-250bps cut
by reducing sales
and marketing
effort is in line
with slowing
growth outlook |
 45
REIT Conversion -
Detail |
 Physical
Storage Business is a Compelling REIT Candidate
46
-
Stable,
annuity-like
rental
income
streams
(Low organic growth in core business)
-
High
margin
physical
storage
business
generates
~80%
of
total
IRM
OIBDA
2
-
Business elements not consistent with REIT requirements can be placed into a taxable
REIT
subsidiary
(TRS),
which
can
continue
to
be
a
“C”
Corp
2011 Revenue Split
1
2011 OIBDA Split
1, 2
2011 Company Guidance
Source: 4Q 2010 Earnings Presentation
Revenue ($mm)
3,175 -
3,240
OIBDA ($mm)
941 -
971
1. Source: Elliott estimates; Split between Storage vs. Services revenue based on
Company guidance; OIBDA margin for NOAM Physical ~60% and Int’l Physical
~25% (based on Elliott estimates) 2. Net of corporate expense
REIT, $754mm
TRS, $202mm
TRS, $1,589mm
REIT, $1,619mm |
 Public Market
REITs Trade at Significantly Lower AFFO Yield vs. S&P500 Companies
47
Investors
appreciate
certainty of
cash flow
Source: Green Street Advisors, Inc. |
 48
Source: Industrial, Data Center, Self Storage and GSA Average are sourced from
Green Street Advisors, Inc., for whom Adjusted Funds from Operations = FFO
less
normalized
reserve
for:
capitalized
leasing
and
maintenance
costs;
adjusted
for
straight
line
rents;
less
gains
on
land sales;
IRM
–
High and
IRM
–
Mid
are
based
on
Elliott
estimates
and
reflect
2011E
AFFO
Yield
for
IRM
in
both
the
REIT
and
Combination
valuations.
For
IRM
–
High
and
IRM
–
Mid, Elliott defines
Adjusted Funds from Operations (AFFO) as OIBDA less Corporate Expenses less Cash
Interest less Cash Taxes less Capex 2011E AFFO Yield
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
Industrial
Data Center
Self Storage
GSA Average
IRM - High
IRM - Mid
Market Value =
AFFO x
AFFO Yield
Elliott Valuations Imply a Meaningful Discount to Where
Comparable REITs Trade |