Iron Mountain Incorporated

Good morning, and welcome to the Iron Mountain 4th Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal your conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I now would like to turn the conference over to Greer Aviv, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Keith. Hello and welcome to our fourth quarter and full year 2018 Iron Conference call. The user-controlled slides that we will be referring to in today's prepared remarks are available on our investor relations site along with a link to today's webcast. You can find the presentation at ironmountain.com under about us slash investors slash events and presentations. Alternatively, you can access today's financial highlights press release, the presentation, and full supplemental financial information together in one PDF file by going to investors.ironmountain.com under financial information. Additionally, we have filed all the related documents as 1-8K available on the IR website. On today's call, we hear from Bill Meany, Iron Mountain president and CEO, who will discuss highlights and progress toward our strategic plan, followed by Stuart Brown, our CFO, who will cover financial results and our 2019 guidance. After our prepared remarks, we'll open up the lines for Q&A. Referring now to page two of the presentation, Today's earnings call, slide presentation, and supplemental financial information will contain forward-looking statements, most notably our outlook for 2019 financial and operating performance. All forward-looking statements are subject to risks and uncertainties. Please refer to today's press release, earnings call presentation, Supplemental Financial Report, the State Harbor Language on this slide, and our annual report on Form 10-K, which we expect to file later today, for a discussion of the major risk factors that could cause actual results to differ from those in our forward-looking statements. In addition, we used several non-GAAP measures when presenting our financial results, and the reconciliations to these measures, as required by Reg G, are included in this Supplemental Financial Information. With that, Bill, would you please begin?

Thank you, Greer, and thank you all for taking the time to join us. We are pleased to be here this morning to discuss our fourth quarter and full year 2018 performance. 2018 marked a year of continued strong growth for Ari Mountain, highlighted by global storage, organic revenue growth, significant growth in our data center business, and further scale in our emerging markets. Turning to slide three of our financial results presentation, full year revenue increased 10%, which was in line with our expectations, driven in part by the contribution from recent data center acquisitions and strong growth in services. Notably, total organic revenue growth was 3.6% for the full year, a strong acceleration from the 2.3% we reported in 2017. Adjusted EBITDA was also in line with expectations, growing 14% year-over-year and resulting in 120 basis point improvement in our margin. Lastly, we generated 16% growth in AFFO at the high end of our expectations whilst continuing to reinvest in the growth of our business in supporting our commitment to our dividend. The strong AFFO performance compares to an increase in our fully diluted shares outstanding of 7.4% and resulted in a 160 basis points reduction of our payout ratio to 78%. As it relates to our fourth quarter performance, we achieved constant currency revenue and adjusted EBITDA growth of 10% and 12% respectively. whilst our margin expanded 100 basis points year over year. I'll provide more detail around volume trends in a few minutes, but on a global organic basis, records management volume was flat in 2018. Importantly, 2018 was a year of continued evolution for Iron Mountain. We made significant progress in increasing our mix to high-growth businesses, completing more than $1.7 billion in targeted acquisitions. This evolution is highlighted by the ongoing expansion of our global data center footprint with the acquisitions of IO, the Credit Suisse data centers, and EvoSwitch. We continue to also expand in faster-growing emerging markets with acquisitions that increase scale and reach in key markets, including South Korea, China, and the Philippines. We continue to build from our strong capabilities and core competencies developed over many decades of managing our customers' valuable physical and information assets to extend our storage capabilities beyond records management and data management to a more comprehensive portfolio of physical storage solutions. Today, we store many of our customers' valuable assets in addition to information assets, which leverages our know-how and utilizes our existing storage facilities and logistics expertise, whilst maximizing our revenue and NOI per square foot. To this point, we made targeted acquisitions to further a number of our faster-growing businesses, such as market-leading fine arts and entertainment services capabilities and valet consumer storage. All of this enables us to help customers manage the storage of valuable assets beyond the the more than 690 million cubic feet of records and digital information we store in our records and information management, or RIM, business area. Turning to our business performance, organic records management global volume was flat, a modest improvement from Q3. His new volume increased 10 basis points sequentially. More specifically, in North America, new volume from existing customers and new sales together increased almost 40 basis points sequentially, whilst destructions ticked up 10 basis points. In a few moments, I will highlight some of the recent wins in North America records and information management that have helped to support this performance. Volume in the emerging markets continues to grow at a faster clip. increasing 7% for 2018, though we saw a modest tick down in new sales compared to Q3. Our investments are focused on increasing the scale of our businesses in these geographies and growing market share, as evidenced by the recent acquisitions I highlighted earlier. Organic storage revenue growth increased 1.9% and 2.4% year-over-year in Q4 and 2018, respectively, as revenue management continues to contribute positively to growth. Destructions remain at elevated levels, though we saw a moderation in recent trends. Organic service revenue growth was strong in 2018, growing at 5.4%, driven in part by continued strength and secure shreds, as well as momentum in digital projects from our information governance and digital solutions business, or IGDS. Overall, we had a successful Q4 with a number of strong new business wins across the North America rim. Turning to slide four, an example of one such win was a five-year agreement with Citi Mortgage, which was looking to outsource their non-core business functions within their mortgage workflows. Once successfully implemented, we expect to gain 550,000 cubic feet of records plus more than 820,000 files. Additionally, a new customer signed in Q4 was the Hoover Institution at Stanford University. The Hoover Institution has begun a major renovation of their facilities at Stanford, which will directly impact their archival collections located in three historic buildings. Most of their collections are moving off-site during the renovation, some indefinitely, and Iron Mountain was selected to relocate 64,000 cubic feet of material from Stanford University to a customized Iron Mountain facility. Specialized relocation processes designed by our team, along with the Hoover archivist and preservationist, will be utilized during the move. The collections will be maintained and circulated from a private climate-controlled vault modified specifically for this project. This is a great example of our teams working to implement solutions to meet our customers' specific needs. Turning to our federal business, we have made significant inroads in further penetrating this historically unvended channel. Across our entire federal business, revenue grew 14% year-over-year in 2018, led by strength in data center and records management. To this point, a U.S. government regulatory agency expanded with a new data center deployment in Northern Virginia, adding to their existing deployment in New Jersey. On the records management side of the federal business, we had net Q growth of 4% during 2018 and continued to see good momentum. We are encouraged by the progress made in Q4 in North America in accelerating volume from existing customers and driving new business to Iron Mountain. Another area of solid progress in 2018 was the momentum of our IGDS business as customers increasingly live in a hybrid world of both physical and digital storage. We recently signed a contract with a large retailer to enhance our value-adding services. We are beginning a digital solution involving more than 75 million images of employee files, which are currently housed on-premise at each individual store as part of an HR file conversion project. Digitizing HR documents and centralizing into a single repository helps achieve greater efficiency, reduce risk, and improve compliance with a variety of federal and state requirements. We are currently in discussions with this customer to assist them in extracting even greater value from their HR information through the use of our Insight platform and its machine learning and artificial intelligence capabilities. These are great examples of how we are solving problems of our customers and adding value in the areas of digital transformation and compliance. We had an extremely active pipeline of opportunities for our IGDS business as we ended 2018. a nearly 50% increase over the prior year. Importantly, we are seeing these opportunities increasingly translate into income as revenue has doubled over the past two years. Regarding our data center business, on slide five, you can see Q4 and 2018 performance was strong with full year revenue of nearly $230 million and adjusted EBITDA of $100 million. We continue to see solid leasing momentum as we closed out Q4, achieving our targeted 10 megawatts of new and expansion leasing for the year, consisting of 261 leases signed with strength in the financial services, professional services, and federal verticals. Of those new and expansion leases, 34% were new logos to our data center platform, of which 43% had a pre-existing customer relationship with Iron Mountain, reinforcing the strength of the Iron Mountain brand and its extension to our data center business. To that point, we signed a new cloud-based provider of medical information in Northern Virginia, as this customer was very sensitive to proximity to its own local IT team. Additionally, this customer also has a long-standing relationship with our data management team, so our core competencies in compliance and security resonated well with their data center needs. Another great example of a new customer is Wasabi Technologies, a hot cloud storage company which deployed in northern Virginia. Iron Mountain was able to fulfill all of their data center requirements, including a hyperscale-ready facility, which meets the strict compliance requirements for FedRAMP. Demand from existing customers remains strong, with a number of customers expanding their footprint in existing data centers, as well as deploying with us in additional markets. A large global bank, which came to us as a data center customer through the IO acquisition, increased its capacity needs three times during 2018, expanding its usage in New Jersey by 47%. Turning to slide six, our development pipeline reflects construction in key markets, including New Jersey, Phoenix, London, and Amsterdam, as we continue to see good demand from existing customers. Subsequent to the end of the fourth quarter, we acquired a parcel of land in Frankfurt with power reserved in a permitted design which will ultimately support 20 megawatts of capacity. Frankfurt is the second largest multi-tenant data center market in Europe behind London. This land acquisition improves our competitive position across Europe and allows us to have a presence in three of the four key European metro areas. We now have total potential capacity of almost 350 megawatts across our data center platform, including the land in Frankfurt and Chicago. We expect the leasing momentum exiting 2018 will continue into 2019 as we build on our strength with enterprise customers and attract more hyperscale demand. We currently expect to be able to achieve robust leasing activity with a target of executing 15 to 20 megawatts of new and expansion signings in 2019. Turning to slide seven, our strong performance in 2018 has enhanced the solid foundation we have created and increased our financial strength as an organization to support sustained growth. Once our acquisitions from last year are fully incorporated in our base numbers, the business as it is configured today is expected to deliver 4% plus organic adjusted EBITDA growth going into 2020. well in line with our original 2020 plan to exit 2020 with a 5% organic EBITDA growth. This is all compared to less than 2% growth just five years ago. As it relates to our outlook for 2019, we issued guidance this morning which reflects consistent performance expectations for records and information management business fundamentals with further physical storage potential from newer adjacencies. Ongoing ongoing strong growth in emerging markets, data center, and adjacent businesses, and continued investment in the business to support strategic initiatives and innovation around digital solutions to support our customers' evolving needs. We do anticipate that the strong dollar will create headwinds over the course of 2019 relative to our reported results, though this has no operational or margin impact. On a constant currency basis, we expect revenue growth of 3%, adjusted EBITDA growth of 4%, and AFFO growth of 4.5%. And if we normalize for the impact of adoption of lease accounting, our adjusted EBITDA margin would increase by 100 basis points further. Stuart will have more detail on our 2019 guidance in a moment. Putting this all into historical context, Iron Mountain is entering into 2019 in great shape. Our brand continues to resonate with our customer base, where trust is ever more important, especially when it comes to information as well as valued assets. This trusted relationship with more than 225,000 customers and covering over 95% of the Fortune 1000 is demonstrated both by the continued relevance of our RIM business with expanding margins through higher pricing, as well as the rapid growth of our digital solutions business and data center offerings. In terms of how our services have delivered bottom line value, it is worth noting the accelerating growth of the business since 2014. We have grown revenue and adjusted EBITDA on a constant currency basis at a 10% CAGR. AFFO has delivered a 10.9% CAGR with a 7.8% CAGR in share count. Our business is more diversified both by business line as well as geography, all yielding the acceleration and underlying growth mentioned earlier. Altogether, over the past five years, we have built significant momentum into the business and feel good going into the year. We will remain disciplined regarding the pace with which we deploy capital to support these growth initiatives whilst ensuring we remain true to our financial model. With that, I will turn the call over to Stuart.