Iron Mountain Incorporated

Good morning, and welcome to the Iron Mountain First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Greer Aviv, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Kate. Hello and welcome to our first quarter 2019 earnings 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, earnings press release, and the full supplemental financial information at ironmountain.com under about us slash investors slash events and presentations. On today's call, we'll hear from Bill Meany, Iron Mountain president and CEO, who will discuss first quarter performance and progress toward our strategic plan followed by Stuart Brown, our CFO, who will cover additional financial results and our outlook for the remainder of the year. 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 safe harbor language on this slide, and our annual report on Form 10-K for 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, and the reconciliations to these measures, as required by Reg G, are included in the supplemental financial information. With that, Bill, would you please begin?

Thank you, Greer, and thank you all for taking the time to join us. The first quarter of 2019 was marked by continued progress against our strategic plan. Some of the highlights included revenue growth ahead of our expectations, solid global volume performance from our traditional records business, progress in increasing our exposure to new storage areas, in part highlighted by the recently announced MakeSpace JV in the consumer storage area, and continued build-out of our data center business. Tempering this progress was the underperformance of adjusted EBITDA against our expectations for the quarter by approximately $10 million. We should emphasize, however, we remain confident in achieving our budget expectations in line with the full-year guidance targets we issued in February. Continuing from this summary in a little more detail, as you saw in our earnings materials, revenue growth and record storage volumes continue to be very durable with total revenues increasing 4.5% on a constant currency basis, whilst organic storage revenue grew 2%, consistent with the 1.9% organic storage growth recorded in Q4. Our revenue performance was slightly ahead of our expectations due to strong volume in revenue management, and despite softer service revenue, we expect total revenue to remain on track with our outlook for the year. Separately, we experienced higher than anticipated labor costs, which are temporary in our secure destruction or shred business. This was the single biggest contributor to our adjusted EBITDA underperforming our expectations by $10 million, or 3% for the quarter. Let me give you a bit more color of what led to the earnings results this quarter. Our performance remained on track with our expectations in the first two months of the year, with our underperformance occurring primarily in our shred business during the month of March. Shred increased headcount in an overall attempt to reduce overtime, but we did not achieve the reductions necessary to deliver the targeted levels, which resulted in unanticipated higher labor costs. Our confidence in delivering full-year guidance is in part driven from the investment we made at the beginning of the year in our global operations support team. This team is tasked with driving improvement in both operating and overhead costs globally. As a number of these improvements continue in their implementation, we expect it will ultimately lead to more of a marked improvement in performance in the second half of the year. Moreover, we believe a number of these initiatives will result in a stronger exit rate than we initially planned. From a strategic standpoint, this implies we expect to exit 2019 with an organic adjusted EBITDA growth rate of approximately 4.5% and on track towards our target of 5% for the end of 2020. Stuart will provide more detail around our expectations for the rest of the year, including other items impacting comparability. After adjusting out the $10 million of the unfavorable cost performance, you'll see that the first quarter corporate overhead costs increased year over year as we continue to invest in operational improvement as well as continued investment in innovation and new product development. These investments are in some areas already leading to both the identification of areas for improved cost performance and revenue opportunities, which should continue to both drive future growth and earnings and fund our growth and dividends to investors. One recent example of this can be seen in our continued progress with our Insight platform in partnership with Google. Three weeks ago at Google Next, Google awarded Iron Mountain its Artificial Intelligence and Machine Learning Partner of the Year. We are proud of receiving this award in an area so important in the realm of information management. Let me now turn to volume performance in the quarter, as well as changes to our volume reporting, which can be seen in our quarterly earnings supplement. As Stuart mentioned last quarter, we took a fresh look at our disclosures to streamline where possible, as well as ensure we are providing our shareholders and analysts value-added information to properly evaluate our businesses and related performance. We have revised our volume reporting to better reflect how we manage the business and provide visibility into our comprehensive portfolio of physical storage solutions above and beyond records, including tape, valet consumer storage, and our adjacent businesses of fine arts storage and entertainment services. Whilst the non-box storage currently only represents approximately 1% of our storage volume, we believe these areas have the opportunity to represent a significant amount of growth going forward. Turning to our actual volume results for Q1, by all measures, it was a solid quarter for volume growth. First, let me focus on organic volume growth from our traditional records management business. In the first quarter, globally, our cubic feet of records stored increased from 686 million cubic feet a year ago to 696 million cubic feet, with 2.4 million of the 10 million cubic feet organic. delivering 30 basis points of year over year growth. Moreover, during the first quarter, we delivered growth of 3 million cubic feet organically, or an increase of 40 basis points. Breaking the worldwide volume down further, we continue to see a consistent trend in North America with a decline of 130 basis points year over year. This is a slight improvement from recent quarters due to lower destructions and flat Q4 to Q1 organically. Western Europe and other international continue to deliver consistent levels of organic volume growth, 2% and 3%, respectively, year over year. Turning to our new reporting of storage volume achieved from adjacent businesses, primarily fine art and entertainment services, and consumer, we have routinely included these businesses when reporting our revenue per square foot and occupancy, but not in our volume reporting. Starting this year, we will also provide a breakdown of the volume stored in these businesses. You can see in our reporting that these businesses, while small, have delivered approximately 5 million cubic feet of net growth over the last two years, representing 20% of the overall volume growth for the company. Moreover, we see the volume contribution of these businesses accelerating as we continue to build further scale in these relatively new storage areas for Iron Mountain. A good example of this growth potential is illustrated by our recent expansion into consumer through the partnership with MakeSpace. We are excited about the opportunity to serve as the logistics and storage arm in the valet consumer space. This venture combines the strongest capabilities from both of our organizations that leverages MakeSpace' strong brand and front-end customer acquisition technology platform with our world-class operational scale and logistics expertise. Iron Mountain has the opportunity to accelerate growth in the consumer market through MakeSpace's strong market position and ambition to expand into new markets. Finally, we continue to make steady progress in our data center business. You will see in this quarter we signed new or expanded leases for almost 4 megawatts versus the 3.3 megawatts in Q4 on a total built-out capacity of a little over 100 megawatts. Whilst today Data Center is about 6% of total revenue, it is already contributing more than a third of our annual EBITDA growth. Before handing the call over to Stuart, I wish to reiterate that we remain confident in the health of the underlying business characterized by the growth in revenue from our records and information management business, as well as the increased momentum of our growth portfolio, including emerging markets and Data Center. Whilst we are disappointed about the cost impacts this quarter, we continue to see the full year in line with our guidance and with an expected slightly improved exit rate going into 2020. With that, I will turn the call over to Stuart.