Iron Mountain Incorporated

Good morning and welcome to the Iron Mountain second 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. Good morning, and welcome to our second 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 website, along with a link to today's webcast, the earnings press release, and the full supplemental financial information. On today's call, we'll hear from Bill Meaney, Iron Mountain's President and CEO, who will discuss second 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 slide 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 time to join us. We're very pleased with the continued durable revenue growth across our businesses and the improved operational execution in line with our previous outlook. Some of the highlights of the quarter included Total organic storage revenue growth of 2.4% and total storage growth of 4.6%. We continue to make good progress in identifying new storage opportunity whilst organic volume increased 40 basis points in our global records management business. Good momentum driving improved operational efficiencies across the organization and data center delivering strong organic growth. We have leased 7 megawatts through the second quarter in line with our full year expectation of 15 to 20 megawatts. Moreover, Q3 is getting off to a strong start with a 6-megawatt lease signed in Northern Virginia. Starting with a review of our financial and operating performance in the quarter, total revenue increased 3% year-over-year on a constant currency basis to $1.1 billion. This growth was driven by an almost 5% increase in storage revenue, partly offset by lower service revenue growth, reflecting lower recycled paper pricing, which I will touch on in a few minutes. The cost issues we experienced in Q1 were fully corrected during the quarter, which is evident in the sequential adjusted EBITDA margin expansion of 210 basis points, above the high end of the 150 to 200 basis point margin expansion we guided to in our last call, despite some one-time costs. As you saw from our press release this morning, we have tightened our guidance ranges given we are halfway through the year and there has been less variability in FX rates than we expected when we provided our initial guidance. We now expect revenue to increase between 2% and 4% year-over-year and adjusted EBITDA to increase between 2% and 5% year-over-year on a constant currency basis, remaining within our initial guidance ranges. We remain focused on successfully executing in the second half despite some external headwinds with a strong finish to the year anticipated, setting us up to enter 2020 in a good position. Turning back to Q2 performance, we also continue to see good organic growth, with organic storage revenue growth up 2.4% for the second quarter and 2.2% year-to-date, reflecting continued strong growth from data center, the other international segment, adjacent businesses, and stable performance in Western Europe and North America. Revenue management, particularly in North America, is trending ahead of our expectations. Total organic service revenue growth was negative 2% for the quarter and roughly flat year-to-date due to lower recycled paper prices. We expect this to remain a headwind for our service business for the remainder of 2019 as we cycle over record pricing a year ago. It should be noted, however, the headwinds from paper price on a year-over-year basis amount to $20 to $30 million on what was last year $115 million of revenue from the sale of paper. The actions we have taken are more than enough for us to manage this headwind and maintain our profit goals, given it is less than 1% of the revenue in the overall business, albeit a little less than 2% of the profit. Turning to business performance, we continue to see good growth in the alternative storage categories, including adjacent businesses, consumer, and other. Volume in consumer and other grew more than 760,000 cubic feet sequentially, or 31%, in part reflecting strong demand for high-touch consumer storage during the peak season. In our records management business, we organically added roughly 3 million cubic feet of net record storage volume worldwide over the past 12 months, representing 40 basis points of growth, an increasing trend driven by both new sales and lower destructions. More specifically, developed markets organic volume declined by about 60 basis points, a slight improvement from Q1. Organic volume growth in the other international segments continues to grow at a faster clip, increasing 3.4% driven by an increase in new sales of 9.7% and modestly lower destructions. We are encouraged by the consistent performance of our global records management business and continue to see a solid commercial pipeline. Shifting to our digital solutions business, we continue to support our customers' evolving needs by providing a number of digital solutions. To this point, our Information Governance and Digital Solution Team, or IGDS, had a very good Q2 with a number of wins and a healthy pipeline that is expected to deliver strong double-digit revenue growth this year. In conjunction with our federal team, IGDS was awarded a nearly $13 million contract from General Dynamics Information Technology. Under a sub-agreement, Iron Mountain will perform work as part of a digital transformation initiative for a government agency. As it relates to our Iron Mountain Insight Platform in partnership with Google, we continue to see good momentum for this innovative solution, which is powered by existing Iron Mountain products and services, adding even more value to our portfolio of digital solutions. In Q2, we signed a deal with a large financial services customer for a comprehensive solution to manage the document workflow process of auto loans. In addition to providing this customer with scanning and secure storage of loan documents, Insight extracts and validates the data, verifies the signatures, and certifies authenticity of the loans and associated collateral. We decided this quarter to evaluate alternatives with regards to the infrastructure supporting select offerings within our iron cloud portfolio. We generally approach our digital solutions based on a hybrid model in terms of what we develop internally and who we can partner with for best-in-class technology solutions for the right cost. This evaluation has led us to a shift in partnership approach for some of our R and Cloud solutions, such as Object Store, and resulted in a one-time drag on our reported results this quarter, which Stuart will discuss in a moment. Finally, as mentioned earlier, our data center business continues to build leasing momentum in conjunction with the build-out of our platform. As mentioned earlier, in early July, we signed a six-megawatt deployment in northern Virginia, which is expected to commence later this year. I want to congratulate the data center team for the successful execution of this deal. It's a great accomplishment and should add significant value to our campus ecosystem. Looking at data center leasing activity in Q2, we signed three megawatts of new and expansion leases, primarily driven by enterprise demand. Year to date, including the new lease in Northern Virginia just mentioned, we have leased 13 megawatts with clear line of sight to achieving the high end of our annual target of 15 to 20 megawatts. Furthermore, we continue to demonstrate the strengths of our customer relationships when winning retail sales focused on large enterprises building private cloud infrastructure. Consistent with the first quarter activity, approximately 40% of our leasing pipeline was generated by our non-data center sales team. Cross-selling opportunities like this will continue to help us realize synergies as the data center business grows. As it relates to development activity, we are on track to deliver the first phase of new capacity at our Phoenix campus expansion with the grand opening scheduled for August 15th and an additional five megawatts of capacity scheduled to be delivered across three international markets in Q3. In summary, Q2 was a strong quarter that demonstrates the durability of Iron Mountain with continued improvement in global storage, organic revenue, and volume growth, enabling us to continue to invest in new growth areas to support our long-term business model. We are encouraged by the momentum we see in our data center business and will continue to expand that platform and drive further synergies across the business whilst our digital services and solutions are helping our customers solve new business challenges. With that, I will turn the call over to Stuart.