Iron Mountain Incorporated

Good morning, and welcome to the Iron Mountain fourth quarter 2019 earnings conference call. All participants will be in the Sonali 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, Keith. Good morning, and welcome to our fourth quarter and full year 2019 earnings conference call. The user-controlled slides that will be referred 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 Meany, Iron Mountain president and CEO, who will discuss highlights and progress toward our strategic plan. Barry Heitman, our CFO, will then cover financial results and our outlook for 2020. 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 2020's financial and operating performance and expectations from Project Summit. 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, which we expect to file later today, 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. Before we get into our discussion of the Q4 results, I want to first welcome Barry as our new CFO to the Iron Mountain family. Barry brings a successful track record of navigating transformation and effective change of various organizations. Most recently, he led efforts at Haynes Brands to increase operating cash flow, reduce leverage, and produce strong international growth. His insights will be very valuable as we roll out Project Summit, our transformation program to simplify our structure and create a more dynamic and agile organization. We look forward to his contributions as we enter 2020 and beyond. With that, let me start with a look back at where we have been on our journey over the past six years. Looking first at total organic revenue, in 2013, it was flat and adjusted EBITDA declined 1%. Today, we reported total organic revenue growth of approximately 1% and 2% if we hold paper prices constant. In terms of adjusted EBITDA, 2019 saw growth of 3% or nearly 5% if we apply 2019 paper prices to 2018. More broadly, progress over the past six years is visible in nearly all metrics, not the least being the expansion of EBITDA margin by almost 500 basis points. This macro look back is important as it is the basis that continues to provide momentum going forward. We feel this positive momentum in sales and profitability coupled with Project Summit and a broader portfolio in service offerings to our core customers is the platform from which we expect this trend to continue. Of course, this progress just didn't happen. It is the result of the successful execution of our strategy of shifting our revenue mix to faster-growing businesses, including emerging markets, data center, and adjacent businesses, and successfully implementing our revenue management program. We also made important progress on Project Summit, our transformation program designed to accelerate this strategy and create a more streamlined, simplified, and agile organization, better suited to solve our customers' challenges. Furthermore, I am pleased to share with you that we are very much on track with our execution on Project Summit. We moved quickly with the headcount reduction we announced in order to ensure minimal disruption to the broader organization. If you recall, we announced plans to reduce the number of VP level and above positions by approximately 45%. As of the end of December, we had completed approximately 70% of the reductions. We all recognize that change is never easy. And over these last few months, our organization has shown great resilience and focus. This is a testament to our great people in the fact that a large number of Mountaineers are already feeling energized by being able to more easily address and serve our customers. As it relates to the savings targets we communicated, the actions we took in the fourth quarter have resulted in $50 million of annual adjusted EBITDA benefits that will begin to flow through in Q1. We have good line of sight to the incremental $30 million of in-year benefits we expect to generate in the second half of 2020, with a number of the process and systems improvements underway. We are excited about the new ways we are embracing technology to improve the way we work so we can all show up differently and drive change. Ultimately, we expect Project Summit to expand organic revenue beyond the current growth rates, all whilst boosting adjusted EBITDA by an additional $200 million over the next two years. This is all on top of the 4% plus organic adjusted EBITDA growth we have been achieving the last few quarters. Turning to fourth quarter performance, constant currency revenue increased almost 3% over the prior year. We delivered solid adjusted EBITDA growth of 8%, adjusted EPS growth of 24%, and AFFO growth of 18%, while simultaneously increasing investments to support future growth. Barry will provide more detail on the financial performance as well as our outlook for 2020. Turning to business performance, organic global records management volume remained relatively steady in with a 10 basis points decline over the trailing 12-month period. To put this into perspective, globally, volumes declined approximately 500,000 cubic feet on a base of nearly 700 million cubic feet, driven mainly by fewer acquisitions of customer relationships. More specifically, in 2018, we acquired 3.5 million cubic feet of customer relationships, which tend to be some of our highest returning investments, as opposed to only 2.8 million cubic feet in 2019. We expect the impact of fewer customer acquisitions in 2019 to continue its drag on volume through the first half of 2020. However, we are confident that this is a temporary deviation and that records management volume, along with incremental storage opportunities in non-box categories such as consumer and alternative storage and adjacent businesses, should result in flat to positive levels of organic volume growth for the full year 2020. Now coming back to current volume trends. Apart from the dynamic I just discussed, the single biggest headwind on volume today is the rate of change of incoming boxes from our existing customers. You will recall from previous calls the average life of a box in our inventory has remained rock steady at 15 years. Whilst the average age of a box when it is destroyed has remained steady over many years, the average age of our inventory will naturally skew during periods where the growth rate of incoming boxes is undergoing change. For example, if a vertical is experiencing a slowdown in the rate of incoming volume, then the average age of our inventory will increase. Whilst we can't predict when equilibrium will again be achieved, We feel in the meantime it will remain a minor impact given that our customers continue to add new boxes to storage annually just at a lower rate than historically. To help you better understand, let's take a look at what has become one of our slowest growing yet most stable verticals. The North American legal vertical began its digital transformation journey many years ago. This change in customer behavior has resulted in a deceleration in the rate at which existing legal customers send us new boxes and every year until recently. The good news is that we have seen the growth rate stabilize to slightly positive net volume growth. We expect a similar trend across other verticals that are not as far along on their digital transformation journey. To provide further context, let's say a legal customer stores 100 boxes with us. Ten years ago, they would send us six new boxes a year and destroy or remove two boxes, so they would be net positive four boxes or a 4% growth rate. Today, a similar customer would send us two to three new boxes and still destroy one or two boxes, making them flat to net positive 1% growth rate, which is the new normal for this customer vertical, remaining stable at this lower growth rate given the age profile of their inventory has stabilized. We should remind you that what I just discussed is only affecting volume from existing customers. In addition to that, we continue to focus on new customers, competitive wins, opportunities in the unvended and federal channels, and as we talked about earlier, other methods of customer acquisition. We expect all these various sales channels to continue to contribute to overall organic volume growth for global RIM over time. This is what gives us confidence in the durability of the recurring revenue stream and strong cash flow generation that comes from global RIM organization, and we do not anticipate a change in the foreseeable future. As I like to say, it's the financial beast that allows us to fund growth opportunities whilst returning cash to our shareholders. We have also made considerable progress in transforming our core RIM business to a more diversified model and are on track to achieve our targeted geographic mix, which, as a reminder, is 20% of revenue from faster growing markets by the end of 2020. We ended 2019 with these markets contributing 19% to total revenue, and for comparative purposes, faster growing markets represented less than 10% of revenue in 2013. Moreover, over the same period of time, we have expanded the adjusted EBITDA margin for these relatively new and faster-growing markets from 20% to 30% in 2019, and we believe we can continue to expand margins as we scale our presence in these geographies and to select new markets that offer superior growth opportunities, all whilst managing our cost structure efficiently. Related, our global digital solutions business had a record year with revenue increasing 10% year over year. As we shared with you last quarter, our digital solutions offerings, such as Insight, are increasingly enabling us to approach our customers with a differentiated solution, resulting in a pull-through of other products and services. Just one example of this was a recent win with a large, highly regulated financial institution. This customer previously managed its physical file room storage in-house with over 600 employees across five global locations. We will assume responsibility for the management of all file storage, processing of the files and begin providing value-added services. We plan to transform the operation by consolidating locations, reorganizing workflows, adding workflow software, and applying digital solutions such as RFID and artificial intelligence and machine learning through our Insight platform. When completed, this effort will not only help our customers significantly reduce costs, but it will also be the foundation for future enhanced digital products. We were able to win the business based on our unique combination of document management and workflow expertise combined with our digital solutions, which we expect will result in close to $30 million in annual revenue for the next 10 years, making this one of the largest single deals we have signed. Turning now to our data center business, we had a good year executing 17 megawatts of new and expansion leases, including our first hyperscale deal. Whilst we are pleased with the steady commercial progress we have made leasing up our facilities, ending Q4 with a stabilized utilization rate of 90%, we did see some deals in the pipeline shift from Q4 into 2020. The 17 megawatts leased in 2019 shows good progress on a base of approximately 100 megawatts at the beginning of 2019. Within our leasing for the year, we were successful in attracting over 100 new logos to our global data center platform, further diversifying our enterprise customer base and underscoring our brand strength in this dynamic industry. We continue to make good progress organically building our global platform, delivering almost 20 megawatts of capacity in key markets around the globe, including London, Amsterdam, Singapore, New Jersey, Northern Virginia, and Phoenix. We are excited about our newest development in Frankfurt and currently have a strong pipeline of pre-leasing opportunities in various stages of discussion. Additionally, in Q4, we entered into an agreement for a second site in Slough, which will allow us to expand our presence in the important London market by adding an incremental of 25 megawatts of capacity. Under the terms of the agreement, the landowner will build a shell, after which we will finish the build-out of the data center to our specifications. Our existing footprint in London, which is adjacent to this new site, is nearing stabilization, and this new agreement provides capacity for larger requirements in a very desirable market with low latency network connectivity. Looking into 2020, the first half pipeline looks strong with a number of larger opportunities on the horizon. That said, these larger deals tend to be lumpy and timing is often harder to predict. Putting this all together, we would expect to be able to lease up another 15 to 20 megawatts of capacity in 2020. We feel very good about our commercial momentum and a building pipeline of demand, including hyperscale interest in a number of our markets such as Phoenix, Northern Virginia, and Frankfort. In summary, 2019 was not without its challenges in terms of consistently declining paper prices, but we ended the year in line with our expectations, having a number of strong commercial wins whilst making measurable progress on our strategic plan. We are focused on maximizing the benefits from Project Summit, not only financially, but in how we operate as a team and an organization. We have a unique opportunity to translate a streamlined and more agile organization into speed to unlock further revenue opportunities through how we connect with and build additional value for our customers. With that, I will turn the call over to Barry, who will walk you through Q4 performance and our outlook for 2020.