Iron Mountain Incorporated

Good morning and welcome to the Yalda Mountain First Quarter 2020 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, Francesca. Good morning, and welcome to our first quarter 2020 earnings conference call. The user-controlled slides are available on our investor relations website, along with a link to Dave's webcast and earnings materials. On today's call, we'll hear from Bill Meany, Iron Mountain president and CEO, who will discuss Q1 highlights and our response to the COVID-19 pandemic. Barry Heitman, our CFO, will then cover financial results, our leverage and liquidity position, and our expectations 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 materials will contain forward-looking statements, most notably the impact from COVID-19 and our expectations of how that may impact our operations and financial performance in 2020 and expectations from Project Summit. All forward-looking statements are subject to risks and uncertainties. Please refer to today's earnings materials, the safe harbor language on this slide, and our annual report on 410K and future SEC filings for a discussion of the major risk factors that could cause our 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 the supplemental financial information. With that, Bill, would you please begin?

Thank you, Greer, and thank you all for taking time to join us. First and foremost, let me start by saying I hope you are all healthy and well, and our thoughts go out to all those who have been impacted by COVID-19. I also would like to say thank you to our employees, in particular our frontline mountaineers who are on the road and in our facilities every day. As many of our services are considered essential, many of our colleagues have been ensuring our customers' needs are met as seamlessly as possible. Our mountaineers have shown selfless dedication and resilience in these challenging times. As we go through this morning's call, I will focus my remarks on a few key subjects. how we are responding and managing the business in light of COVID-19 pandemic, the new service and storage revenue opportunities we have seized as we respond in real time to our customers' changing needs, and the durability and strength of our core storage and data center businesses, which provide valuable recurring revenue during times such as these. First, we continue to closely monitor the COVID-19 situation, which, as you are aware, continues to evolve at a rapid pace. Our top priority is to ensure the safety and security of our people, their families, and our customers. As a global business, we have been assessing the situation and implementing extensive precautionary measures since first learning about the virus in January. We have been constant, first in Asia and now globally, in striving to minimize the spread of the virus and its impact on our people, the communities we operate in, and our customers. We have been serving our customers, many of which are considered essential businesses, in new and innovative ways as they navigate this pandemic. Now let me address the current situation, the impact on our business, and what we are doing to mitigate that impact. As an example, we are reserving storage space for critical assets and unanticipated inventory volumes, including supplies needed by health responders and food and drug retailers. We are also providing outflow storage for businesses now stockpiling inventory due to service or supply chain disruptions. In addition, we are availing our customers of our digital and AI-based services to facilitate remote working on a range of activities, including distribution of mail from corporate mailrooms to providing a digital solution allowing the processing of unemployment benefits remotely. The first quarter introduced unprecedented challenges and required us to closely examine our priorities and focus on what we could do beyond our normal course of business to remain strong, resilient, and well-positioned to support all of our stakeholders. Fortunately, Iron Mountain is considered an essential service in many locations and sectors where we operate. In our global records and information management business, we have been able to keep more than 96% of our facilities open at varying levels of operations, all with heightened safety and cleaning procedures in place. We are seeing a need for new and more creative solutions in our digital solutions and global data center businesses. To help our customers respond to COVID-19, we are providing storage and distribution of PPE and other critical healthcare supplies, and are offering innovative solutions around document scanning and application of artificial intelligence through our Insight platform, which can help enable our customers' home-based workforces. Whilst there is a high degree of uncertainty regarding the length of the COVID-19 pandemic and the ensuing recovery from an economic perspective, I am confident we will get through this and come out an even stronger company. We are already seeing customers seek out new services that have resulted in revenue. So whilst it's possible that customers may not use our services the same way they did historically, we are confident that we will be able to continue to generate new revenue streams. Our customer-facing teams have been closely listening to customers, engaging differently, and solving problems that didn't even exist a few short months ago. We are deepening relationships with our customers and further differentiating Iron Mountain from our peers many of which do not have our level of financial strength, breadth of digital and physical offerings, and flexibility. We believe this positions Iron Mountain better for the longer term. Liquidity remains the top priority from a financial perspective, and we are operating from a strong liquidity and cash position. Barry will provide more detail on the specific actions we are taking. But at a high level, we are prioritizing cash generation, and we have taken action to reduce operating expenses in discretionary capital expenditures, including M&A. As of the end of the first quarter, we had more than $1.2 billion in liquidity between cash on hand and availability on our revolving credit facility. This strong balance sheet should provide us with sufficient runway to operate the business in this uncertain environment. As you would expect, in a crisis such as this, our service levels have experienced significant declines in numerous geographies as many customers have instituted mandatory work-from-home policies or banned visits to their offices and facilities from external parties. The timing of magnitude of decline in service activity has varied by market and by product life. Whilst we are a global company with operations in over 50 markets, our exposure to countries that saw a peak in Q1, such as China, is limited, so we did not see a significant service activity decline until mid-March for the majority of our business. In our records management and secure trade businesses, which account for approximately 75% of our service revenue, service activity has declined by 40% to 50% during the times when the respective markets have had restrictions in place as compared to the prior year. As restrictions are lifted, we expect the service activity to gradually pick back up. For instance, in our Chinese markets, we are seeing current service activity at 60% to 70% of normal levels, which has improved from only approximately 20% at the peak of the virus spread in China. While service generally contributes only about 20% of our profit, given the size of the decline as well as some of the fixed costs in the business, the impact is significant. As we have encountered this slowdown, we have made tough decisions that impact our fellow Iron Mountain colleagues. In an effort to keep our labor costs in line with levels of service activity, we have either furloughed, reduced hours, or utilized other temporary reduction measures for approximately a third of our global workforce. We have also managed costs by putting on hold our recruiting activity and terminating most of our temporary and contract workers in our global records and information management business. Decisions that impact our employees are never taken lightly, and we have set up numerous resources to support impacted employees during this unprecedented time. This includes, but is not limited to, continuing to provide benefits and sponsoring the employee portion of healthcare for impacted employees helping our employees utilize their respective government programs available to those individuals unemployed or furloughed, assisting our colleagues with outplacement support, and actively assisting employees through our employee-funded relief fund. At the same time, our core storage business remains durable, and we continue to benefit from our deep and long-lasting customer relationships. Whilst we have seen a slowdown in the new boxes that we have been able to inbound, the majority of our storage revenue is from existing boxes that were inbounded in prior months and years, and we continue to earn revenue on that inventory. However, the impact the crisis will have on our future organic storage rental revenue growth in volume remains unknown and is dependent on the severity and duration of the COVID-19 pandemic. In Q1, total organic storage revenue grew 3%, supported by strong benefits from revenue management. Global organic volume in Q1 was flat compared to Q4, driven primarily by growth in adjacent businesses and consumer of 8% and 5%, respectively, on a sequential basis. Organic global records management volume declined approximately 600,000 cubic feet from the fourth quarter, Due to the impact of COVID-19, we expect our volume of incoming boxes for the remaining of the year to be lower than we initially expected entering the year, but we'll continue to look for ways to mitigate the slowdown. As I mentioned before, we also remain in active dialogue with our customers about leveraging existing and customized Iron Mountain solutions to help them navigate this difficult situation. I want to briefly mention a few key examples. One of our digital services that has benefited our customers during this crisis is Image on Demand. This service provides safe, contactless digital delivery, which enhances the chain of custody security and provides a quick 24-hour turnaround online delivery. This solution enables customers to be more effective by sharing information with those who need it whilst ensuring the information security and privacy are maintained, which is even more necessary in today's remote environment. Another example is one where we are helping one of our customers, a national health care provider, which was struggling with a surge in the need for medical supplies and supply chain challenges. This particular customer needed to distribute critical PPE to 32,000 employees at 750 sites in 36 U.S. states, and required a secure location to prep PPE kits without taking up valuable space that was being used to care for patients. In order to meet those critical needs, we provided non-records business storage and logistics support. We inbounded and stored pallets from multiple suppliers, prepared PPE kits made up of 12 to 15 items, and distributed the kits to healthcare sites. This is only one example of how we have helped many of our healthcare and medical customers during these trying times. A third relevant example is a government labor department that needed to maintain critical processes whilst enabling home-based workers to process high volumes of unemployment claim records as quickly as possible. The government agency leveraged our Insight Essentials platform, which enabled the government department to receive the scanned claims via our Insight application to more than 800 unemployment examiners. We will continue to store the hard copy records for them until they need to be securely destroyed. We are currently speaking to multiple U.S. states about similar solutions to address both elevated volume in unemployment and Medicare claims during this crisis, as well as the need for remote working of the teams approving the claims. As you would expect, our global data center business has also been resilient as an unprecedented number of organizations are adjusting to remote working practices, which has driven a substantial increase in traffic and the need for additional bandwidth. Moreover, the current pandemic further underscores the vital and expanding role of multi-tenant data center play in an increasingly digital economy. COVID-19 is causing companies to evaluate and accelerate their digital transformation journeys, especially as it relates to outsourcing their IT infrastructure and fortifying their remote capabilities. In fact, industry experts believe that COVID-19 is serving to fast-track trends that were already evident in the data center industry, which bodes well for this portion of our business moving forward. Looking at recent performance, our global data center business had a strong Q1 with organic revenue growth of almost 10%. We signed 6.4 megawatts of new and expansion leases, and our pipeline remains robust. This leasing consisted of a 3-megawatt booking with a new logo, a leading hyperscale enterprise software provider, which also includes a contractually committed reservation for an additional 2 megawatts in our expanded campus in Phoenix. We also continue to maintain good momentum with our enterprise customers. Commercially, despite an unprecedented macro backdrop, our data center team continues to receive significant engagement in RFPs for both hyperscale, corporate, and government requirements. The team has quickly adjusted to the new normal of remote working and has been innovative and continued to meet our current and prospective customer needs, including hosting virtual data center tours to support demand and the increased need for capacity. We are committed to ensuring uptime and resiliency for our data center customers, and we are ready with capacity and our staff to handle support, upgrades, and new installations if additional bandwidth is needed whilst remote workforces are supported. One area that we continue to monitor closely is the impact on the pace of construction for our data centers currently under development. Whilst not significant, we do see modest delays across many of our projects, which is also happening across the industry. Given our relatively high capacity utilization of almost 90%, should delays extend or increase in length, this could create a tight supply situation. As I said, we are keeping a close eye on this, and are in regular contact with all of our vendors and construction partners, and at this moment, we do not foresee it will materially impact our anticipated bookings and delivery for this year. As we look ahead, these are truly unprecedented times, and the path to recovery is clouded by uncertainty and will likely be choppy. It is very difficult to predict how long this current environment will go on and what the new normal will look like on the other side. There will undoubtedly be lasting changes to how we work and how our customers will conduct business. Given the combined effects of the pandemic and associated financial impact on the global economy, we believe a conservative approach is warranted. As you can see from our Q1 results, Project Summit is off to a strong start. Now that our project teams are up and running, And given the speed with which we implemented Wave 1, we have identified additional opportunities to accelerate strategies to streamline our business and operations. We have pulled forward a number of initiatives that were planned for Waves 2 and 3 of Project Summit and expect to see those benefits materialize at a faster pace in 2020. In addition to finding new ways to work differently with our customers as we roll out Project Summit, COVID-19 has uncovered ways for us to support our customers as they adjust to a remote working environment. Our customers' increased need for digital delivery has allowed us to reassess our service delivery model. Our R&D and growth initiatives have well positioned us with services like Image on Demand to address customers' changing needs as they adapt to new ways of working. Leveraging these new technology capabilities enables us to adjust our service delivery model and more efficiently utilize our fleet, labor, and real estate. The most impactful changes to our service delivery model revolve around new service level agreements, or SLAs. These new agreements will allow us to better align our external customer SLAs with our internal record center SLAs, as well as leverage more effective use of digital delivery to serve our customers. In addition, we will also utilize third-party logistics providers more extensively than we have historically for our pickups and delivery. We have proactively communicated with our customers in some of our largest markets regarding these changes and have begun implementing the SLA changes, which has resulted in some additional reduction in force across the business. This broadened scope of Project Summit should result in even higher levels of adjusted EBITDA benefit in associated charges than we initially expected. Project Summit is now expected to generate $375 million of adjusted EBITDA benefits exiting 2021. This represents a meaningful increase from the prior expectation of $200 million. The total program is expected to cost approximately $450 million, up from our prior expectation of $240 million. In closing, this additional benefit from Project Summit should only further propel the underlying strength of our business once we emerge from the COVID-19 situation. Our strong performance in Q1, together with the additional promise from an expanded project summit, makes us confident that we will emerge from the COVID-19 pandemic as an even stronger company than envisioned before. We continue to demonstrate resilience and determination and show all of our customers and communities that they can count on us in their time of need and that Iron Mountain really is irons. I want to thank all my fellow Mountaineers and their families again for their perseverance in these difficult times, and I pray for their safety. I hope all of you and your loved ones are remaining safe and well. With that, I turn the call over to you, Barry.