Good morning and welcome to the Iron Mountain Fourth Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. 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 Web site 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 highlights and progress for our strategic plan. Barry Hytinen, 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 2 of the presentation, today’s earnings call, slide presentation and supplemental financial information will contain forward-looking statements, most notably, our outlook for 2020 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 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 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 at various organizations. Most recently, he led efforts at HanesBrands to increase operating cash flow, reduce leverage and produce strong international growth. His insights will be very valuable as we rollout 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 in a broader portfolio and 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…

Thank you, Bill. I am delighted to be here at such an important time in the company's evolution and I’m energized by our strategy, the engagement and strength of our team and the opportunities we have in front of us. Turning now to results. In the fourth quarter, revenue, EBITDA and AFFO were in line with our guidance ranges. We continued to expand margins as adjusted EBITDA increased 8% over last year. Additionally, AFFO increased 18% to $228 million. Revenue of $1.1 billion increased 18 million or 2% on a reported basis and 3% on a constant currency basis compared to the prior year. Total organic revenue grew by 1.3% in the fourth quarter. This was driven by total organic storage rental revenue growth of 2.5% for the quarter, reflecting the volume trends Bill discussed and contributions from revenue management. Total organic service revenue declined 70 basis points in the fourth quarter year-over-year. This reflects the change in paper prices which were at record highs in the back half of 2018 but ended 2019 at record lows. Adjusting for the $13 million impact of lower paper prices, organic service revenue would have increased 2.9% in the fourth quarter. Adjusted EBITDA grew 8% for the fourth quarter to $386 million, despite lower paper prices and FX headwinds with margins expanding 190 basis points year-over-year to 35.8%. For the quarter, our tax rate was in line with guidance and adjusted earnings per share was $0.31. Turning to Project Summit. As Bill mentioned, we are on track and in the fourth quarter we’ve recognized $49 million of restructuring charges to implement the first phase. For 2020, we expect to recognize approximately $130 million of additional restructuring charges, and we continue to expect Project Summit to deliver $80 million of adjusted EBITDA benefits in…

Yes. Thank you. We will now begin the question-and-answer session. [Operator Instructions]. And the first question comes from Sheila McGrath with Evercore.

Yes. Good morning. At first glance, Project Summit appears to be focused mostly on cost cuts via employee reduction. I was wondering if you could give us a little bit more detail on how any improvements in information technology might be part of the mix and any other changes or tweaks in strategy that would be focused more on revenues.

Good morning, Sheila. Thanks for the question. So let me answer the question on two levels; one, in terms of the technology aspect that you alluded to and then the other in terms of the operating rhythm in what we’re doing differently in managing and leading the company. So on the technology side is one of the biggest areas of change is going to be upgrading and applying new technology in terms of the way we track and interact with our customers. So to give you specific examples, we have four instances of sales force which is very hard to get a single view of a customer globally. The second thing is, is we have over 40 billings systems, which, again, billing is an area where we need to make sure that we’re consistently not just billing but responding to queries around billing for our customers. So that’s an area where we’re applying technology to allow our mountaineers to have better visibility of our customers, which helps them on the selling side, but also in terms of serving those customers with they have inquiries. So that’s one area in technology. The part that we’re already starting to see a big effect is in terms of how we’re leading the company. So one of the things that we talked about, but probably not as directly on the last call, is Summit isn’t just about taking cost out. It’s actually redeploying cost. So we’re actually adding cost or adding resources around people that are interacting with our customers, especially in terms of strategic account management. So to give you an example of that – and also in terms of the way we lead the company. So we now have an expanded enterprise leadership team which we met in January. And first of all, the energy in the room was noticeably different because now we have the top 40 leaders and on a regular rhythm every quarter in a room to discuss where we’re going and how to get there faster and better. But also part of that briefing was the strategic account team had the opportunity to put up a slide of one of our most mature customers that we serve globally. And the interesting thing is if you had surveyed people beforehand, they would have said that they’re customers probably 80% served if you look at a matrix of our product offering and the geography that they fit in, and they’re completely a global company virtually in every country we’re in and then some more. And the interesting thing is it was just the opposite. We’re serving about 20% to 30% of the potential of that client rather than 80%. So a combination having strategic accounts taking a global look at how we can serve that customer better, and then the energy being able to have that discussion with the top leadership of the company globally on a quarterly basis I think is going to make a real change.

Okay, that’s helpful. And I didn’t see a sources and uses slide this quarter. I was just wondering if you could provide some insight on your outlook for sources and uses in 2020 and progress on sourcing JV capital potentially for the Frankfurt data center.

So, Sheila, I’ll take the JV question and then I’ll hand it over to Barry on the sources and uses. So we continue to look at entering a JV for the Frankfurt facility as we’ve spoken about in the last couple of calls. We’ve slow rolled that slightly because the pre-leasing activity on Frankfurt is very, very strong. So, obviously, we want to line that up before we finalize the negotiations. But we still expect to put Frankfurt into a joint venture. We’re quite far down the track with a couple of potential investors, so we feel good about that. But we also want to make sure that we put our best foot forward and we’re really encouraged and quite excited about the pre-releasing activity to the Frankfurt site.

Sheila, it’s Barry and thanks for the question. It’s great to be here. I’ll just highlight a few things and I’ll note that in the slide presentation as well as the supplemental, I think you’ve got basically all of the items that you’d need. But to call out a few things, cash interest, that will naturally be below the interest expense that we guided to in light of sort of deferred financing charges and things like that go through interest. We guided to cash taxes of $70 million to $80 million. And you’ve got all of the – on Slide 13, all of the various items for recurring CapEx and non-real estate is about 150 million, and you can see the customer inducements, et cetera. We are assuming $100 million of capital recycling. You know that we did more than that in 2019. I’d call out that Summit, as we mentioned, is about $130 million of expected use in the year. And then you’ve got our data center development and base acquisitions, et cetera. So I think you’ll find that if you work through the schedule, there’s a considerable amount of cash available for discretionary and we feel good about where we are at this point.

Okay. Thank you.

Thank you. [Operator Instructions]. And right now we have a question from Nate Crossett with Berenberg.

Hi. Good morning, guys. The volume decline in the quarter, I appreciate some of the color you gave, but can you give us some more detail on the declines? Like what’s the breakout of declines for North America versus international? It sounded like you said at the end of 2020, you’re expecting volumes to be flat to up. Did I hear that correctly?

Good morning, Nate. So, first of all, we expect volumes to be flat to up for the year, including consumer and other alternative to storage, such as art, for instance. But yes, you’ve heard that correctly. You’re right to also assume that North American is where the negative volume is. The rest of the world; Europe is basically flat, slight positive. It changes from quarter-to-quarter, but think of Europe as flat. And then other international is kind of mid-single digit positive, right, because those were the faster growing emerging markets. So just to come back to it to put it in context, first of all we’re talking about 0.5 million cubic feet of negative decline in the year, over 700 million cubic feet. And if you look at that, that’s more than explained by just the slowdown in the number of customer acquisitions that we did during '19 as compared to 2018. And at that level, that’s totally in our control. In other words, we normally do about 3 million cubic feet. We did less than that in 2019. We did more than that – a little bit more than that in 2018. And the difference between those two more than accounts for the 0.5 million cubic feet down in 2019, so just put that into context. In addition to that is we continue – we source volume in three different buckets besides volume coming in from existing accounts. We source it from customers that are completely unvended, not just the federal government but even some of our most mature – I mentioned one of our most mature customers, they, believe it or not, some places where they still do records management in-house and I actually talked about the file rooms that we’re taking over for this customer which is…

Thank you. And the next question comes from Eric Luebchow with Wells Fargo.

Hi. Thanks for taking the question. Curious, Bill, on kind of your international footprint. I think you’re earlier in the revenue management initiatives in those international markets. So I’m curious what type of impact you’ve seen as you’ve rolled that out and if there’s been any impact on customer retention or volume growth as you rolled that out more broadly across your portfolio?

It’s a good question, Eric, and you’re right. We are in the earlier innings on those markets and those are the faster growing markets. So the growth that we’re getting from other international when you see storage revenue growth is mainly from volume growth and only a little bit of revenue management. So far we don’t see any difference in trends in those markets than we did, say, in Western Europe when we rolled out or North America before that in terms of elasticity. But it does take longer for that effect to show up just because some of those contracts are on three years, some of them even on five-year contracts. Of course, some are annual. So what we find is we’re I guess 18 to 25 months into the rolling revenue management out globally and you’ll see that just like it did in Western Europe, it will take I would say another year, year and a half before you start seeing the full effects of that.

Thank you. And the next question comes from Andrew Steinerman with JPMorgan.

Hi. Good morning. This is Michael Cho on for Andrew. I just had – my first question is a follow-up on Project Summit. I realize there’s always a number of moving pieces and, Bill, I think you gave an example of up selling [indiscernible]. But if we think about the impact from Project Summit, what’s the EBITDA margin goal for having that as a result of the Project Summit?

Mike, I’ll let Barry talk about it. We have talked about it as you said briefly on the last call, but Barry can give you some more color on that.

Okay. Hi, Michael. Thank you for the question. If you look at where we are from an adjusted EBITDA margin today and what’s embedded in the guidance and then if you play that out over the next couple of years, as you know, Project Summit is going to generate 200 million or more of EBITDA benefit and you work through both improvements in our base EBITDA as well as Summit, together with a little bit of revenue growth, I think you’d find that over the course of the project as we’re exiting it, probably going to find the EBITDA margin into the high-30s and we feel very good about where we are trending. I’d say Summit is well underway. The fourth quarter actions were taken and completed very successfully. And we have very good line of sight on the in-year benefits here this year. Thank you for the question.

Operator, can we go to the next question please?

Yes. [Operator Instructions]. And the next question comes from George Tong with Goldman Sachs.

Hi. Thanks. Good morning. I’d like to delve a little bit deeper into your physical storage volume trends. Your global volumes grew 90 bps year-over-year in 4Q, but this did decelerate from nearly 2% growth in early 2019. This is rather a large move for a relatively stable business and you talked about legal and the declining rate of change with new boxes. Can you maybe elaborate on what’s causing the increase in the second derivative of change and perhaps what needs to happen for volume growth to stabilize or improve, which is what you’re assuming for 2020?

Hi, George. So let me first start with your observation on Q1. So the reason why I also said that we expect the trend that we saw in Q4 to continue in the first half of 2020 is the Q1 was also a high quarter where we actually did customer acquisitions. So the trends that you’re kind of calling out is virtually 100% covered by the change in customer acquisitions, not even the second derivative. Now in terms of the overall change in terms of volumes in North America that we see, as I said, is that when legal was going through its downward march in growth rate as they were transforming or adding more digital processes to their workflows is we did see similar trends that we’ll see, for instance, in financial services today. Financial services is still one of our higher growing or incoming boxes for financial services, but it’s just at a lower rate than we did previously. So first of all, because we’re talking about the thing that’s impacting our net volume for some of these verticals is rates have changed just by its very kind of mathematical nature. These are muted effects, so they’re secondary effects. And the thing I can’t predict – the thing I would predict is I think we’re going to be in this territory, but if you think about it over a year kind of 7 million to 8 million negative cube growth just on pure RIM and mainly focused in North America until we get through this transformation. And as I said, when we look at legal, we’ve gotten through that and legal is actually slightly positive in terms of net cube growth whilst it goes through it. But the thing that’s hard to predict is how fast people digitally transform and what growth rate they stabilize to.

We do have a question from Shlomo Rosenbaum with Stifel.

Hi. This is Adam on for Shlomo. Could you talk a little bit more about what’s weighing on the organic revenue growth guidance for 2020? Just the 0% to 2% organic, just talk about it a little bit more?

Yes. Thanks, Adam. It’s linked to the other question, which was how is the revenue management rolling out into emerging markets? So it is a broader range – and I understand where you’re coming out with the question – is that right now we’re still seeing most of the growth internationally, which is becoming a bigger percentage of the whole of the company, is coming from volume rather than pricing. So we want to get more visibility in terms of how quickly some of the pricing changes we’re making in international before we could guide higher.

Thank you. And the next question is a follow-up from Sheila McGrath with Evercore.

Yes. Bill, historically you’ve mentioned that you’ve had some wins with the U.S. government with that specialized account focus group. But you’ve also mentioned it takes a while to get the inventory from them. Just wondering if you’ve seen any progress in terms of them implementing the awards to Iron Mountain?

Yes, it’s a great question, Sheila. So I would answer it in two different ways. I think the contract you talk about, we had a very large blanket contract with one of the large departments and it’s still exactly – we still have the frustration that you’re alluding to. Actually we’ve had more wins on the service side, because it has been easier for them to give us business on the service side than it is on the storage, and that’s partly because of the relationships with National Archives. So one thing that we do know both from the National Archives and government leaders is that we do expect over time for that to start coming free, because National Archives has publicly announced that there is only a window, it’s over the next few months or years, where they’re going to continue to accept volume from government agency. So eventually that will come loose, but that one has been slower. On the other side, we had a win I think it was about a year and a half ago where we – I think it will be two years this summer. We had one win with a large government agency where they were exiting their own warehouse and we moved that. I think we won in the summer and we had it all – we had 400,000 cubic feet roughly moved by November into our facility near Joint Base Andrews. So when they decide to move, we can onboard it quite quickly. But the contract that you’re talking about, that large government contract, we find that we’re getting more success on the services, the digital services side right now than the storage, because of the stickiness with their relationship with NARA.

Thank you. And the next question is a follow-up from Nate Crossett with Berenberg.

There has certainly been a lot of chatter in the DC space in terms of M&A. We’ve heard that some of the smaller private players are having a harder time of late. And I’m just wondering if that could maybe create some opportunities for you to acquire, what’s your current appetite for kind of accelerating the DC build out?

Good question, Nate. I think you asked it last time as well. So I guess I should expect it. But our stance is still the same is that we feel really good about the acquisitions that we did, if you think about the IO that was really building the platform and Credit Suisse have allowed us to start building out our international management team as well as the EvoSwitch in Europe. I think where we stand right now is that we like development – development still has the highest returns. Now that being said, we do when we go into a market, for instance, I think I may have used – referenced this before. We looked at Frankfurt, we looked at either doing an acquisition or buying land. In this case, we bought a piece of land that was already permitted. And for us the better opportunity was buying the piece of land and building it out. But we do look, when we go into these markets, what I would call brownfield where we – there may be a small player in that market that we want to be in, but it has significant amount of expansion capacity on their land or within their shell. So we do continue and that was what drove us to the EvoSwitch. Amsterdam was another market where we looked at, buy a brownfield opportunity for a greenfield, and in that case it was better to do a brownfield. So we’ll continue to look at it that way, but we don’t feel like we need to go out and buy something to bulk up for the sake of bulking up. We feel we’ve grown a lot and we’re in a pretty good position in terms of being recognized. And I would say that we see most things that are up for grabs in the markets that we’re present in.

Thank you. And the next question is a follow-up from George Tong with Goldman Sachs.

Hi. Thanks. Just a follow-up question on volume trends that you’re seeing. You called out legal and financial services as being in transition. Can you discuss how volume trends may be evolving in some of your other larger verticals?

Well, I think legal has kind of – George, has kind of gone through the transition. That’s why it’s now gone back to kind of net positive, flat to net positive. We don’t give it to you vertical by vertical, but I’ll just give you a kind of a flavor. Health sciences is actually one that we’re still seeing significant increase in growth. But most of our verticals are going through different degrees and this is mainly North America, a little bit in Western Europe are going through. We see digital transformation taking hold. So they’re further behind on legal, but they are getting impacted right now. But if you wrap it all up together, George, it’s still – as I say, it’s the second derivative – sorry to be a little bit mathematical, it’s the second derivative effect. That’s why we think it’s very much bounded in this kind of 7 million to 8 million negative cubic feet on a 700 million cubic foot base. And I’d say right now, it's really focused mostly in North America and Western Europe is kind of flat, moves up and down a little bit.

Thank you. And the next question also is a follow-up from Andrew Steinerman with JPMorgan.

[Technical Difficulty] but in the 2020 organic revenue guidance, what’s the data center revenue growth and the margins that are implied in the 2020 guide?

Data center continues to contribute nicely for organic growth, and obviously that can vary some depending upon the level of hyperscale deals that we execute and commence in the year. But you’d be thinking something in the, call it, 10% kind of range on a constant basis.

Thank you. This concludes our question-and-answer session and today’s conference call. The digital replay of the conference will be available approximately one hour after the conclusion of this call. You may access the digital replay by dialing 877-344-7529 in the U.S. and +1-412-317-0088 internationally. You’ll be prompted to enter the replay access code which will be 10137643. Please record your name and company when joining. Thank you for attending today’s presentation. You may now disconnect your lines.