Good morning and welcome to the Iron Mountain third 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, Rocco. Good morning and welcome to our third quarter 2020 earnings conference call. We have provided the user-controlled slides on our Investor Relations website. We will also be providing the links to today’s webcast and our materials. We are joined here today by Bill Meaney, President and CEO, and Barry Hytinen, our EVP and CFO. Today we plan to share a number of key messages to help you better understand our performance, including how we are continuing to respond and adapt to the COVID-19 pandemic, continuing to demonstrate top line resilience in our physical storage business, continuing to see strength in our data center business, progressing on our transformation program with Project Summit, and how we are remaining committed to funding innovation and new product development. After our prepared remarks, we’ll open up the lines for Q&A. Today’s earnings materials will contain forward-looking statements. We have noted the impacts from COVID-19 and our expectations of how that may impact our operations and financial performance in 2020. We have also noted our expectations for Project Summit as well as certain other comments on our expectations for the remainder of the year. As you all know, forward-looking statements are subject to risks and uncertainties. Please refer to today’s earnings materials, the Safe Harbor language on Slide 2, and our annual report on Form 10-K and other periodic 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 use several non-GAAP measures when presenting our financial results. We have included a reconciliation to these measures as required by Reg G in our supplemental financial information. With that, Bill, would you please begin?

Thank you Greer, and thank you all for taking the time to join us. Let me start by saying I hope you and your families are safe and well. The third quarter provided us with a great opportunity to demonstrate the significance of the measures we have taken over the last few months in response to the pandemic and set a marker for outperformance through top line resilience in our physical storage and growing data center businesses, adjusted EBITDA margin expansion, and by maintaining our strong cash generation track record all while continuing our investment in innovation and new product development. I would like to thank all of our Mountaineers for this remarkable performance and for their steadfast focus on safety and execution. Despite lingering uncertainty related to the global COVID-19 pandemic, we have seen improvements, albeit gradual, in key U.S. and international markets as it relates to our service activity levels while showing continued strong performance in both our physical storage business and our global data center business. I continue to be inspired by the tireless efforts of our teams as they support and care for our customers, each other, and our communities whilst accelerating progress on our strategic priorities. From the start, we set our priorities to deal with the situation clearly and take care of the health and safety of our people and work hard to honor the commitments we have made to our customers. In April, we had up to one-third of our workforce out on furlough or other temporary leave. I’m happy to report that we have brought a significant number of these Mountaineers back to work to serve our customers and we now have over 90% of our employees working regularly. Whilst this has been a very difficult time, we have proven to be…

Thanks Bill, and thank you for joining us to discuss our third quarter results. We are pleased with our third quarter and year-to-date performance. In a challenging macro environment, our team delivered solid performance across each of our key financial metrics. Revenue of $1.04 billion declined 2.4% on a reported basis year-on-year, which includes a 30 basis point impact from foreign exchange. Total organic revenue declined 3.4%. Organic service revenue declined 13.5%, reflecting the continued COVID impact on our activity levels. While the pace of recovery continues to be dependent on many factors, overall we continue to see service declines moderate, reflecting an improving trajectory since the April-May time frame. For the full quarter, service trends were generally consistent with the July levels we discussed on our last call. Despite the macro headwinds, total organic storage rental revenue grew 2.5% driven by three points of revenue management and data center growth, partially offset by a 30 basis point decline in global organic volume on a trailing 12-month basis. This is a 30 basis point improvement as compared to the second quarter on a trailing 12-month basis. Adjusted EBITDA was $370 million. Adjusted EBITDA margin expanded 30 basis points year-on-year to 35.7%. The improvement reflects progress on our Summit transformation, revenue management, and favorable mix while partially offset by fixed cost deleverage on lower service revenue and higher bonus compensation accrual. In addition, in the third quarter we incurred incremental cost to keep our team safe, for example specialized cleaning of our facilities as well as purchases of personal protective equipment. We included these expenses in our adjusted EBITDA. Adjusted EPS was $0.31, down a penny from last year. AFFO declined 5.4% to $213 million. As compared to adjusted EBITDA, the decline in AFFO was primarily driven by timing of cash…

[Operator instructions] Today’s first question comes from Shlomo Rosenbaum with Stifel. Please go ahead.

Hi, thank you very much. I just actually wanted to ask a little bit about the Frankfurt JV. Can you talk a little bit about how much do you cash in, how much debt the entity will incur? Just trying to understand how that was structured and whether that--you know, how well you did on that and is this really the kind of structure we can expect in the future for--you know, kind of build and then maybe sale with a joint venture.

Sure, hi Shlomo. Good morning and thanks for the question. We really feel very good about the Frankfurt joint venture and what the team has done there with that fully leased up facility. We invested about $100 million at closing essentially with the deal. Over time we’ll cash out nearly all of that, in fact all of it, and nearly of all that at the close. We retained over 20% retained equity interest in the venture. We will earn fees for things like property management, development and construction, and we’ll take those proceeds and redeploy it into development pipeline, which has nice high return opportunities. So essentially, we see it as the opportunity to monetize essentially what is a stabilized asset, boost that return, and then redeploy. You asked about debt - yes, of course the entity would, as you’re expecting, have debt on it. That debt will approximate the incremental development costs, so that might be--over time that could be as much as a couple hundred million euros. We have a very attractive rate on that debt, I might add, and we feel very good about the way the development is proceeding. Bill, anything you’d like to add?

Yes, I think we’ve talked about it, Shlomo, a few times that we see that as a path that we would like to continue to follow. If you think about you have a fully stabilized data center asset, there is a lot of pension money or funds that manage pension money that are looking for mid-digit returns on an investment basis because it’s a fully stabilized asset with a very long contract, and we were able to find that both on the debt and the equity side, so it just makes sense to take that money and then plow it back into higher return projects.

Thank you. Our next question today comes from Nate Crossett at Berenberg. Please go ahead.

Hey, good morning guys. Just following up on the JV, I was wondering if this is something that could be opened up to future projects with them, specifically what’s their appetite for further deals and why did you go with them? My second question is on the organic storage revenue line, growth of 2.5%. How much of that growth can be attributed to data center growth, and then just on price increases, I was wondering if you’re getting any pushback from customers.

In terms of AGC, they do have an appetite for these things, and in fact they have a similar structure with a different customer in the United States, and we ran a process so I would expect that they would be interested in any further processes that we run down the path. I wouldn’t be surprised at all for us--to see us do other things with AGC, but it will depend on the location and the opportunity. I think in terms of your question on storage revenue growth, is that it was about 1.7% if you just look at the physical storage and took out the data center, so it goes from 2.5 to 1.7, but still strong positive growth based on some of the success that we’ve been having on the back of consumer, so really pleased both in terms of record management did better this quarter and also consumer is really starting to show that it’s starting to hit a groove. That being said, we do expect--you know, the quarters are going to kind of go backwards and forwards a little bit because consumer is a seasonal business, but we think the trajectory is moving in the right direction for both businesses. On the pricing side, you can see actually that we are continuing to get roughly the three points of price that Barry highlighted. We don’t see any slowdown in that at all, and we have more to get in the emerging markets, which are relatively new to the game in terms of our revenue management processes, so good response from the customers. We’re still considered very much an essential business or essential service to our customers, so it’s a great position to be in.

Thank you. Our next question today comes from Kevin McVeigh with Credit Suisse. Please go ahead.

Great, thank you. Not to put another question on the data center, but from an accounting perspective, will you recognize that as kind of the revenue--is that below the line or will it be reflected in the revenue and EBITDA, or is that below the line based on just the equity JV?

Good morning, this is Barry. Thanks for the question. Yes, the JV will be an unconsolidated joint venture, and so the revenue and EBITDA will not be benefited from it, and you’d see it below the line, to your question. You will see a smaller amount for the management type fees that I mentioned that would flow through revenue and therefore EBITDA - that’s for things like property management, construction development. I think that answers your question, thanks.

The next question today comes from Sheila McGrath at Evercore. Please go ahead.

Yes, good morning. You mentioned capital recycling as a source of capital. I was wondering if you could give us more detail - do you mean selling industrial facilities outright and relocating your boxes or are you doing sale-leaseback, and what are your capital allocation priorities for that capital besides data centers?

Hi Sheila, this is Barry. Thanks for the question. For the most part, you’d be thinking about sales-leasebacks in terms of what we’re talking about. The couple of opportunities we monetized in the most recent quarter were also sale-leasebacks. Frankly, we’re seeing very, very strong performance from the team as it relates to cap rates in light of where the market is - think something like sub-5, even 4. Then with relatively long term leases together with options to further renew, we have the ability to effectively control those facilities, we feel like whether we lease or own them. We feel good about that monetization strategy, and then in terms of priorities, it really is into higher return IRR projects that are in the development pipeline. As you know, and you know the business really well, that’s focused principally on data center but not exclusively there, and so you should expect us to continue to recycle and likely step up that activity some going forward.

Thank you.

You’re welcome.

Our next question today comes from Michael Funk with Bank of America. Please go ahead.

Yes, thanks and good morning, and thank you for the questions. A couple, if I could. Going back to the digital transformation that you were talking about, working with customers there, can you help us think about comparing the revenue contribution from a customer transitioning to more of a digital solution versus a physical solution, and then where you see the growth opportunity there as well?

Thanks Michael. I think first of all, it’s that it’s incremental, it’s on top, so we don’t see a lot of people saying, we’re going to go digital and then stop physical. There’s a few cases of that, but usually people want to keep their physical records as well for proof, but where we see the digital transformation is really around the use. So if you think, a couple of examples--or either that, use and/or further downstream processing. So the example I gave on the call about the mortgage processing is really about downstream processing, but we also have--and we talked about that, I think, a little bit on previous calls when we changed our service level agreements and really made a push on image on demand, we’ve seen one customer, for instance, in the U.K. that has fully embraced that, so they only take their retrievals now through image on demand. Any time they need a retrieval, we image it and we load it up onto the system, and they access it that way, which we--which for us, longer term, it’s a higher margin business for us than having vans on the road, and honestly environmentally it’s better. So really, kind of two bits. One is we’re getting into more processes, quite frankly, where we weren’t exposed before, so we’re helping them with the downstream processes, and then the other case is people are taking advantage of our image on demand, which for us is a more efficient way to get them the information back.

Thank you, and our next question today comes from George Tong with Goldman Sachs. Please go ahead.

Hi, thanks. Good morning. I wanted to dive deeper into service activity trends during and exiting the quarter. Can you provide the rate of year-over-year decline in service activity by month during 3Q and how the declines looked in October?

Sure George - hi, this is Barry. Thanks for the question. For the--if you recall in July, we mentioned that total service activities were down kind of mid to high 20s for the quarter. If you look at new boxes inbounded, they average about 31%. October is slightly below that level and September was, as you might expect, the best performance of the quarter in light of trajectory we’ve been mentioning, and that really is the case for all of the other service activities - they’re generally following the same trajectory. I would say that we look at--going forward, we’d use the September-October levels as being indicative of what we’re expecting, and that’s embedded in the forward outlook that we mentioned as it relates to third quarter and fourth quarter looking sort of similar in terms of revenue and EBITDA.

Thank you. Our next question today comes from Eric Luebchow with Wells Fargo. Please go ahead.

Great, two questions, if I could. The first one on the data center business, wondering if you could let us know of what your leasing this quarter--the split was between more hyperscale logos versus enterprise. Typically hyperscale is lower return, so could you update us on whether your approach has changed at all, whether you’re actively looking for more hyperscale business or if that’s just more reflective of the market this year, and then what the targeted deals you’re looking at are in the data center business and how that breaks out between those two customer segments. Then Barry, just quickly on the guidance, I know you said flat revenue and EBITDA for Q4. I’m wondering if that implies--how you split that out between service and storage, should we expect service to maybe be flat to slightly down and storage up, or if there’s anything to call out in Q4. Thank you.

Thanks Eric for the question. I wouldn’t say that we’re going more for hyperscale than we’ve always espoused. I think we’ve always said for large campuses, we’d expect somewhere between 40% and 60% of the campus to be hyperscale and the rest to be co-lo or retail, but this year it may be a little bit more noticeable because the gestation period in terms of that marketing takes a while. Our relationship as we went into data centers for sure was stronger on the enterprise side, setting up project cloud for large enterprise customers than it was on the hyperscale, so this year we’re actually really pleased with the progress we’ve made in terms of building our reputation and exposure with the hyperscale. If you look at year to date, we’re about 50/50, so about 50% of that 51 megawatts that we’ve signed up here to date is hyperscale, including obviously the Frankfurt site, and about 50% is retail, so we’re really happy with the mix. But for sure you’re right, is that the cash and cash returns on hyperscale deployments are lower, but they’re longer term contracts and it allows you to build out the facilities or the campuses faster, so it still is the right mix, we think in terms of maximizing returns.

Eric, it’s Barry. Thanks for the question. As it relates to fourth quarter, I would say that we’re working with a modeling of service revenue decline being similar in nature Q3-Q4 versus prior year, and that’s what’s essentially embedded in that outlook. That should work through--you’ll be able to work through the storage number. I would note that that’s aligned with my answer to George earlier about where we see activity levels as being fairly consistent to slightly better. Thanks for the question.

Ladies and gentlemen, as a reminder, if you’d like to ask a question, please press star then one. Today’s next question is a follow-up from Shlomo Rosenbaum with Stifel. Please go ahead.

Hi, thank you very much. Can you just comment a little bit about the step-up in fine arts volume? It’s something that we really haven’t seen for a while, and I’m wondering what’s driving that.

Thanks Shlomo. It’s actually in our entertainment services, and the real improvement in physical I think, beyond a sustainable basis, is on the consumer side, so that was more of a true-up in terms of some private vaults that we had with our entertainment services. If you look overall, if you think about the overall record management down about 1.1 million cubic feet, consumer was up 2.5, and then I would say it was kind of a one-off true-up of a little over half a million cubes with entertainment services.

Thank you. This concludes our question and answer session and today’s conference call. A 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 will be prompted to enter the replay access code, which will be 10147841. Please record your name and company when joining. Thank you for attending today’s presentation. You may now disconnect.