Good morning, my name is Tasha and I will be your conference operator today. At this time, I'd like to welcome everyone to the Iron Mountain Second Quarter 2008 Earnings Webcast Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Mr. Golden, you may begin your conference.

Thank you and welcome everyone to our 2008 second quarter earnings conference call. After my announcement this morning, Bob Brennan will give his state of the company remarks followed by Brian McKeon, who will deliver the financial review. When Brian is finished, we will open up the phones for Q&A. For our custom, we have a user-controlled slide presentation on the Investor Relations page of our website at www.ironmountain.com. Referring now to slide two, today's earnings call and slide presentation will contain a number of forward-looking statements, most notably our outlook for our 2008 financial performance. All forward-looking statements are subject to risks and uncertainties. Please refer to today's press release or the Safe Harbor language on this slide for a discussion of the major risk factors that could cause our actual results to be materially different from those contemplated in our forward-looking statements. As you know, operating income before D&A or OIBDA and free cash flow before acquisitions and investments are metrics we speak to frequently and ones we believe to be important in evaluating our overall financial performance. We provide additional information and the reconciliations of these non-GAAP measures to the appropriate GAAP measures as required by Reg G at the Investor Relations page of our website as well as in today's press release. Before I turn the call over to Bob, I'd like to let you all know that our 11th Annual Investor Day will be held on Wednesday, October 8, 2008 at the Grand Hyatt Hotel in New York City. Stay tuned, we'll be releasing more information as it becomes available and the best way to stay informed is to sign up for e-mail alerts at the Investor Relations page of our website. And with that, I would like to introduce Bob Brennan, our President and CEO.

Thank you, Stephen. Good morning, everyone and thanks for taking the time to join us for our second quarter earnings call. The format we will use today is similar to our past calls. This is my first call as CEO and I'll start by giving you my report on how the business is doing and reference our strategy as we go through that. Afterwards, Brian will take you through the quarterly results and provide an update on our full-year outlook followed of course by Q&A. So let's get started. Here are the key messages I want you to hear today. First, Iron Mountain is performing well and we are on track to delivering against our full-year financial goals. Next, we are continuing to advance the growth strategy we have been delivering on for years, the strategy that's driven by solid expansion of our core business, which is of course supported by continuing strong growth and services that leverage the investments that we've made in storage, by expanding our international presence in markets where we see strong economics and then building scale for our digital business to meet large expanding market requirements. The last message that I'd like to drive home is that the team at Iron Mountain is taking a very disciplined approach to growing our business and that discipline is producing the desired results. I will now provide a quick summary of our Q2 financial performance, which Brian will review in detail after I'm done. Overall, we delivered strong revenue and OIBDA growth for the second quarter with each up 15% compared to the same period last year. Both numbers were at the high end of our guidance range and we also continued to drive strong growth across our major business segments with all segments performing well across the…

Thanks, Bob. Q2 was another solid quarter for Iron Mountain keeping us on track to meet our full year financial goals. We posted strong revenue and OIBDA gains slightly ahead of our forecast. These results reflect solid underlying business performance across our business segments. We will begin today with a review of our Q2 results. We will also review our year-to-date cash flow performance, capital spending trends and debt positions and put these results in the context of our full-year outlook. We will conclude with an update of our 2008 full-year guidance, which has been positively revised today reflecting our solid first half results. We'll also share our outlook for the third quarter. Slide four highlights the key messages from today's review. Iron Mountain delivered strong financial results in Q2 with revenue and OIBDA each growing 15%. We continued to drive strong business performance in a challenging economic environment. This reflects the strength of our business model as well as benefits from a disciplined approach to managing our operations. We posted high revenue gains across all major business units, supported by 9% internal growth, the benefits of our major acquisitions and favorable year-over-year foreign currency movements. OIBDA was supported by solid gains in gross profit, which offset some dilutive impacts from acquisitions completed last year and some carryover impacts from investments initiated in 2007. We also strengthened our balance sheet increasing flexibility and liquidity with the successful refinancing transaction including the sale of $300 million of 8% bonds due 2020 and the redemption of $72 million of 8.25% bonds due 2011. The redemption was completed in early July. As a result of our first half performance we announced positive revisions to our 2008 outlook. We now expect 12% to 13% revenue growth and 11% to 14% comparable OIBDA growth for…

[Operator Instructions]. Your first question comes from the line of Kevin McVeigh with Credit Suisse.

Thank you. Hi, I wonder if you could give us a sense of... very nice job on the gross margins in the second quarter. How do you see that gross margins playing out in the second half of the year relative to OIBDA overall?

Yes, we're continuing to target solid gross margins in 2008. We're seeing things... factors such as real estate and productivity gains helping us, these were the things we expect when we built our plans this year. And we're also currently seeing benefits from paper and higher margin service growth. Those are factors that will moderate later this year but our outlook includes sustaining solid gross margins.

Great. And if you could give us a sense of in terms of recycled paper prices, where they are currently and what do you have in the outlook in the second half of the year?

Yes, we're... the recycled paper market has flattened in recent months, it's actually down a bit from some of the peaks we saw in February and March. It would still... it can be up year-on-year at current rate to the back half of the year. We think that the underlying factors that have supported the higher levels of paper pricing, which are really driven by international demand are still there. As you know, this isn't an easy market to forecast, but we think we'll see sustained solid paper rates. But if you want to reinforce that this is the factor we've highlighted several times in the past. These things can fluctuate, it can have an impact on our results with the margin and were basically embedded in our outlook is in expectation that will sustain in the similar range. So, but this is something we'll keep an eye on.

And we are being particularly careful, Kevin, to moderate overhead growth as we go through the balance of the year, something that we're just... we're very, very careful about.

Okay. If I could just one more question if you don't mind. The core services really, sequentially came up nicely internally. Can you talk about destructions a little bit and how the surcharges impacted that?

Yes. Two different...two different topics that you have raised there, say the... we highlighted in the… our last call where we saw a little softness on core service activity that was down a bit with… in areas like destructions because we had higher activities late last year. And that's pretty much the same, I would say our overall core service activity is a little below what we would see normally. And that's not unexpected given some of the things that highlighted [inaudible] last year.

There is a cost associated with destructions to the people who are pausing on now because they face their own overhead pressure. And while they saw the usefulness of during that maybe even just a matter of months ago, they are now holding on that project revenue.

But, the second topic which you picked up on we did highlight in the call was the improvement kind of quarter-on-quarter because the growth rate went up a couple... 200 basis points was... it was helped by higher fuel surcharges. Obviously, that is offsetting some of the higher energy costs that we see. So, net net it really helps us to manage energy impacts and keep that effect at a minimal level. It's not intended to be a profit driver for the company but it does benefit us in terms of our core service growth rate.

Great. Thank you very much.

Your next question comes from the line of Andrew Steinerman with JP Morgan.

Hi, gentlemen. I'm trying to look at EBITDA margins sequentially. They went from 28... $23.9 to $25.5 in the quarter first quarter versus second quarter this year, a 160 basis point increase. If you could break out for us, what do you think the drivers are there, and specifically [ph] one, what's a normal seasonal pickup, I know first quarter is the low quarter of the year usually on margin? Two, kind of less drag from past acquisitions and three kind of just maybe less incremental investment in our infrastructure?

If I can just start with, Andrew, I just wanted... we have been... we've tried to being very careful but this is not how we manage the business right. We don't…

Right.

So, with that in mind, we can get into the specific answers.

Yes. I think Andrew one of the things, I'm trying to get at the gist of your question. I mean I do think we look at our business more year-on-year rather than quarter-to-quarter.

Right.

I would say year-on-year, we made improved progress on gross margin enhancements, which was driven by several things. Actually, it included the solid productivity gains in the storage front. We had higher levels of service margin growth, it's a high growth in areas where we have high service margins, areas like Stratify like our Digital business and we have... those factors are helping and continued benefit from the recycled paper pricing, but I think those factors were probably sequentially a bit better for us. I think we're seeing some moderation in the overhead cost impacts. We'll continue to see that as we work through the year. It's going to be more a Q4 benefit than a Q3 benefit. And those are related to two kind of key drivers and I think both of those factors are things that we hope to sustain. So, if you look at our outlook for the back half of the year, in implies that we will have improvement in year-on-year margins assuming our mix comes in as we expect and that reflects sustaining that good gross margin performance and maintaining good discipline overhead cost growth. So, we look forward to continue to force progress on that front. The one thing I would caution you on is, and this was something Richard reinforced in the last call is kind of taking the ruler out and looking at a quarter and drawing a line off of that. I mean, we do have seasonality impacts in this business, we do manage this business on an annual basis and our discussion day is just focused on back half of the year. We haven't given any outlook or insight into next year.

Right, right. That's why I asked the question originally sequentially to account for seasonality but it sounds like when you are answering year-over-year and probably was some help seasonally , sequentially plus the other factors that you just attributed year-over-year also helping this sequential progress as well.

That's fair. And Q1 historically is our lower-margin quarter just given the higher relative energy costs and just...

That's right.

[inaudible]

Okay. Thank you very much.

Thanks, Andrew

Your next question comes from the line of Scott Schneeberger with Oppenheimer.

Hi. Thanks, good morning.

Good morning.

Just following up right there on energy and some question on pricing, obviously you're getting the fuel surcharges and that's contributing to the growth. The impact of higher energy cost, is that, I would assume that’s hitting more on the gross margin than it is on SG&A. Could you just confirm that and also discuss how your fuel surcharges work? How much of your client base is on that for what term of a contract and are you hedging fuel at all?

Well, Scott, the net of it all, it's a limited impact on our financial results. We don't hedge on fuel, it's about 3% of our total costs are energy related… 3% of revenue, sorry... thank you, 1.5% of which are transportation related. We're able to pass most of that through, if not all that through, but in some cases we have contracts where it doesn't go through other cases we do. Our buildings are very energy efficient and relatively quiet from an energy consumption perspective but the net of it is that we hear a lot of questions on this front and it doesn't have material impact on our financial results [inaudible] across.

Okay, thanks. Kind of shifting gears a bit. I think you'd have alluded when you were discussing Stratify and I mean I got the sense that you may be looking to expand or potentially do acquisitions in that space to pad. Was my inference correct and are you going to be thinking about doing large things or more of that tuck-in [ph] in the nature?

Scott, I have a great confidence in the team with Stratify and in the business that this builds to the extent that you will find that we generally partner with folks before we acquire them. So you can, generally speaking, see those things coming. We've partnered with Connected and LiveVault long before we locked them. And I think fundamentally, we've great faith in that team, nothing big coming but we are always looking for potential candidates to partner with and that can act as a precursor to acquisition.

Scott I think in Bob's comment, he was alluding more to a... we feel really good about the team and have some pending customer wins that we look forward to talking abut. It wasn't intended to be a reference to acquisition.

Yes. You'll see them expand their market presence.

[inaudible] platform we've got and the discovery with the Stratify team.

It's a great, great team.

Excellent, thanks. Jumping back real quick on... as far as what I meant to follow-up with on the surcharges as well was... I think pricing you had alluded this year that you're looking to get maybe a 2% increase. Any update there and how you look at that in combination with the surcharge?

We don't look at the surcharges, what we would think of is pricing and I think that's a relationship we have with our customers where we are trying to mitigate offset costs. And I think our ongoing service relationships looking at our pricing we had talked about improving our trend on that front. And we're making good progress. We think we are on track to achieve. The metric we typically talk to is the U.S. hard copies, storage price and how that's increased over time. And we are on track towards that 2% level, which we think is consistent with the value that we are delivering to our customers. And we feel good about the progress we're making there.

Great. Thanks. And then finally, you announced recently the collaboration with IBM and partnership with HP, is this something… I mean, are we seeing the start of a trend here of something you're going to be doing a lot more, just partnerships? And could you give us an update on how those are going?

Sure. So we feel very good about our relationship with HP for medical image archiving and the one that we just announced with Accutrac. I think you should expect to see more of it. We have a great opportunity to move our technology through others P&Ls and to move their technology integrated with ours… through ours. It's a valuation of the brand that we have in the market, the trust that we've created with our customers and the technology that we have acquired, through our internal bills as well as through the teams and technology required at Stratify [inaudible] Connected, LiveVault. These are technologies that are unique and differentiated in the market where there is sustainable competitive advantage and interest from some of the largest players and technology today. So, I would expect our… the amount of business that we are driving through alternative channels to increase slowly over time. These things to take… these partnerships take longer than everybody expects because we do it from a recurring revenue prospective. They have a much slower build but a much longer duration.

Great. Thanks so much.

Thank you.

Your next question comes from the line of David Gold with Sidoti.

Brian, I wanted to follow up a little bit on your comments about SG&A moderating in the fourth quarter. Should I understand that as a function basically some of the say more discretionary items like security spending pullback or spending telling off on that or are you more saying that we anniversaried the increase in expense last year so it's going to be more a function of that?

It is going back to what some of the drivers have been year-to-date, the bigger driver was actually the impact of some of the technology acquisitions that we did last year and ran that into our cost base and Stratify was completed in December of last year and we'll start to see moderating impact from that factor. We did step up the investment in the areas that we had highlighted in terms of security and international sales resources. We're still investing in those areas. We just don't have to step up. We have been, as Bob mentioned, been very mindful about prioritizing our investments in the current climate and we are balancing investments against our strategy with making sure that they are calibrated against our top line growth. So those are factors that are contributing. One thing I would highlight is, as you recall in our fourth quarter call last year we had, every year we have a level of drew ups and accruals and things of that nature at year-end time and last year, we had a number of things that kind of went in one direction that impacted us negatively to the tune of about $5 million. Keep in mind, we are not expecting that. We always are going to have some variation, but we are kind of expecting normal activity this year. So that's a $5 million kind of lapping benefit in terms of cost growth that's built into our Q4 expectations. So it is all of those factors combined in.

Okay. And some of the discretionaries, probably a bad word, but the more discretionary items there are like, let's say, securing some of ones that you have marked out, were those more front-end loaded or they fairly evenly spread out?

It is a pretty even spread, it’s something that we plan over a long period of time if you are going to be fortifying transportation fleet or training an employee base or facility infrastructures, it’s planned over a long period of time. So it is pretty smooth and from our perspective, we have a series of core values, David, inside of Iron Mountain and consider secured to be job one, but it's not a discretionary expense from our perspective. We don't view ourselves vis-à-vis our competition, we view ourselves vis-à-vis our value proposition. And that’s an area that we will continue to invest although to the untrained it could appear to be over investing but we are about the long-term preservation and security and storage of our customers’ data. So, that will be an area that we will perpetually invest in.

Sure. Much appreciated, Bob. And then just, one other, can you remind us what the '07 revenue contribution was from the product sales business that were divesting?

It was about 1% of our revenues last year since a relatively small business and had pretty limited profit contribution. So it was, as Bob mentioned, something that wasn't as larger business. As you look balance here in our growth rate, keep in mind that's factored into how we think about gross. So that will offset much of the acquisition benefits that we have seen, but it was a relatively small business and shouldn't have a big impact on our bottom line.

Terrific. Thank you, both.

Thanks, David.

Your next question comes from the line of Michel Morin with Merrill Lynch.

Yes, this is David Ribenmine [ph] for Michel. Can you... just a question on the impact of higher gross margin acquisitions and then the divestiture of the lower gross margin data products business. Could you sort of quantify that impact... that net impact on gross margins?

The... I am just trying to follow your... the benefit of technology acquisition growth and the impacts of the product sales fees.

Right. So you devastated a relatively lower gross margin business and you also acquired relatively higher gross margin businesses as I'm just trying to get the impact of those two effects?

Yes, we don't get down to fine tuning the numbers at that level, but I would say that they are moving in different directions and are... they are one of the bigger factors impacting our gross margin performance in the quarter. So that helps in the context, it was... there is some impact out there but it wasn't highlighted, it’s one of the bigger factors.

Okay. And then, can you remind us what percentage of your revenues are in the complementary services area?

It's overall for our company, annually it's about 15% of our total revenues.

Okay. All right. Thank you very much.

You're welcome.

Your next question comes from line of Franco Turrinelli with William Blair.

Good morning, Franco.

Good morning, guys. Actually questions for Brian. Brian I just wanted to see if we can clarify, one of the previous questions has concerned me a little bit. There was an implication that the fuel surcharges had a material impact on the growth of our services and I wonder if you could just give us a little bit more of clarity on that?

It's… what I was referring to core service growth and the question was seemed to have improved from Q1 to Q2. And we did hire... it was 7% in Q1 and 9% in Q2, Franco, and just highlighted at the margin I think that's [inaudible] on that particular service line is increased fuel surcharges. And I just want to highlight that that's just have some impact at the margin on things like core service growth, it doesn't really have... has not had a significant profit impact because it really just offsets higher energy costs.

Great. Thank you, congratulations.

Thank you.

[Operator Instructions]. Your next question comes from the line of David Rainey with Akre Capital.

Could you all just remind us, I was looking on slide nine and down, how do you all think about maintenance CapEx spent to maintain the earnings power of your assets versus growth CapEx? Is it caption on the slide or is it additional information you could share?

We don't disclose that in our regular reporting. We do make reference in our SEC filings that we estimate overall as a company that about 15% of our capital spending over time, there has been what we categorize as more maintenance oriented. If you think about the nature of our business in a way, the capital intensity is typically about adding physical and now digital storage capacity as we had records, physical records or bits and bytes that we were storing. So, the bulk of our capital investments are more growth oriented and what we would characterize as more maintenance oriented capital is a smaller percentage of the total. It is important to understand in terms of our business, because we're a growth business and because we're deploying growth capital that limits to a degree our cash flow in the near term, but we believe that over the long-term, given that the maintenance capital is relatively low on our business that it... our business had very attractive long-term cash flow characteristics.

Okay. So then 15% of your CapEx guidance for the year would be about $70 million?

You know that math would work, we don't get that specific and how we talk about guidance, it's more directional, an estimate of what percentage of our spending over a period of time has been maintenance in nature.

Okay. And then... excuse me, I've got a follow-up and that is across your different lines of business, how do you all look internally at forecasting rates of return on growth in Digital, core storage services versus the potential for share repurchases? And I don't ask this so much in the context of when are you going buy stock in the third quarter or the fourth quarter. I'm just thinking about it in the context of everyday management has a decision whether or not they pay dividend buying shares, pay down debt, sit on their cash or invest in growth assets. And so I'm just curious as to how you all look at that framework to work to optimize the business long-term?

Just as a principle, you should know that we have... we're very focusing just on our management of capital, we control our capital decisions centrally. As I highlighted... we highlighted last year in our Investor Day discussion, we... our financial objectives imply in return on incremental invested capital of 15% to 20% and we believe we have very attractive opportunities to invest in our business and deploy capital in that front and we look at those type of metrics as we make capital decisions. We did highlight that overtime given our... the profile of our business and objectives and our ability to attract investment that we may have the opportunity for funds beyond what's required to invest in attractive opportunities in our business and have not made any decisions on that front relative to deploying those funds. We did highlight share repurchases and dividends as options, but we don't have any news on that front at this time.

And that’s a finance discussion that happens between a few of us and with the Board of Directors from a day-to-day prospective, we're really focused on how we are driving returns with the growth out of our core business and juxtaposing that against and clearing that with investments that we can make in international expansion and expanding our service base. That's the strategy that operating team focuses on a day-to-day basis. So, it's really not our day-to-day business to talk about. Returning cash to shareholders, that's a very limited discussion that's controlled centrally.

And okay. Just to follow-up, when you talk about 15% to 20% incremental returns on invested capital, are you discussing that on a levered or unlevered basis taxed or untaxed, how do you all think about that?

That's a metric that's really looking at the incremental OIBDA we expect to generate for the capital that we are deploying. It's a pre-tax number and it's unlevered.

Thank you.

David, thank you for your question. I do very much appreciate all of your support. We are at the end of our hour. Thanks for your support of Iron Mountain. To the extent that you can enjoy any of your summer that's remaining, please do. And we'll look forward to seeing you on October 8 in New York City at the Grand Hyat Hotel for our Annual Investor Day and again on October 30th for our next earnings call. Thank you all and have a good day.

This concludes today's Iron Mountain second quarter 2008 earnings conference call. You may now disconnect.