Good morning. My name is Keyva, and I will be your conference operator today. At this time, I would like to welcome everyone to the Iron Mountain Q2 Earnings 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. I will now like to hand the call over to, Senior Vice President, Investor Relations, Melissa Marsden. Please go ahead, Ma’am.

Thank you, Keyva and good morning, everyone. This morning we’ll begin our call with remarks from Bill Meaney, our President and CEO, who will discuss highlights for the quarter and progress towards our strategic initiatives followed by Rod Day, our CFO, who will cover financial and operating results. After our prepared remarks, we'll open up the phones for Q&A. As we have done for the last few quarters, we have posted our earnings commentary and supplemental disclosure package on the Investor Relations page of our website at www.ironmountain.com under Investor Relations/Financial Information. Referring now to page two of the supplemental, today's earnings call and supplemental package do contain a number of forward-looking statements, most notably, our outlook for 2015 financial performance. All forward-looking statements are subject to risks and uncertainties. Please refer to today’s supplemental the Safe Harbor language on this slide and our most recently filed Annual Report on Form 10-K for discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. And the reconciliations to those measures as required by Reg G are included in the supplemental reporting package. With that, Bill, would you please begin?

Thank you, Melissa, and good morning, everyone. We’re pleased to be reporting solid second quarter results that we’re in line with our expectations on a constant currency basis and underscore the durability of our core business. Despite the FX headwinds, we’re comfortable maintaining our guidance our for 2015 as we typically see a bit of a ramp in the second half of the year. It was a very eventful quarter with the announcement of our agreement to acquire Recall Holdings and the initiation of our transformation plan, which will drive significant improvement in our overhead cost structure and support strong cash flow generation in years to come, even prior to the substantial and additional synergies we anticipate from our acquisition of Recall. I’ll get to the last two items shortly, but first I would like briefly cover certain financial and operating highlights. Our momentum in the storage rental business continues to build and drive durable results in line with our strategic plan. On a constant dollar basis, total revenue growth for the quarter was 2.2% reflecting continued solid storage rental gains of 4.1% and service revenue declines of just 0.6%, foreign currency impact year-over-year in total revenue by roughly 6%, reflecting the strong appreciation of the dollar experiences at this time in 2014. We also continued to see good internal growth with storage rental, up 2.7% for the quarter and 2.9% for the year-to-date reflecting continued strong growth from data management or DM and the other international segment and stable performance in Western Europe and North America rim. As we look at the remainder of the year, we are seeing consistent trends and are maintaining our view for internal storage rental revenue growth for 2015 in the mid 2% range. The realignment of our data management business we initiated last…

Thanks Bill. Our results continued to demonstrate that durability of our storage rental revenue stream and the underlying strength of our business fundamentals. Our performance is tracking in line with our full-year expectations. To frame my remarks, I'll begin today with an overview of our second quarter and year-to-date performance, including overview of results by segments. Then I will address plans and expectations related to our transformation program and our next step to improve service gross margins. I will briefly touch on the recall acquisition calls and also our outlook for 2015, which remains unchanged since June on the constant dollar basis. Finally, I will address other metrics through a REIT lens. Let's turn to our worldwide financial results. Referring now to pages eight and nine of our supplemental, total reported revenue was $760 million, compared with $787 million in Q2 of 2014 down, by 3.5% year-over-year. This reflects the continued strengthening of the U.S. dollar, which impacted total revenues by approximately 5.7% or $44 million. Excluding FX and so on a constant dollar basis, revenues grew by 2.2%. Year-to-date reported revenues were $1.51 billion, compared with $1.56 billion in 2014. Again on a constant dollar basis, first half total revenue growth was also 2.2%. Worldwide revenues were driven by solid constant dollar storage rental revenue growth of 4.1% for the quarter and 4.63% year-to-date. This was offset by service revenue declines of roughly 1% for the quarter and year-to-date. As we did for the prior quarter, we are providing bridging schedules for revenue, OIBDA and earnings which explain key variances in year-on-year performance. These were on Pages 20 to 22 supplemental. Adjusted OIBDA for the quarter was $223 million compared with $242 million in 2014, down 7.7% on a reported basis and 3.3% on a constant dollar basis. The…

Okay, thank you Rod. Before we turn to Q&A, just to wrap up, I just want to emphasize a few things. That first of all, we have a number of exciting developments underway. We have already executed on half of our plan for significant cost reduction of more than a $100 million and we will see the full benefits of the first $50 million for 2016. We have actions underway, that we expect will stabilize the margins in our service business. We are keying up to close the Recall deal early next year and are organized internally to support a smooth integration of Recall. And our attractive emerging business pipeline is delivering interesting adjacencies that can further extend the durability of our enterprise storage business. Finally and most importantly, the strength of our business, plus the transformation program support approximately 11% to 14% growth in the cash we have available already next year to grow our dividend per share over time and fund our growth investment. This is even prior to the Recall acquisition. With that operator, we are ready to take questions.

[Operator Instructions] Your first question is from the line of Kevin McVeigh of Macquarie.

Great, thanks. Bill, very helpful comment, or there any type of goal post you can give us in terms of cadence on Recall, I know there’s a process involved in any [indiscernible] so on and so forth. But is there anything, you could point to that we kind codage [ph] give us cadence as the deal progresses over the course of the year?

Hi, good morning, Kevin thanks. Well, I think the same goal post that we set on the beginning is that we started the regulatory review process, rent engaging the regulatory review process and that’s a six to 12 months process. We feel that we should be able to do it at the lower end of that range. So our expectation is still the first quarter for 2016 and the net – we will continue to update that changes, but I think right now that’s our expectation. I think the other goal post as we said on this call within the next few weeks both us and Recall will be issuing documents for their respective shareholders for the – get ready for the shareholder votes. But those are probably just two goal posts that are important to highlight.

And then just the $20 million to $25 million of Recall we conversion costs is that something about right, does that mean it’s a dual track in terms of you start that reconversion process now. So when the deal occurs, it was goes lot of day one?

Yeah, well, I think, that the – it’s a very good point. Yes, we will start incurring cost and Rod can give you more detail on that. We’ll start incurring cost as we speak now in preparing for the REIT conversion, because we need to convert before the close of the first quarter. So you’ll also note us in the documentation is, that we have set it up the documentation that we will close at the beginning of a quarter. So the idea is that we will close either at the beginning of the first quarter, or either – the first month of the first quarter, i.e. around the month of January or it would be beginning of the month of the second quarter, again to give us time to actually execute the conversion. But the prep for that conversion obviously starts way in advance of closing the transaction, I don’t know Rod, if you want to add any?

Yeah, I think, that’s a good summary, Bill. Kevin I can’t exactly tell you when but it is by the end of the first quarter and obviously given the limited amount of time that we have, it’s important we get our preparation right in advance of that. So it’s really worth spend is primarily related to.

And you’ll see that in the documentation on the deal is that it’s very clearly set out that if we miss roughly the first say four or five weeks of a quarter then it’s been a delay for the next quarter because again we have to get the conversions done during that period.

Got it. And then – and this will be my last question, I apologize. Would there be any incremental tax expense like [indiscernible] step up from the racking on the initial conversion or that $20 million to $25 million had primarily professional fees things like that?

Yeah, that relates primarily to professional fees.

Okay, thank you.

Our next question is from the line of Andy Wittman of Baird.

Hi, good morning guys. Bill I had kind of a strategic question. We’ve seen some consolidation in the shredding industry. You guys have kind of aided that as you got all of your European shredding. I was wondering as you look at your business today, particularly as a REIT, does even more disposition of the shredding assets make sense for you, particularly if you could find a partner that would be able to do this with. Let me something, you’d be open to considering or our considering today.

Well, I think first of all just from a general capital allocation standpoint we look at all our businesses and say, we the best owner for that or is that where we should invest capital. So we look across all our businesses. So to say that we are open to certain segments and non-open to others would be probably a false premise. But I mean we like you look with interest in terms of what seems to be happening in the shredding business. We feel good in terms of what we’ve done over the last six, 12 months in terms of first of all divesting those shredding operations the one in Australia, the one in the UK, where we didn’t think we have to scale, we get the kind of returns that we expect in demand. Well, separating the U.S. operation to be more of a standalone unit so that it has the right focus and cadence associated with it to achieve the results that we think are possible. So I think we feel comfortable where we are, but we were also very pleased in terms of the way the market seems to be valuing these assets, whether we own them or we sell them.

Yeah, okay, good, that’s helpful. And then, I guess I wanted to gain a little bit more in the transformation business. Can you give us a little bit more detail about what some of those, maybe some confidence that they are not going to affect but the customer experience and your retention rates are rather business drivers.

It’s – excellent question. So I think first of all, we need to start the top that we are starting from a base, where our SG&A is 28% of sales, which is clearly on the upper end of what our company with our scale and scope should be able to achieve. It should – company of our scale and scope should be in the, let’s say the mid-20s, I mean, probably the lower side of the mid-20s, in other words, not – it’s probably kind of more of the 23% to 25% ranges where a company of our size and complexity should be. So that’s the first thing to give you kind of a sense of what’s possible. Then the thing that triggers it is, this – really if you think about it, there are I would say three buckets. One is just getting efficiency through the reorganizations that when we put all the developed markets under 1% then it allows you to rationalize. You know you have two finance groups, you have two HR groups, you have two commercial leadership groups, you have two engineering groups et cetera. So you’re able to actually shrink that to one to get some of the efficiencies and economics of scale that you would expect. I think the second aspect of it is looking at what we call just general spans and layers, probably it’s triggered by that move by just saying, what is the right breadth of responsibility in the organization. Do we have too many layers? And I think that’s just good housekeeping that all companies our size need to go through every so often to make sure that we don’t have what I would call organizational tree or layers building into the organization and to me that’s important not just…

Yeah I mean, I’ll just add to that, Bill, I think if you benchmark are announced and against comparable type companies, I think, you can say we are behind where we should be on some of the stock. And that gives us confidence around the program that we have. So things like offshoring, we’ve done some of that, but nowhere near enough we have done some process improvement but nowhere near enough. There has been some improvement in our SG&A and as a percent of revenue over the last couple of years. But again if you look at benchmarks, if it is median benchmarks, represents 25%, Bill you know you compare that to where we are obviously. And again I think that gives us additional confidence to what we’re trying to do is now rocket science it’s just what we should be doing.

Yes, okay. I’ll leave it with that. Thank you.

Thank you. Your next question is from the line of George Tong of Piper Jaffray.

Hi, good morning.

Good morning, George.

You’ve talked a bit about various puts and takes in OIBDA margin performance in the quarter and some of it appear to be transient in nature. Can you frame up how you think about OIBDA margin on a go forward basis? And any plan in reinvestments of the benefits you expect from the transformation program?

So I’ll let – George, I’ll let Rod kind of go through a little bit more detail, but the bridging to get at a high level and that’s one of the reasons why we provide these bridging schedules is so that you can – we’re highlighting the things that we – that in our view are one off either because of that something specifically had in the quarter or when we’re talking about the service, where we think we’re going to end up at the end of the year, in terms of service margins based on some of the improvements that we’re making. So the intent of those bridging schedule is to guide you to where we think we’re moving to – where we should being on a normalized basis on an OIBDA margin basis. But Rod, may want to comment in more detail on that.

Yes, maybe to answer the question in two parts. First, instances would be underlying not sure if you like – at the P&L, basically what we expect to see continuous improvement in performance as the year progresses. And that is to be expected as you know, that’s key volume continues to build at the decent price closer to decent margin. So quarter after quarter after quarter, we should continue to build. Around that, obviously then you have to some of these one offs in the quarter and we pulled out a couple of them one with this bad debt expense issue and Bill referencing some of the deals related to the offshoring of our drilling activities. We also had a – an investment in the data management space around new product introduction, which obviously the expectation of that is there will be returns coming from that in future. So there were a couple of some key one-offs for the quarter. But to underlying that that sort of [indiscernible] fundamentals of the P&L, this was a relentless drive upwards on the storage side.

Got it. And can you talk about how your storage pricing strategy compares with Recall, and how do you think about pricing as a contributor to storage revenue growth going forward?

Well, I think, first of all I can’t comment in terms of compared to refocus. We haven’t exchanged or shared any commercial information. We have to go through the regulatory aspects. So I can’t comment on how we compare to Recall. But I think if you look at the results that we’re getting, as you can see – I mean, I think, the way you look at it is couple of ways, is we’re getting, I would say fairly regular yet modest price increase that offsets the inflation that – the low inflation levels. But I think as I said, I think, a number of times on calls, there’s been low inflation environment, price increases are more challenging. I think the other thing to look at if you look with the – if you look at what’s been happening to our gross margins associated with storage you can see they actually, there’s a slight uptick. So that gives you a view that in a low inflation environment obviously we have wage inflation that is still real in terms of what we pay our folks. But we’re able to get both, productivity increases and pricing increases, that allows us to either maintain or slightly enhance our gross margin. So we feel pretty good in terms of what we’re getting, in terms of pricing and something that we continue to work on, I think I told you we brought somebody in about a year-ago, just to our new leader for the pricing group that seems to be getting some good traction. But I also think it’s important to understand that in the low inflation environment, these are small numbers that you are dealing with, you are not dealing with large order of magnitude. But the results are good. I mean our gross margins are stable and I would say it is slightly higher than they were a year-ago.

Great. Thank you.

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

Hi Bill, I just want to know if the data management, new products were as planned, should we expect a similar level of investment to $1.5 million, in the quarter in the second half of the year. And if you could just give us a little description or these new products in the area of capable all thing or is it something a little different with then data archiving?

Hi, Andrew, good morning. There is couple of aspects, first of all what we have in the bridge was a very specific one-off associated with our relaunch of a product that’s associated with secured destructions. So that was a very specific one-off re-launch of that particular product. I think that there even if you add that back, you will notice that our margins are slightly down from where they were a year ago, albeit they are very good margins. But they are slightly down. And we didn’t bridge to that for the reason that your highlighting right now is, we are – we have made a conscious decision to incur some additional OpEx which is associated with launching new products in that area. So one of the areas, I think, we’ve publicized is that we have a partnership with EMC that offers both their customers and our customers a joint, it’s kind of a combination of our datacenter, our Cap business and EMCs data to main business which a datacenter replication hardware offering they have. And that there is an investment associated with standing up those new products. Our expectation, the reason why we didn’t bridge that is you could say that that was a one-off for this quarter, but our expectation is we will continue to make those kind of investments has we see a pipeline of further products like this one that we’ve announced publicly with EMC. So I think that’s the way I would think about. So what we have in the bridge was very specific to a product launch that we did this quarter that we really anticipate as a one off, but we have incurred and we expect to continue to incur some OpEx investments in terms of the new product launches.

And was that always envisioned in the plan like – so that spending now doesn’t affect the guide for the year.

Yes, – no that was always in the plan and that was part of separating data management under a separate leader as you know that we brought in Eileen Sweeney just a year ago specifically, so that was part of the plan.

Okay. And then if you let me one more. The bad debt write-off the 3.8, obviously that’s a surprise. Are you hoping some of the cost initiatives that you’re talking about could offset that? Or does that in some way kind of tilt the EBITDA guidance towards the lower end?

No, I think that what we’ve said in the press release as you’ve noticed that we think that on a reported dollar basis that we are still within the range of our guidance. On a revenue basis, we think we’re in the lower end of the range, but on a reported dollar basis, but it’s in the range that we’ve guided to. So we still feel comfortable about maintaining our guidance that our OIBDA will be in the range as we said out at the beginning of the year. I think the specific – think about the specific highlight that we’ve talked about on bad debt and I will ask Rod to comment further. But its more about an ageing issue in terms of when we moved the process, we didn’t optimize the process fully before we moved to offshore and we move that offshore as we slipped behind on the dating. So we feel – we feel good over the next six months to 12 months that we are – we will be able to get that back in shape and we are well underway, but you can imagine that when you slip behind on the dating it takes a while to fix that back up, but I don t know Rod, if you want to add?

That’s right, Bill in terms of the general component of our bad debt provision its driven by the aging of our receivables and as we move this offshore, the aging deteriorate and a little bit and therefore that triggers an increase in the bad debts and bad debt expense by half a point. And we are – I think we – just to make sure as clear as I, we will get back to our normal range of about a half a point of revenue in terms of bad debt expense…

Right.

Absolutely right, and though – I don’t know we have various rigorous plans to ensure that that is the case. And just to be absolutely clear in terms of the contribution guidance, we’re in no way signaling the lower end of the ranges very well, so within the range on that.

Perfect, thank you.

Your next question comes from the line of Dan Dolev of Jefferies.

It’s actually Dan Dolev with Jefferies. Thanks for taking my questions. I’ll ask few questions. We thought a few weeks ago, Bill you did the conference call, you mentioned service margins stabilizing. I see a 330 basis points decline. What gives you confidence that that you could actually stabilize margins in the coming quarters?

Hey, good morning Dan. [Indiscernible] it’s a good question. So if we look – obviously this quarter was below our target of getting 27% by the end of the year. But if you actually – when we looked at the performance as part of the improvement program we looked at. If we took the month of May, May was a specifically weak month for us on this quarter in terms of our service margin and profitability. If we took the month of May out, we would have 26.1% service margin in this quarter, which is still a 100 basis points, but we know how to bridge that gap. And even when we looked at May some of the things that we’re introducing, we get the sprit [ph] to manage them. So with the month of May, was particularly soft really two things, was one, is verbalizing some of our cost quick enough associated with a normal downtick in revenue, because there is some seasonality in revenue and plus it was a short month. But in terms of the way the holiday is felt. So those two things that – which is part of our program, if you remember our three-pronged approach to this is verbalizing our cost base more which the month of May is a great example in terms of what that program is designed to offset. The second thing is using outside parties, and the third one is technology. So, again, the data for the quarter looks worse than it is if you know what I mean in terms – especially if we add back some of the programs that we’ve introduced to minimize that going forward. So we still are sticking by our guidance that we think by the end of the year will be at 27%.

hank you and two more quick questions. On the bad debt expense, I know you’ve addressed it fully, so the uptick from 50 basis points to 70 basis points, is that – was that a result of ageing or did I misunderstand it?

Yes, it’s primarily the result of ageing, is the issue that we’ve referred to earlier.

Got it. And without result in any impairment to the capitalized acquisition cost on the balance sheet or…

No, no, not, no.

Nothing, okay. And then last question, when I was looking at – EPS obviously was a little slight outdated versus consensus. If you look at both FFO and EPS, it does imply a very significant acceleration in the second half of the year, can you maybe talk a little bit about how your components have actually getting it.

Well, I think first of all on the AFFO basis you see, we’re actually been ahead of where the consensus status coming out. So first of all from a cash standpoint we’re actually ahead. I think the bridging schedules I think do a pretty good job in terms of what the puts and the takes were in terms of why we ended up a bit below on consensus. But if you just look at our normal ramp in the second half of the year, part of this is just in terms that we don’t give quarterly guidance we give a year guidance and part of this just a way that the [indiscernible] besides the carve out our annual guidance. So if you just look at historical ramps in the second half, you don’t find this is as surprise. That’s why I feel very comfortable in terms of maintaining our guidance.

I mean may be just talk specific about EPS, year-to-date we’re at on an adjusted basis $0.60 a share, the midpoint of our guidance for the full year is $122.5 million [ph]. And so you could see we’re almost at the halfway point. As I was saying earlier, because of the dynamics of our business, the storage revenue and contribution growing and quarter-after-quarter, I think you can sort of see how we can reach that point.

Right, I was also referring to FFO, it’s a midpoint is about a – it prices about 14% acceleration?

And I think what’s deciding is the same logic, if you like in terms of the flow through, the P&L. So we expect contributions to continue to build, that actually has a disproportion of banks, in sense of the flow through to the FFO. So again we feel comfortable around that number.

Great, thank you very much. I appreciate it.

[Operator Instructions] Your next question is from the line of Shlomo Rosenbaum of Stifel. Please go ahead.

Shlomo here. Thank you very much for taking my questions. Yes, Bill, could you go into little bit more detail what you mean about variabilizing the cost with third-party logistics vendors, and we talked about working with like UPS or FedEx or something?

Yeah, good morning, Shlomo. Well, there is two parts, it is variabilizing and is using third-party so that there – and you could say that there kind of two – there is two ways of doing it. We also look at variabilizing more of our cost under own our control and we do use temporary workers that are trained and certified and cleared by Iron Mountain, it’s getting that mix right. So first of all we do have a variabilized workforce internally and making sure that we are using more of that which is the thing that helps to offset some of these variabilization of some of the service revenue that goes through and then service revenue for us don’t forget it is more than just transport they rather bid that are contract based so that’s one aspect. And then on the 3PL side, yes it is like the – it’s the FedEx and UPSs of this world and other courier services. We use some of them today, we use them more extensively in some European countries, where we – where the necessity has come even faster because of the size of some of our operations in some of the smaller countries. And we’re using that same doll as a know-how to accelerate that in North America. So it is anytime those logos and others.

Okay, great. Thanks for your clarification. Then maybe this is for Rod, the non-real estate investments in the maintenance CapEx, at least for the first half of the year is trending well below the annual targets. Is this expected to get a tick up in the second half of the year or for some reason, where just current levels are more of a good run rate. How should we think of that?

I think there will be a tick up in the second half of the year, but closer to the guidance numbers that we issued in June. It’s just to do with the phasing at certain aspects of all activity.

Is that a – is there seasonal component to that or it just happens to be year-by-year, and works in different parts of your base and what your plans are?

It’s actually largely based on our own plans. It’s an element of seasonality around some of the maintenance activity that we prefer to sort of backload as opposed to doing in the middle of winter of January, February. But it’s largely down to our own planning.

Okay, and then am I understanding you correctly that while you are guiding to the low end of the guidance range because of currency for revenue, you are not winning [ph] to that for – what for – am I misunderstanding that?

Yeah, that’s correct, that’s correct. So we are taking action on cost to ensure that we still stay towards the midpoint of our guidance right from a constant and a real dollar perspective on contribution and cash.

And is that because of this program or largely because of this program that you just announced [indiscernible] third quarter charge?

No, actually that’s not that specifically in fact that the transformation program for us is neutral because we incur severance charge during Q3, which will be offset by run rate savings in Q4. This is more due to other activity that we’re taking.

Okay, great. Thanks.

There are no further questions at this time.

Okay, well thank you very much everyone for joining us this morning and have a good day.