鐵山公司 (IRM) 2011 Q2 法說會逐字稿

Good morning.

My name is Bonnie.

And I will be your conference operator today.

At this time I would like to welcome everyone to the Iron Mountain Q2 earnings call webcast.

(Operator Instructions).

I would now like to turn the call over to Mr.

Stephen Golden, Vice President of Investor Relations.

Please go ahead, sir.

Thank you, and welcome everyone to our 2011 second quarter earnings conference call.

Joining me this morning are Richard Reese, our Chairman and CEO and Brian McKeon, our CFO.

After their prepared remarks, we will open up the questions for your Q&A.

Per 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 2011 financial performance.

All forward-looking statements are subject to risks and uncertainties.

Please refer to today's press release, 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 be materially different from those contemplated in our forward-looking statements.

As we use several non-GAAP measures when presenting our financial results, adjusted OIBDA, adjusted EPS and free cash flow before acquisitions and investments,among others 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 reconciliation of these non-GAAP measures to the appropriate GAAP measures as required by Reg G at the Investor Relations page of our website in today's press release.

Also please note that all of the financial results presented in today's materials reflect discontinued operations treatment for the digital businesses we sold and the expected sale of our New Zealand operation.

All historical results have been restated to conform to this presentation.

With that I would like to introduce our Chairman and CEO, Richard Reese.

Thanks, Stephen.

Good morning.

Welcome to our call.

This morning I will be intentionally brief in that it's summertime.

We have had a good quarter, but there is nothing really extraordinary to talk about.

I will run through it fairly quickly then Brian will go through the numbers and some of the details, and then of course, we will take your questions-and-answers.

Q2 was a good quarter in-line with our expectations.

We are on target for the year, and frankly, on target is a good start for our three-year plan in terms of the financial performance that we laid out a few months ago.

The trends are pretty much in line with Q1, so as I said, there is not a lot specifically to talk about.

Reported revenues were up 5% in total.

They were led by international internal growth at 4% and North American internal growth at 1%.

Storage trends remain stable.

Internal growth of 3% on storage.

As we have been talking about for quite some time, we have seen a moderation in our storage trend.

Some of that is economic, and some of that is economic and some of that is continued secular pressure.

But we have seen stabilization, and that stabilization trends have continued into the quarter churn, sitting around 7% and organic additions in the same range of the last seven quarters, in fact, in around 7%.

New sales hit about 2% up which is a moderate improvement, and been improving slowly over the last Quarter Two.

As , we focused our business since the sale of our digital business, on our core business in that we are seeing benefits of focus, and some benefits of getting the sales force really focused back into this core services.

As we have said many times, there is a lot of open market opportunity for us and we have probably diluted our focus a little too much by having too broad a product line and too many shiny objects for the sales force and I think that although we still have some pretty interesting shiny objects in our core business getting them focused on the core seems to be working for us.

Core service continued to remain very soft for the same trends we have been talking about for some time.

We have not seen a pickup in retrieval activities and other core activities.

Overall service dollars were up, but that was driven primarily by paper prices for our shredding business as well as the fuel surcharges related to the price of fuel rising over the last few months really kicking in and starting to flow through.

But as I said, the core service activity remains soft and remains a drag, not an increase or anything in the trend, but just remains the same trend line and a drag on our overall growth rates.

Financial bottom line performance adjusted OIBDA was on an operating basis was up 2% at $227 million that excludes about $10 million of one-time costs.

If you will remember, I have been saying for the last Quarter Two that as we have exiting digital and shifting our strategy to focus on the core and focus on driving returns that you would see some noise on our reported numbers for a couple of quarters.

This is some of that noise, and Brian will go through it in detail.

It's primarily related to some of the proxy cost items and some other things like that.

And you will see in future quarters some one-time costs finishing those things out as well as the special committee process we talked about as well as reviews of some of the strategic assets as we go along.

This is under the category we have been telling you was coming, and Brian will get into details as we get there.

So as I said, it was a good quarter.

The organization and the business are performing well.

It's performing in line.

I think the execution of our team is quite outstanding.

And we are not only making good financial progress, we are making good progress of transitioning our business in terms of our mindset, in terms of our strategy and in terms of dusting off our products a bit, and really focus ourself back into the core markets, and we expect that will pay good rewards over the coming years.

So I would like to review quickly, as I will tend to do in the next few quarters, if not years, is just to keep you up to date on the four stages our components of the three-year plan that we put forth so everybody understands where we are.

And I think one of our commitments was to make sure that we are very transparent, and very clear about what progress we are making, and so forth.

So remember our plan is driven by four components, first is our North American business and that is a business that's the strength and backbone of our core services.

It's a business over the last few years we have optimized dramatically by taking by about 850 basis points of margin improvement as we went through that business with a fine-toothed comb.

The strategy here is to continue driving revenue and looking for the point at which we can increase more revenue by investing some of our margin back into it, and basically keep the business at flat margins.

This quarter revenue was up about 1%, and margins on an operating basis there was some one time noise in their numbers, but on an operating basis was basically flat.

It's in line with our expectations.

It's a business that has to work hard to maintain flat margins because they do have some headwinds in terms service mixes.

Some of our core services are growing quite fast.

We have our hybrid lines growing in the 20% to 30% range internally.

They are good businesses, but with much different margin characteristics and different capital characteristics, and so forth.

Whereas the soft revenue we are seeing in our core retrieval refile business which is coming down on us as a higher margin mix.

They have some headwinds there but they will work through it.

We are pretty confident the team can work their way through that and keep the business on line with what we expect to happen.

International business, as you know, a couple of things.

Our strategy was to look at the business from a different strategic lens and that is as a portfolio businesses, and we have been going about doing that.

As part of that or in addition to that, I should say, our international businesses have committed to driving margins by 700 basis points, and this is by running the same play books by and large that we ran in North America in terms of just driving efficiency, investing in processes that improve our cost as well as our service delivery.

And they are off to a good start.

You saw in this quarter a flow through of 150 basis points or margin improvement in our international portfolio.

That's 150 out of a target of 200 that we will see from them this year, and so that's 200 for this year out of the 700 total over the 3-year period.

As I said, we are off to a good start there.

Growth remained good in the markets, particularly led by some of our developing markets as well as some good growth in some of our leadership markets, and otherwise on the continent.

And they maintain a 4% internal growth rate plus continue to absorb an acquisition which added another 3% to their growth rate or total growth rate in constant dollars of 7%.

FX had a more positive benefit for them, but we really think about the business in constant dollar basis.

Part of our strategy was in addition to driving the 700 basis points of margin and trying to continue getting access to the higher growth rates that we could see in quite a few of our international markets, was to analyze our portfolio of businesses, and making sure that we had strategies to drive appropriate returns on invested capital market-by-market.

And some of those strategies would include tactics such as driving more revenue to drive to scale, such as reducing costs and overhead, such as freezing the business and just stopping investment if we couldn't find a better thing to do with it, or disposing, divesting of the business and get out of it.

This morningwe announced, or in fact stating that we are exploring the sale of one of our businesses, that's our business in New Zealand.

This is a result of this process.

The process is an ongoing process.

Not that we haven't pretty much finished the analysis, because we have.

It's just that we are not going to make any big-bang announcements as to our execution.

But this is a first-stage execution of that strategy.

And so we are exploring the sale of the business in New Zealand.

The way we look at that business it's a great business, but it's small, about $8 million in revenue.

It came along with an acquisition of Australia which is a much larger business.

And New Zealand, itself, is a small market.

We are not the leader.

In fact, we are like number three, number four in the market space.

Therefore, we think our new Zealand business folded into somebody else, probably has more value to them than it does to us.

We are going to test the market and see if we can come to understand that.

We obviously won't sell it if we don't get a fair price for it to get returns for shareholders because it's not putting a drag on us.

It's a profitable business, but on a return basis, we think we can probably take the capital out of there and put it somewhere else and have a better return.

As I said, this is the first such announcement.

I don't expect a long list of announcements, and a lot of what we are doing in the international portfolio is not the kind of thing you will announce.

It's just about how we drive the business, how we allocate capital.

But again, we are off to a good start there.

The third element of our strategy was to sell our digital software assets, or what we so-called called our "digital business", and focus back on our core business.

During the quarter, although we announced this some time ago.

It's easy to make an announcement, we actually had to do the work, but we closed on the sale transaction in the quarter, and in fact, had to split the business apart.

There was a lot of integrated support and staff issues that we worked through with Autonomy and the transition is not 100% done, but I put it in the category of mostly done.

I think the heavy lifting is pretty much behind us there.

And we are all looking forward.

I know that Autonomy, I think, views it as a successful and good transaction from their perspective as well as we do.

And along the way, as we had hoped, we entered into a partnership with Autonomy that gave us access to a lot of their technology on an attractive partnership basis where we will cross-sell and support, which allows us to continue in the market space.

Having technology services in our portfolio where it's appropriate and allows us to continue to solving certain customer problems without suffering the development costs and the heavy capital investments that we were having to put back in the digital business to maintain our software assets.

All in all, we think it was a good move for us.

We hope and believe it was a good move for Autonomy.

As we said in the very first place that they would do a better job with those assets than we could do.

We hope and believe they found a good home, and that the relationship between us and Autonomy will continue to blossom and bear fruits for both parties.

So that's stuff is easy to talk about, I just want to stress to the shareholders that you can't even imagine the amount of work that a lot of people have put into over the last two or three months just making that short soliloquy I just went through come true.

It's good work and the good new is now that some of those people we give them about five minutes rest, and they will go back to work on some other good stuff, and we will get our organization focused on some other future things that are real positive for us.

The fourth element is shareholder payouts.

The reminder is our commitment is $2.2 billion of distributed cash to our shareholders over a three-year period and $1.2 billion of that within the first year.

And we are on-track to do that.

We are in the middle of executing that strategy.

We increased our quarterly, or what I call foundational dividend by 33% in the quarter to $0.25 per quarter.

I would encourage you to view that as an increase to a foundational level, and view that more as a dividend that's likely, not necessarily.

but likely to grow as we grow our cash flows in the future or some related metric.

Okay?

In other words, as business performance continues to do well, I would expect the dividend to rise.

But these are all expectations, not commitments in terms of dividend futures, but that's what I would expect to happen.

And then of course as you know, and as we have said over and over, our second strategy for distributing capital and preferred strategy is to buy in our stock.

Our strategy for buying in our stock is to buy it at or below fair market value based upon our best judgement and best view of the models at the time and not to be necessarily a trader in the market because we don't expect that we can out-trade the market.

And so we have executed the first leg of that with a $250 million pre-paid variable stock purchase plan that is almost completed, should conclude itself sometime in August.

We don't have final numbers.

I can tell you that our best estimate, and it is only an estimate, is somewhere between 7 million and 8 million shares will have been purchased, and our best estimate at the average price is an acceptable number to us.

Okay?

In the future, so long as we can buy stock at or below the fair market value from our perspective, we will continue doing that as a way of distributing cash.

Obviously if the stock were to get substantially above what we would think were a comfortable position, we would have to use a third alternative which would be a special dividend.

But as I have said over and over, that's not our preferred route, but of course, a route that we would use if we had to because we have made these commitments.

We will find one way or the other to make those commitments come through.

So all in all, I think we are off to a good start in the shareholder payout plan and we are going to continue moving forward.

The last quick element to update you on before I turn it to Brian is we have made a decision not to hold our annual Investor Day in 2011, which we would typically hold in the October time frame.

So from a planning perspective, people have been asking what's the date?

Have we nailed it down?

The answer, we've decided not to.

The reason we decided not to is a couple, but mostly, I mean, I could whine and argue as we are awfully busy, and it does take a lot of time, and you don't care about that, and that's not the main reason.

The main reason is, as you know, is we have kicked off our special committee process to the Board where we are looking at strategic alternatives.

We believe that so long as we are in the middle of that special committee process, if we were to have a large meeting like an Investor Day, you would all come away very unhappy with answers to your questions because you would all be asking questions about what's the special committee doing?

What are they learning?

When are they going to learn something?

When are they going to tell us something?

Our answer will always be, we are not going to tell you.

We try to say it more politely than that, but that would be the answer.

We just don't really feel like bringing you in, and bringing ourselves in, and having everybody feel pretty uncomfortable at the end if we didn't tell you anything.

So I am telling you now, we are not going to tell you anything because we are not going to do differential disclosure to anybody.

We are going to work through the process, and we will be as transparent as possible when a decision is arrived at, if there ever is a decision.

We will tell everybody at the same time, and we will tell them broadly, and very deeply and very thoroughly.

And so we just felt like take the noise out of the market.

and the speculation out of the market.

We are not going to do an Investor Day.

We will resume Investor Day on a normal pattern in 2012.

Obviously, if the special committee comes to conclusions that have radical changes in our business, a pretty good chance we will do some -- we will find lots of ways to do broad communications and we may even have an in-person meeting if it needed that level of detail discussion, but we will find the right way to make sure you all understand it if anything happens, and I stress the big word if anything happens.

Should also tell you though that one of the other things we typically accomplished at the Investor Day was a discussion of our preliminary forward year outlook on at the meeting, and we will do that in our Q3 earnings call.

So you might expect a Q3 earnings call to run slightly longer because we will make sure that we go through a full discussion of our 2012 outlook, preliminary outlook on our Q3 call.

So that's about the only news for the day.

As I said, it's a good quarter.

I think we are off to a good start executing all of our plans, and we will continue doing that and continue trying to communicate with you.

With that, let me turn it to Brian who will go through the details.

And then we will

Thanks, Richard, and good morning everybody.

We will be going through the slides as usual.

Slide three highlights the key messages from today's review.

Our continuing operations delivered solid performance in Q2 keeping us on track towards our full year goals.

Results were supported by solid storage revenue growth and improved profit performance in our international business.

For the quarter revenue growth was 5% with business trends largely consistent with those that we discussed last quarter.

Storage revenues increased 6% or 3% on an internal growth basis.

Global records management net volume was 2% supported by solid gains in international markets and positive growth in North America.

Service revenue internal growth was 1% as strong gains in hybrid services as well as benefits from higher paper prices and increased full surcharges offset continued weakness in core service activity levels.

Profit and cash flow performance was solid and in line with our expectations supported by strong gains in our International segment.

Adjusted OIBDA was $227 million, up 2% on an operating basis, excluding $10 million of fees associated with the recent proxy contest.

Adjusted EPS was $0.29 per share including the $0.03 impact of the $10 million in proxy fees and free cash flow was $140 million on a year-to-date basis.

Our full year guidance for our continuing operations is very similar to the outlook that we shared in our Q1 conference call.

We are revising our guidance to reflect the discontinued operations treatment resulted from the sale of our digital businesses and the expected divestiture of our New Zealand operations.

The results of these two businesses have been removed from our P&L results and collapsed into a single line labeled "income or loss from discontinued operations."

All of our historical information has been restated to reflect this presentation.

Attached to this presentation is an Appendix that contains a table which lays out the impact of discontinued operations in our previously reported Q1 results.

In our full year guidance we have also refined our outlook to reflect current commodity price levels as well as impacts from stranded costs related to the digital divestiture.

Lets now turn to slide four and begin the review of our financial results.

Slide four compares the results of this quarter to the second quarter of 2010.

Please note that all of the periods presented have been restated to reflect our discontinued operations.

Overall, Q2 was a solid quarter with performance keeping us on track towards achieving our full year financial goals.

Enterprise revenue growth was 5% supported by internal growth of 2% and benefits from favorable FX changes and recent acquisitions.

Enterprise revenue gains reflected sustained storage, internal revenue growth of 3% and global expansion of hybrid services.

Higher fuel surcharges and recycled paper prices also supported revenue growth.

These gains offset continued softness in core service activities.

From segment perspective, North America posted 1% internal growth supported by consistent 2% storage internal growth.

Service revenues were up slightly in Q2 in North America.

Service growth continues to be constrained by softness in retrieval and refile, transportation and data protection handling activity.

These impacts offset strong gains in hybrid revenues and benefits from higher commodity prices.

As noted in today's press release, our Q2 results specifically North America, include a $6 million revenue adjustment for the estimated accumulative impact of complex retroactive pricing adjustments involving a unique five-year customer agreement.

We have excluded this adjustment from our internal growth calculations as it relates primarily to prior period and doesn't accurately reflect the current trends in our business.

Our International segment generated 4% internal growth in Q2.

Storage internal growth remained strong at 5% supported by solid gains in Europe and sustained double digit gains in Latin America and Asia Pacific.

These gains were augmented by expansion in hybrid service revenues.

Total service growth was constrained by lower complimentary revenues due primarily to the winding down of a large European contract.

Reported revenues for the segment grew 19% including benefits from favorable foreign exchange rates changes and recent acquisitions.

Overall we continue to post solid comparable profit gains in line with our expectations.

Gross profits grew 5% in Q2, yielding a gross margin of 59.2% consistent with Q2 of last year.

Both storage and service gross margins were flat compared to the prior year with in-service gross margins gains from factors such as higher recycled paper prices were offset by the business mix impacts and declines in core service activity.

Adjusted OIBDA was $227 million, up 2% excluding $10 million in costs associated with a recent proxy contest.

Gross profit gains were offset by planned year-on-year increases in North American sales and marketing expense and normal incentive compensation accruals compared to low prior-year levels.

Below the adjusted OIBDA line, depreciation was $73 million and amortization was $7 million.

Other expense for the quarter was $3 million.

Adjusted EPS for the quarter was $0.29 per share including a $0.03 per share impact to the proxy costs reported in the quarter.

Reported EPS for the quarter was $0.32 a share reflecting the benefit of a lower effective tax rate and fewer shares outstanding.

The structural tax rate for the quarter was 39%.

We expect the structural tax rate for 2011 as a whole to also be about 39%.

Let's now take a closer look at our revenue growth on slide five.

Slide five breaks down our overall revenue growth.

It shows internal growth by major service line as well as the impact of acquisitions, divestitures and foreign exchange.

Also presented are the revised Q1 and full year 2011 growth rates reflecting our discontinued operations.

As noted, overall revenue growth was 5% on track with our full year growth outlook.

Storage internal growth was sustained at 3% reflecting consistent underlying trends.

North America reported 2% internal storage growth and International growth remained solid at 5%.

Net global records management volume growth was about 2% year-on-year in Q2.

I will break down key drivers of this change as part of today's review.

Pricing trends also remained consistent with net pricing gains of about 2% in North America records management.

Total service internal growth was 1% compared with consistent with net 2% in North America records management.

Total service internal growth was 1% compared to zero% growth.

Core service internal growth was flat in the quarter compared to down 1% in Q1 as higher fuel service charges and strong growth in hybrid services offset continued weakness in core service activity levels.

Complimentary Service revenues which represent about 12% of total revenues increased 4% internally in the quarter.

Results reflected benefits from higher recycled paper pricing, which offset customer terminations and lower project revenue.

Let's now turn to slide six to review global volume growth trends.

Slide six shows key drivers of global records management volume for the last three and a half years to give you a sense of volume growth dynamics following the financial crisis.

The chart shows annualized changes in quarterly record management's volume as a percentage of beginning cubic feet related to new sales in volume growth from existing customers offset by outgoing volume or churn.

Overall global records management volumes have stabilized following impacts from the economic contraction.

Global volume growth was about 2% year-on-year in Q2, similar to trends in recent quarters with gains supported by growth in international expansion markets.

By region, North America volume was up modestly year-on-year.

We are seeing the benefits from our increased focus on new sales supported by targeted investment.

We have also seen moderation of factors such as permanent withdrawals and terminations.

On balance, volume is solid in North America and we are making progress in building new sales momentum which will offset secular impacts and sustain the high return North America annuity over the long-term.

International growth is continuing at a solid pace with volume up nearly 6% year-on-year.

We saw year-on-year volume gains across all regions with overall gains supported by strong growth and expansion markets like Central Europe and Latin America.

On a global basis, total churn remains stable.

We expect quarterly fluctuations on this front driven by episodic customer actions, but overall these impacts have settled into a stable range.

In sum our storage annuity is solid and growing, and our investments and long-term strategy are in-line with expanding this annuity, driving attractive incremental returns.

Let's now move to slide seven, a review our results on a year-to-date basis.

Slide seven looks at our year-to-date operating performance compared to the first half of 2010.

All periods presented here have been restated to reflect our discontinued operations.

As we noted, our future results keep us on track to achieve our full year financial goals.

For year-to-date revenue increased 4% to $1.5 billion.

Gross profit increased 4% to $882 million, yielding a modest improvement in gross margin.

Adjusted OIBDA grew 2% year-over-year, excluding the $14 million of costs associated with the proxy contest.

Adjusted OIBDA growth was also impacted by planned investments in North America sales and marketing, and higher levels of incentive compensation compared to last year.

Adjusted EPS was $0.56 per share, including a 4% per share impact from the $14 million of costs related to the proxy contest.

Excluding these impacts, adjusted EPS is up 7% year-to-date.

Capital spending was $73 million, including $9 million for real estate in-line with our full year plans.

Free cash flow for 2011 is $140 million year-to-date down slightly from last year's levels due primarily to timing impacts on working capital items, including [ar] taxes and pre-paid assets.

These impacts more than offset higher income from continuing operations and lower CapEx.

We remain on track for a strong free cash flow performance this year.

Let's now turn to slide eight to review our results by segment.

Slide eight shows key metrics for each of our three segments for the first half of 2010.

Consistent with our plans, we are sustaining high returns in our North America segment as we build momentum in our International segment as a driver of profit and cash flow gains.

North America continues to deliver high profits and strong cash flows.

Reported revenues year-to-date have increased 1% supported by 2% storage revenue growth.

Note that the North American results were impacted by the $6 million revenue adjustment described earlier.

Adjusted OIBDA margins in our largest segment were strong at 42% on gross margin gains and controlled support overhead spending, which offset plan investments in sales and marketing.

As noted earlier, these investments are key to sustaining the high return storage annuity which drives North American returns.

Capital efficiency continued to improve with a CapEx as a percent of sales decreasing to below 4%.

Our International segment continues to post solid revenue growth and improved adjusted OIBDA and cash flow gains.

Internal growth for the first half was 4% driven by continued strong storage internal growth of 6%.

Year-to-date adjusted OIBDA exceeded revenue gains growing 17% on a reported basis or 10% excluding FX impacts.

For Q2 enter International OIBDA margins increased 110 basis points compared to prior year levels.

These gains were driven primarily by realized benefits of operational excellence initiatives in our UK business.

We continued to target strong improvement in the International margins in 2011 supported by operational improvements in the UK and profit gains in expansion markets.

Finally, the increase in corporate expenses primarily reflects 414 million of one time costs associated with the proxy contest.

Let's turn to slide nine to review our progress with respect to our debt portfolio.

Our balance sheet remains strong, reflecting the improvements in our cash generating capacity and debt portfolio.

Currently our consolidated leverage ratio is 2.8 times at the low end of our target 3 to 4 times leverage range.

We are well positioned in terms of cash and financing capacity.

At quarter end, liquidity was approximately $1 billion with $271 million in cash and $718 million in additional borrowing capacity under our revolver.

This includes the benefits of the net proceeds from the digital sale.

During the second quarter, we refinanced our senior credit facility securing a $725 million revolving credit facility and $500 million in term loans.

These facilities mature in June of 2016.

Our debt portfolio remains long and fixed.

Our weighted average interest rate was just over 7% and we are 83% fixed at quarter end.

Maturity is nearly 7 years with no bond prepayments due until 2014.

The strength of our balance sheet reinforces our confidence in advancing the shareholder commitments outlined in our strategic plan.

Let's now turn to slide ten to discuss our progress on this front.

A key component of our mid-term strategic plan is our commitment to significant shareholder payouts.

As a reminder we have committed to $2.2 billion of payouts through 2013, including $1.2 billion by May of 2012.

In Q2 we advanced key elements of our plan to meet those commitments.

In June, we increased our quarterly dividend 33% to $0.25 per share or $1 on an annual basis.

Quarterly dividend is the foundation of our payout approach.

It's now at an appropriate level, and we expect to increase it over time as our earnings and free cash flow grow.

In Q2, we also increased our share repurchase authorization by $850 million to an aggregate total of $1.2 billion.

As of the end of Q2 we have purchased a total of 5.1 million shares for an aggregate of $122 million.

Although we did not repurchase any shares during the second quarter, we did implement a $250 million pre-paid variable share repurchase program.

This program is expected to be completed in early August, at which time we will receive and retire the shares acquired on our behalf.

We expect to retire between 7 million and 8 million shares through this program.

This represents about 4% of our total shares outstanding.

At the completion of the pre-paid pre-purchase plan we will have $828 million remaining under our existing share repurchase authorization.

At current prices, this represents about 12% of our market Cap.

We also have significant incremental borrowing capacity as our leverage ratio stands at 2.8 times at the end of the second quarter.

Over time, we intend to increase our leverage to the midpoint of our target 3 to 4 times range consistent with our strategic plan.

Our strong cash flow and financing capacity has us well positioned to deliver substantial payouts to shareholders.

Let's now turn to slide 11 to discuss our full year outlook.

Slide 11 summarizes our full year 2011 financial guidance.

As noted, we are revising our guidance to reflect the discontinued operations treatment of the sale of our digital business and the expected divestiture of our new Zealand operations.

We are also making a modest revision to our revenue guidance to incorporate current commodity price levels.

Let me take you through the components of the outlook.

We expect our full year revenues to be in the range of $3.04 billion to $3.09 billion, up 4% to 6%, or up 2% to 4% on a constant currency basis.

This outlook results in a reduction of $188 million at the midpoint of the range from our last guidance primarily reflecting the elimination of the digital and New Zealand revenues, partially offset by modest positive revisions reflecting the higher commodity prices.

After adjusting for discontinued operations, our outlook for adjusted OIBDA is to be in the range of $916 million to $944 million.

This range represents reported growth of minus 2% to plus 1%, and includes planned incremental sales in marketing investments, and a return to normal incentive compensation levels compared to low levels in 2010.

Our outlook for adjusted OIBDA for continuing operations is consistent with our last forecast shared on the Q1 call.

The modest positive impact of higher commodity prices on revenue is being offset by stranded costs in connection with the sale of the digital business as well as higher fuel costs.

Included in our adjusted OIBDA outlook is $15 million of advisory and one-time fees associated with our recent proxy contest that will reduce overall growth by about 2% this year.

Our current outlook is for adjusted EPS to be in the range of a $1.19 to $1.27 per share.

This is an increase of about 3% from our prior guidance reflecting accretive benefits from the digital divestiture.

This outlooks also includes the $0.04 negative impact from proxy related costs.

Our forecast assumes 202 million shares outstanding.

This reflects the level of shares outstanding at the end of Q2 and does not include the impact of the $250 million pre-paid variable share repurchase program which was not completed in Q2.

Adjusted EPS would benefit by about $0.01 to $0.02 per share if we received the 7 million to 8 million shares we are expecting at the completion of this repurchase program.

D&A is expected to be approximately $324 million and interest is expected to be approximately $199 million.

Our CapEx outlook of $230 million reflects the discontinued operations and includes about $20 million for real estate spending, an increase of $5 million related to a new opportunity.

Our free cash flow outlook remains strong with projections in the range of $370 million to $405 million.

In summary, Q2 was a solid quarter and kept us on track towards our full year goals for improving revenue growth and continued strong profit and cash flow performance.

Thanks, and we would now be happy to take your questions.

Thank you.

(Operator Instructions).

Our first question comes from Kevin McVeigh of Macquarie.

Great.

Thanks.

Nice job.

Brian, could you remind us of the split of the digital impact between the storage business and service?

Is it all in storage or service, or is it a combination of both?

It's the combination of both, Kevin.

So there certainly was a storage component to it, but particularly for the back-up businesses, the archiving business, but the eDiscovery business was much of that flow through our competitor complimentary revenue line, so it was a mix.

Was it a 70/30, 60/40 in terms of percentages?

Why don't we get that for you and we will comment on it in a moment.

Let us look that up for you.

Super.

Spend a minute if we could on the capital structure given the strength of the balance sheet on a go-forward basis, it still seems you are pretty well geared toward fixed debt, things like that.

Given the strength of the free cash flow, is there any difference in terms of approach as you think about uses of free cash flow on a go-forward basis or the leverage on the balance sheet?

I know you've tweaked the leverage ratios a little bit more recently, but just given the strength of the free cash flow on a go-forward basis, how are you thinking about capital structure?

Kevin, this is Richard.

I think when we put forth our 3-year plan, you will note that part of that plan is increasing our leverage to the mid-point of our range to approximately 3 and a half times from about 2.8, a little under 3 times now.

And I think that's a comfort level we have to operate the business and that's a level in which between that increase in the level and our free cash flow, we are going to distribute the $2.2 billion of cash over the next three years.

And so I think we are set for how we are going to use free cash flow and leverage for that time frame.

Having said that, we will always reevaluate, and we do reevaluate our capital structure from time to time.

We are a business that if you look out in the future, should generate substantial free cash flow, and should continue to be able to distribute substantial cash to our shareholders over a long period of time.

We have also spoken that we would have interest in acquisitions in our core space, and there are acquisitions out there, and by and large they are relatively small, and by and large we will do them if they make sense to us from a return on investment basis to help accrete returns, so it's a very good financial tracks, so they are not things we would consider to be strategic.

Okay?

So to speak.

And there is a couple of larger, but larger relative to the physical business that are rumored hanging around out there.

We don't know if they are out there or not, and we would have to see what our appetite would be for pieces, or parts, or all, or none of some of those things.

But net-net, nothing we would think about will get in the way of our commitment to distribute the $2.2 billion, nor should get in the way of our ability to distribute significant cash flow beyond the 3-year time period.

Super.

And Kevin, just a couple of comments, first to answer your question on the 70/30 split 70% storage.

Great.

I think at the beginning of the question, you asked about fixed and variable interest.

We are a bit higher than our ideal range, I think, over time in terms of fixed floating.

We've got a very annuity-based business that aligns well with the fixed commitment structure on debt.

But I think over time, we probably would be looking to have our fixed component more in the 70% to 80% range, but I think we are comfortable where we are currently, and that's an opportunity for us over time.

Great.

Thank you.

You are welcome.

Thank you.

Our next question comes from Andrew Steinerman of JPMorgan.

Hi, there.

You did start talking about core service and we are back to flat, and I definitely heard the fuel charge is helpful here.

Could you just go over the trajectory for core service?

Is this something that to pickup and delivery we can't really influence, or is this something that we can influence?

Andrew, it really was more similar than different.

Fuel gave us about a point of growth on the -- actually two points of growth on the core service line in the quarter.

It was a point and a half.

So if you adjust for that, it really was very similar to the numbers we had in Q1.

So I wouldn't point to this as a change.

And Andrew, by the nature of the way we separate our services for communication purposes between core and complimentary is the things that we put into core are services that we cannot influence.

These are specifically demand driven by customers' activity.

We can't make and retrieve a file, or box, or tape, or call us to [sway the bin].

That's totally related to their activity.

The kinds of revenues we put into complimentary services category are the kinds of things we can go out and stimulate the sales process, and so forth.

That is in fact why we've defined them that way.

But Richard, I have heard you say new boxes are more active and as you are able to ramp up new boxes, they should influence core.

I think that's true.

But remember that the denominator is so big, and there is always a time lag thing that we haven't seen it yet.

I fully expect, to be clear, that the core service softness trend we see will change.

And I expect -- because there are two or three things going on it.

And they will change, and I expect it will at least flatten and maybe rise a little bit off of a so-called new normal at a certain position.

We just haven't found it yet.

Fair enough.

Thank you.

Thank you.

Our next question comes from Gary Bisbee of Barclay's Capital.

I guess just first.

What were the tax consequences of the digital sales?

Did they tax it, or is most of that proceeds flowing through?

We did have a tax impact.

I think the cash ex payment was over $50 million, and that's reflected in the discontinued operations.

Okay.

With the international, I think I heard you say volumes were up 6%, but internal growth was up 4%.

Is that the part of the volumes were from the small M&A activity, or is it more just that the service areas were weaker than the core storage?

Trying to follow your question.

The difference between 6% to 4%, or are you trying to get further on the 4%?

No, the difference between the 6% and the 4%.

We did have some acquisitions.

We had Poland in there as an acquisition.

Greece as well.

Okay.

So with the acquisitions and -- the overall numbers, they were solid.

We had 5% storage internal growth, the service number was down a bit.

We were lapping up high project revenues in Europe, specifically in Italy.

That was constraining the number a bit.

We had a major project in Italy that wound down.

That's the kind of revenue that would show up on our comp services stuff which, as you know, can be pretty lumpy at times.

Then just the last question.

I guess any commentary on why you didn't repurchase stock?

Was it just when you either had not --

We entered into this pre-paid variable repurchase program and the way that works is we do an up-front payment commitment with banking partners, but it until it gets completed, it takes two to three months to complete the program.

The shares don't get delivered.

So effectively, we did repurchase $250 million, and it will be done in the coming days.

We just haven't gotten the final accounting and delivery of the shares therefore we don't reflect it to our numbers.

Right.

So it doesn't show up in Q2.

That was what the 7 million or 8 million share reference was.

That's effectively what was repurchased in the quarter.

And if we enter into such a transaction, which we did, we are otherwise not trading in the market around it.

Okay.

So but some of the volume in the quarter was then buying the stock on your behalf?

You just haven't shown that in your numbers yet.

That's right.

Exactly.

Okay.

Alright.

Thanks for clarifying.

By the way, it's a little bit of a black box process.

They don't really tell us what's going on.

We don't really know till the end, so we are making estimates.

Got you.

Okay.

Thank you.

Thank you.

Thank you.

Our next question comes from Andrew Wittmann of Baird.

Excuse me, just to, I guess, jump on that last question a little bit more.

Still, I would say it's a fair ways to go until getting to the $1.2 billion first hurdle here.

You guys are saying you are generally on track, but it looks like things are going to need to accelerate.

Can you justtalk about, I guess, your plan for here?

Would you consider another one of these accelerated share repurchases again, or are you able tack on another one of those again after this first $250 million is done?

Well we are not able to do anything until it's done, and we have considerations of what we are going to do next, and shortly will be discussing that with a committee of our Board as to the next step, and there is other back-up plans in place, and so forth.

It's a fairly complex process you have to go through.

As you recognize, we can't do anything until we get an open window of clear sky, blue sky from an insider knowledge perspective, whether we can put a program in place, or not.

I don't think we can comment on exactly which tools we will use except to say that it is our expectation to continue and stay in the market on a fairly regular basis.

And your comment that we may be behind, we don't see it that way.

When we map it out, I would say we are right pretty much on plan, and trying to do this in a fairly consistent steady basis.

Yes.

Out of the $1.2 billion you've got about $200 million covered by the dividend and the variable program.

The first step was $250 million.

So we got about $750 million to go.

So we feel we are on good track.

And then recognize, I know this is obvious, but I want to continue to repeat it is, the $1.2 billion is an artificial date that we agreed to, and we will commit to doing it.

But we have also agreed and committed to another $1billion to find it.

So we are not trying to push to a first year date, and didn't wrap it up and walk on.

This has got to be a continuing way of life for us, not just through this 3-year period, because as we said earlier, we expect to have significant free cash flow in the fourth, fifth, sixth, seventh, eighth, tenth and 20th year.

And in all scenarios we can see a substantial amount of cash flow excess of the business needs.

In other words, we are not starving the business.

We want to make sure the business is well taken care of, but in excess of the business needs we will be returning cash to shareholders.

And therefore, when you have got that significant amount of capital, we are trying to do this in a pretty programmatic basis, trying to make sure we don't make any big mistakes, but we are not just trading in and out, and so forth.

So you will expect to see a lot of steady distribution here.

That's really helpful.

Thanks.

And then I guess just on the view of international disposition potential.

You mentioned, Richard, the process of evaluating what might go and what might stay is done.

Can you give us maybe a little more insight?

Not specific markets, obviously, but maybe in terms of -- maybe a range of total capital, proceeds that you might expect to see with which you have identified so far?

The process, I wouldn't want to say we made final decisions.

I guess what I am saying is I have seen enough analysis to have a pretty good gut for what's going to happen.

How is that?

And, in fact, we are going to review a lot of that with our Board coming up, so we have got some final work to do.

But the short answer to your basic question was, is this going to be a significant series of capital raising events?

And the answer is, no.

There is more opportunity in our portfolio to focus the strategies and drive improvement, and we are going to buy and large continue doing that.

Okay.

That's helpful.

Thank you very much.

(Operator Instructions).

Our next question comes from Shlomo Rosenbaum of Stifel Nicolaus.

Thank you very much for taking my questions.

I just want to ask, it's been about three months since you weighed out the targets as to what, I think, you will do over the next three years.

I was wondering from an operational perspective internationally, do you guys feel better about the opportunity to increase profitability of their business, or do you feel the same or do you feel worse?

In other words, after three months of review, where do you stand in terms of the confidence of being able to do that plan?

We feel very good about it.

As we noted in the quarter, the international profit improvement was a key driver of our results.

We had margins up year-on-year 110 basis points.

We are on track for about a 200 basis point improvement this year which is consistent with what we talked about.

That doesn't reflect changes in our portfolio, so there may be opportunities that emerge from that.

We continue to advance the plans with the team, feel very good about it, the growth remains solid, businesses performing well, so feel confident that's going to be a key driver of results, and we are on track for our plan.

I would also highlight just overall in the Company, if you take out the proxy costs, at midpoint our margins outlook for this year adjusted OIBDA, I think, is just shy of 31%.

So we are moving well towards the degree 32%, one of the bench marks we put out there as a goal for 2013.

International is going to help us.

We achieve our goals in international that will put us on the track for that objective.

Yes.

I would like to stress that your question is we are into it three months.

How do we feel about it?

It leads me to believe that you might be thinking about it wrong, and so let me, from our perspective at least, and that is it's not like we woke up three months ago, and fired a gun and said, "you guys take a big right turn".

We had actually been working with international in developing the plans of that well before we made these announcements, and in fact, they already had a head start on a lot of the work which is why you see 150 basis points coming up this quarter.

These are not the things where you can just do them overnight.

They take a lot of prep, and if you go back and listen, and look at our numbers, you will see us talking about investment in International prior to this.

As I said, their whole business plan for this year already had the 200 basis points in it because we had already started them down that strategy and that path.

The other thing here that is a shift in International, though, is the International had some initiatives in the projects going partially related in the hybrid business and so forth, trying to drive and build some growth platforms for the future that were not panning out as fast as we thought, and we have asked them to re-focus that and they have.

And that's part of and will help contribute to this sort of stuff.

And it's part of just focusing International, again, on the core business just like we have done in North America.

Let's look less at shiny objects, and look more back at our core business, because the sense we had come to understand was is that we were walking past the core business just a little too fast, and leaving good opportunity, good return opportunity on the table, and not going after it aggressively.

I think if you go out and talk to customers, if you go out and listen in the marketplace, I think you will hear is Iron Mountain is awake again in the core business, and that's what I want them to here and that's what we want them to do because it's good business out there.

It's a big battleship, takes a long time to turn, but it's turning.

Okay.

Thanks.

In terms of the divestiture potential internationally, I wasn't clear as to whether you're saying there are further potential divestitures, or you were saying New Zealand is pretty much it.

I won't say New Zealand is pretty much it.

I won't be that definitive.

What I am saying is that anything that would occur won't be significant.

Okay?

In terms of financial impact.

Okay.

The question was directed at is this going to be a major source of funds?

I think that was what we were trying to respond to.

No.

It will not.

I'm looking, besides a source of funds in terms of just margin improvement potential.

No.

I don't think you will see.

Well, I don't think the portfolio review is going to have big shifts of margin.

The 700 basis points we are going after is going to be the big shift in margin.

I don't know that that's all, by the way, but for the next two and a half years, it will be the big shift.

Look, and I guess I would tell you, though, that as much as I've said we have been working on a lot of this before we announced it, I guess I would stress one thing.

We didn't hold back anything.

We don't have a lot of money in our pocket.

We have got some reasonable cushion here and there.

Don't get me wrong.

We are not totally crazy, but we came forth and said, look these are the things you can do.

And everybody stretched and feeling stretched pretty good.

Everybody saying they think they can do it.

Nobody got a lot of sand bagging.

I don't have a big bucket of capital, of earnings in our pocket that we can dump out and protect ourselves with.

We will continue looking.

There may be some other good opportunities.

We will go looking for it.

This is a plan we expect to execute.

We will execute, and we will deliver the cash, and we will still have a good business at the end and continue delivering cash after that.

That's what we want to do.

I think we are pretty comfortable we can do that.

Okay.

Thanks.

And then a house keeping.

In terms of the share count for next quarters, we assume the 7 million to 8 million goes out over the first two months of the quarters.

Is that a fair way to do it for weighted average?

Yes.

Well we are expecting is to conclude in early August, so that's midpoint, I guess, for the quarter.

Okay.

And then in terms of the talk about strategically trying to monetize the real estate assets, I understand there is a special committee out there.

I just want to know if there have been obviously not looking for definitive answers on anything, but are there a lot more ideas beyond just the reconversion that have been coming up?

Yes.

There is the variety of ideas and structures.

They tend to fall in some fairly unique categories which I won't go through with you.

Okay?

But we are in a stage of idea generation.

I mean we are actually running a formal process.

We have had lots of meetings, interviewing lots of advisors.

We started to choose advisors to help us.

We are going to spend some serious money on this, which is why we are going to tell you about each quarter for a few quarters until it's done because it is a one-time kind of event.

But, yes, there are some ideas, and as I predicted earlier, they all come with a range of benefit, and range of complexity and a range of risk, but it tends to work out generally those with the highest risks, generally have the highest complexity and have the highest benefit.

Okay?

as you might expect.

But, yes, there is the range of stuff that we are looking at.

And we will narrow that down.

We are going through a process of narrowing it down and focus on a best view, if I might say, and I don't know how many will be in the best view category.

And really try to drive them to the ground and see if they make any sense.

Unfortunately, you can make a decision on some of them fairly quickly that they don't make sense or they won't work, and everything else.

Some of them, the devil is absolutely in the details, and there is an enormous amount of assumptions, and modeling and people to talk to, and so forth.

We are going through that.

I appreciate it.

Thank you.

We are going to take one more question.

So I told you I would be uncharacteristically brief, we have still eaten up the hour, but we will take one question.

Thank you.

Our next question comes from Scott Schneeberger of Oppenheimer.

Thanks.

A couple.

I will try and be quick.

The first one just following up on the outsourced share repurchase program.

Do you guys intend once that's complete in early August to press release and mention your intention for what comes next, or do we wait until the third quarter call there?

To a degree, it depends upon what we decide to do.

I would say there are a few different tools here, and some things may result in a public announcement.

But, look, if we are doing things like open market purchases, or 10b5-1 programs and things like that, our practice is not to comment on that.

So I think what you should take away is that we are executing against the payout plan.

We are making good track and we are committed to delivering against it, and you should expect us in share repurchases as we said all along is our preferred tool, and we will continue to evaluate that.

But we may, or may not do a press announcement.

Thanks.

Two more and I'll ask them both up front.

In core storage could you just comment on pricing?

Just the competitive environment you are seeing there and how that's evolving?

I think you mentioned North America plus 2% year-over-year.

And then the second question is with regard to core services.

I think you mentioned two or three things going on there.

I am particularly interested in destructions.

I think you said have stabilized, but if we can go a level deeper on both of those topics, thanks.

Pricing is similar, plus 2% as you mentioned, North America [workers management].

That's where we have been.

That's pretty much what we have got in our plan numbers as well.

So feel good about that.

We did mentioned that churn is stabilized.

The combination of destructions, permanent withdrawals, and terminations.

Destructions are in a similar range that will bounce up and down.

It's driven by customer events, but it's been more in a stable range, similar range, in recent quarters.

We have seen some improvement on permanent withdrawals and terminations reflecting -- we've got a real focus on customer service.

That improvement, by the way, is a reduction in the rate of terminations and withdrawals, which the positive is your storage balances are higher.

The negative is you don't recognize the service revenue in a fairly good service line.

It's about 7% globally.

Not all of that different by region, to be honest with you.

It seems to be in a similar range.

So it's stable.

Wouldn't be signalling improvement

One more quick one, if I can sneak it in.

The $6 million revenue impact from that complex repricing, any more color there?

And is that something we may see occur again, or is that really a one-time thing.

That absolutely should be a one-time thing.

Okay.

Thanks very much, guys.

Thank you very much.

We appreciate your joining us this morning.

As I said in the beginning, this was a good quarter.

I do want to clarify a statement I made earlier for those who haven't figured it out, I don't really have too much of a script here.

I am pretty free-form, so I sometimes trip up in my words.

As I was talking about the foundational dividend and I made the statement that, "not necessarily grow with free cash flow", I do not want to imply that we are not intending to grow the dividend.

It is our intent.

You can expect that it's our intent that as our business continues to do well, our dividends will continue to rise.

So I just want to make sure that nobody read that as a change in intent, and change in outlook, and so forth.

But other than that, as I said, it's a good quarter, and we hope and believe the rest of the year will show similar kinds of results as we go forward.

Our business has stabilized and we are now looking forward, as we focus on the core to really making this thing hum.

And I think we will be able to do that.

Again thank you very much.

I hope you enjoy the rest of your summer.

Thank you.

This concludes today's conference call.

You may now disconnect.