鐵山公司 (IRM) 2011 Q3 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 Q3 2011 earnings call webcast.

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 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 third 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 the phones 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 presentationwill contain a number of forward-looking statements, most notably our outlook for our 2011 and 2012 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 SEC reports 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 you know, 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 their appropriate GAAP measures as required by Reg G at the Investor Relations page of our website, as well as in today's press release.

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

Thank you, Stephen, and good morning.

And I thank everyone for joining us this morning.

I'm going to see if I can move fairly quickly because we've got quite a bit of information to try to cover for you today.

In addition to our normal Q3 review, we'll talk a little bit about the outlook for next year, as well as I'm going to review some of our elements to our strategic plan and just give you a sense of our progress on some of the major parts of that.

And then last, I'll give you a bit of an overview of our outlook for 2012, and, of course, Brian will give you much more detail on all of this.

As we talk today, we will be mentioning multiple times the impact of foreign exchange and rates so forth on our reported numbers.

Our outlooks and our discussion are based upon recent trading arranges and I should tell you that actual mileage may vary given what seems to be going on in the markets, but we have just used the last couple of weeks as a basis for our forecasting.

So let's get to Q3.

Performance for the quarter was good and really on target as we expected.

Reported revenue is up 6% with about 3% really excluding impacts of FX.

Storage growth were solid at 4% on a constant currency basis and the trends remain consistent.

Total services were up 5% on a reported basis, but we continued also to see weakness in our core service, and those trends remained unchanged, that weakness primarily in North America.

Adjusted OIBDA was $252 million and was on target and in line with our plans.

Overall, it was a solid quarter, consist of trends and performance as we expected and as we forecasted.

We are still not seeing any positive signs from a so-called economic rebound, and I should warn that based upon our numbers and what we saw when the economies came down as we lag going down, we will likely lag on any rebound.

So the trends in the business remain the same, solid storage, weaker than average services, and the organization is performing well when the numbers are flowing through.

On a full outlook basis, it's the same message.

From an operating outlook, the fundamentals in the business remains the same.

We're reiterating our internal revenue growth guidance in the 1% to 3% range and it will be supported by various contingent solid storage growth.

As I said before, the business units are performing to plan and we expect them to continue doing that through the balance of the year.

The international margin expansion plan is on track, and I'll speak more about international a little later.

So the business is running, I won't say it's ho hum, people are working pretty hard to make this performance come in, it's a tough economy out there, but the fundamentals of the business are sound, the storage keeps coming in, and we continue to react to our customer's needs.

Full year results will be impacted by some of the micro factors and decisions we've made based upon the completion of our international portfolio review, which I'm going to discuss in more detail.

And recent changes in the dollar will give us a little benefit for the balance of the year in FX.

We're also taking a $10 million restructure charges in Q4 in western Europe to support this margin expansion programs, which I'll give you more detail on.

So wrapping up 2011, from an operating outlook perspective, we have got good internal growth given the economic environment we're operating in.

I would remind you this is a business that the internal growth rates tend to run historically between one to two times GDP, and where business is running north of one times GDP on an internal growth rate basis, particularly related to our storage, which is a driver of our business.

So the business units are performing well, we wish the economy were better.

We wish we had a little more stability in foreign exchange just to take the noise out of the numbers, but those are not either things that we can control, so we're operating the business based upon the things we can control.

So let me talk now a little bit about our strategic plan initiatives we announced back in April.

The objective of that plan was to have a really strong high margin, high return North American business continue to grow, as well as continue to sustain the margins.

They are working hard at that and doing a good job.

Their performance is on target, with consistent storage revenue growth around 2% on a year-to-date basis.

They still have the headwinds in core service revenues that we've spoken of now for quite a few quarters.

It's caused largely by economic activity, although there are some elements going on in a few sectors such as healthcare, but the big change is in economic activity.

To give you some context, about 31% of our total enterprise revenues or about $950 million are core services, and it's a wide range of things, all of which are one way or the other related to items that we store for customers, and by and large are types of services that we cannot stimulate the demand for.

In other words, if we store an item and you want to retrieve it, you pay us to retrieve it, deliver it, destroy it, and so forth, and so it's tied to our recurring revenue base -- in a key part of the recurring revenue base, but (inaudible) the stuff we store for you.

And we saw impact of the decline on these revenues early on, back as early as 2009.

We started seeing them come off.

If you looked at the numbers on a quarter-to-quarter basis, it's amazing how they were running very steadily in the high single digits and just started coming down, and have been coming down.

The rate of decline has slowed, but the trends are basically the same.

What that's led to is that historically, these revenues used to lead storage growth by three to four points and now they're lagging storage growth.

And our forecast -- we're still not forecasting any rebound, and if there were an economic rebound, since we will likely lag it, we're not forecasting any change in that trend to the balance of this year or into next year.

Our the other side, our hybrid businesses continue to grow well in double digits, and some of our other service and things are doing well.

And the growth story around the world varies a lot.

We've got much stronger growth on an international basis than we do in the North American basis, partly because of different business mix and partly because of a higher mix of emerging markets and so forth.

But anyway, the North America outlook and in our plan is for consistent margin performance over the long term.

I would warn you we'll see a little variability around small numbers from quarter-to-quarter and so forth.

It's not like we're trying to manage it for precise, exact number.

We're managing the business to sustain the margins, and sometimes we'll invest a little bit toward that end on one quarter and sometimes we'll see results in others and so forth, but we feel very comfortable to be able to do that.

The North American numbers also are right now feeling impact from fluctuations of recycled paper pricing.

Recycled paper pricing is off from it's all-time high in recent numbers by about $80 a ton, and that does have a significant impact.

And to the extent that that continues into 2012, which we are forecasting it will for a while, that will have impact on reported internal growth there, as well as some margin pressures on North America, which they work pretty hard to work through.

On an international basis, remind you this is a good business that's got good growth.

The reported growth for the quarter was 13% to 14% reported.

That's driven by internal growth in the 5% to 6% range and, of course, the balance being FX and acquisitions.

We are on target from (inaudible) margin improvement that we committed to as part of our plan.

We've realized 150 basis points through Q3 and expect it to be 200 basis points by the end of the year of this year.

And part of that plan is, as I said before, taking a $10 million restructuring cost primarily related to personnel cost and headcount-related costs and primarily in Europe.

We have -- one of the things we committed to in our strategic plan was a complete review of international portfolio.

I want to tell you that we have completed that review, and it is to remind you the majority of that portfolio, which is about two-thirds of the capital investment that we had put on an international basis, is performing well.

We have major market positions, and we are generating good returns.

And by the way, it's not only that we have good returns, we have plans and that's part of driving the 700 basis point improvement, plans in place to have even better returns in those businesses, and those plans are working.

As we have gone through the extensive review, the focus really turned into what we call our mature non-leadership markets, and it was basically focused on eight countries.

That represented about 28% of the capital invested.

If we had gone through those eight countries one by one, you've seen that we've announced that we sold one, that we sold our business and exited the market in New Zealand.

We sold it and that transaction has closed for $10 million.

We have one other country market under review for potential action.

It's too early for me to name the country because I don't want to set off any alarms among employees and everything else, but we will either sell, operate in a different way, or exit at least one other market.

Other than that, the remaining six we have aggressive improvement plans in place which we believe will drive the margins up to good numbers and the team is out trying to execute those plans now.

As part of that portfolio review, we made some changes in our management structure and business alignments, and that realignment led to an accelerated impairment review, and primarily in Western Europe is where the impact of this is.

And so in Q3, we booked a preliminary impairment of a little less than 5% of our total international investment or about $59 million in the quarter.

We have solidified certain of the restructuring plans now, and now that we've gone through all this, and as I said before, we're on target for about 200 of the 500 basis points of margin improvement through the balance of this year and we feel in very good position to make the balance of that happen as we go forward.

Let me talk to you a little bit about our special committee process.

As many of you know, we constituted a special committee of the Board to look at some strategic alternatives of the business and particularly related to whether it was more advantageous to operate into a structure as a REIT.

I can tell you that the work is in full swing.

There's an enormous amount of work going out and some money, reasonable, serious amount of money being spent inside and outside in time and effort.

It will go well into next year before final decisions are announced.

As you remember, our commitment was to make a decision within one year and announce that decision as to what we plan to do and so forth, and we will meet that target, but I want to set an expectation that it will take some time.

Precisely how long?

Right now I don't know, and if I did I probably wouldn't tell you anyway.

I will provide updates on progress if it is appropriate, but otherwise I really don't want to speculate on an interim basis.

I realize also that everybody has lots of questions and wants to ask about what if this and what if that.

But we're in the middle of full swing of it, and it's just too early to even try to speculate.

The last element of our plan was about shareholder payouts, your commitment was $2.2 billion over a three-year time period, with $1.2 billion of that coming within the first year.

We have made substantial progress and as of October the 21st, we distributed $726 million against the $1.2 billion commitment.

So we're well on target to make that plan work.

Since we started buying stock back, we bought in about 25 million shares or approximately 12% of our total shares outstanding.

The balance of the distribution has come through our regular routine quarterly dividends.

You'll also notice we went to the high yield market a few weeks ago and (inaudible) $400 million, had a successful bond offering, 7.75% fixed rate, and completed the deal in September.

That gives us more than enough liquidity to continue through this commitment through the early part of our program.

So we're in very good shape to deliver on that commitment.

From a strategic perspective, the business is operating as we outlined.

The free cash flow is coming through, our capital efficiency is doing well, and we are doing what we said we would do with the money, while we, at the same time, are looking at are there other better alternatives for the business.

So we have got our hands full, we're working hard, but I feel good about how we're progressing there.

Quickly, or briefly and quickly, let me shift and just give you a quick overview of 2012 and Brian, of course, will give you the details.

The operating outlook we see for 2012, in particular free cash flow performance is solid.

The trends we're forecasting are basically the trends we're seeing right now in the business.

For underlying growth for trends on core services, we're really not forecasting any shifts in trends except for, and who knows whether since we don't try to forecast FX, we basically have to use current numbers, and as I said, we've used recent trends for the numbers we've talked about today.

Who knows where the numbers will be -- will come out the way with actually FX given what we think is the volatility we'll likely to see in the markets.

But FX will have an impact on the reported side of these numbers, and also the decline or change in paper pricing that I spoke about earlier.

If that remains through the year, we'll have an impact on our internal growth.

It has about a 1% change in internal growth and as well as I reported number.

So we do expect to see a lower impact from paper, but the things within our control, we're in really pretty good shape and we forecasting the same kind of trends, and that would be sustaining returns and operations in North America and a continuation of international margin expansion of another 150 to 200 basis points.

North America margin sustain and will be difficult because of the impact of the hybrid business still growing in double digits, which has a lower margin profile than the average base of the business.

And of course the lower paper pricing is a direct hit to margins.

But regardless of that, we think on an operating basis, the business will perform next year approximately the same as it does this year.

We also expect to have strong free cash flow for next year, all for the good operations of the business, and as I've said before, we'll continue to meet our shareholder path commitments and we will be working very hard on continuing the process for the special committee.

So overall in 2012, we think we'll have good operating performance.

As I said, there will be constraints to the macro factors.

Our key metrics will get continuously better, and we are on track to meet our cash flow commitments.

So with all of that, let me turn it to Brian, then we'll come back and take your questions.

Thank you.

Thanks, Richard.

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

Our business delivered solid operating performance in Q3, keeping us on track for our full year goals.

Results were supported by solid storage revenue growth and continued profit improvement in our international business.

Revenue growth for the quarter was 6% with trends consistent with those discussed the last few quarters.

Storage revenues increased 6%, or 4% on a constant currency basis.

And service revenues grew 5% in the quarter, or 2% on a constant currency basis, as strong gains in hybrid services and benefits from higher commodity pricing offsets soft core service activity levels.

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

Adjusted OIBDA for the quarter was $252 million as expected.

Adjusted EPS was $0.37 for the quarter.

And free cash flow was $305 million on a year-to-date basis.

We have made significant process against our initial $1.2 billion shareholder payout commitment, highlighted by $537 million of share repurchases and $51 million of cash dividends paid in the quarter.

Our successful $400 million debt offering in September has us well-positioned from a liquidity perspective to fund our operations and continue payouts to shareholders.

While our operating outlook has not changed, we are revising our full-year 2011 guidance to reflect the recent strengthening of the US dollar, and about $10 million of projected restructuring costs in Western Europe.

Recent movements in foreign currency exchange rates have narrowed the expected full-year FX growth benefit this year by about 1%.

In Q4, we also expect to incur about $10 million in restructuring cost in our Western European business in support of future margin-expansion goals.

These costs were not factored into our previous full-year guidance, as more specific plans related to our international portfolio review were still being developed.

Looking ahead to 2012, we're targeting continued solid storage growth and strong free cash flow performance.

We're planning for consistent revenue growth trends adjusted for recent changes in foreign exchange rates, and a sharp decline in recycled paper prices over the last two months.

Free cash flow performance is expected to remain strong, as increased operating profits and flat capital spending offset increased interest expense due to higher leverage.

Let's now turn to slide four and begin the review of our financial results.

Slide four compares our results for this quarter to the third quarter of 2010.

Overall, Q3 was a solid quarter with performance as expected, keeping us on track towards achieving our full-year financial goals.

Enterprise revenue growth was 6%, supported by constant currency growth of 3%, and benefits from favorable FX changes.

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

Year-on-year gains in recycled paper prices and higher fuel surcharges also supported overall revenue growth.

These gains offset continued softness in core service activities.

From a segment perspective, North American physical posted 3% constant currency revenue growth, supported by consistent 2% storage internal revenue growth.

Service revenues were up 3% in Q3 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.

Our international physical segment posted 5% revenue growth on a constant currency basis, including three points of growth from the Polish acquisition completed earlier this year.

Storage internal growth remains strong at 6%, 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 revenue growth was constrained by lower complimentary service revenues due primarily to the winding down of a large European contract.

Gross profits grew 7% in Q3, yielding a gross margin of 59.9%, up 90 basis points from Q3 of last year.

Storage gross margins were flat compared to last year, while service gross margins benefited from higher recycle paper revenues.

Adjusted OIBDA was $252 million in line with our expectations.

Gross profit gains were offset by a 17% increase in overhead expenses.

This increase was due primarily to higher incentive compensation accruals, compared to very low prior year levels, and planned increases in North American sales and marketing expenses.

Excluding these items, SG&A costs were up 4%, below the rate of reported revenue growth.

Below the adjusted OIBDA line, depreciation was $71 million and amortization was $7 million.

Other expense for the quarter was $17 million due primarily to FX losses.

Due to changes in our internal reporting structure within our international segment, we accelerated our annual goodwill impairment review in the third quarter.

As a result of that review, we recorded an estimated impairment charge of $59 million.

This impairment related specifically to our Western European reporting unit and represented less than 5% of the approximately $1.4 billion of capital we have invested in our international business.

We'll finalize the amount in the fourth quarter and record any adjustment, if necessary, at that time.

Adjusted EPS for the quarter was $0.37 per share.

Reported EPS per share of $0.17 includes impairment charges in the Western European reporting unit and increased other expense net, which were partially offset by the net benefit of other discreet tax items.

Our structural tax rate for the quarter was 39% as expected.

Our effective tax rate for the quarter was 33% and included benefits related to the completion of tax audits, the resolution of certain tax matters, and the expiration of statutes of limitation, partially offset by the impacts of the international impairment charges and foreign currency losses.

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 for Q3 and the year to date.

Also presented is our original full-year guidance, restated earlier this year to excluded discontinued operations.

As you can see, all of our year-to-date amounts are within our expected full-year ranges, withyear-to-date core and overall internal revenue growth at 2%.

The recent strengthening of the US dollar will likely constrain our full-year report of revenue to the low end of our 4% to 6% guidance range.

As I'll discuss in more detail, recent FX rate movements will narrow the full-year growth benefit by about 1% from our earlier 2% estimate.

In terms of our Q3 results, overall revenue growth was 6%.

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

North America reported 3% internal storage growth and international growth remains strong at 6%.

Net global records management volume growth was about 2% again on a year-to-year basis in Q3, reflecting continued strong gains in international and modest year-on-year growth in North America.

Pricing trends remained consistent.

Total service internal growth was 2%.

Core service internal growth was down 1% in the quarter.

We continue to see pressure on core service activity, particularly in North America related to soft economic conditions.

Strong growth in hybrid services are partially offsetting these impacts, but we expect that overall core service growth will become constrained in coming quarters as we continue to build scale in the hybrid business.

Complementary service revenues, which represent about 12% of total revenues, increased 9% internally in the quarter.

Results reflected benefits from higher recycled paper pricing, which offset lower revenues from international projects and other miscellaneous complementary .services.

Let's now turn to slide six to review our year-to-date results.

Slide six looks at our year-to-date operating performance compared to the first nine months of 2010.

As noted, our Q3 results are keeping us on track towards our full-year financial targets.

For the year-to-date, revenue increased 5% to $2.3 billion.

Gross profit increased 5% to $1.3 billion, yielding a modest improvement in gross margin.

Adjusted OIBDA grew 2% year-over-year, excluding the $15 million of costs associated with the proxy contest.

As expected, adjusted OIBDA growth as been constrained by higher levels of (inaudible)compensation compared to last year and planned investments in North America sales and marketing.

Adjusted EPS was $0.93 per share, including a $0.05 per share impact from the $15 million of costs related to the proxy contest.

Excluding these impacts, adjusted EPS is up about 3% year-to-date.

Capital spending was $119 million, excluding $15 million for real estate.

In terms of project timing, we're planning for higher capital spending levels in the fourth quarter, consistent with our full-year plans.

Our full-year outlook for capital spending has been refined to $225 million.

Excluding real estate spending, this will be about 6.8% of revenues, down about 110 basis points from 2010 levels.

Free cash flow for 2011 is $305 million year-to-date, up 18% from last year's levels, primarily due to higher income from continuing operations and lower capital spending.

We remain solidly on track for strong performance and free cash flow this year, with our full-year outlook in the range of $380 million to $400 million.

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

Slide seven shows key year-to-date metrics for each of our three key segments compared to the first nine months of 2010.

Consistent with our plans, we're sustaining higher returns in our North American 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 increase 2%, supported by 2% storage revenue growth.

Adjusted OIBDA margins in our largest segment were strong at 43% on gross margin gains and controlled support overhead spending, which supported planned investments in sales and marketing.

These investments are key to sustaining the high return storage (inaudible), which drives North America returns.

Capital efficiency continue to improve of CapEx as a percentage of sales at 4%.

Our international segment continues to pose solid revenue growth and strong adjusted OIBDA and cash flow gains.

Revenues grew 6% on a constant currency basis driven by continued strong storage internal growth of 6%.

Year-to-date adjusted OIBDA exceeded revenue gains, growing 23% on a reported basis or 14% excluding FX impacts.

Through Q3, international adjusted OIBDA margins have increased 150 basis points as compared to prior-year levels.

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

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

The increase in corporate expenses primarily reflects $15 million in one-time costs associated with the proxy contest.

Overall, we continue to deliver strong operating performance across our business, which is driving sustained strong cash flow.

This performance is supporting significant shareholder payouts.

Let's turn to slide eight to review our shareholder payout program.

Slide eight shows the is substantial progress we have made in returning funds to shareholders over the past two years.

As context, we initiated our first dividend and share repurchase authorization in early 2010 and tripled our annual dividend level late last year.

As part of our mid-term business plan presented in April, we committed to $2.2 billion of payouts through 2013, including $1.2 billion by May 2012.

As part of this commitment, we increased our quarterly dividend again to $0.25 per share in June.

To date, we have made significant progress against our business plan goals.

Through last Friday, we returned $726 million of our initial $1.2 billion commitment.

In Q3, we acquired 16.8 million shares for $537 million, 7.5 million of these shares were acquired in early August at the completion of our $250 million prepaid variable share repurchase agreements, which we funded in May.

The balance was acquired in the open market following the completion of the PVSR.

Between October 1st and October 21st, we acquired an additional three million shares for $91 million.

As of October 21st, we had $449 million remaining on our existing $1.2 billion share repurchase authorization.

Since first announcing our plans to return cash to shareholders in February 2010, we have returned nearly $1 billion through over $200 million of dividend payments and the repurchase of 25 million shares for about $750 million.

The 25 million shares represents more than 12% of the shares we had outstanding at the end of 2009.

Our strong cash flow and financing capacity has us well-positioned to defer our payout commitments.

Let's now turn to slide nine to review how we're managing our balance sheet to fund our business and support these payouts.

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

Our debt portfolio remains long and fixed, our weighted average interest rate was just under 7%, and we were 85% fixed at quarter end.

Maturity is nearly seven years with no bond payments due until 2014.

During the third quarter, we issued $400 million of 7.75% senior subordinated notes.

This transaction is consistent with our plan to increase our leverage ratio within the 3% to 4% target leverage range.

Currently, our consolidated leverage ratio is about three times.

We expect our leverage ratio to increase moderately within our target range as planned as we continue to execute against our shareholder payout program.

We're well-positioned in terms of cash and financing capacity.

At quarter end, liquidity was approximately $1.2 billion, with $481 million in cash and $671 million in additional borrowing capacity under our revolver.

The strength of our balance sheet will enable us to continue to fund value creating growth in our business and continued payouts to shareholders.

That concludes our review of the quarterly results.

Overall, our business performance was solid as expected and we remain on track towards our full-year goals.

Let's now turn to slide ten to review our 2011 outlook.

Slide ten summarizes our full-year 2011 financial guidance.

For 2011, our business units are performing as expected and within our previous guidance ranges.

As noted earlier, we're revising our full-year guidance to reflect current foreign currency exchange rates and about $10 million of projected restructuring costs we expect to incur in Q4 related to our Western European operations.

We expect our full-year revenues to be in the range of $3.020 billion to $3.045 billion, up about 4% over 2010.

This reflects expectations for internal growth of about 2% consistent with year-to-date trends, and about 2% of benefit from foreign exchange and acquisitions combined.

Since we last updated guidance, the US dollar has strengthened against all of our foreign currencies.

At recent trading ranges, we estimate this will reduce our full-year growth benefit that we expected from FX by about 1%.

Our adjusted OIBDA outlook is now $905 million to $925 million.

At mid-point, this is down $15 million compared to our prior guidance reflecting the projected $10 million of restructuring costs we expect to incur in Q4, as well as some effects from the FX changes.

The restructuring costs are the result of the finalization of improvement plans in certain Western European markets.

They're one time in nature, are primarily headcount-related and support our future international margin expansion goals.

Our current outlook is for adjusted EPS to be in the range of $1.18 to $1.24 per share.

The amount includes the $0.05 negative impact from proxy-related costs and a $0.03 impact related to the international restructuring costs.

Our adjusted EPS forecast assumes 197 million shares outstanding.

This assumption includes the benefit of shares that we repurchased through October 21st.

Our CapEx outlook of $225 million includes about $18 million for real estate spending.

As noted, our free cash flow outlook remains strong, with projections in the range of $380 million to $400 million.

Now let's turn to slide 11 and discuss the key drivers of our preliminary 2012 outlook.

Slide 11 highlights key factors supporting our preliminary outlook for our 2012 financial performance.

We're currently targeting 0% to 2% internal revenue growth in 2012, supported by continued solid storage internal growth.

This growth outlook is consistent with our current trends, adjusting for an expected 1% negative impact from lower recycled paper prices

Recycled paper prices are down near $80 a ton or more than 25% since August.

At current levels, we estimate this change will lower revenue and profits by about $25 million in 2012.

Assuming foreign exchange levels remain at recent levels, FX impacts would lower reported year-on-year revenue growth by about 1%.

We're targeting solid underlying gains in adjusted OIBDA supported by an additional 150 to 200 basis points in margin expansion in our international segment.

The favorable lapping of one-time costs associated with our proxy costs and projected international restructuring costs in 2011, will be offset by lower recycled paper pricing impacts in 2012.

We also expect to drive continued solid free cash flow and adjusted EPS growth.

Our free cash flow outlook is supported by projections for higher operating profits and slightly lower capital spending, which will offset the higher interest expense related to our planned increase in leverage.

Adjusted EPS will benefit from lower shares outstanding, reflecting benefits from our accelerated share repurchases in 2011.

Let's turn to slide 12 to summarize our 2012 outlook.

On a constant dollar basis, we're targeting 0% to 2% revenue growth and 1% to 5% adjusted OIBDA growth.

Please note that these growth rates don't include any benefit from future core acquisitions.

As contacts, acquisition has added about 1% to our growth rates in 2011.

As noted, we're planning for similar revenue growth trends and for moderate margin gains supported by continued improvements in international consistent with our business plan.

On a reported basis, this outlook supports our preliminary revenue guidance of between $2.990 billion and $3.070 billion, and adjusted OIBDA of $915 million to $955 million.

These estimates include a negative 1% impact from FX using recently creating ranges for the dollar.

Our outlook is for continued strong free cash flow performance in the range of $360 million to $400 million, reflecting solid operating performance and modestly lower capital expenditures of about $220 million for the year.

CapEx outlooks include increased expenditures and operational efficiency investments to drive future margin gains at about $16 million for real estate.

Our outlook is for adjusted EPS to grow between 1% and 10% to a range of $1.22 to $1.33, reflecting benefits from profit gains and lower shares outstanding partially offset by higher interest costs.

Our adjusted EPS calculation assumes 185 million shares outstanding.

This reflects shares repurchased through October 21, 2011; it does not incorporate any future potential repurchases.

This outlook for 2012 is preliminary, it's based on current FX rates, paper prices, and shares outstanding, any and all of which can change materially in short periods of time.

We'll update our outlook again in our Q4 earnings call to reflect changes if any in these variables.

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

(Operator Instructions).

Our first question comes from Andrew Steinerman of JPMorgan.

Good morning, gentlemen.

Richard, I have known you for a decade now, and usually don't speak so much about the economy given the nature of Iron Mountain's business, but in your opening remarks, you mentioned the economy quite a bit.

Does that frame your guidance for 2012?

And in particular, why is it fair to assume current trends now in terms of internal growth continue into 2012?

Well, I guess the reason I didn't talk about the economy in the past is we've really never seen such an impact.

And look, part of the reason was when we had good economic growth, we'd never seen an economy come down quite like this in my lifetime.

And when you are operating down with small numbers on growth rates, everything going on, pluses and minuses, have an application and so it's just more painful.

Why should we -- and two questions on that.

You know, we have done a reasonable amount of work just convincing ourselves to make sure that what we're telling you is right, that this is the impact of the economy, and not an acceleration of secular trends.

I'm not suggesting that there aren't secular trends because there are, they always have been, and they will continue.

But all the data I look at says that we are being impacted by the economy when you see the rate at which it came off and the fact that services came down first and a year later, storage growth rates came down, and you understand the nature of what, for our customers, it all makes sense.

But in terms of why is it fair to project the same trends going forward is two things.

We're not in the business of projecting economies, so I don't know what it's going to do.

Second is, at least on a storage side, if there's a rebound will be a significant lag to that.

So for it to impact 2012, we'd all have to be feeling real good about the economy taking off right now, and I don't know anybody that feels good about that.

Third is my tea leaves, when I read the tea leaves about the global situation, the over-leverage of the world, you name it -- problems, I don't see any major changes and a positive impact for a couple of years at least.

We're running our business on the basis that nothing positive from the outset is going to happen for us, and so we're controlling expenses tightly and we're digging for revenue, and we're doing some really good things, and we are improving the business, we're getting productivity in our sales force, our bookings are up.

Some of the flow-through is slow.

We're having some cases -- some slowdown in getting boxes to move from competitors where we've had some switchings go on.

Everybody is holding on tighter to what they have, but net of that, the team is working hard, and our forecast for next year is the sum total of a lot of assumptions and a lot of people committing to make these things happen.

Great.

Sounds good.

Thank you so much.

Thank you, our next question comes from Nate Brochmann of William Blair & Company.

Good morning, everyone.

Good morning.

Good morning.

I wanted to talk a little bit about the restructuring efforts in Europe and some of the headcount reductions.

Is this kind of, now that you are done with the strategic review there, is this kind of a one-time thing or do you think that there could be more to go as you implement the full part of this plan.

We've identified the bulk of the changes that we need to make.

I would say that there's always the potential that we -- as we move things forward, there may be selective things that we might do, for example, facility consolidations or other changes in the plan.

We'll try to highlight those for you.

I think we're identifying the big changes right now and expect this will primarily hit in Q4.

Our future outlook doesn't -- 2012 doesn't incorporate any additional charges.

So the sum is this should be the bulk of it, and there's always the potential we may move something forward, and if we do move something forward, it's something that would be tied to having an incremental benefit for us and we'll make sure to highlight that discretely for you.

Richard, if you could expand just quickly on the last point a little bit.

In terms of some of the offensive things that you are doing in terms of whether it's productivity, increased bookings, attacking the unvended market?

Just wondering if you could elaborate on a few of those things to give us a little bit of color in terms of attacking even in a sluggish environment.

Sure.

Look, you know, people ask me a question and I hate to sound like a broken record.

We're going to be doing what I'm about to tell you about for ten years, it just takes time and it takes -- it's a repetitive sort of thing, but we're seeing impact.

The strategy basically is in our core businesses, there is more market opportunity, but you got to dig deeper to find it.

And so it's about how you segment the markets and tailor your service offerings to those segments.

And, frankly, just getting more sophisticated and getting better at marketing, which has not been something that we've ever had to do.

And that marketing is driven towards supporting our sales organization, which is driving our efficiency up.

We're selling more dollars of revenue per dollar of cost.

All of those things we're doing to -- and that's just good blocking and tackling, so there's nothing that goes bingo, you light it up.

This is not the kind of business where we put out a promotion program and run an ad on the Super Bowl and your revenue will go up.

This blocking and tackling that we started I'd say a year-plus ago and we're continuing to do it, we're seeing impact.

As you know, we increased our investment in sales and marketing this year.

We're seeing a little flow through of positive there, but it's still early, we're still in the investment cycle.

We don't intend to increase it next year.

If someone asks me why wouldn't you?

The answer is let's see what we did, let's see it flows through, let's make sure it proves out.

And if does, maybe come 2013, we'll think about doing something else.

But that's kind of where we are.

Great.

Thank you very much for the color.

Thank you.

And our next question comes from Gary Bisbee of Barclays Capital.

Hi, guys, good morning.

Hi, Gary.

The first question, I guess that it was in your PowerPoint when it looks at the international segment, it says internal growth was 2%, and everything you talked about was 5% or 6% for storage and constant currency.

What is the difference there between the 6% constant currency, and the 2% internal?

It's basically the -- we're rolling over a large project in Europe that's rolling off.

The acquisition is the difference between the 5% and the 2%.

The Polish acquisition we completed at the beginning of the year.

That's right.

And so, you know, how should we think about that 2% internal?

That obviously -- that's the slow down from what it has been doing, I think, and below, I think, what was implied by the plan that you provide earlier this year to get to the 2013 targets.

Is that something that we should expect would accelerate based on what you are doing or is the economy in Europe hurting or the restructuring efforts that you are doing maybe hurting the top line but being done to drive the bottom line?

Any color on that?

Thanks.

Gary, that's what I was trying to answer.

If you look at the storage rate, we have been consistently in the 5% to 6% range.

And the current quarter, we had an impact of rolling over -- we had a large nonrecurring contract in Western Europe that we're rolling over as we look forward into next year.

By the way, it's a large contract in a country in which we are rolling over as in we are firing the customer because we don't like the margin profile.

But that impacts the services side.

The core fundamental storage is still growing 5% to 6% range and that's what we're forecasting going forward.

Once we cycle through those numbers, you'll see the services growth rates pick back up.

More of the math exercise relative to that.

Yeah, no.

At very much consistent trends I think what we're dealing with is excluding some of the changes in the paper pricing which are very recent.

We were targeting solid 5% growth next year in Europe and feel that the business performance has been excellent.

It's consistently good growth, margin gains right on track, return on improvement right on track.

We feel very good about the international business, very consistent with our blends.

Great.

And then a quick follow-up.

Richard, I think you mentioned the core service is impacted by the economy, but then you also said there was a minor issue in the healthcare market.

Can you expand on that?

Thank you.

Sure.

Healthcare, this is primarily the North American phenomenon where we have a bigger mix of healthcare than we do around the world.

As you know, healthcare has gone through all kinds of changes.

And healthcare is a business with us that's relatively a small amount of our storage, but a reasonable amount of our core services.

And the activity rates on that have been coming off, frankly, they've been coming off for ten years; this is not brand new.

But as I said, when everything else slows down in your business, you start to see some of these underlying things.

As the healthcare, you know, and the acceleration of it is our government spending somewhere between $45 billion and $100 billion to computerize healthcare records.

What happens is, is the activity rates as those records age is coming off, as they are going to the electronic medical record to find access on a patient-care basis.

We studied it pretty carefully, and what you'll find is we're still going through the early adopter's cycle as they tend to drop their activity rate and it tends to -- it's just like an S curve, it tends to come down and settle because they still need access to those physical records for a variety of reasons.

But about half of our -- we used to figure about half of our activity in that space was related to patient care events and the other half related to billing audits and to research and all kinds of other things.

The storage side of those businesses are holding up because they're keeping the records, but it's becoming deader faster.

Okay, that's helpful.

Thank you.

And by the way, unfortunately that -- we've really done some deep (inaudible) customer analysis as to adoption rates and everything else.

We have got a few more years to eat through that piece of the change.

Thanks.

A very slow evolving thing.

Thank you.

Our next question comes from Andrew Wittmann of Baird.

Morning, guys.

I wanted to big a little bit into the margin expansion internationally and just make sure, first, I'm doing the math right in terms of how your implying the margin growth and then just ask a couple of questions.

It looks like about 150 basis points of margin expense is realized so far this year.

You implied at the mid-point of guidance, it looks like another 70 basis points at the corporate level, which probably means if you assumed North America's flat, that's about another 280 implied internationally.

We're somewhere in the 400 basis points range of margin expansion implied through next year.

Is that about the right math?

And do you feel like you get the rest of the way there in 2013?

I'm not quite following your math.

Let me try to lay out the progression, the margins, but we're on track for about a 200 basis point improvement this year in international, 150 year-to-date, and we'll have additional benefit flowing through in Q4.

That excludes the restructuring costs.

So I just want to be clear though that we view the restructuring as one time in nature and not impacting the underlying operations.

As we look forward to next year, we're targeting another 150 to 200 basis point improvement, and we would project (inaudible).

We're not talking about 2013, but we're expecting to continue on that trajectory consistent with our business plans.

So we have had a very nice step up this year, expect to continue that next year, it's not quite as high as the math that you're backing into there, but definitely a significant improvement.

Yeah, it's hard to explain over the phone.

That matches what I was calculating.

How does the European economic environment impact your ability and your confidence in hitting the ultimate goal?And clearly, I think this has changed a lot since you initially laid out the plan.

I just kind of want to hear philosophically how you think you get there.

The bulk of the things that we're implementing on margin improvement -- I mean, this has been a long-term strategy, so this isn't something that we just started.

I mean, we've been positioning ourselves for this for some time.

But it is within our control.

This is operational improvements, cost initiatives, many of the things that we implemented in North America, so we feel very good about that.

I think there's always the risk of impacts on the margin related to the economy.

We can't control things like fluctuations in paper pricing.

That can have some impact on the margin.

We actually think we'll be able to manage that effectively next year from a return point of view.

There is always the risk that you can have pressure on the margin with services --

Yeah, and look, our forecast -- as I said, we're not in the business of trying to do economic forecasts.

In we good at that, we wouldn't be working to hard.

We'd make our money other ways.

We're basically assuming the economies will be the way they are, or in other words our activity patterns all remain the same.

The European businesses by and large are not as active relative to storage as a North America business.

It's a business mix and market maturity kind of the issues of what people choose to outsource and so forth.

And remember that our international segment is a combination of the UK, Western Europe, Eastern Europe, Asian-Pacific, and Latin America.

And then pull out some of the other parts of that we call (inaudible).

But we're getting still good strong growth in our emerging market segments of those things.

And although the core material markets are bigger, the likely decline or change in fluctuation and in activity rates given their level of activity in general, hopefully as long as the rest of the world, that is the emerging markets hold up, they will likely cover those.

That makes sense.

I'm not guarantee it, but that's kind of how we think about it.

Okay.

And then there happens to be a fairly large business model out there that is noted for sale, maybe as a whole (inaudible).

How does that impact your ability or desire to return capital along the plan that you've laid out?Are the two items of potentially doing M&A and doing the return of capital to shareholders usually exclusive?

Or how do you factor in that new variable?

A lot of variables in our business.

We made a commitment to our shareholders, and we're going to meet that commitment.

But other than that, I don't think I should comment on what else we might or might not do.

Alright.

And then, Brian, just quickly, with interest rates being really low here, obviously you're active in the bond market this past quarter.

I know lots of your existing debt have got some level of prepayment penalties.

Is there any opportunities in the capital structure and debt financing to take advantage of today's low rates?

I don't know if rates today are low, you know, yesterday and today, it changes frequently.

But we did a lot of optimization on that front and we'll always look at that, but I think we've trimmed down our debt pretty well, and don't have anything that's obvious in the immediate term.

It's something that we'll always look at.

I think for right now, we have done any work to position us well for the first phase of the initial payout commitment.

And we'll continue to evaluate it, but nothing significant that can we see right now that makes sense for us.

Thank you.

Thank you.

Our next question comes from Kevin McVeigh of Macquarie.

Great, thanks.

Richard, can you help us understand why you think the shifts been between from it's service level activities (inaudible) opposed to leading over the last cycle?

And as you think about healthcare as a percentage of service overall relative to the storage business, can you help frame out what you kind of -- the revenue contribution from healthcare as opposed to other end markets?

The reason I think it has changed is -- look, any prior period, what we've seen is significant economic weakness, quite frankly.

We were in a high acquisition mode and anything that was going on on the margin, you didn't see that well.

Okay?

Second is -- so it may -- what I'm really saying it may have happened and we didn't see it.

In my lifetime I'm -- as I said, never lived through anything as dramatic as this inany other bad recession we have seen was peanuts compared to this.

And, like I say, we were going pretty fast in the middle of it anyway, so I think it probably got masked.

It is logical, though, for that to happen in this case, because if you think about what we do is on the way up for a customer -- our whole portfolio of customers are growing.

On average, they send us data that is a year to probably on average 18 months old.

So on the way up, what they are creating today (inaudible) their activity of creation is higher -- the larger they are, they more transaction, more activity.

Or what they're creating today -- what they created 18 months ago was lower.

Okay?

And we're getting it 18 months later, getting it today.

But their service activities -- half what they're retrieving is directly related to the rate of creation.

So on their way up, people create data, we see higher service transactions as they relieve and deal with it and as the business activity is going on, but we don't see the storage till later, and if they're moving up, the storage balance 18 months later (inaudible).

I don't know if that makes sense, but that's the underlying trend.

On the way down, it is just the opposite.

We saw the service decline a year before.

We saw the storage decline, okay?On the way down, if their service activities and their business is coming down and they are not using information as much, and therefore not creating residual archival data for us to store as much, we won't see the storage till later but we'll see the service when they stop doing it.

So I think those are the general trends that cause that.

And quite frankly, Kevin, I missed your second question so you might repeat it.

Oh, you want me to dimension healthcare a little bit, is that what you're asking for?

Yeah, just if you think about healthcare as a percentage of the service revenue relative to what percentage of storage it is?

Healthcare as a segment overall is about 10% of the business.

It's more service weighted,\ because it tends to be more active file oriented records.

And that had been a headwind for us.

We've seen double-digit declines in the active service revenue around healthcare, as expected, with things like X-ray going away, that have been going away for quite a varied period of time, as well as some of the shift to EMR.

We have offsets to that in terms of things like hybrid revenue growing.

And actually in our hybrid business, healthcare is one of our fastest growing segments.

If you roll out over time -- and look, the next two or three years, we expect to see continued pressure on the core services in North America for this trend.

If the economy picks up, it will overwash it.

The trend of our broad portfolio will overwash that.

The healthcare will keep that rebound suppressed a little bit, but it will wash over the negative side of it.

If you look out to the broader future, one of strategic reasons -- there's a variety of reasons why we went to the hybrid business, but one of them was recognizing that some of this will happen.

I mean, healthcare, you could see coming ten years ago.

It was easy to see where that business has to go and so forth.

And our DMS business or hybrid business growth rates will eventually -- the growth rates are there but I mean in terms of the size and magnitude will actually also get where that will contribute to the positive side of it.

And our DMS business is, if you think about it, is the contra-strategy to decrease inactivity records.

One of the things that happens when they decrease the activity in their physical records is they change their workflow processes, they apply different technologies, and they also have to deal with a hybrid document, and that is they have to deal with legacy paper, as well as oftentimes current paper in a mixed environment, and that's what our DMS or hybrid business deals with.

Got it.

Super.

Thank you.

And then just what assumption are you (inaudible) for recycled paper in the 2013 guidance, or 2012 rather?

We basically take the most recent -- it correlates with the most recent reported SOP rates, which was in the north of 200.

Super.

Thanks, Brian.

Thank you.

We'll take one more question and then we'll you all go if there's another to be had.

Thank you.

And our last question comes from Scott Schneeberger of Oppenheimer.

Thanks for fitting me in, guys.

I'm looking at slide 14, global records management volume growth drivers, and noticing destructions, it might be something looking at the pattern, but destructions picking up.

Could you speak to that a little bit?

It's actually down year on year so it is -- there are some seasonal impacts.

You can see by the nature of the chart on slide 14 that destructions, they're driven by episodic events.

So I'd say the overall trend in destructions has been quite stable coming off the peaks that we saw in 2009.

So I wouldn't read too much into the one quarter change.

I would also, though, caveat that we always -- this is an area that you can't help fluctuations by significant events.

Thanks.

And then moving to the top of the chart, it looks like a trend down in the volume growth for the patter.

Could you speak to volume and price, just the dynamic in general what you are seeing on both of those elements?

Yeah, you know, the storage volume overall has been -- we certainly saw decline coming out of our peaks at 2008 and the economic effects through 2009.

I think since then our storage trends have been more stable.

This quarter, we reported that our global records management volume was up about 2% year on year.

North America was up, international continued strong, pricing is in a consistent range, so really more consistency than different.

I think what you are seeing on the trend here is more the transition from the high single-digit rates that we were at in 2008, pre the crisis to kind of the 2% to 3% range that we have been in more recently.

So I think it's one thing that gives us confidence on our outlook as we do (inaudible) storage set of the equation and stability there, and hopefully with some benefits from economic improvement and some flow through some of our sales initiatives that we can improve that over time.

Thanks.

And one more, if I may.

Just North America, the margin outlook that you have there.

Just what you have been seeing recently and where you think that will go?

It implies relatively stable margins consistent with our plans.

There's a little bit of pressure that we expect from the paper change, because a big swing like that, it moves over 25% in two months, so we'll have some moderate pressure there.

But on balance, it's sustaining the high returns that we have, it's consistent with the business plan we talked about.

I would just take a step back and say overall in our business, we feel quite good about the margin side of the equation.

We're managing North America consistent with what we have discussed.

We have got international on the right track.

I think the growth side we have some macro pressures, some things like FX and paper.

The underlying trends are where they have been, and we're working through the tough economy.

But I think on the margin side, we feel like we're executing very well consistent with our plans.

Thanks very much.

Thank you.

So in summary, thank you all for joining us for Q3 and year-to-date performance.

As Brian just said, and I don't want to totally repeat ourselves, we as a management team and a company actually feel good about what we're doing relative to the environment that we're operating in.

We're making significant progress towards improving our business, towards meeting our goals and our strategic plan, and we're staying very focused on how we think about these kinds of issues.

This is a business that we are operating for the long haul, and we think we've got a good future ahead of us, so we want to make sure that we're prepared for when the world changes, either way that we can operate and remain with consistent performance, which has been our hallmark over quite a few years and we'll continue doing that.

Thank you all for your support and thanks for coming today.

We ran a little bit over time.

I typically try to keep these to one hour, so we'll try to do better next time.

Thank you very much.

Thank you.

This concludes today's conference call.

You may now disconnect.