Melissa Marsden – Senior Vice President, Investor Relations Bill Meaney – President and Chief Executive Officer Rod Day – Chief Financial Officer.

Kevin McVeigh – Macquarie Andy Wittman – Baird George Tong – Piper Jaffray Andrew Steinerman – JP Morgan Dan Dolev – Jefferies Shlomo Rosenbaum – Stifel.

Good morning. My name is Keyva, and I will be your conference operator today. At this time, I would like to welcome everyone to the Iron Mountain Q2 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

I will now like to hand the call over to, Senior Vice President, Investor Relations, Melissa Marsden. Please go ahead, Ma’am..

Thank you, Keyva and good morning, everyone. This morning we’ll begin our call with remarks from Bill Meaney, our President and CEO, who will discuss highlights for the quarter and progress towards our strategic initiatives followed by Rod Day, our CFO, who will cover financial and operating results.

After our prepared remarks, we'll open up the phones for Q&A. As we have done for the last few quarters, we have posted our earnings commentary and supplemental disclosure package on the Investor Relations page of our website at www.ironmountain.com under Investor Relations/Financial Information.

Referring now to page two of the supplemental, today's earnings call and supplemental package do contain a number of forward-looking statements, most notably, our outlook for 2015 financial performance. All forward-looking statements are subject to risks and uncertainties.

Please refer to today’s supplemental the Safe Harbor language on this slide and our most recently filed Annual Report on Form 10-K for discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results.

And the reconciliations to those measures as required by Reg G are included in the supplemental reporting package.

With that, Bill, would you please begin?.

Thank you, Melissa, and good morning, everyone. We’re pleased to be reporting solid second quarter results that we’re in line with our expectations on a constant currency basis and underscore the durability of our core business.

Despite the FX headwinds, we’re comfortable maintaining our guidance our for 2015 as we typically see a bit of a ramp in the second half of the year.

It was a very eventful quarter with the announcement of our agreement to acquire Recall Holdings and the initiation of our transformation plan, which will drive significant improvement in our overhead cost structure and support strong cash flow generation in years to come, even prior to the substantial and additional synergies we anticipate from our acquisition of Recall.

I’ll get to the last two items shortly, but first I would like briefly cover certain financial and operating highlights. Our momentum in the storage rental business continues to build and drive durable results in line with our strategic plan.

On a constant dollar basis, total revenue growth for the quarter was 2.2% reflecting continued solid storage rental gains of 4.1% and service revenue declines of just 0.6%, foreign currency impact year-over-year in total revenue by roughly 6%, reflecting the strong appreciation of the dollar experiences at this time in 2014.

We also continued to see good internal growth with storage rental, up 2.7% for the quarter and 2.9% for the year-to-date reflecting continued strong growth from data management or DM and the other international segment and stable performance in Western Europe and North America rim.

As we look at the remainder of the year, we are seeing consistent trends and are maintaining our view for internal storage rental revenue growth for 2015 in the mid 2% range. The realignment of our data management business we initiated last year is yielding good result.

DM storage continue to show very strong internal growth with 5.3% increase over last year. Total service revenue internal growth was flat for the quarter and down just 0.5 point year-to-date in line with our expectations for continued yet moderating top line headwinds.

Looking at volume in records management, we added roughly 14 million cubic feet of net storage volume worldwide on a trailing 12 months basis, representing 2.8% net growth.

This growth was maintained in part as a result of the significant turnaround we are continuing to achieve in North America from negative to positive internal volume growth or in other words before benefit from acquisitions. Net volume growth in North America was 1.2% or 0.4% on an internal basis excluding acquisitions in line with Q1 levels.

Globally we maintain customer retention of 98% in line with the first quarter and a 20% improvement over the level of customer turnover experienced just two years ago. Now turning to our transformation overhead optimization program we announced in June prior to the Recall acquisition news.

We’ve spoken with many of you about this over the past several weeks and highlighted our reorganization in April in which we put a single leader over our developed market has facilitated this important program.

This initiative calls for taking $100 million out of overhead costs or SG&A between now and 2018 in this independent of and additive to the Recall acquisition.

This will bring us from our current overhead of more than 28% of total revenue down to the mid 20% range, and more in keeping with best practices for companies with similar size in global reach.

Importantly, we have already implemented a portion of this program and achieved $50 million of cost reduction or half of these savings with a charge to be taken in Q3 and the full benefit of the $50 million to be realized in 2016. With a partial year contribution from this program we expect the net impact for 2015 to be neutral.

Also in recent communications we’ve illustrated how the decline in our service margins over the past few years and more recently FX headwinds have offset the attractive returns we achieved from investment in real estate in acquisitions.

In fact, during this period we have been achieving unlevered returns on invested growth capital in the low teens and have seen significant contribution flow through in the past couple of years.

We initiated some programs last year and are continuing to implement changes that we believe will allow us to stabilize the service margin trend line and get back to around 27% by the end of the year. It is important to keep this in perspective. While service represents 40% of our total revenue, today it represents just 17% of our total gross profit.

Again to be clear, we are talking about a slowdown in the activity of physical records and tapes being retrieved, not a slowdown in incoming volume of records and tapes to be stored.

Whilst demand for typical office cut sheet paper has declined between 2% and 4% in the mature markets, in the past few years, we continue to see the same number of boxes being inbounded from our existing customer year-after-year, demonstrating the durability of the storage rental business.

We do continue to expect service revenue headwinds of negative 1% to negative 2% annually over the next few years and in fact we did see flat service revenue this quarter compared to a year ago period.

And whiles we can’t completely offset the impact of lower service revenues due to a decline in retrieval and re-file in transportation activity, we can do more to align our service cost structure with this decrease in activity levels.

So what are we doing to address this service margin decline? First we are looking at ways to variabilized more of our cost. Second, we are exploring efforts to make more efficient use of third party logistic suppliers or 3PL where we can be assured they will maintain our quality and focus on secured chain of custody.

We have used this in Europe on a smaller scale and believe we can expand the use of 3PL elsewhere. And third, we are using technology more proactively such as using sensors to detect when shred bins are ready – are ready to be emptied to make roots more efficient. Additionally, in this quarter we have seen an uptick in our bad debt.

This has come out of our North American business and is primarily the result of refining our billing process over the past 18 months to 24 months. During this transition we didn’t adequately refine the process before moving responsibility for the North American billing offshore. Here is now our robust plan in place addressing this.

Now let’s turn to the Recall transaction. This deal is extremely compelling in terms of industrial logic and strategic fit and is supported by meaningful synergies that drive significant accretion. I assume by now you are familiar with the basic terms of the deal, so I won’t review all the information but rather just touch upon the highlights.

In the announcement presentation, we illustrate estimated total net synergies of $155 million with $110 million of that to be achieved by 2017. These synergies are driven by economies of scale from the combination of infrastructure and overhead, and when fully realized, will lead to double-digit accretion in adjusted EPS, FFO per share, and AFFO.

At 25% of our size, Recall is managing a similar global platform in terms of country coverage as they are in 24 countries, compared to our 36 which drives much of the overhead synergies. Another benefit of the proposed transaction in the medium term is that it supports our deleveraging strategy.

With the additional cash available to us from our transformation plan as well as recall synergies, we can not only fund a stable and growing dividend per share, but we also generate the capital we need for growth.

Additionally, we have complementary market platforms with Recall having a more developed presence in the small-to-medium businesses whilst we have significant presence with the larger enterprise customers. We’ve been on the road over the past several weeks and have met with a number of our shareholders, as well as recalled major holders in Australia.

And what we’re hearing is universal agreement that our two companies are worth more together than they are separately. You can see that several Recall shareholders have increased their holdings and appreciate the attractiveness of owing the combined company.

Even our most seasoned devices have noted that they cannot remember a deal that delivered 26% EPS accretion in three years time. In the next several weeks we expect to file the shareholder meeting document, seeking approval of the acquisition, which will have additional detail, including proforma results.

Turning back Iron Mountain, on past calls we discussed progress on our three-year strategic plan which rests on three pillars, getting more from our developed markets, expanding our presence in faster-growing emerging markets and continued to explore adjacent opportunities in our emerging business segment.

Whilst the Recall acquisition and transformation plan have guarded a bit more internal and external attention of late, we continued to make good progress on our base plan, achieving consistent positive storage volume growth in developed markets in completing an organizational realignment to put developed markets under common leadership, which enables our ability to implement our latest transformation program as well as to accelerate our service margin initiatives.

Additionally, in emerging markets, we continued to progress towards our goal of 16% of total revenue from these markets by the end of next year.

We pressed the pause button on acquisition for a moment to assess some of the transactions in the pipeline, might be affected by the Recall acquisition, but we are resuming activity and continue to be pleased with the quality, size and scope of our pipeline.

We’ve also discussed on recent calls how we have been impacted by the effects of currency, translation in terms of absolute earnings and cash impact in U.S. dollars.

While FX variability does impact the absolute dollars we report, the impact on our gross and adjusted OIBDA margins is muted because most of our expenses are denominated in local currency, thereby creating a natural hedge. On the other hand, we continue to believe that the current strong dollars – positive in terms of investments opportunity.

Given our intend to expand what is today, a relatively small international base, we believe we can create significant value over time by investing selectively in these higher growth markets using strong U.S. dollars during this part of the currency cycle. This may take the form of M&A, or in the purchase or development of real estate.

In both cases, we can benefit from investing at a low basis. In addition, we have deepened our focus in the real estate investment area, adding an experienced REIT asset manager to accelerate our plan to buy $700 million to $1 billion of our leased facilities over the next eight years to ten years.

As we seek to shift our mix to a higher percentage of owned properties, on average, we are achieving a spread of roughly 150 basis points between our going-in cap rates and our market cap rates, whilst positioning ourselves to capture long-term residual value from ownership.

We think this is important and appropriate as a REIT, as it supports such being viewed more in line with traditional REITs by the rating agencies and investors.

Importantly, our debt to total market cap and our debt to EBITDA measures, are in line with major REIT sector leaders [ph] and our internal storage rental revenue fared better than these sectors during the recent recession. When we did not have a down year.

Our low volatility business is distinguished by a track record of 26 years of consecutive growth in storage rental revenue.

As we think about the opportunities to grow our storage rental business it is important not to lose sight of the durability of the business which is underpinned by roughly $1.5 billion of net operating income from our storage business alone. This amount of NOI is comparable to that generated by leaders in both the industrial and self-storage sectors.

As we noticed in recent calls, the restructure is consistent with our capital allocation goals; it does not limit our ability to fund our business plan as we become more active in buying in our properties and executing on our acquisition pipeline. We expect to fund that incremental investment with excess cash flow or additional borrowing.

Now I would like to turn the call over to Rod..

Thanks Bill. Our results continued to demonstrate that durability of our storage rental revenue stream and the underlying strength of our business fundamentals. Our performance is tracking in line with our full-year expectations.

To frame my remarks, I'll begin today with an overview of our second quarter and year-to-date performance, including overview of results by segments. Then I will address plans and expectations related to our transformation program and our next step to improve service gross margins.

I will briefly touch on the recall acquisition calls and also our outlook for 2015, which remains unchanged since June on the constant dollar basis. Finally, I will address other metrics through a REIT lens. Let's turn to our worldwide financial results.

Referring now to pages eight and nine of our supplemental, total reported revenue was $760 million, compared with $787 million in Q2 of 2014 down, by 3.5% year-over-year. This reflects the continued strengthening of the U.S. dollar, which impacted total revenues by approximately 5.7% or $44 million.

Excluding FX and so on a constant dollar basis, revenues grew by 2.2%. Year-to-date reported revenues were $1.51 billion, compared with $1.56 billion in 2014. Again on a constant dollar basis, first half total revenue growth was also 2.2%.

Worldwide revenues were driven by solid constant dollar storage rental revenue growth of 4.1% for the quarter and 4.63% year-to-date. This was offset by service revenue declines of roughly 1% for the quarter and year-to-date.

As we did for the prior quarter, we are providing bridging schedules for revenue, OIBDA and earnings which explain key variances in year-on-year performance. These were on Pages 20 to 22 supplemental. Adjusted OIBDA for the quarter was $223 million compared with $242 million in 2014, down 7.7% on a reported basis and 3.3% on a constant dollar basis.

The constant dollar adjusted OIBDA decline was driven by investments in new product introductions for example in data management. In addition, we had a $4 million increase in bad debt expense. As Bill mentioned, during the offshoring of our billing activities, our collection efforts fell behind. However, we now have a strong remediation in place.

Service margin declines were further drive on the business although these were offset by improvements in storage contribution. Adjusted EPS for the quarter was $0.28 per diluted share, compared with $0.41 in the second quarter of 2014.

The decline in adjusted EPS year-over-year is driven by 10% increase in share count related to the special distribution, which we made in the fourth quarter of 2014. In addition to the earlier OIBDA write-down, adjusted EPS was also impacted by an increase in interest expense related to higher levels of debt.

As stated in our earlier calls, this year-over-year increase in borrowings was driven primarily by REIT conversion related expenses, such as E&P purge and the depreciation amortization recapture payments. On the subject to debt, please note that it’s our instance to refinance our high coupon debt when conditions allow.

Our structural tax rate for this quarter came out to 13.9% compared with 15% in the prior quarter, primarily as result of mix change in income from foreign jurisdictions. We continue to believe that our tax rate will be approximately 15% to 16% over the long-term.

Normalized funds from operations or FFO per share $0.48 for the quarter, $0.98 year-to-date, while adjusted funds from operations or AFFO was $130 million for the quarter and $255 million year-to-date. Let me now turn to Records Management volume trends on Pages 10 and 11.

As you can see, we achieved positive volume growth of 1.2% in North America, 3% in Western Europe and 9.7% in the other international segment, delivering global records management net volume growth of 2.8%. We continued to experience strong organic growth with second quarter total year-on-year volume growth of 1.8% excluding acquisitions.

Underlying this growth is the stable incoming volume from existing customers. We continued to add approximately 30 million gross cubic foot of storage in the last 12 months, consistent with prior periods. Let's now turn to our financial performance by segments.

In North American records management and information, or RIM, internal storage rental revenue was flat for the second quarter. Year-to-date North American RIM internal storage rental revenue grew by 0.2%. Internal service revenue growth showed a small improvement in Q2 with a decline of 1.3%, compared with decline of 1.8% in Q1.

Adjusted OIBDA margins in RIM remain solid at 39.4% for the quarter and 40.2% year-to-date. North American Data Management delivered storage rental internal growth of 5.3% in both the second quarter and year-to-date. However, service declined by 1.7% for the quarter and 3.8% year-to-date.

As we continue to see declines in re-file and transportation activity. During the second quarter, DM adjusted OIBDA declined to 50.8% from 52.7% in Q1, as we continued to invest in new products. The Western Europe segment generated solid results with 3.5% storage rental internal growth for the quarter and 3.6% year-to-date.

This growth was partially offset by declines in internal service revenue, 4.8% for the quarter and 3.7% year-to-date. The decline in service revenue was driven mostly by the sale of our shred business in the UK and Ireland was at the end of last year.

Adjusted OIBDA margins declined in Western Europe this quarter due to legal cost related to a customer dispute. The other international segments, which is made up of emerging markets in Australia built strong growth in both storage and service revenues. Storage rental internal growth was 11.5% for the quarter and 11.3% year-to-date.

Service internal growth was 13.5% for the quarter and 10.2% year-to-date. This quarter emerging market revenues represented approximately 14% of our total revenues on a constant dollar basis. We expect adjusted OIBDA for this segment to deliver profitability on a portfolio basis in the high-teens to low 20s range.

We continue to expand our exposure in these fast growing markets. As Bill mentioned, we are leveraging our new leadership structure to focus on integrating across – cost developed markets. Rail transformation program which was announced last month we expect to achieve approximately $100 million production in overhead expense by 2018.

Actions we have taken this month are expected to yield a full year $50 million benefits in 2016. We will see partial benefits this year at the end of the year. However, these will be offset by severance related charges. We are anticipating approximately $10 million of severance related expenses in the third quarter as a result of this program.

Let’s now discuss our initiative to maintain and enhance service gross margins. As Bill outlined, decline in service gross margin [indiscernible] as a drag on our performance in the last four years. [Indiscernible] the strong returns that we’re seeing from investments in real estate and M&A.

That said, it should also be remember that on a constant dollar basis, we have seen good improvements in overall contribution year-on-year in 2014 and we expect the same in 2015. As discussed earlier and as you can see in the supplemental on Page 26, in the second quarter, service gross margins have declined year-over-year.

The actions we are now taking are not yet reflected in our results. In the second half of the year, we expect to see an improvement in service margins that continues to targets a year end run rate of about 27%. Let’s touch on the Recall acquisition briefly. As Bill mentioned, we’re making good progress with regulatory filings.

To prepare for closing we incurred approximately $6 million professional and advisory fees this quarter. We expect about $10 million to $15 million of additional spend in each of the third and fourth quarters of this year.

In addition to these advisory fees we’re expecting approximately $20 million to $25 million charge in the second half of the year to prepare for integration, including Recall’s reconversion. Please note that these costs will be excluded from our adjusted OIBDA calculation, as they are one-time in nature.

These costs are also included in our guidance related to the Recall acquisition when we announced the deal. As I mentioned at the outset, our outlook for 2015 remains consistent with the guidance we provided in June, when we announced the definitive agreement to acquire Recall.

Please note that at this time our guidance doesn’t reflect the benefit or impact of potential Recall transaction. We’ll provide detailed guidance for 2016 and beyond at our upcoming Investor Day in October.

For 2015 although we expect revenue to be as anticipated on a constant dollar basis for the full year, given FX movements, we expect reported dollar revenues to be towards the lower end of our range. As regard to other metrics for both constant and reported dollars, we expect them to be well within our ranges.

Our strong cash flow continues to support our dividend at current levels within 2015. And we intend to maintain our dividend per share rates for the reminder of the year, subject to Board approval.

Our estimate for cash available for distribution and discretionary investment for 2015 remains, $470 million, giving us ample dividend coverage and the ability to fund our core real estate investments or bow cracking, which support approximately 2% organic growth in our adjusted OIBDA.

2016 and beyond, assuming the Recall acquisition closes and with the transformation benefits, we have excess cash that can support potential growth in the dividend and fund discretionary investments in real estate, M&A, or emerging business opportunities. These investments achieved returns of [indiscernible] and are accreted to shareholders.

To sum up, we have adequate dividend coverage, excess capacity and attractive investment options. Shifting to the balance sheet, at the quarter end we have liquidity of approximately $750 million. At quarter end, our lease adjusted debt ratio was 5.7 times as expected. Turning now to REIT specific metrics.

We continue to achieve strong storage NOI approximately $28 per racked square foot worldwide, which compares favorably to NOI per square foot for most property types within the REIT sector. Our racking and building utilization rates are high at 91% and 84% respectively for the Records Management portfolio.

We believe that due to frictional vacancy, our maximum racking utilization is in the mid-90%s. When we enter a new facility, we generally target to achieve stabilized utilization in about three years' time.

Investment page, Page 32, the supplemental, highlights our investments for racking projects in process, building development and building acquisitions by major geographic region, their total expected investment and anticipated NOI and returns.

Please note that these investments represent growth related investments and exclude consolidation related expense. As you can see on this page, we achieved high returns in our growth racking and building development projects.

Lastly, similar to prior quarters, we are providing components of value, a summary of various metrics of our business to facilitate valuation. As a reminder, we present both storage NOI and service OIBDA excluding rent expense in order to present storage economics on a consistent basis whether facilities are leased or owned.

To balance that, we provide total rent expense in the liabilities area. Overall, we believe this is a solid quarter and we’re pleased with the momentum we continue to see in the business. We remain on track to deliver our guidance for 2015.

Looking ahead, we continue to focus on enhancing shareholder value by extending the durability of our storage rental business, improving service margins, achieving overhead cost reductions through our Transformation Program and realizing the synergy benefits of the Recall acquisition. Now that concludes my summary for the Q2 financials..

Okay, thank you Rod. Before we turn to Q&A, just to wrap up, I just want to emphasize a few things. That first of all, we have a number of exciting developments underway. We have already executed on half of our plan for significant cost reduction of more than a $100 million and we will see the full benefits of the first $50 million for 2016.

We have actions underway, that we expect will stabilize the margins in our service business. We are keying up to close the Recall deal early next year and are organized internally to support a smooth integration of Recall.

And our attractive emerging business pipeline is delivering interesting adjacencies that can further extend the durability of our enterprise storage business.

Finally and most importantly, the strength of our business, plus the transformation program support approximately 11% to 14% growth in the cash we have available already next year to grow our dividend per share over time and fund our growth investment. This is even prior to the Recall acquisition. With that operator, we are ready to take questions..

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

Great, thanks. Bill, very helpful comment, or there any type of goal post you can give us in terms of cadence on Recall, I know there’s a process involved in any [indiscernible] so on and so forth.

But is there anything, you could point to that we kind codage [ph] give us cadence as the deal progresses over the course of the year?.

Hi, good morning, Kevin thanks. Well, I think the same goal post that we set on the beginning is that we started the regulatory review process, rent engaging the regulatory review process and that’s a six to 12 months process. We feel that we should be able to do it at the lower end of that range.

So our expectation is still the first quarter for 2016 and the net – we will continue to update that changes, but I think right now that’s our expectation.

I think the other goal post as we said on this call within the next few weeks both us and Recall will be issuing documents for their respective shareholders for the – get ready for the shareholder votes. But those are probably just two goal posts that are important to highlight..

And then just the $20 million to $25 million of Recall we conversion costs is that something about right, does that mean it’s a dual track in terms of you start that reconversion process now.

So when the deal occurs, it was goes lot of day one?.

Yeah, well, I think, that the – it’s a very good point. Yes, we will start incurring cost and Rod can give you more detail on that. We’ll start incurring cost as we speak now in preparing for the REIT conversion, because we need to convert before the close of the first quarter.

So you’ll also note us in the documentation is, that we have set it up the documentation that we will close at the beginning of a quarter. So the idea is that we will close either at the beginning of the first quarter, or either – the first month of the first quarter, i.e.

around the month of January or it would be beginning of the month of the second quarter, again to give us time to actually execute the conversion.

But the prep for that conversion obviously starts way in advance of closing the transaction, I don’t know Rod, if you want to add any?.

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

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

Got it. And then – and this will be my last question, I apologize.

Would there be any incremental tax expense like [indiscernible] step up from the racking on the initial conversion or that $20 million to $25 million had primarily professional fees things like that?.

Yeah, that relates primarily to professional fees..

Okay, thank you..

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

Hi, good morning guys. Bill I had kind of a strategic question. We’ve seen some consolidation in the shredding industry. You guys have kind of aided that as you got all of your European shredding.

I was wondering as you look at your business today, particularly as a REIT, does even more disposition of the shredding assets make sense for you, particularly if you could find a partner that would be able to do this with. Let me something, you’d be open to considering or our considering today..

Well, I think first of all just from a general capital allocation standpoint we look at all our businesses and say, we the best owner for that or is that where we should invest capital. So we look across all our businesses. So to say that we are open to certain segments and non-open to others would be probably a false premise.

But I mean we like you look with interest in terms of what seems to be happening in the shredding business.

We feel good in terms of what we’ve done over the last six, 12 months in terms of first of all divesting those shredding operations the one in Australia, the one in the UK, where we didn’t think we have to scale, we get the kind of returns that we expect in demand. Well, separating the U.S.

operation to be more of a standalone unit so that it has the right focus and cadence associated with it to achieve the results that we think are possible. So I think we feel comfortable where we are, but we were also very pleased in terms of the way the market seems to be valuing these assets, whether we own them or we sell them..

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

It’s – excellent question. So I think first of all, we need to start the top that we are starting from a base, where our SG&A is 28% of sales, which is clearly on the upper end of what our company with our scale and scope should be able to achieve.

It should – company of our scale and scope should be in the, let’s say the mid-20s, I mean, probably the lower side of the mid-20s, in other words, not – it’s probably kind of more of the 23% to 25% ranges where a company of our size and complexity should be. So that’s the first thing to give you kind of a sense of what’s possible.

Then the thing that triggers it is, this – really if you think about it, there are I would say three buckets. One is just getting efficiency through the reorganizations that when we put all the developed markets under 1% then it allows you to rationalize.

You know you have two finance groups, you have two HR groups, you have two commercial leadership groups, you have two engineering groups et cetera. So you’re able to actually shrink that to one to get some of the efficiencies and economics of scale that you would expect.

I think the second aspect of it is looking at what we call just general spans and layers, probably it’s triggered by that move by just saying, what is the right breadth of responsibility in the organization.

Do we have too many layers? And I think that’s just good housekeeping that all companies our size need to go through every so often to make sure that we don’t have what I would call organizational tree or layers building into the organization and to me that’s important not just from a cost standpoint but it also important from a dynamic standpoint, I mean, by dynamic is to be quicker, nimble, more nimble, less bureaucratic.

So I think that’s a – its shows up in the cost line but we also expect that to show up in the revenue line.

And then the third aspect is it’s related a little bit to the aging of some of our aging of our receivable split which lead to a bad debt charge, is that we need to look at our processes first and foremost in terms how can we make those more efficient and then where should those be done, should they be done internally, should they be done internally offshore or should they be done by an outside party.

And that’s the third bucket that we are going through both optimized those processes. And then figure out where they should be done either within Iron Mountain or by an outside vendor. And that’s kind of that the three buckets that we’re going through.

Now at last when you can imagine we are actually using also some outside help that have done this a number times.

So we feel very confident in terms of the targets and we feel very confident that we are doing this in area that doesn’t impact the customer experience and service levels and in fact, I think, our expectation is it should improve, as we look to make the organization quicker, more nimble and less bureaucratic..

Yeah I mean, I’ll just add to that, Bill, I think if you benchmark are announced and against comparable type companies, I think, you can say we are behind where we should be on some of the stock. And that gives us confidence around the program that we have.

So things like offshoring, we’ve done some of that, but nowhere near enough we have done some process improvement but nowhere near enough. There has been some improvement in our SG&A and as a percent of revenue over the last couple of years.

But again if you look at benchmarks, if it is median benchmarks, represents 25%, Bill you know you compare that to where we are obviously. And again I think that gives us additional confidence to what we’re trying to do is now rocket science it’s just what we should be doing..

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

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

Hi, good morning..

Good morning, George..

You’ve talked a bit about various puts and takes in OIBDA margin performance in the quarter and some of it appear to be transient in nature.

Can you frame up how you think about OIBDA margin on a go forward basis? And any plan in reinvestments of the benefits you expect from the transformation program?.

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

So the intent of those bridging schedule is to guide you to where we think we’re moving to – where we should being on a normalized basis on an OIBDA margin basis. But Rod, may want to comment in more detail on that..

Yes, maybe to answer the question in two parts. First, instances would be underlying not sure if you like – at the P&L, basically what we expect to see continuous improvement in performance as the year progresses. And that is to be expected as you know, that’s key volume continues to build at the decent price closer to decent margin.

So quarter after quarter after quarter, we should continue to build. Around that, obviously then you have to some of these one offs in the quarter and we pulled out a couple of them one with this bad debt expense issue and Bill referencing some of the deals related to the offshoring of our drilling activities.

We also had a – an investment in the data management space around new product introduction, which obviously the expectation of that is there will be returns coming from that in future. So there were a couple of some key one-offs for the quarter.

But to underlying that that sort of [indiscernible] fundamentals of the P&L, this was a relentless drive upwards on the storage side..

Got it.

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

Well, I think, first of all I can’t comment in terms of compared to refocus. We haven’t exchanged or shared any commercial information. We have to go through the regulatory aspects. So I can’t comment on how we compare to Recall.

But I think if you look at the results that we’re getting, as you can see – I mean, I think, the way you look at it is couple of ways, is we’re getting, I would say fairly regular yet modest price increase that offsets the inflation that – the low inflation levels.

But I think as I said, I think, a number of times on calls, there’s been low inflation environment, price increases are more challenging. I think the other thing to look at if you look with the – if you look at what’s been happening to our gross margins associated with storage you can see they actually, there’s a slight uptick.

So that gives you a view that in a low inflation environment obviously we have wage inflation that is still real in terms of what we pay our folks. But we’re able to get both, productivity increases and pricing increases, that allows us to either maintain or slightly enhance our gross margin.

So we feel pretty good in terms of what we’re getting, in terms of pricing and something that we continue to work on, I think I told you we brought somebody in about a year-ago, just to our new leader for the pricing group that seems to be getting some good traction.

But I also think it’s important to understand that in the low inflation environment, these are small numbers that you are dealing with, you are not dealing with large order of magnitude. But the results are good. I mean our gross margins are stable and I would say it is slightly higher than they were a year-ago..

Great. Thank you..

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

Hi Bill, I just want to know if the data management, new products were as planned, should we expect a similar level of investment to $1.5 million, in the quarter in the second half of the year.

And if you could just give us a little description or these new products in the area of capable all thing or is it something a little different with then data archiving?.

Hi, Andrew, good morning. There is couple of aspects, first of all what we have in the bridge was a very specific one-off associated with our relaunch of a product that’s associated with secured destructions. So that was a very specific one-off re-launch of that particular product.

I think that there even if you add that back, you will notice that our margins are slightly down from where they were a year ago, albeit they are very good margins. But they are slightly down.

And we didn’t bridge to that for the reason that your highlighting right now is, we are – we have made a conscious decision to incur some additional OpEx which is associated with launching new products in that area.

So one of the areas, I think, we’ve publicized is that we have a partnership with EMC that offers both their customers and our customers a joint, it’s kind of a combination of our datacenter, our Cap business and EMCs data to main business which a datacenter replication hardware offering they have.

And that there is an investment associated with standing up those new products.

Our expectation, the reason why we didn’t bridge that is you could say that that was a one-off for this quarter, but our expectation is we will continue to make those kind of investments has we see a pipeline of further products like this one that we’ve announced publicly with EMC. So I think that’s the way I would think about.

So what we have in the bridge was very specific to a product launch that we did this quarter that we really anticipate as a one off, but we have incurred and we expect to continue to incur some OpEx investments in terms of the new product launches..

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

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

Okay. And then if you let me one more. The bad debt write-off the 3.8, obviously that’s a surprise.

Are you hoping some of the cost initiatives that you’re talking about could offset that? Or does that in some way kind of tilt the EBITDA guidance towards the lower end?.

No, I think that what we’ve said in the press release as you’ve noticed that we think that on a reported dollar basis that we are still within the range of our guidance. On a revenue basis, we think we’re in the lower end of the range, but on a reported dollar basis, but it’s in the range that we’ve guided to.

So we still feel comfortable about maintaining our guidance that our OIBDA will be in the range as we said out at the beginning of the year. I think the specific – think about the specific highlight that we’ve talked about on bad debt and I will ask Rod to comment further.

But its more about an ageing issue in terms of when we moved the process, we didn’t optimize the process fully before we moved to offshore and we move that offshore as we slipped behind on the dating.

So we feel – we feel good over the next six months to 12 months that we are – we will be able to get that back in shape and we are well underway, but you can imagine that when you slip behind on the dating it takes a while to fix that back up, but I don t know Rod, if you want to add?.

That’s right, Bill in terms of the general component of our bad debt provision its driven by the aging of our receivables and as we move this offshore, the aging deteriorate and a little bit and therefore that triggers an increase in the bad debts and bad debt expense by half a point.

And we are – I think we – just to make sure as clear as I, we will get back to our normal range of about a half a point of revenue in terms of bad debt expense….

Right..

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

Perfect, thank you..

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

It’s actually Dan Dolev with Jefferies. Thanks for taking my questions. I’ll ask few questions. We thought a few weeks ago, Bill you did the conference call, you mentioned service margins stabilizing. I see a 330 basis points decline.

What gives you confidence that that you could actually stabilize margins in the coming quarters?.

Hey, good morning Dan. [Indiscernible] it’s a good question. So if we look – obviously this quarter was below our target of getting 27% by the end of the year. But if you actually – when we looked at the performance as part of the improvement program we looked at.

If we took the month of May, May was a specifically weak month for us on this quarter in terms of our service margin and profitability. If we took the month of May out, we would have 26.1% service margin in this quarter, which is still a 100 basis points, but we know how to bridge that gap.

And even when we looked at May some of the things that we’re introducing, we get the sprit [ph] to manage them.

So with the month of May, was particularly soft really two things, was one, is verbalizing some of our cost quick enough associated with a normal downtick in revenue, because there is some seasonality in revenue and plus it was a short month. But in terms of the way the holiday is felt.

So those two things that – which is part of our program, if you remember our three-pronged approach to this is verbalizing our cost base more which the month of May is a great example in terms of what that program is designed to offset. The second thing is using outside parties, and the third one is technology.

So, again, the data for the quarter looks worse than it is if you know what I mean in terms – especially if we add back some of the programs that we’ve introduced to minimize that going forward. So we still are sticking by our guidance that we think by the end of the year will be at 27%..

hank you and two more quick questions.

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

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

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

No, no, not, no..

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

Well, I think first of all on the AFFO basis you see, we’re actually been ahead of where the consensus status coming out. So first of all from a cash standpoint we’re actually ahead. I think the bridging schedules I think do a pretty good job in terms of what the puts and the takes were in terms of why we ended up a bit below on consensus.

But if you just look at our normal ramp in the second half of the year, part of this is just in terms that we don’t give quarterly guidance we give a year guidance and part of this just a way that the [indiscernible] besides the carve out our annual guidance.

So if you just look at historical ramps in the second half, you don’t find this is as surprise. That’s why I feel very comfortable in terms of maintaining our guidance..

I mean may be just talk specific about EPS, year-to-date we’re at on an adjusted basis $0.60 a share, the midpoint of our guidance for the full year is $122.5 million [ph]. And so you could see we’re almost at the halfway point.

As I was saying earlier, because of the dynamics of our business, the storage revenue and contribution growing and quarter-after-quarter, I think you can sort of see how we can reach that point..

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

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

Great, thank you very much. I appreciate it..

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

Shlomo here. Thank you very much for taking my questions.

Yes, Bill, could you go into little bit more detail what you mean about variabilizing the cost with third-party logistics vendors, and we talked about working with like UPS or FedEx or something?.

Yeah, good morning, Shlomo. Well, there is two parts, it is variabilizing and is using third-party so that there – and you could say that there kind of two – there is two ways of doing it.

We also look at variabilizing more of our cost under own our control and we do use temporary workers that are trained and certified and cleared by Iron Mountain, it’s getting that mix right.

So first of all we do have a variabilized workforce internally and making sure that we are using more of that which is the thing that helps to offset some of these variabilization of some of the service revenue that goes through and then service revenue for us don’t forget it is more than just transport they rather bid that are contract based so that’s one aspect.

And then on the 3PL side, yes it is like the – it’s the FedEx and UPSs of this world and other courier services. We use some of them today, we use them more extensively in some European countries, where we – where the necessity has come even faster because of the size of some of our operations in some of the smaller countries.

And we’re using that same doll as a know-how to accelerate that in North America. So it is anytime those logos and others..

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

How should we think of that?.

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

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

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

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

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

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

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

Okay, great. Thanks..

There are no further questions at this time..

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

Thank you. This does conclude today’s conference call. You may now disconnect..