Iron Mountain Inc (IRM) — Q4 2018 Earnings Call Transcript

Thank you, Steve. Hello, and welcome to our fourth quarter and full year 2018 earnings conference call. The user-controlled slides that we will be referring to in today's prepared remarks are available on our Investor Relations site along with the link to today's webcast. You can find the presentation at ironmountain.com under About Us/Investors/Events & Presentations. Alternatively, you can access today's financial highlights press release, the presentation and full supplemental financial information together in one PDF file by going to investors.ironmountain.com under Financial Information. Additionally, we have filed all related documents as one 8-K, available on the IR website. On today's call, we'll hear from Bill Meaney, Iron Mountain's President and CEO, who will discuss highlights and progress toward our strategic plan followed by Stuart Brown, our CFO, who will cover financial results and our 2019 guidance. After our prepared remarks, we’ll open up the lines for Q&A. Referring now to page 2 of the presentation, today's earnings call, slide presentation and supplemental financial information will contain forward-looking statements, most notably our outlook for 2019 financial and operating performance. All forward-looking statements are subject to risks and uncertainties. Please refer to today's press release, earnings call presentation, supplemental financial report, the Safe Harbor language on this slide and our Annual Report on Form 10-K, which we expect to file later today for a discussion of the major risk factors that could cause 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 these measures as required by Reg G are included in this supplemental financial information. With that, Bill, would you please begin?

Thank you, Greer, and thank you all for taking the time to join us. We’re pleased to be here this morning to discuss our fourth quarter and full year 2018 performance. 2018 marked a year of continued strong growth for Iron Mountain highlighted by global storage organic revenue growth, significant growth in our data center business and further scale in our emerging markets. Turning to slide 3 of our financial results presentation, full year increased 10% which was in line with our expectations, driven in part by the contribution from recent data center acquisitions and strong growth in services. Notably total organic revenue growth was 3.6% for the full year, a strong acceleration from the 2.3% we reported in 2017. Adjusted EBITDA was also in line with expectations growing 14% year-over-year and resulting in a 120 basis point improvement in our margin. Lastly, we generated 16% growth in AFFO at the high end of our expectations, whilst continuing to reinvest in the growth of our business and supporting our commitment to our dividend. The strong AFFO performance compares to an increase in our fully diluted shares outstanding of 7.4% and resulted in a 160 basis points reduction of our payout ratio to 78%. As it relates to our fourth quarter performance, we achieved constant currency revenue and adjusted EBITDA growth of 10% and 12% respectively, whilst our margin expanded by 100 basis points year-over-year. I’ll provide more detail around volume trends in a few minutes. On a global organic basis, Records Management volume was flat in 2018. Importantly, 2018 was a year of continued evolution for Iron Mountain. We made significant progress in increasing our mix to high growth businesses, completing more than $1.7 billion in targeted acquisitions. This evolution is highlighted by the ongoing expansion of our global data center footprint with the acquisitions of IO, the Credit Suisse Data Centers and EvoSwitch. We continue to also expand in faster growing emerging markets with acquisitions that increase scale and reach in key markets including South Korea, China and the Philippines. We continue to build from our strong capabilities and core competencies developed over many decades of managing our customers’ valuable physical and information assets to extend our storage capabilities beyond Records Management and Data Management to a more comprehensive portfolio of physical storage solutions. Today, we store many of our customers’ valuable assets in addition to information assets, which leverages our know-how and utilizes our existing storage facilities and logistics expertise while maximizing our revenue in NOI per square foot. To this point, we made targeted acquisitions to further a number of our faster growing businesses, such as market leading Fine Arts and entertainment services capabilities and Valley consumer storage. All of this enables us to help customers manage the storage of valuable assets beyond the more than 690 million cubic feet of records in digital information we store in our Records and Information Management or RIM business area. Turning to our business performance, Organic Records Management global volume was flat, a modest improvement from Q3 as new volume increased 10 basis points sequentially. More specifically, in North America, new volumes from existing customers and new sales together increased almost 40 basis points sequentially while destructions ticked up 10 basis points. In a few moments I’ll highlight some of the recent wins in North America Records and Information Management that have helped to support this performance. Volume in the emerging markets continues to grow at a faster clip, increasing 7% for 2018 though we saw a modest tick down in new sales compared to Q3. Our investments are focused on increasing the scale of our businesses in these geographies and growing market share as evidenced by the recent acquisitions I highlighted earlier. Organic storage revenue growth increased 1.9% and 2.4% year-over-year in Q4 and 2018 respectively, as revenue management continues to contribute positively to growth. Destructions remain at elevated levels though we saw a moderation in recent trends. Organic service revenue growth was strong in 2018, growing at 5.4% driven in part by continued strength in Secure Shred as well as momentum in digital projects from our Information Governance and Digital Solutions business or IGDS. Overall, we had a successful Q4 with a number of strong new business wins across the North America RIM. Turning to slide 4, an example of one such win was a 5-year agreement with CitiMortgage, which was looking to outsource their non-core business function within their mortgage workflows. Once successfully implemented, we expect to gain 550,000 cubic feet of records plus more than 820,000 files. Additionally, a new customer signed in Q4 was the Hoover Institution at Stanford University. The Hoover Institution has begun a major renovation of their facilities at Stanford, which will directly impact their archival collections located in three historic buildings. Most of their collections are moving off-site during the renovation some indefinitely and Iron Mountain was selected to relocate 64,000 cubic feet of material from Stanford University to a customized Iron Mountain facility. Specialized relocation processes designed by our team along with the Hoover archivists and preservationists will be utilized during the move. The collections will be maintained and circulated from our private climate-controlled vault modified specifically for this project. This is a great example of our teams working to implement solutions to meet our customer's specific needs. Turning to our federal business, we’ve made significant inroads and further penetrating this historically un-vended channel. Across our entire federal business revenue grew 14% year-over-year in 2018 led by strength in data centers and Records Management. To this point, a U.S. government regulatory agency expanded with a new data center deployment in Northern Virginia adding to their existing deployment in New Jersey. On the Records Management side of the federal business, we had net cube growth of 4% during 2018 and continued to see good momentum. We’re encouraged by the progress made in Q4 in North America and accelerating volume from existing customers and driving new business to Iron Mountain. Another area of solid progress in 2018 was the momentum of our IGDS business as customers increasingly live in a hybrid world of both physical and digital storage. We recently signed a contract with a large retailer to enhance our value-adding services. We’re beginning a digital solution involving more than 75 million images of employee files, which are currently housed on-premise at each individual store as part of an HR file conversion project. Digitizing HR documents and centralizing into a single repository helps achieve greater efficiency, reduce risk and improve compliance with a variety of federal and state requirements. We’re currently in discussions with this customer to assist them in extracting even greater value from their HR information through the use of our InSight platform and its machine learning and artificial intelligence capabilities. These are great examples of how we’re solving problems for our customers and adding value in the areas of digital transformation and compliance. We had an extremely active pipeline of opportunities for our IGDS business as we ended 2018, nearly 50% increase over the prior year. Importantly, we’re seeing these opportunities increasingly translate into income as revenue has doubled over the past two years. Regarding our data center business on slide 5, you can see Q4 in 2018 performance was strong with full-year revenue of nearly $230 million and adjusted EBITDA of $100 million. We continue to see solid leasing momentum as we closed out Q4 achieving our targeted 10 megawatts of new and expansion leasing for the year consisting of 261 leases signed with strength in the financial services, professional services and federal vertical. Of those new and expansion leases, 34% were new logos to our data center platform of which 43% had a pre-existing customer relationship with Iron Mountain reinforcing the strength of the Iron Mountain brand and its extension to our data center business. To that point, we signed a new cloud-based provider of medical information in Northern Virginia as this customer was very sensitive to proximity to its own local IT team. Additionally, this customer also has a longstanding relationship with our Data Management team, so our core competencies in compliance and security resonated well with their data center needs. Another great example of a new customer is Wasabi Technologies, a hot cloud storage company, which deployed in Northern Virginia. Iron Mountain was able to fulfill all of their data center requirements including a hyper-scale ready facility which meets the strict compliance requirements for FedRAMP. Demand from existing customers remain strong with a number of customers expanding their footprint in existing data centers as well as deploying with us in additional markets. A large global bank which came to us as a data center through the IO acquisition increased its capacity needs three times during 2018 expanding its usage in New Jersey by 47%. Turning to slide 6, our development pipeline reflects construction in key markets including New Jersey, Phoenix, London and Amsterdam as we continue to see good demand from existing customers. Subsequent to the end of the fourth quarter, we acquired part of the land in Frankfurt with power reserved in a permitted design which will ultimately support 20 megawatts of capacity. Frankfurt is the second largest multi-tenant data center market in Europe beyond London. This land acquisition improves our competitive position across Europe and allows us to have a presence in three of the four key European metro areas. We now have total potential capacity of almost 350 megawatts across our data center platform including the land in Frankfurt and Chicago. We expect the leasing momentum exiting 2018 will continue into 2019 as we build on our strength with enterprise customers and attract more hyper-scale demand. We currently expect to be able to achieve robust leasing activity with a target of executing 15 to 20 megawatts of new and expansion signings in 2019. Turning to slide 7, our strong performance in 2018 has enhanced the solid foundation we’ve created and increased our financial strength as an organization to support sustained growth. Once our acquisitions from last year are fully incorporated into our base numbers, the business as it is configured today is expected to deliver over 4% organic adjusted EBITDA growth going into 2020 well in line with our original plan to exit 2020 with a 5% organic EBITDA growth. This is all compared to less than 2% growth just five years ago. As it relates to our outlook for 2019, we issued guidance this morning which reflects consistent performance expectations for Records and Information Management business fundamentals with further physical storage potential from newer adjacencies. Ongoing strong growth in emerging markets, data centers and adjacent businesses and continued investment in the business to support strategic initiatives and innovation around digital solutions to support our customers’ evolving needs. We do anticipate that the strong dollar will create headwinds over the course of 2019 relative to our reported results, though this has no operational or margin impact. On a constant currency basis, we expect revenue growth of 3%, adjusted EBITDA growth of 4% and AFFO growth of 4.5%. And if we normalize for the impact of the adoption of lease accounting, our adjusted EBITDA margin would increase by 100 basis points further. Stuart will have more detail on our 2019 guidance in a moment. Putting this all into historical context, Iron Mountain is entering into 2019 in great shape. Our brand continues to resonate with our customer base where trust is ever more important especially when it comes to information as well as valued assets. This trusted relationship with more than 225,000 customers covering over 95% of the Fortune 1000 is demonstrated both by the continued relevance of our RIM business with expanding margins through higher pricing as well as the rapid growth of our digital solutions business and data center offerings. In terms of how our services have delivered bottom-line value, it's worth noting the accelerating growth of the business since 2014. We have grown revenue and adjusted EBITDA on a constant currency basis at a 10% CAGR. AFFO has delivered a 10.9% CAGR with a 7.8% CAGR in share count. Our business is more diversified both by business line as well as geography, all yielding the acceleration in underlying growth mentioned earlier. All together over the past five years, we have built significant momentum into the business and feel good going into the year. We will remain disciplined regarding the pace with which we deploy capital to support these growth initiatives while ensuring we remain true to our financial model. With that, I will turn the call over to Stuart.

Thank you, Bill and thank you all for joining our fourth quarter and 2018 results conference call. We delivered very strong AFFO growth in 2018 of 16% and continue to expand our adjusted EBITDA margins while also achieving 3.6% organic revenue growth. This growth was supported by results of our revenue management program and continued expansion of value-added services and our data center platform with growth of records volumes in our international markets offsetting declines in North America. We are pleased with the healthy performance across our business segments as well as our progress investing in and integrating faster growing businesses. Not only do these new businesses create value for shareholders, but also allow us to be a better partner with our customers for their critical physical and digital storage needs. I'd like to start off the financial discussion with the performance highlights which you can see on slides 8 and 9 of the presentation. For the quarter, revenue was in line with expectations approaching $1.1 billion growing about 7% on a reported basis then almost 10% on a constant currency basis. This is driven by contributions from our recent data center acquisitions and strong organic revenue growth including solid contributions from our emerging markets in our businesses. Total organic revenue grew by 3.5% in the fourth quarter compared to the prior year and 3.6% for the full year. Organic storage revenue grew 1.9% for the quarter and 2.4% or by $60 million for the full year. Organic service revenue grew 6.1% in the fourth quarter and by 5.4% for the full-year. Service growth was primarily driven by increased contributions from our expanding Secure Shred business, continued strength in recycled paper prices as well as additional digitization and special projects. Our adjusted EBITDA grew over 12% on a constant currency basis for the fourth quarter to $360 million with margins expanding 100 basis points year-over-year to 33.9%. The margin improvement resulted primarily from the flow through of revenue management, the impact of the adoption of the revenue recognition standard, and improved labor productivity. SG&A as a percentage of revenue excluding significant acquisition costs declined about 80 basis points in the fourth quarter versus a year ago due in part to lower bad debt expense and increased operating leverage on the revenue growth. Adjusted EPS for the quarter was $0.25 per share down from 2017 due mostly to higher depreciation and amortization associated with data center acquisitions and impacted by a 6% increase in shares outstanding following our December 2017 offering to fund the acquisition of I/O data centers. For the full year, AFFO was $874 million up $122 million or 16% over the prior year reflecting the strong operating performance of our data center acquisitions in a very disciplined approach to capital allocation while continuing our investments in new products and businesses. AFFO came in at the high end of our expectations due to lower cash taxes and interest as well as slightly lower capital spending. To touch on operating performance in more detail, on slide 10 you can see developed markets organic storage revenue growth came in at 0.9% for the quarter slightly better than Q3 and 1.4% for the full year despite the negative volume growth again reflecting the contribution from revenue management. Organic service revenue in developed markets increased 5.1% for the quarter and 5.2% for the full year due mainly to growth in our shred business, project revenue, and digitization projects as mentioned earlier. In other international, we continued to see healthy organic storage revenue growth of 4.1% for the quarter. Full-year organic storage revenue growth was 5.4% and 3.2% growth in organic volume. Organic service revenue growth was 6.1% in the quarter and 5% for the full year in this segment. Furthermore, the data center business delivered strong organic revenue growth of 12% for the quarter and 9% for the full year. Our adjacent businesses also performed well with revenue growth growing almost 19% on an organic basis in the quarter and nearly 11% for the full year. Turning to slide 11, you can see the detail of our fourth quarter 100 basis point adjusted margin expansion with growth in most segments. We saw a margin decline in North America data management or our tape business driven by lower volumes and mix as well as investments made in growing new products and services. In the tape storage business, the amount of digital data being stored continues to grow, however, greater physical tape density is resulting in lower physical volumes. Revenue management has helped offset some of the tape volume trends and margins have remained north of 50%. In Western Europe, fourth quarter margin expansion returned to levels seen in the first half of the year expanding by 240 basis points reflecting lower bad debt, our focus on continuous improvement, and stronger project-based revenue in the UK, Germany, and Austria. In the global data center segment, adjusted EBITDA margins were 41.5% in the fourth quarter and 43.5% for the full year reflecting the increased scale of the business and progress on integration activity. As Bill noted, we are pleased with our leasing activity reflecting the successful integration of a strong commercial team and demand in the markets where we operate. During the quarter, we executed 3.3 megawatts of new and expansion leasing for a total of 9.6 megawatts for the year. The leasing was primarily enterprise and Federal Government customers in churn remains quite manageable at 3.2% in 2018. Turning to slide 12, you can see that our lease adjusted leverage ratio at the end of the year was 5.6 times comfortably in line with other rates especially when considering that our business is more durable than many other REIT sectors, but we did not have any significant financing activity in the fourth quarter. We did sell two properties as part of our capital recycling program which generated net proceeds of $56 million. As of December 31, our borrowings were 73% fixed-rate, our weighted average borrowing rate was 4.9% and our well-laddered maturity average is 6.2 years with no significant maturities until 2023. Our strong balance sheet and capital structure is supported by our significant real estate portfolio and long-term nature of our customer relationships. Turning to guidance, this is detailed in the supplemental for your review and on slide 13. We’re expecting 2019 revenue to be in the range of $4.2 billion to $4.4 billion. Adjusted EBITDA to be in the range of $1.4 billion to $1.5 billion, adjusted EPS to be in the range of $1.08 to $1.18 and AFFO to be in the range of $870 million to $930 million. This reflects solid performance following 2018’s growth impacted by a stronger dollar, new lease accounting standard and continuing investments in our Insight IT infrastructure and our data center pipeline. 2019 total organic revenue growth is expected to be in a range of 2% to 2.5% including organic storage revenue growth of 1.75% to 2.5%. Global organic record volumes are expected to be flat with declines in North America offset by growth in other international markets. Globally we expect new incoming volume to continue offsetting destruction rates of 4.5% to 5% and outperms of around 2%. We expect service organic growth will be in the low single digits for 2019 from continued growth in our shred business and information governance in digital solutions. As many of you know, record recycle paper prices were a tailwind to our service business in 2018, but we anticipate moderating paper prices in 2019. We also expect continued strong growth in the data center business with low teens organic revenue growth compared to 2018. We will though have elevated churn in the first quarter in Phoenix due to two customer move outs that were part of our deal underwriting when we acquired IO. Anticipated investments which are detailed in the supplemental will be funded by a combination of cash available from operations, capital recycling, and new borrowings supported by the higher expected adjusted EBITDA. We may also utilize third-party capital particularly for data center development and equity from our ATM depending on market conditions. We expect our lease adjusted leverage ratio to improve 10 to 20 basis points from the 5.6 times at the end of 2018. As we think about the 2019 outlook there are several factors affecting comparability that I would like to bring to your attention. First, we divested our fulfillment business at the end of Q3, 2018 which generated approximately $25 million in annualized revenue. Second, the adoption of the new leasing standard is expected to result in a non-cash increase in rent expense of $10 million to $15 million, lower interest expense of $3 million and lower depreciation expense of about $3 million due primarily to certain capital leases converting to operating leases under the standard. Third, current foreign exchange rates relative to 2018 are expected to result in a $60 million to $70 million headwind to revenue and $20 million to $25 million impact to EBITDA. As a reminder on FX, we derive about 40% of our revenue from non-U.S. dollar currencies and as a result exchange rate volatility can't have a significant impact on our reported results. Well, we have very low transactional exposure with our costs well matched to our revenue in the respective countries, we do have un-hedged translation exposure and somewhat higher proportion of our debt is U.S. dollar denominated. As the business continues to evolve with data center growth, we will also be reviewing our disclosure to determine where we can make changes to reduce complexity and enhance transparency. You should expect to see some changes to the supplemental beginning in the first quarter. In summary, as we close out another year of continued growth and evolution, we are pleased to see progress on multiple fronts. Our records and information management business continues to deliver durable cash flow and steady organic revenue growth through solid revenue management. We've had continued success extending into higher growth emerging markets and our fast-growing data center business and adjacent businesses continue to increase scale and have become competitive platforms poised for even greater success. We are pleased with the adjusted EBITDA, AFFO, and dividend growth rates achieved in 2018 and the contributions from our team serving customers around the world and look forward to strong performance again in 2019. With that, I will turn over the call to Bill for closing remarks before we open up for Q&A.

Thank you, Stuart. And just a couple of comments before we begin the question and answer session. First of all, it was a very strong year, which was punctuated by double-digit EBITDA and AFFO growth well ahead of the shares we issued to support our acquisition of the IO data center. The business also has never been stronger or better positioned, continued organic storage revenue growth with remaining untapped storage segments or reserves, a broader range of businesses and services still tied to our existing business relationships built on decades of trust and accelerating organic growth of EBITDA and AFFO which underpins future dividend growth whilst de-levering. With that operator, I'd like to open it up to questions.

Hi, good morning. Maybe you can just talk a bit about your appetite for further data center acquisitions. I know you have plenty of room to build out based on the current pipeline. But wanted to get your thoughts on just outright acquisitions. Is it possible to see some more EvoSwitch type transactions going forward?

Good morning, Nate. Look I wouldn't rule it out, but it's not really what we think we need to do in the plan. In other words, the EvoSwitch, if you think about EvoSwitch specifically which is a good example, is we look at the top 10 international markets and the top 10 U.S. markets and we say, okay, do we feel, how do we prioritize those, which ones do we think we should enter? And then, when we look at that, we look at what's the best way to enter that market. So Chicago, Northern Virginia, and Frankfurt are all great examples where we decided the best way for us to enter that because it's important for our customers that we have decades of relationship with, plus some of our newer customers on the data center side that we have product on the shelf in those key markets and we decided the best way to enter those markets was through Greenfield development which we've done. In Amsterdam, we looked at the same thing because as you know, in Europe we refer many times to the flat markets, the top markets in Europe are Frankfurt, London, Amsterdam, and Paris. So Amsterdam is absolutely a key market in Europe and it's one that our customers wanted to see us in. And when we looked at Amsterdam, quite frankly, EvoSwitch for us was the best entry point. So, that's how we think about those markets but if you think about overall in terms of our growth plan, we're now almost 350 megawatts of capacity that we can build out both with sites that we've already started building in Frankfurt and in Chicago and we feel really good about being able to achieve our financial plan with little or no acquisitions.

Thanks, that's helpful. And maybe just a quick follow-up, can you talk a bit about this data center competition? We've heard from some of the wholesale providers that price can be very competitive in certain markets. So, I'm just curious to hear your thoughts and maybe you could talk a bit about how you're trying to differentiate?

I think it's a good question, Nate. I think that, well first of all I would differentiate between the enterprise customers and hyper-scale. So, it's fair to say right now, Iron Mountain is we're more the bulk of our customers are in the enterprise segment which is what you would expect. We notice that of the new logos signed this year, 43% of them we already had an existing customer relationship, where then obviously those were enterprise customers. So, for us I think when you talk about pricing, we see less price sensitivity on the enterprise side quite frankly. So, Iron Mountain hasn’t been exposed to that as much. When you see the analyst talking about pricing compression, it's more on the hyper-scale. Now, what does that mean for us is we do have an appetite to be present in the hyper-scale market and I think I've covered this before on the calls and it's more about getting to optimize in the yield on the site. So, if you look at Northern Virginia which is 82 acres and can build out well north of 80 megawatts of critical IT load. Then if you want to fill that, the rate that you fill it is it's important in some ways as what the specific revenue per kilowatt that you're getting on that site. So, to fill that out at a pace that we think is optimum, then we would expect that site to be somewhere at when it's fully built out between 40% to 60% hyper-scale. Now, on our standpoint, our models are built on current hyper-scale pricing. So, I think what you're hearing coming out of the industry is hyper-scale pricing has come down and quite frankly these things typically are kind of 8% to 9% cash-on-cash returns. They are at least approaching that level now but that's where we built our model and that's where we expect our entry point, which are still well above our weighted average cost of capital and it's still a good return. So, I think the noise coming out of the market I think is more about people who have been heavily present in that segment before and they're realizing the pricing is coming down to what I would call the normal clearing price in terms of what a reasonable return is for these very large scale projects which have very long contract duration.

That's helpful, thanks. I'll get back in line.

Yes, good morning. Your EBITDA margins in 2018 continue to improve, just wondering what your outlook for margin improvement is in 2019. Is it achievable to maintain or grow margin in North America in storage? And how is the mix shifting to data centers driving margin improvement?

Yes, hi. Good morning, Sheila, this is Stuart. Just if you look at sort of the midpoint in guidance implies about a 30 basis point improvement in margin and as Bill mentioned in his prepared remarks where that's impacted also negatively by the change in lease accountings if you normalize for that it's a 50 to 100 basis point margin expansion. And I think you're going to see similar trends in '19 to what you saw in '18 with revenue management continuing to contribute to margin expansion in the developed markets. Emerging markets, you'll see some margin expansion really due to continued increased scale because we're not we've got a pricing program in those markets but we're really focused on driving scale and continuing to increase our market presence. And then you will get in the data center business or that business grows as a percentage of the total business. You will get some uplift in margins because that business has a higher average EBITDA margin than the rest of the business.

And as a follow-up, Bill you mentioned the federal vertical records growth of 4% in 2018. Just wondering how that backlog is looking in 2019 and any insights on how meaningful that opportunity might be?

No, thanks Sheila. No, I think that we expect to continue to build on that, obviously it's with the federal government the gestation period of it is longer than our say normal private enterprise customers. But we continue to see the backlog growing and I think we highlighted our homeland security win on the last call. And we start getting those what I call kind of an iconic brand as the momentum that's starting to build in the business. And we see that, we see an acceleration in terms of the pipeline. With that being said is that the government is one fiscal budget. So, you work this year to deliver the project generally for next year. But we really like what we see in the pipeline in terms of momentum. So, I would expect that to tick up over time.

Hi thanks, good morning. You are now several years into your revenue management initiative. Can you provide us with an update on the rollout of revenue management across your geographies and the amount of pricing benefit you expect through 2020?

Yes, good morning George. So, first of all in terms of the program is that it's pretty much completely rolled out obviously in North America and now Western Europe. We started rolling it out this year or past last year in 2018 with four centers across the broader international market out beyond Western Europe. So, we expect to see some real traction in those markets whereas Western Europe will be fully online this year, last year was partially online, obviously North America will continue online. So, we feel pretty good in terms of the momentum that we're getting on that. So, I think you can expect that we'll have further strength from price in revenue management coming into 2019 and we built that into our guidance.

Got it, that's helpful. And on margins, we essentially achieved all your targeted transformation savings and recall cost synergies to the end of 2018. Can you remind us of your 2020 EBITDA margin target taking into account the lease accounting changes and discuss some of the initiatives you have to bridge from your current margins to 2020 margins?

Yes, I mean if we normalize for the impact of the lease accounting and even if we go back which to normalize actually for the revenue recognition accounting that we had that helped us in 2018, while we've been achieving margin expansion of 50 to 100 basis points a year. Looking forward, right investment benefit also by the obviously the flow through of revenue recognition as well as synergies, we continue to have cost improvement programs in place that you will continue to see benefit from going forward. So, we expect to see sort of similar levels of margin expansion going forward. But in addition, we've historically been investing $20 million to $30 million a year in our new business growth and new business initiatives and starting to see some green shoots come out of those businesses. And as you look forward, we expect to see some margin expansion that coming out of those businesses as well. So, I think as you look forward, feel quite comfortable with sort of continuing a similar track of margin expansion.

I have a follow-up question that builds on the previous one. I want to understand the different factors at play regarding the long-term guidance to 2020 that you provided. It's clear that various elements will influence your outlook over the years. To start, could you discuss the impact of foreign exchange on your revenue and EBITDA, comparing it to 2019 currency rates? It seems you might need to target a double-digit growth in EPS or EBITDA next year, along with a margin increase of about 200 basis points from 2019. Could you elaborate on the factors influencing this and how you feel about the key metrics of revenue and EBITDA moving forward?

I'm glad you asked the question. Today, our main focus is on the 2019 guidance, so we want to avoid mixing that up with 2020 information. Let me explain the factors involved in reaching that guidance. To address your question about currency, we mentioned that in 2019, the foreign exchange headwinds for revenue were between $60 million and $70 million, and for EBITDA, they were between $20 million and $25 million.

Can you give that cumulative business beginning now just so we can kind of compare more easily, do you have that handy for each one?

I don’t have that handy. Again, the exchange rates prior to sort of the recent changes haven’t been that significant, so we go back to what our 2020 plan has been. This is now really the biggest impact. And yes, remember the 2020 plan was built on currency rates at a certain period of time. So, you should, we should always be normalizing for FX when it goes up or down.

And the only thing I would just add Andy on this is that from an FX standpoint is that in our view as we take FX right and the good news is we don’t have a margin exposure on that. So, whether it gives us a tailwind which it did a couple of years ago and now it's giving us headwinds is what where our shareholders are paying for us to do is to manage the business through those tailwinds and headwinds. So, we're really focused on line-of-sight to the operational plan that we have to deliver that original 2020 guidance and we're well on track with that. And we think the looking at some of the R&D pipeline that Stuart relayed, mentioned the $30 million that we're spending roughly a year on that that includes things like Iron Cloud and InSight which we effectively have seen very little benefit to date on. So, we feel pretty good in terms of where we stand versus our original outline.

Great, that's helpful. And then, just kind of a cleanup question here. On the AFFO for the year you guys came in better than how you mentioned. I think it's just some taxes but the thing you control most here is the CapEx side. Is that a delay of some plan to CapEx and that we're going to see in the future or have you been able to manage the business so that the CapEx is altogether and needed?

Let me just give you a quick example of one of the big drivers of CapEx improvement. I can't remember if I talked with this on the last call or not. But if you look at that what we spend annually on our fleets for example, a few years ago our operation seemed to do a great job putting in place new management tools for our drivers to improve fuel utilization; reduce wear and tear on the trucks. As we've gone back now and reevaluated the impact to that, we've realized that the quality of our trucks and the time that they can stay on the road is increased. So, we've been able to actually reduce the rate at which we replace trucks annually and goes around $15 million or $20 million of capital saving in and of itself this year.

Hi, good morning. This is Michael Cho for Andrew. My first question, just a quick clarification. Should we still assume the previously stated 2020 plans have not changed, that's right. I know you mentioned new long-term growth targets are coming but you're referring to something past 2020, right?

Yes, we will. I mean again, we want to keep those long-term targets out there and if you look at what we've been talking about in the past in terms of growth rates of a dividend, how do we support that with AFFO and EBITDA, those general trends all remain on track. And we think our current business plan supports those. And the only thing that we'd say, the only thing you need to make sure that you're doing is when you're looking at 2020 is first of all is to make sure that you're looking at the FX impact to that and adjusting those targets for that. We're not issuing 2020 guidance today.

But I make you a point that the walk that Stuart just took Andy through. Since that we're still on the 2020 number correcting for the 5% at the end of 2020. So, what we expect that the momentum will continue to build in the business. So, exiting '20 we're sitting here at a little over 4% organic EBITDA growth as we sit here today which we think is really great progress because we started as you can find in the story as we started with less than 2% four or five years ago. So, we've got that up to a little bit north of 4% on an organic basis and we have lined aside on track to exit 2020 at 5% organic EBITDA growth.

I had one other point as well, just that people don’t think we're sort of walking back as on our leverage target as well, right? The original multi-year plan we've got in there either five times lease adjusted EBITDA if we issue the full 80 million or 5.2 times target for the end of 2020 and that remains our target as well on our business plan.

Great, thank you very much. That's all I had.

Great, thank you.