鐵山公司 (IRM) 2004 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Q1 2004 Iron Mountain Incorporated conference call.

My name is David and I will be your coordinator for today.

At this time all participants are in a listen-only mode.

We will be conducting a question and answer session towards the end of today's conference.

If at any time during the call you require assistance, please key star zero and a coordinator will be happy to assist you.

As a reminder this conference is being recorded for replay purposes.

I'd like to now turn the presentation over to your host for today's call, Mr. Stephen Golden, Director of Investor Relations.

Please go ahead, sir.

Thank you and welcome everyone to our First Quarter 2004 earnings conference call.

After I have completed some brief announcements here, Richard will have a short introduction.

He will then turn the call over to John to discuss the Q1 financial results, after which John will return the call to Richard for stating the company remarks followed by our Q&A.

As is our custom, we have the user controlled slide presentation on the investor relations page of our website at www.ironmountain.com, and John will be referring to these slides during his remarks.

As you know, today's earnings call with slide presentation will contain a number of forward-looking statements, most notably our outlook for the second quarter and full year 2004 financial performance.

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

Please refer to today's press release for the Safe Harbor language on slide number 2 of our presentation for a discussion of the major risk factors that could cause our actual results to be materially different from those contemplated in our forward-looking statements.

As a reminder, operating income before D&A were

up, a metric we will speak to frequently on this call is one that we believe to be important in evaluating our overall financial performance.

Please keep in mind that operating income before D&A is a non-GAAP measure, and is intended to be used in conjunction with, but not as replacement for traditional GAAP measures such as operating income, net income or cash flows from operating activity.

Additional information and the reconciliation of this non-GAAP measure, the appropriate GAAP measures as required by Reg G, can be found in today's press release and again in slide 12 in the supplemental data section of today's presentation.

Before we get started I would like to point out that our 2003 annual report is now available through the investor relations page of our website and also at www.annualreports.com.

In addition our definitive proxy materials are also available for our website and again at www.sec.com.

Shareholders can expect to receive these materials by mail any day now as they were sent earlier this week.

And with that I would like to turn it over to John Kenny our CFO for the financial reading portion of today's call.

Thank you Stephen.

As Stephen mentioned, slide 2 is a Safe Harbor language that he referred to.

Slide 3 is my agenda

for this morning, it is identical to my agenda for the last several conference calls.

So we are taking you through the numbers in the same way we have consistently.

So onto the number, slide 4 takes us some revenue through operating income for the quarter versus Q1 of 2003.

As you will see throughout this presentation, the business performs in line with expectations in the first quarter of '04.

As with any portfolio of businesses, some pieces outperform the others with an overall improvement of

that resulted in our internal growth rate.

Total revenue for the quarter is $434m, an increase of 23% over first quarter 2003.

Internal growth contributed 8% to total growth, while acquisitions primarily the Haze acquisitions contributed 12%, and then favorable foreign currency movements added the final 3% to the total growth of the quarter.

Gross margin was essentially flat through the first quarter of 2003, held back somewhat by modestly higher incentive compensation expense in 2004, as well as higher occupancy cost in Europe.

We have not full exited the Four Hays facilities that we were required to exit in connection with the acquisition, but we are well on our way to doing so.

Keeping in mind the IME, which is doubled in size since this time last year has margins that are still below those generated here in the US.

While we fully expect to increase Iron Mountain Europe's margins over time to the levels consistent with those in the US, until that time they will dampen consolidated margins a bit.

Our operating income before DNA margin of 28.4% of revenue, is down slightly from the same period in 2003.

However, included in this

the margin for 2003 was a gain on the disposal of fixed assets of $2m or about 50 basis points of revenue.

There was no such gain in the first quarter of 2004.

Also you will know we are continuing to invest a significant portion of our potential margin improvements in sales and marketing for our physical businesses and our digital initiatives.

However, reduced spending in IT and continued improvements in our bad debt experience offset those additional selling costs causing SG&A as a percent of revenue to be flat year-over-year.

Depreciation and amortization was really - I expected it to be in the first quarter, recent acquisition activity including the acquisition of the remaining 49.9% of IMR Europe, will move this number higher beginning in the second quarter.

We will see this when we get into the guidance slide later in the presentation.

Slide five looks at our Q1, 2004 results for the P&L line items below operating income and compares us to the same period in 2003.

Interest expense is up 22% over 2003, primarily due to the increased volumes per acquisitions.

However as an upcoming slide will show, we have reduced our weighted average interest rate meaningfully through various refinancing activities.

We will record additional interest - - we did record additional interest expense of about $800,000 related to the interest rate swap associated with the real estate term loans, that was retained in the first quarter.

For the year we expect interest to be in the $170m range.

Moving to the other income expense line, you will see a negative swing of $5m year-over-year.

In both periods we had early extinguishments charges totaling $2m related to the refinancing of debt.

However in 2003, we recorded gains of $5m due to foreign currency exchange rate movements as remark of foreign subsidiary debt and inner company balances the market.

In 2004, the foreign currency gain amounted to less than of $125,000.

So to be more specific on our net basis, we had a other income of $3m or $0.02 per share for 2003 and for the first quarter of 2004, we have a recorded a net expense of $2m or $0.02 per share.

So there is a $0.04 year-over-year

those items.

Slide six is total revenue growth rates, for the quarter we reported total revenue growth of 23%, internal growth was solid for the quarter coming in at 8% with acquisitions primarily Hays contributing the additional 12% and as we have already discussed favorable foreign currency movement and it's about 3% points to growth.

So moving to slide seven, we can take a closer look at internal growth and components of that.

Slide seven, this slide, our internal revenue growth rate for the quarter from a core and complementary revenue perspective.

Core storage representing 58% of our total revenues, grew at a solid 8% in the quarter in line with the quarterly growth rates of the last two years.

Core services representing another 29% of total revenues increased primarily due to high growth in the

product line and modest improvements in our off-sight daily protection, transportation revenue.

Total core revenue internal growth was 9% for the quarter.

Complementary services revenue, which were flat to last year saw improvement in cotton sales and performance revenues.

These gains were offset somewhat by the absence of the large multi year Canadian special project, that came to an end I the first quarter of 2003.

So complimentary services being flat is obviously a meaningful improvement from the last two quarters, where they were detracted from internal growth.

We remain confident that the total entire growth rate for the year will be in the previously announced range of 6% to 9%.

Slide A, there is slight old capital spending and investments and as you can see in the first quarter of 2004, we spent $41m for CAPEX in our core businesses including real estate and $2m for digital initiatives for a total CAPEX spent of $43m.

This was a fairly like quarter and has not injected to have a run rate spending level.

Our project approvals have picked up and we still expect to finish the year within our previously announced range of $210m to $240m of total CAPEX.

As discussed more fully in a moment, our digital services are beginning to pick-up some as we indicated in the

November and again at our year-end conference call, we intend to hold the line on digital spending unless revenues exceed plan.

As the positive momentum continues, we'll re-visit our estimates for digital CAPEX, as always we'll keep you informed of our progress here.

Included in the Q1 2004 CAPEX numbers, approximately $4m of CAPEX related to the Hays acquisition.

The Hays spending consists primarily of

systems for the first of the mandated building moves associated with this transaction.

Remember that we extracted restructuring of the Hays acquisition to require approximately $20m of CAPEX in total in 2004.

We may also be opportunistic on acquisition

.

Our number are two or over the high-end of that discretionary category of capital investment.

These discretionary real estate investments are designed to take advantage of local market conditions, provide us tax advantages, and when combined with appropriate financing provide natural foreign currency hedges.

As move to slide nine, which rates

our free cash flow

and free cash flow before acquisitions for the first quarter of 2004 versus the first quarter of 2003.

As we have consistently stated, free cash flows full-year basis.

As the timing of normal periodic events

period results.

However, we can see the 2004 is running slightly ahead of the 2003 levels for the same period.

For the full-year, we expect the free cash flow before acquisitions roughly inline with our 2003 results.

These results projected increase and operating income before depreciation and amortization of approximately $65m offset by heavier CAPEX this year, mostly due to the Hays restructuring requirements and higher interest expense due to the Hays and Mentmore acquisitions. profiles are debt

and shows the progression of certain debt matrix over the past three years and the first quarter of 2004.

As many of you know, we've been fairly active in the

markets over the last two years and even in 2004.

In addition to being NTV position, our re-financing activities along with the general decline in interest rates have lowered our rated average interest rate 80 basis points to 7.8% from the levels that existed in 2001.

We are currently more than 85% with respect to interest rates and have

average maturity of almost nine years.

Actually as we sit here right now, we've less than $100m withdrawn on US

.

So, we've less

of US floating rate obligation and about $100m of floating rate set on our British Pound Sterling line in UK.

So, we're actually for the over 90% tax, and I have little exposure to US short-rate movements.

We remind you that recent - - the bond ratio here increased in 2003 slightly.

Is that - - it was fully charged for the Hays-related debt, which was 135m Pound Sterling - - of 135m Pounds Sterling of which was this quarter.

We did not receive any credit for the acquired operating income before depreciation and amortization.

Likewise in Q1 of this year, we borrowed to fund the acquisition of the remaining 49.9% of IMA with no increase in bond-related operating income before depreciation and amortization.

That's because European operations are not currently a guarantor of our parent company debt.

We had a busy first quarter with respect to financing activities much of which you've already heard us talk about.

In January we successfully completed our first sterling denominated high-yield debt offering raising a $150m pound sterling for 10-year money at a rate of 7.25%.

This offering was very well received, and represents an important expansion of Iron Mountain's investor base.

This transaction also provides a natural hedge for a portion of our expanding investment in Europe.

Lastly in February we called the remaining $20m of the outstanding 818% Canadian bonds.

In the Senior credit market, we closed Iron Mountain Europe's debut syndicated bank facility.

This loan is nonrecourse to Iron Mountain Inc.'s parent and is comprised of $100m pounds revolving credit facility with multi-currency flexibility, and $100m pound term loan.

Iron Mountain, Europe used the initial draw under this facility to repay a significant portion of the bridge financing that the parent company had provided for the Hays acquisition.

We used a portion of those proceeds to repay a $103m of real estate term loans as well as some cross-currency swaps and borrowings outstanding under our revolver.

In addition, we completed the refinancing of Iron Mountain Inc's Senior credit facility, which was set to mature in January of '05.

The new facility matures in April 2009, which is a five-year facility.

It's comprised of a $350m revolving credit facility with multi-currency flexibility, and a $200m term loan.

Today, we have approximately $65m drawn on our revolver.

So we have fully over $280m of capacity.

Both the Iron Mountain, Europe, and Iron Mountain Inc. credit facilities were oversubscribed, and enjoyed a significant level of repeat participation.

We welcome the new participants in our

and we thank all of the participants for their support.

A complete table of debt capitalization is included in the supplemental data at the end of this slide show at slide 15.

Slide 11 speaks of our 2004 guidance.

Today we're raising our full-year 2004 guidance to reflect our strong start to the year, and our recent acquisition activity, which is outlined in today's press release.

Richard will go over some of the acquisition activity we've had in his remarks.

That guidance along with our view of the second quarter is reflected on this slide.

In anticipation of all of your favorite questions, we want to give you the pro forma effect of the acquisitions we completed since the end of the year.

And they would add approximately $8m in revenue to the first quarter.

Keep in mind however that the European acquisitions are fiscal year that is offset by two months from the parent company.

So both acquisitions, the Netherlands acquisition and the

acquisition in Germany, which were consummated March 1, and April 1 respectively were only post partial the quarter results in our second quarter.

But said differently all of these announced acquisitions will only contribute an additional $4m of revenue in Q1 versus Q2, and then they'll fully kick into our reporting cycle in our Q3.

Thank you, and with that I will turn it back over to Richard.

Thank you John, and good morning everybody.

I would like to add my welcome as you heard from John, and now you have seen in the press release, this was another good quarter for Iron Mountain.

I would like to summarize just to make sure we're clear in our communication.

Sort of few key messages, and give you a little color on them.

And then I am going to end my conversation with the discussion about the annual report and some governance issues, and then we'll take your questions.

It's real clear that our internal growth rate is up versus last year.

Our sales initiatives are showing results.

The things we had been doing have started to pay off.

Our digital business is really starting to get pretty exciting.

We continue our strategic path of investing in new growth areas, and margins and operations are on target.

So all and all, everything we're looking at is looking pretty good to us.

Now we've a portfolio of businesses, and some things are doing better than others but by and large the trends are positive pretty much across the board.

As John said total growth is up 23%.

So may be the more important internal growth is up in the 8%, in the upper end of our 69% forecasted range for the full year.

That internal growth of 8% is a significant increase over Q4 of last year, 5% in the whole, all of last year at 6% and that's coming from broader ways, I think some obvious economy, we see some early - other early indicators such as carton sales which are up even stronger, which we would hope, but not sure would lead to even greater storage buy ins in the future as people buy cartons now, fill them and send them to us over time.

I think we are seeing as many companies are seeing some of the economy come back and I think we are seeing a little better ourselves.

But we're also seeing good performance on the part of our sales force and part of our account managers and our businesses in general.

Our North American businesses are larger business remain stable in their trends, and some of our other portfolio businesses are rating significant growth, simply good examples will be our shredding in our Latin American businesses.

As we have been saying in anticipation our North Europe has come up with the top teams growth rate a bit, but it is something we expected post the Hays transaction and it's behaving just as we had expected.

As I said a second ago, our new sales initiatives, and I would remind you that our strategy this year is to really take most of our margin increase than we would otherwise get, and therefore report relatively flat margins in '04 over '03, our strategy was and remains to invest them into our sales and marketing operations, as we now have our - we basically have our act together post acquisition as we change in our strategies, and are really driving deeper to our customer base and deeper into the market place.

It's always early to talk about changes when we made, and we did make some significant organizational alignment changes this year to better align our coverage model with our customers, but so far it's gaining acceptance in the organization and going well, and it's showing through their performance and it's gaining good acceptance among our customers.

So, we feel good about the move we've made and they are not over, this is an evolutionary process that will go a while, but we think we are on the right path.

Our new sales for instance in our largest North American box business MRM and LSDP, both are running over 90% of quota through March and shredding is

running well over quota and that's true of some of our other businesses too.

Our worldwide sales force is increased in size, we're up to about 614 people, which is a little over 30% increase over the same period last year.

So, we are investing the money and we think, we're seeing the results and obviously the way it has been in the work status results falls in over time, it doesn't all fall in at the right off the bend.

But we are on the path and one of our long-term goals is to develop a world class selling organization, which is what we've got this organization focused on and I'm proud of it.

There are bumps and grinds along the way, but I'm proud of the way the organization has taken the challenge and where they are moving.

Additional businesses after some years are continuing to invest and telling you had faith, we still have faith, but I can tell you now, we started to see more than faith, we've actually started to see dollars.

The early returns are positive in Q1 for our digital business and I'm not going to tell you it's going to go through a rocket, like a rocket ship, this is like any other business, it takes a lot of hard work, own board customers and so forth, but we have been through this strategy, first we went to a strategy of building the business then we went to the strategy investing in sales to see if we can learn to sell the business and we told you we came in this year with a strategy of okay.

Let's see what happens, just hold back on the investment on the operation fields side and hold that on the sales side and see if they can deliver and so far they are delivering outstanding.

The revenue for first quarter in our digital business is three times what it was last year or 50% higher than it was in Q4.

It still is a relatively small number to us, but what we like is what we're seeing in the quality to revenue, the names of the customers that are buying our service.

The package are coming back after time somehow and buying more, the fact that they are starting to trust us as a partner and tell us that our knowledge and services are valuable to us by buying more.

And one indication of this is in fact, that division in that product line has already booked and signed contracts for 80% of their total annual budget in revenue requirement for this year.

So it is clear to me that they are likely to come in way over budget.

We're again way over budget for a small division is not going to have major impact on the company, but it has major significant impact on that division and on that product line.

So, in addition to the fact that they've already booked 80%, by the way booked does not mean we built it and some of that unfolds over quite a bit of time.

We fully expect they will keep selling throughout the balance of the year.

So, we think we've learned how to sell the business now, our backlog is strong, obviously we can continue learning, our pipeline is even stronger and we see several even just extremely large opportunities for us.

So, we're reevaluating our strategy for this year and our plan this year for this business as we continue to see this revenue curve ramp at us, we will clearly, as John said we have to spend some more money both on the operating expense side as well as the capital side.

Consider more levels of capacity to satisfy the demands in dollar we see in the pipeline, that are functionally demand we were able to sign.

And that will show up more in expenses this year, they probably will in booked revenue although we do except they have exceeded the billed revenue targets.

We certainly know though we will exceed the bill revenue target but it also will set the stage for what we hope will be really good next year.

I want to caution you it's still a small business and they won't move the Dow for quite a while but our optimism has never been higher and we think we have the opportunity now to make this business do what we believed it to do all along and we actually believe that profitability is within our grasp and what does that mean that it is still a couple of years to give and take out but we can see it coming.

On the other areas, we do continue to invest in growth areas.

John gave you little highlights on the growth area both in acquisition and market presence in Europe as well as our new product line in Secure Shredding and we saw significant activity in those areas in Q1.

In this riding space we continue to be both opportunistic on the acquisition front to either help build our plant capacity or footprint and we added two markets at San Diego and Portland, Oregon this quarter, but we have also continued to reap through startup programs and our internal growth rates in that business was stellar.

And we feel very good about what is going on there and think we'll keep that going for quite a while.

As you know, we have been very active in Europe even since the Hays acquisition last July and by the way the integration that is on plan, John mentioned that we haven't moved out of the buildings but we are in significant process.

It just takes a while to do it and there is a whole plan that how long it would take to do it, but the other hard work in terms of process consistent reversion so far are going fine in their own path over there.

We also did acquire the remaining 49.9% interest from our minority partners of our entire IME joint venture, which gives us full strategic and financial control over -- what is now a very significant business unit to us.

We also announced the acquisition DISOS, which was a leading records managements provider to IBM Deutschland GmbH we owned in Germany, It is important to us because it brings us scale and really one of the largest markets in the world and certainly one of the largest ones in Europe.

Associate revenues of about $22m enhanced five new markets to us in Germany.

We estimate that the market in Germany is a little over $2.5b in opportunity and is virtually unwinded.

So, this new organization DISOS joining us adds some significant customers, some real name brands, and it really expands our markets now to 9 markets in Germany and about a $30m business.

There is only about one more market in Germany, city wise, we probably want to get in to have the products in the best national footprint in major market.

In addition to that, in the Netherlands, we actually had a minority position in one business there and of course through Hays we owned another one and so we cleaned that up and bought our partners so we can integrate all that into one business and created a very nice operation in a good market in Netherlands.

Some of our other businesses in particularly in our information and preservation and protection space sometimes we call our niche businesses which are all good businesses.

We had a little activity in our Film and Sound Archives business, it serves the media markets, expanded its operation in the New York market through the acquisition of a nice business in New Jersey.

We now have significant operation serving the entertainment markets of Hollywood, Nashville, Miami, New York City as well as Paris, London, and Toronto.

We extended our intellectual property management protection services LAN with the acquisition yesterday of a small company by the name of

.

Arcemis little less than $2m run rate business, specialized in domain names records management and protection that is a milestone.

Basically it integrates well with our DSI technology Escrow business and Arcemis brings the talented staff and technology and customer base that allows major corporations around the globe to manage and protect their website domain names and the legal rights to use them.

We think that this market is north of $250m in opportunity and therefore and we think we are in a good market position and we expect to see significant internal growth from this new services.

We are able to leverage our brand in celeb resources with the expertise and technology.

So we are pretty confident about this basically new product line we are adding in our West Coast space.

So, as I said and John mentioned the margins of business are running as we expected.

We think that this year is going to run frankly in line with what we have been telling, it is going to run.

And so I'd like to now instead of reviewing the operations turn to one other subjects and then we will take your questions.

As I have from time to time, and as I did in our annual report, I tend to comment on some corporate governance issues and I'd like to point you to the annual report that is either get it on line or it will show up in your mail box soon.

And I really would like to stretch that you read my letter, not because it's well written but because towards the end at least there is a couple of messages that I'd ask you to pay attention to.

One is that you will note that our Board of Directors made a decision to `de-classify` itself and go away from staggered directors to all directors elected in one given year, therefore you will notice that eight of our directors are running for re-election this year.

The Board did that partly because, some one asked a question of why do we have staggered board and nobody had a good answer and the result of that we said that it makes no sense from a shareholder perspective to have one and we somewhere recently had one and decided that let's put our shareholders in a position that if they wanted, felt a need to exercise their rights to cause change in the short run they could do that and that was a fairly easy decision.

So all of the Board members affectively resigned and hopefully get re-elected, but that will be your choice.

The other thing I would like to mention, some of you, in fact many of you have been a round investor for a long time and you know Eugene Doggett, well Eugene was our Chief Financial Officer actually when we came public and he had been a member the Board and a trusted advisor and friend for a quite a long time for me, Eugene chose not to stand for the election and is going to hopefully enjoy himself on his new boat that he has put in the water and enjoy himself a little more in retirement.

I really just want to personally extend my thanks to Eugene.

He's just been a great contributor to Iron Mountain's success over the years.

The governance committee of the Board is in process, searching for it's replacement but you should know it's a process that will be undertaken with deliberation -- in a deliberate manner, we'll seek in the right talent and not with a specific time frame that we have to fill the slot, but when we find the right talent and then we will likely add a person to the Board.

The last issue on governance today that I want to stress and I were going to read you this verbatim and then decided you probably would be too bored listening.

comes as you please to read a section on page 11 on my -- and this is my personal discussion on stock options and my coliseum stock options and the reason I've put that in is that we through our proxy statements are asking you, our shareholders to authorize an issuance of additional stock into our stock option plan.

It's the first time that we've asked, made this request in six years for new option shares and I think you will grant it that we take these issues very seriously and I'll try to outline for you, our shareholders, how we look at stock options, why we look at them the way we look at them and what we think is important about them and I would encourage you to read that issue, make exercise your choice of voting for or against things like this, but certainly we would ask you to consider supporting this and stressed again, as I said in my letter, this is a request that I make at you as a fellow shareholder on behalf of our employees, not on behalf of the personally because I never had nor I will I take stock options from that pool.

So that is enough from me, I think we should start and take Q&A and then we'll come back and wrap up.

Thank you sir.

Ladies and gentlemen if you have a question or comment at this time please key star one on your touch tone phone, if your question has been answered or you would like to withdraw your question, please key star two.

Once again that 's star one for a question and we'll pause just moment for questions to queue up.

Our first question comes from Harry Blount from Lehman brothers, please go ahead.

Hey guys one big question, you guys have clearly seen the complementary services business appear to stabilize ex the Canadian contracts, something you have talked about quite a bit going back to the Analyst Day.

But I wondering may be if you could give us a little bit of an update on the year-over-year impacts of how that business is performing ex the Canadian contract and just through the remainder of the year and where you are seeing back log and if there is any other major puts and pulls within that segment of business

Yes, about 6 to10 pieces of that that comprise complementary services.

We tend to have limited visibility to any of it except for large projects that might arise in terms of time that take multiple quarters to conclude.

But let us just speak of some of the pieces.

Page sales are still down but not down as much as they were in '03.

Paper prices are off a little from an average of $110 a tons to $94 a ton, we're off 15%.

And volume obviously paper is up because that business is expanding routine special projects seem to be sort of in line with our expectations with a large special projects like the Canadian project and others are materializing.

But we're encouraged on that front with the litigation issues that lot of our customers are seeing, with the activity and interest that our consulting group is seeing - it is responsible we'll see some major project activity, but we don't have a clear visibility on that as we speak.

Just had a feel that it might come in time.

Cargo sales are up, I don't think there's anything particularly extraordinary otherwise with termination revenue and the like.

So I think we stick by our investor day guidance for the full year, complementary services being negative 5% to plus 5% year-over-year obviously at zero we registered smack in the middle of the year in the first quarter.

We'll keep you updated.

I don't see anything that could clearly move us outside that range.

We'll closely look towards the end of the year we're talking about the reemergence of large special projects that could move that up in time.

Okay.

And then also you guys indicated - I think in the prepared remarks and in the press release that you've seen some very strong strength in the shredding business.

I was wondering if perhaps that is going to continue to run ahead of plan and why it is running very strongly?

And then the last question is, I just want to clarify the comments on the two acquisitions, I think what I heard you guys say is that, that contributed roughly $8m in the first quarter?

They contributed about $1.7m to the first quarter, as we've been able to consolidate the results of all of them for the entire first quarter would have been close to $10m.

I'm saying next quarter instead of seeing the full $10m since some of them are European and don't hit our numbers until as late a June, you are going to see about four of the incremental eight next quarter.

And then by Q3, you'll see - you'll have a full $10m.

So, sort of a two, six, and 10.

Got it.

Got it.

Okay.

And Harry, it's Richard on your question about shredding

, I don't want to predict the future, but the reasons - there are a variety of reasons why the business is doing well, the trends, the inherent trends in the market of good legislation, regulation, etcetera and so forth.

But for us, I think the company is - it's the hard work we did last year rolling out to national equipments, we have a much bigger addressable market and getting our entire sales force trained in upper ramp to learn to sell it.

You know it's happening, and I hope it will continue to happen there, they are over their targets and though I don't know if we set the targets to lower

job and you know time will tell them that.

Remember Harry, you got to like $60m to $70m business and if you need our

to grow net in the 20% range.

And so if you are modestly above your new sales objective, it's off of target of maybe $10m to $15m of new revenue added to the sales force.

So it's not a bad move, it's just a momentum issue that we think will be around for long time and it's obviously favorable early results, which was important - this was important to watch as we enabled our full sales force to sell that service

Okay.

And then last question I had was on the boxes, you said you are selling more cartons.

Can you help us, for some of us who hadn't been following the company for a long, long time, what that is historically meant in terms of translating into more stored boxes for the core business?

And then roughly what is your total count on stored boxes currently?

I'll let someone get our total count.

We have not been able to do the analysis with enough precision to know what the relationship is between today's box sales and tomorrows new additions.

It's sensible that's the leading indicator, but we don't have the empirical data to be more precise than that.

Thanks.

In North America, we currently have 220m cartons or roughly 270m cubic feet of material.

Thank you sir.

And our next question comes from Thatcher Thompson from CIBC World Markets.

Please go ahead.

Congratulations on a great quarter guys.

Thanks.

John a quick question on OIBDA number.

What's the difference between Iron Mountain Europe and North America?

Thatch we are glad to say you can't say it either.

I can't say it.

I don't know, I know there is some debate of how to pronounce it, maybe we need a FASB ruling on pronunciation.

We are looking for answer to your question.

In terms of margins, Europe is running in the low 20s, about 23% and North America is running about 30%.

Okay.

And Richard it sounds like you've got attraction now in the digital business, any thoughts on linking up or forming a partnership with a big global consulting firm that would help you guys manage the process of moving of digital information into your system?

Well.

Yes, maybe, but I wouldn't want to speculate beyond that.

Okay.

Is that something you guys have thought about in the past?

Of course.

Okay.

Is it something we might hear about in the near future or this year?

I wouldn't speculate on anything about the future.

All right.

Thanks guys.

Thank you.

And our next question comes from Chris Gutek from Morgan Stanley.

Please go ahead.

Thanks.

Hi Richard and John.

Hi Chris.

I just want to dig a little deeper in the cold storage business if I could, I guess in the fourth quarter the organic growth in the cold storage business ticked down a bit during the first quarter, you have only given the whole number, not the

decimal point, and I assume it's pretty difficult to get that actual decimal point in accuracy.

Is it that your general sense that the cold storage growth rate, organic growth is about flat sequentially versus the fourth quarter or directionally is up slightly or down slightly or is it hard to say, and physically can you talk about new box additions versus destructions and terminations

Yes.

Up slightly, you will notice that eight are in storage, and six on service rounds to eight total.

So, you couldn't have gotten there with a 55 and a 75 that is as much as I am say about, beyond the whole numbers.

In terms of the dynamic slight improvement in volume growth mostly coming from more robust new sales with the existing customer in's and out's being sort of unremarkable in terms of the change of their behavior, and price action being pretty much consistent with the past.

Some of our smaller businesses like our niche business in software escrow, and our Latin American businesses are seeing higher growth rates.

And Europe is falling to earth a bit of obviously unsustainable high teens growth rate given its new size.

So, that's the overall dynamics that we are seeing.

Great, and then follow-up on the sales force.

Could you give us a kind of extra update on where you are with the sales force restructuring with the new incentives, and kind of drive deeper penetrations with existing clients.

I don't know if there's anything you can quantify in that regard, but maybe in terms of growth in number of sales people or on your productivity nature or anything that give us a sense if there often improvement there?

Yes.

Well as I think I've said earlier the headcount is up about -- little over 30% and they are over 90% of their quarters, which is far better, where they were this time last year and the quarters are up substantially, I don't have the number obviously with the headcount, and some other reasons.

So, look I think on every metric we are looking at it, this is moving in the right direction.

We still got a lot of hard work to go, because it's one thing to hire people and the structure --- we are rolling out technologies, things to be able to help them manage what they are doing and so forth.

But I think that everybody believes, or at least almost everybody, believes that the changes we made were the right things to do, and we feel lot of excitement and therefore that's turning into better pipelines, better performance, you get to plan and so forth.

Let me add just a caution.

When your business is up 23%, your headcount is up 31%.

That's kind of a necessary increase to maintain or slightly improve contribution from internal growth.

And historically, the total contribution of our new customers to growth has been in the order of 3% to 5%.

So, even if you blow your number away on the new sales side, it doesn't move the dial multiple percentage points, it's not possible.

The trick to Iron Mountain is to be able to have a various types of sales force that grow, when we grow the body count faster than our rate of growth of revenue and when you get big, that gets harder but we think we now have a structure that will enable us to bring people in and train them and give them credit for it.

And not only is structure a broadened product line that gives them enough opportunities so that you can get continue growing in a selling organization, put more people in the territory frankly over time, but continuing to enhance their own personal opportunity.

So, it's a formula that will work, but you have to manage it and I think our people are doing a pretty good job of it..

That's helpful.

Thank you.

Thank you.

Our next question comes from Franco Turrinelli from William Blair and Co. Please go ahead.

Hi John and Richard.

Hi Franco.

Since Thatcher extracted the margins out of Europe and North America, I guess I should try to extract Latin America margins, and also just maybe give us some update on the geographical breakdown of revenue right now?

Yes.

Latin America is about 2%;

Europe is about 16%, 17%;

Canada is about 6%, and the rest is US.

So, our North American margins were in line with US 30% plus or minus.

Great.

John, you mentioned the possibility of increasing discretionary Capex to capture European opportunities.

Is there something specific that you see in terms of that market, or is this just cautionary comments?

As you said foreign and what I meant was Latin America, and the reason is obviously, exchange rates are very good.

It makes sense to buy real estate in Latin America now, makes about three times as much sense as it did three to five years ago.

And since we

And we think more sense it's going to make in a year or two.

Right.

And since we have a small businesses in each jurisdiction, these are the five countries we operate in, and its very hard to attract local debt.

So, bringing on fixed assets allows you to get to a local debt free-standing nonrecourse to the parents' death in each of the country.

So, that's kind of our strategy is we would like to take control our long-term

space and get local debt, and invest in the local currency for all the obvious facts and investment hedging reasons.

Frank, we smelt some good opportunity that we might take advantage of.

Richard, what about Europe, is DISOS the first of many

to fall in that region?

Let's say that our acquisition activity there has not stopped, and we are busier than a one arm paper hanger, but I haven't got a clue what's going to fall.

But having said that, on EUR18m business or US $22m revenue business, they are very rare in Europe.

We don't know of anything else than when they are buyables that they

.

But there are still a lots of small players, and still there is a robust market for that

.

And we are still trying to figure out, not figure out, we are trying to follow a specific strategy, and if you are watching carefully you can look at the foot prints that are missing, and you can see us come back in certain footprints and geographies and do the hold in because you know from our own work here in US, the economics that drives them, we are going to keep doing that of course.

But there's no beggies, there's no things that are going to basically move the down big time but the more important point is that strategically in Europe, we've done frankly over the last five years but as you know including Haze and then DISOS was a nice transaction to get done We've really established a footprint and strategy footprint and a market position that I think will be on rival.

So that's what we are after and I think we are sure to accomplish that.

Now we're just going filling around the edges and we extract and start driving value out of it.

Rich one final question, if I may of the CV.

The improvement in the digital service is very encouraging.

To what do you attribute it?

Is it the result of your repositioning or your changes in how you are selling the business or is it just maturation and that the customers or the market really realizing that it needs to spent money on this service?

Well, it's a combination of things, as we've said before in the e-mail space there was a knee-jerk reaction to just do something to be compliant, and so a lot of companies put up in-house solutions.

They're now coming to learn that they're extremely hard to operate.

And that there is scale in the business and having somebody else do it is a smarter thing to do.

So they are now starting to solve their long-term problem.

They are reactively a short-term solution.

And so the market is maturing and coming and in the right direction, and I think at the same time we are learning ourselves, you know, how to sell it, and how to do it, and all those sort of things.

And this is a new venture; we're having all the growing pains.

But I think what's different is it's not only sitting at the door, its coming up and we have to get ready.

We have to get more ready.

I'm not saying we aren't ready, but we have to make sure we run with the market when the market is running.

Sorry, I'm going to squeeze one more.

I realize that Europe has a lot on its plate, but what about I mean the Secure Shredding and digital ready for European cross sales or is it too early?

Well, that's a good question that we're debating, because we got some customers that want answers to their question.

And I don't know yet if we can do it.

So let me just not answer that.

The opportunity is there.

I can tell you that.

On both lines of business or - -?

Yes.

Sort of when that strikes off.

Yes.

I don't think, it's not a question if we are going to do any of this.

It's a question of what's the right time to do it exactly.

Okay, thanks. congratulations.

And I would like to stress that we made a commitment a few call ago to keep this in an hour.

We have three or four minutes, and now we got a handful of people.

So I'd love to ask the rest of you, and I apologize

get away with it.

Just asking one question if we could because we going to cut it off here in a few minutes.

Thank you sir.

And our next question comes from Andrew Steinerman from Bear Stearns.

Please go ahead.

Good morning.

Andrew we didn't know your next when we said that.

That's okay.

I'm actually going to ask few questions anyhow.

The storage 8% now, cold storage we were thinking 8% to 9% for the year at

.

Are we still thinking that range being in the moderate acceleration through the year on cold storage?

Yes.

Okay.

And just a quick re-shredding, is that within storage related services, is that one of the reasons why that business has been accelerating?

I'm sorry.

Can you repeat that?

Shredding, is that within store related services?

Yes.

And that's one of the reasons why that business has been accelerating?

Right.

Okay, thanks a lot.

I appreciate it.

Yes.

Thank you.

Our next question comes from Bradley Safalow from JP Morgan.

Please go ahead.

Hi good morning.

Thanks for letting me squeeze in.

Hi Brad.

My question has to do with Germany, obviously a very large market and historically it is not out stores.

You do something there from a corporate perspective that you see willingness on clients;

I think you referenced 2% outsourced today.

Should we expect that, you are doing something there which suggests that there is going to be an acceleration of trends or is this kind of supply pushing demand, so to speak, and that your presence will create more interest in outsource?

No.

I think it's a combination of both.

Business practices and culture.

Historically maybe re-limiting and restricting, but what's going to change it is the combination of the European Union regulations and so forth.

And the fact that the world is smaller place, its a global world and the German industry has recognized that they need to be, to be globally competitive they need to be efficient and we help from the efficient.

So we not only help from the compliance, but we help from the efficient and its economics usually wins and we think it's going to win here.

So your expectations for growth there would be maybe higher than what you are seeing?

Yes.

It looks, yes everything in time.

I know, you have people on that

that the market terms maybe some idea.

I don't want accuse anybody of anything, but maybe we are accustomed to product companies where when you get a hot product it gets goes slam the door.

None of our businesses work that way.

You get into a trend and you ride it up, but there is a lot of physical and lot work and lot selling and so forth.

But the trends are good of course, now the way, that's what makes them good because they don't go the other way they

either.

If I'm right about this, we might have some three people left in the queue.

We would like to be able to quickly - -

We will take your call, sure.

Thank you.

Our next question comes from Timothy Byrne from Robert W. Baird.

Please go ahead.

Thank you for taking my call guys.

Richard, this is a speculation question, I recognize.

For quite a couple of years, you have spoken about returning cash to the shareholder in some form or another, either a dividend, buybacks, what have you.

In your mind, what needs to happen for the trigger to flip and say, okay, now it's time?

I don't know if I thought about that, and therefore I am not very sure I want to speculate out loud, but it has to do with, look, I think that maybe I will speculate a little bit, and I don't like the decision, certainly don't make it by myself, probably don't make it at all.

We have to get to the point where -- it gets to the point where if we cannot intelligently invest your money because it's your money or a shareholder's money inside the company, we are going to get back to them, and we are working hard by the way to create more and more growth opportunities.

So, it's the ying and yang of when that happens.

Look, I don't believe digital is going to blow, I think it's going to do well, but I don't think it can blow so hard that it just constructs enormous amount of capital.

I just don't believe that.

It's nothing reforecast and say so that, but if it is, that would change the answer a little bit and so forth.

But having said that, I think the real indicators will be, is when we get into the point where our leverage starts dropping and just continues marching down, you know, this is a company we want to keep leveraged, it is that simple, and when we get the company keeps marching down, then, that's what we'll do, and you look at where we've been.

We started marching it down, and we walked in some great opportunities, okay.

We got it as low as about 44, which didn't take along.

We went some 55 to 44 about a couple of years or a few years, okay.

And it will march down again, but along the way we had the opportunity to buy our biggest competitive in Europe.

We had the opportunity to buy out our roughly half partnership in Europe.

We have a few more partnerships our there.

We bought in our partnership in Netherlands.

There are a few others out there and may be in time those will ripen to the stage we would do that although none of them are anywhere near size and impact for that that sort of stuff.

So, our pace right now is, look we clean it up stuff because it's a good waste of best money.

Well, having said all of that, the leverage is on stock, is marching down anyway, it's going to march down and as it marches down, that's when.

Someway, I won't give you the number,

as to where trigger is, but that's probably the - that's the way I'll be looking at it.

Thank you, and our next question comes from Adam Shore from UBS.

Please go ahead.

My question was answered thank you.

Thank you, and our final question today comes from Edward Antorino from Fulcrum Global Partners.

Please go ahead.

I'll catch you offline, I have a couple of questions.

Thanks a lot.

Well, thank you everybody.

We have talked to you for one hour.

We appreciate you coming.

As I said, this was a good quarter for the company.

Last year, when we saw internal growth rate at 6%, we told you then, we didn't like.

I told the employees

thing in the company.

when you're really growing about 14% or 15% and people are working hard.

We are making money and trying to do well, but we a pretty high standard for ourselves in this organization because our attitude to ourselves, as we know, we are not a good company, we're or great companies, and great companies make all these things happen.

And we believe the trends are in the right direction.

That doesn't mean every quarter marches.

On the one hand, I want you to hear the optimism, I want you to hear that business is running as planned, I want you to hear the strategic work we've been working on is happening and working, but I don't want to get that excited.

Don't go out by the stock because I'm excited.

That would be a stupid thing to do.

So, by are having said that, we are feeling pretty good.

We appreciate your support and so forth.

I will tell you that some of us will be out visiting investors, it is that time of the year, and we're invite many of you as possible that would like to come to our Annual Shareholders' Meeting on May 27 at 10 AM in Boston, and then our conferences, May, the 6th,

will be at Robert W. Baird growth stock conference in Chicago.

We will also be on May 19 at the Bear Sterns high yield conference in New York.

On June 15, Steven Golden and I will actually be with John for the Bear Stearns Computer Business services equity conference in New York.

And on June 23, John and I would be at the William Blair Equity Conferences at Chicago, and I think the other are being put together

the Horizon.

Hopefully, we can catch up with many of you out there as you come to the conferences and give us a chance to answer further questions, if necessary.

And always, we appreciate your support.

I would like to solicit one more request about our annual report.

We do put a lot of time and energy and thought into it, and so we always solicit your feedback and input.

Have we been effective in communicating what we believe about our business, because that is our goal.

It is designed for shareholders, not for our marketing folks, in fact our market folks hate it.

They have forced me to put pictures in it, but it's over me ticking and screaming.

It is for your benefit and we would appreciate your feedback.

Again, thank you, and have a good day.

Thank you, ladies and gentlemen, today for your participation.

This concludes your conference call.

You may now disconnect.

Good day.