鐵山公司 (IRM) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Iron Mountain Q2 2007 earnings conference call.

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

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

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

(OPERATOR INSTRUCTIONS) As a reminder, this conference call is being recorded for replay purposes.

I will now turn the presentation over to Mr.

Stephen Golden, VP of Investor Relations.

Please proceed, sir.

Thank you, and welcome, everyone, to our second quarter 2007 earnings conference call.

After my announcement this morning, Richard will give his state of the Company remarks, and then turn the call over to Brian McKeon, our CFO, for the financial review.

This will be followed by Q&A.

Two quick items before we get started.

First, we'd like to thank all of you who took the time to come and see us at one of our conference appearances in May and June.

We always enjoy seeing you, and certainly appreciate your continuing support.

Next, I'd like to announce that our tenth annual investor day will be held on Tuesday, October 2nd, at the Grand Hyatt Hotel in New York City.

We'll have more information available shortly.

Please keep your eye on our website for registration details.

Again, that's Tuesday, October 2nd, in New York, and now for today's program.

Per our custom, we have a user-controlled slide presentation on the Investor Relations page of our website at www.ironmountain.com.

Referring now slide two, today's earnings call and slide presentation will contain a number of forward-looking statements, most notably our outlook for our 2007 financial performance.

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

Please refer to today's press release or the Safe Harbor language on this slide 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 you know, operating income before D&A or OIBDA and free cash flow before acquisitions and discretionary investments are metrics we speak to frequently, and ones we believe to be important in evaluating our overall financial performance.

We provide additional information and the reconciliation of these non-GAAP measures to the appropriate GAAP measures as required by Reg G at the Investor Relations page on our website, as well as in today's press release.

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

Thanks, Stephen.

Good morning, everybody, and thank you for joining this morning.

As has been our custom in the midsummer call, hopefully we'll keep this short.

But we've got a few things to talk about, and so why don't we get right to it.

As you've seen already from the press release, the numbers for the quarter and frankly, for the first half really remain solid.

Performance is good.

And our first quarter results are right in line with what we had projected and what we expected.

And so we're off to a good year.

Internal growth remained strong at 9%, in the middle of our forecasted range.

Revenue and OIBDA dollars both exceeded the top end of our respective guidance range in the quarter because of strong revenue growth and good overhead and other cost controls, as well as the timing of managing certain projects and investments.

Storage revenue internal growth at 9% as expected, was also in line as we expected the first half of the year.

At 10%, service revenue continues to be strong.

Core services growth continued to track storage revenue growth, and our comp services revenue growth remains at the high to mid-teens.

In the first half of the year we've seen strong project revenues in a variety of areas.

Our fulfillment services business is doing well.

And of course, our software license sales side and our digital business all contributed to the growth.

In addition, we are seeing high recycled paper prices for our shredding business.

To remind you, our shredding business now is on target to shred somewhere around 250,000 tons of paper a year.

So fluctuations in those prices matter to us now.

We're pleased with the performance of the business, in revenue as well as cost control, and remain confident in our target growth range for the balance of the year.

That being said, I have to remind you as I always do, that we will fluctuate from time to time and from quarter to quarter.

But we're not talking large fluctuations, but we do get some fluctuations in the comp services and the projects and the timing of some of this stuff.

But all in all, the business is running well on the revenue side.

Net income was $74 million or $0.37 per diluted share, and is up 13% versus the first half of last year.

As we told you in our last earnings call in Q1, we've done a lot of other work in our business and are now shifting a little bit off the financial side, just to remind you of a couple of things.

One of them is, our treasury group has been very active in the capital markets and we refinanced much of our debt, including our senior credit facility, as well as ramped up an International Treasury Center in Switzerland.

Brian will go into more detail on this.

But on the bottom line, is we greatly enhanced the financial flexibility and improved our position relative to foreign currency exposure.

This work has had a positive impact on our tax position, and again, Brian will go through the details which will take a little while because it's complex.

But as a result of implementing this multiphased treasury program, we're able to reduce our structural tax rates by about 50 -- excuse me, about 500 basis points as we consume the balance of our NOLs and will become a meaningful taxpayer in 2008.

Based on our first-half performance, 2007 is shaping up well.

We continue to invest in our initiatives and projects according to our plans, and we'll likely see higher levels of spending just a bit in the second half versus the first half.

As always, there will likely be some variability, as I said, in the quarter-to-quarter basis, but we expect that we'll operate in the range we're projecting.

We feel good about how business is running overall, but I want it remind you, this is not a shift, this is not a change.

The business is running rock solid.

It's running as we predict, and is [upset] over and over.

That's what we think it will do.

This also, though, is shaping up to be a relatively large acquisition year.

And in fact, to date we've spent $264 million on 13 transactions.

That's the highest spend rate since the 2003-2004 year, where we acquired the large operation in Europe from Hays and doubled our business in Europe.

And in fact, in the same year we also bought out our minority partner.

So as you know, we've had a few pretty high years and then we settled down to more common years.

That's been our history.

This is turning out to be one of the high years.

We expect that will come back down as we look out to the targets out there.

We don't see much, as we've said before.

They come and go, but we don't see much in terms of the large-scale targets, particularly in physical business.

And let me talk to you about some of those acquisitions.

The most notable one was the acquisition of ArchivesOne.

We closed the deal in early May.

It's a beautiful business.

They've done a great job building, we like to call it a mini Iron Mountain.

They've done a good job of rolling up some small players around the country and had built a good management team and a strong integration platform.

Which means it's relatively easy to integrate with us.

We're pleased with the team.

We're pleased with their business overall.

The integration is going well.

And because they had really modeled themselves a bit on us, it's been fairly smooth to make it work well.

Since our last call, we've also closed several other acquisitions.

We've closed a nice data protection business in the physical space in Northern California and a couple records management businesses, one in France, and the other one in Benelux in Europe.

We also were able to close a shredding acquisition in Ireland to complete our national footprint over there, as we expand that product line a bit further outside of North America.

None of these acquisitions, I will tell you, had any impact in the Q2 numbers because of the timing difference between our financial year reporting in Europe versus the U.S.

But they'll come in the future.

Let me talk before I close on this section about two actually relatively small acquisitions, but ones that are kind of different, and so worth a little discussion.

As we branch out and invest a bit in expanding and continuing expanding our solution set to solve customer problems in both our physical and our digital business.

In the second quarter we acquired Accutrac, which is a records management software company, and another company called Avalere, which is a software development company in the digital data protection space.

So let me drill down on both of those for you a little bit because they represent, in one case, some significant opportunity, in the other case, a continuation in our digital business of the strategy we've spoken before about using acquisitions to gain intellectual property.

On the Accutrac space, Accutrac is a software business that serves our physical business in the records management space, in whereas customers use Accutrac software to manage their physical records throughout their life cycle at their location.

Basically, it's a broadly distributed platform in which customers can register and track and manage the life cycle of physical documents of any type.

With compliance and cost concerns growing, companies are looking for software tools like Accutrac, and we've seen an uptick in that market demand from our customers.

That will allow them to use the same logic and have a consistent program, both across the records that they manage themselves on site, and as we integrate it with our platforms across the records that we store for them.

So it takes us and continues our drive towards a single platform or a single view for our customers of the information, regardless of where it's managed, on site or off site.

It also is a platform that allows integration points with electronic content management systems.

As many of our customers have bought these systems, such as Documentum, FileNET, Oracle Open Text, et cetera, have invested heavily in those as work flow platforms, and at the same time, they need the same kind of logic to manage the physical records.

So the Accutrac product will sit side by side with products like that, and also provide some integration points so that customers continues toward this single view vision that they're all look for.

Over time we expect Accutrac will continue the growth -- will contribute to our growth through software license revenues, consulting and professional services, and of course, ongoing maintenance fees from that.

It will also help drive more core storage in our physical records business.

We also see over time that Accutrac will increase our overall value proposition to our customers for a compliant records management solution.

It allows them to manage active records and to bridge the physical business, as well as some digital assets, here again towards the single view.

It also will bring along consulting business and give us more inroads into the digital space as customers continue to drive the single view.

We expect to build off of that platform into -- as an integration point of what customers have on site, as well as what they have with us.

And it gives us access to information that customers have, that today we don't have access to.

So it provides a broader gateway for us to continue drawing -- driving our service platform.

Now let me talk a little about Avalere, which on the other hand, is more of an intellectual property play, rather than a revenue growth play, not that it won't help increase revenue because we expect it will.

As we said, as part of our digital strategy, we would expect to continue to look for acquisition opportunities there.

There are relatively few targets in the digital space that come along with substantial revenue and operations, and of course, we would continue to look for those.

But we -- there are also other types of acquisitions which are more about intellectual property, where companies build good technology and a good intellectual property base, and then where we can take it and bring it into our infrastructure and to our sales force and to drive value with it.

And that's where Avalere fits in this case.

Avalere really comes along with 22 patents which allow us to enhance our electronic and data protection capabilities.

Their technology supplements our backup services, in that it allows the customer to discover and classify information living on laptops and desktops.

It will also provide security, policy management, enforcement of documents on customers' desktops.

It provides tracking and audit reporting, as to the behavior of their customers at the end points of networks and the desktops.

And it also secures data through encryption on the desktops.

All of these functionality, in other words, allows IT and compliance to know who's doing what and when they're doing it, is it inside or outside the policies they've set.

More and more customers, with the advent of data privacy laws and other concerns whether it be export control laws or just a variety of things that are driving compliance, are trying to find ways to get control of the end points of the desktops.

Some people call it the data leakage problem.

Internally, that's what we talk a lot about.

And in fact, if you look at Iron Mountain's product suite, we are one of the largest providers of data leakage protection in the physical space through our secure shredding offering.

Because data leaks out of companies in a variety of ways.

It comes out through their physical documents and through trash cans and so forth.

And that's what the shredding business is about.

It also can come out through their network online.

We're not in that space.

But it also can come out through physical versions of digital datas, whether it be USB sticks, tapes, printouts, et cetera, et cetera.

And what this Avalere technology is it allows customers to control that.

And that's all part of our drive to allow customers to know where data lives, to protect it and back it up, and to control it from a compliance and cost perspective.

So we're very happy to have both of these companies join us, and their teams join us.

Avalere brings with them some great IT professionals that are joining our digital development team which will enhance our skills and knowledge.

And Accutrac brings its group of developers that have great background knowledge in the records managements business.

So both of these acquisitions have strengthened the Company and will drive us into the future.

And we at Iron Mountain are sort of uniquely positioned to lever this kind of technology and really it's -- it drives our vision of a single pane of glass access view to information in the end services as a service.

We will sell some of this as a technology, but we will also in time have it all set up as a service, so customers can buy it either way they like.

So that's what's really gone on in the business.

The (inaudible) we continue to be busy in that space.

But as I said earlier, it's a big year for us.

But we expect the last half to be a little quieter than the first half of the year in that space.

Last before I turn it over to Brian, though, let me talk to you about -- as you know, those who have been tracking us in the last roughly year, we've been working to expand and strengthen our Board of Directors.

And I'm pleased that we've taken another step, just to remind you.

We expanded our Board about six to nine months ago, where Laurie Tucker, a Senior Vice President of Marketing at Federal Express joined us.

She's been a great addition.

And now I'm pleased to tell you that Mike Lamach, a Senior Vice President and President of Security Technologies sector at Ingersoll Rand, has joined our Board.

Mike is a seasoned business executive and has deep experience running multinational companies, and is of particular importance to Iron Mountain because he's got broad experience on a global basis around multiple product lines and of course, building a strong executive team.

Prior to joining Ingersoll Rand, he was Group Vice President and Managing Director for the European, Asian, South African, and South American businesses at Johnson Controls Automotive Group.

And before that, he served as Vice President and General Manager of the Controls Group of Johnson Controls, leading the company's integrated facilities and business managements.

So Mike's a great guy.

Both as a person we've gotten to know him.

We're real pleased that he was willing to join us, and we look forward to the advice we're going to get and the strength that he continues to bring to our Board.

So those are the major things that are going on at Iron Mountain.

Just to remind you, just in summary, strong revenue growth is driving the business.

The business is performing as we expected.

And we expect to keep -- it will continue to perform in that way.

And so with that, let me turn it over to Brian.

Thanks, Richard.

Q2 was another solid quarter for Iron Mountain.

In terms of our agenda today, which is summarized on slide three, we'll start with the review of our Q2 and year-to-date P&L results.

As part of that discussion, we'll examine the key drivers of our performance through the first half as context for our balance of the year outlook.

We'll also review our cash flow performance, capital spending trends and capital structure, areas where we're making solid progress this year.

Finally, I'll walk you through our Q3 and updated full-year 2007 guidance.

Slide four highlights our key messages from today's review.

As noted, we exceeded our forecasted ranges for both revenue and OIBDA in Q2.

The primary driver of our financial upside was strong revenue growth.

Internal growth increased to 10%, at the high end of our target range, reflecting balanced growth across our key business units.

We continue to see strong growth in services, particularly in North America and Europe, and achieved our 74th consecutive quarter of increased storage revenues.

We also benefited from control and phasing of spending, which supported a 70 basis point improvement in SG&A as a percent of sales.

Reflecting our strong first-half performance and the impact of recent acquisitions, we're raising our guidance for the full year, with an updated outlook for 13% to 15% revenue growth, and 11% to 14% comparable OIBDA gains.

Let's move on to looking at the details of our performance on slide five.

Slide five compares results for this quarter to Q2 of 2006.

As noted, we had another solid quarter, supported by balanced growth across our key business areas, which drove a 15% overall increase in revenue.

Our largest segment, North America physical, posted 12% growth overall.

Internal revenue growth was 10%, supported by solid storage gains, strong special project and fulfillment revenues, and higher recycled paper prices.

Our international physical business was up 24% overall, reflecting 9% internal growth and substantial benefits from foreign exchange, as well as select acquisitions that are strengthening our global footprint.

Our digital segment also continues to perform well, with strong growth in storage revenues, particularly in backup and archiving, which is offsetting declining market demand related to data restoration projects.

From a gross profit perspective, these gains supported a solid 12% improvement year-on-year.

Gross margins are down as expected versus last year.

A key factor driving this change has been lower storage gross margin in North America, reflecting an increase in new real estate and expected increases in real estate taxes and property insurance.

Capacity utilization is down to 83.4%.

This is a timing issue, and will benefit margins as we increase our utilization going forward.

Gross margins have also been impacted by the dilutive effects of some of our recent acquisitions, and startup losses in certain international JVs.

The decrease in gross margin was partially offset by the control and phasing of overhead expenses.

SG&A growth was only 12% in the quarter, which yielded an improvement of 70 basis points versus prior-year levels to 28.2% of revenues.

Overall OIBDA grew 11%.

Depreciation was $54 million and amortization was $6 million, with the increase related to additional amortization associated with recent acquisitions.

Slide six breaks down our overall revenue growth, showing internal growth by major service line, as well as the impact of acquisitions in foreign exchange, which have added about 4% to our growth rate year-to-date.

For the quarter and year-to-date, our core and total internal growth rates are within our forecasted ranges.

Storage internal growth continues as expected.

Core service is tracking storage, led by year-on-year improvements in our North America physical segment, including solid revenue growth in our shredding business.

Complementary service is tracking above the high end of our range, benefiting from strong special project performance across geographies and from high recycled paper prices.

As noted in the past, complementary revenue is our most volatile and difficult to forecast revenue stream, with internal growth rates ranging from plus 20% to minus 10% since mid-2001.

This quarter's performance was obviously at the higher end of that range.

Overall, we feel positive about our internal growth performance this year.

Moving on with the review of our Q2 P&L performance, slide seven bridges our Q2 operating income to net income and EPS results.

Operating income for the quarter increased 8% to $111 million.

Net income and EPS growth were limited in Q2, driven by a few key factors.

First, we saw higher interest expense, as expected, driven by increased debt for acquisitions, most notably ArchivesOne.

Interest expense also saw an impact of about $4 million related to the timing of the retirement of our European senior credit facility.

As discussed in our last call, we've collapsed our European debt obligations into a global structure that provides us with increased financing flexibility.

We closed this part of the structure on April 15th.

Because we have a two-month reporting lag in our European results, the net effect is that our reported results reflect a double impact to interest expense in Q2.

We included the cost for Europe in the February to April period, and in the U.S.

results in April to June.

The $4 million incremental increase is a one-time reporting effect, and had no impact on cash flows.

For Q3 and Q4, we expect interest expense to be in the $55 million to $56 million range.

Net income gains were also impacted by lower other income, reflecting relatively low benefits from foreign exchange rate fluctuations, and costs related to the early extinguishment of debt related -- as we advanced our global treasury program.

These factors offset some favorable impacts from a lower effective tax rate in the quarter.

As noted on our last call, our estimate for the 2007 effective tax rate was 38 .6%.

We updated these estimates in Q2, and now expect that our effective rate for 2007 will be approximately 35% to 36%.

Note that there was a typo in our press release, noting a 33% full-year projection that should have been noted as 35% to 36%.

This estimate reflects an updated estimate for our structural rate, which we now project to be 37%, and about $5 million of discreet benefits from year-to-date foreign exchange rate fluctuations.

Let me take a moment to explain this impact.

Each quarter our subsidiaries' mark-to-market debt instruments that are denominated in nonfunctional currencies.

With the implementation of our new global treasury program, there are now pretty significant difference in tax rates across our legal entities.

In Q2, we recorded FX losses in higher tax jurisdictions, and offsetting gains in lower tax jurisdictions, such as Switzerland.

The net effect was a $5 million discreet tax benefit in Q2, which reduced our quarterly effective tax rate by about 9%.

We'll likely see continued variability in the effective tax rate related to FX changes and other discreet items, such as tax law changes, and certain adjustments to our tax reserves as we move forward.

We'll continue to highlight these changes discreetly in presenting our results.

Excluding impacts from discreet factors, we estimate our tax rate for the third and fourth quarter to be 37%.

Turning to slide eight, let's look at our year-to-date performance.

You can see that our Q2 results build on the solid performance we posted in Q1.

Overall balanced growth across our key businesses and service lines is supporting solid revenue and OIBDA gains, and reinforcing our confidence that we're on track towards delivering against our strategic and financial goals this year.

Let's now shift to reviewing drivers of our cash flow performance.

Slide nine summarizes our capital spending for the year and highlights our full-year outlook, which remains consistent with our previous guidance.

At these levels of spending, it's likely we'll see a moderate reduction in capital spending as a percentage of sales this year, performance consistent with our longer term financial objectives to increase capital spending efficiency.

Our year-to-date spending is $162 million, including $18 million for real estate.

As you know, our capital spending is not spread evenly throughout the year.

We expect our capital spending to increase in the back half of the year, reflecting the timing of our investments, primarily in storage systems to increase our physical capacity.

Slide ten highlights the cash flow performance.

For the first half of 2007, we generated $59 million of free cash flow before acquisitions and discretionary investments in real estate.

The year-on-year increase in cash flow reflects profit gains, about $22 million of insurance proceeds related to the London fire, and relatively lower CapEx spending at this point in the year.

Free cash flow will likely decrease moderately in the second half of 2007 due to additional capital spending slated for the next two quarters.

Overall, we expect free cash flow before acquisitions and discretionary investments to be between $40 million and $60 million this year.

Now let's turn to slide 11 to review our debt statistics.

As discussed in our last call, we -- we've added a broad global treasury program over the last several months that has yielded a number of benefits.

These include better aligning our treasury operations and capital structure with our global footprint, creating a more flexible -- flexible -- excuse me, creating a more flexible structure that's increased our liquidity and extended our maturities, consistent with our recurring predictable revenue profile and the long-term nature of our assets.

And finally, we've lowered our costs, the benefits of which can be seen in our improving projected tax rate.

In April, we refinanced our senior credit as part of this program.

The details were discussed in our Q1 call in early May.

Here you see the results of those initiatives.

Interest is stable at 7.6%, and we're 79% fixed.

Consolidated leverage is at 4.5 times, within our target range.

And maturities increased to 7.8 years, with no meaningful repayment obligations until 2012.

As of June 30th, we had more than $300 million of capacity available under our revolving credit facility, plus excess cash, providing substantial flexibilities to support our growth strategy.

As we've completed the major stages of implementation of the new treasury program, we feel we're well protected against some of the recent fluctuations seen in the credit markets.

Turning to slide 12, to summarize, we're pleased with our start to the year and believe we're on track towards delivering against our business objectives.

We're raising our full-year guidance to reflect our first-half results, the impact of new acquisitions, and continued outlook for strong second-half performance.

We're raising our revenue outlook to $2.66 billion to $2.695 billion.

This increase versus our previous range, primarily reflects a flow through of first half results and updated estimates for acquisitions and foreign exchange.

We now expect operating income to be between $434 million and $453 million, and projected depreciation and amortization to be about $240 million this year.

This would imply an OIBDA range of $674 million to $693 million.

Please note that our updated guidance reflects about $12 million of additional revenue from acquisitions this quarter, that will have a moderately dilutive impact on second-half profits.

We also expect some shifting of operating expense additions towards the second half, which is impacting our updated outlook.

Our expectations for Q2 performance are shown here, as well, which implies revenue growth of about 14% to 16% with similar OIBDA gains.

Thanks, and we'll now open the phones to take your questions.

(OPERATOR INSTRUCTIONS) Mike Schneider, Robert W.

Baird.

Maybe first we can just address specifically SG&A in the quarter.

You did call out that there was tighter expense control.

Looks like this is the first quarter you've shown at least SG&A ratios down in quite a while.

Can you give us some more color as to exactly where the savings are flowing, and if this is an ongoing trend from here?

Yes, in terms of SG&A overall, as you mentioned, overall, we controlled the growth to about 12% in Q2.

And that's about 13% growth year-to-date.

Our G&A and IT growth has been controlled below the rate of revenue growth year-to-date.

We are investing behind sales and marketing account management, primarily through increased marketing support, behind the business, while at the same time controlling head count increases.

So those are some of the dynamic going on.

We were impacted in part by timing of expenses.

As we mentioned, we expect some shifting of phasing expenses later to this year.

That's primarily behind increased systems capability.

We're going to be rolling out Oracle globally on the finance side.

We're investing in time and attendance systems, systems to improve management, transportation, and chain of custody, as well as beefing up our security capabilities.

So there will be some increase in the expenses the balance of the year.

But overall, we feel good about the expense control year-to-date.

Do you continue to expect leverage on the SG&A line?

I would say quarter to quarter, it will move around.

But over the long haul, absolutely.

We continue to believe -- not only believe, we strive and will be able to drive margin up over time, and some of it will come out of SG&A.

Okay.

And then switching to the top line.

Enterprise accounts, can you give us an update as to the strategy and maybe what the growth rate of the enterprise accounts have been versus the core internal growth rate?

I don't have that in front of me.

I'll give you just on a color basis, we're getting growth, frankly across all segments and all products lines, some bigger than others, faster than others.

We're expanding the enterprise accounts just a bit, and we'll continue doing that some (inaudible) book and so forth as we dig deeper.

The program, as we have said for two or three years, is working, and has worked well.

So that's why we kind of continue to expand in it.

We've also created a sort of second tier there called strategic accounts, which we put in place about a year, year and a half ago.

Which is also -- maybe it has been nearly two years now.

It's starting to ramp, and we're seeing that.

Which is just a slightly lower cost coverage model to do the same thing.

And that group is starting to -- it's starting to see their legs and we're starting to see performance out of that.

So you might think about enterprise accounts as being sort of that, 50 large ones, and strategic being the next roughly 1,000, still large customers and so forth.

If you look at growth rates, though, segmenting those groups into enterprise, strategic, et cetera, does it appear as though those top two groups are driving disproportionate growth?

Or are the legacy small customers still heavily participating?

Everybody's participating, and on a percentage basis, everybody's participating quite well.

Obviously, you get more bang for the buck out of the large side of the triangle.

So, mix-wise, sure.

But yes, we're seeing growth across the board.

And final question, I'll get back in line.

Just pricing, there's been an expectation that the pricing contribution would grow, I guess.

What was it during Q2, and what is your outlook?

Pricing hovers around where it has, which is in the 1% range.

I remind you we're talking about the North American physical box business, and -- which is becoming a smaller and smaller component of our overall Company.

And we just don't have that data on the rest of the world.

We see some pricing pressures in Europe, in the UK in particular, it's more the same thing we saw in the U.S.

post Pierce-Lahey, Iron Mountain merger which is post Hays and Iron Mountain Europe merging the UK, we're finding that the same kind of consolidated accounts and consolidation driving price.

And then here again, putting it into longer term agreements, and then over time, turn it around.

So, some parts of the world are driving price stronger than others.

But net-net, we think we're doing okay.

Over the next two or three years, it's hard to -- hard for me to tell you how price is going to go.

My expectation, price will go up.

But I'm not going to forecast how much.

Okay.

Thank you.

Michel Morin, Merrill Lynch.

I just wanted to drill down a bit on the gross margins.

In your press release, you mentioned the lower capacity utilization.

You mentioned higher real estate taxes and insurance costs.

I was just wondering if you could give us a bit more color around those items, how significant -- particularly the last two items, how significant they are, how much they've changed?

And on the capacity utilization, I know you mentioned 83.4.

What was that number last quarter and maybe last year?

Thank you.

While people look to see if we can find the capacity utilization in prior periods, I'm not sure I have it.

But they'll tell me in a minute.

The -- just to talk a little bit about capacity utilization, in the physical business that will move around.

Getting it into -- getting it to 90 is kind of hard to do.

Much beyond that, it will flatten out about that.

But we're talking about it was, let's see, at the end of the year, it was about 85.4, okay.

And then it -- I'm trying to say versus -- versus the quarter of '06, it was about 100 basis points difference.

Okay.

So what you're seeing is we've taken on a significant amount of space, most of that in North America.

And you'll also see the way the business works.

In some years, it's just a lot of building need shows up, and you build bigger and bigger, it will take the capacity utilization down a little bit.

And then in the next year or so, you'll grow into it right back up.

And that has margin impact.

Okay.

So it's all a function of growth rate, and growth rates are strong.

And the stronger you grow, the harder it is to keep capacity utilization up at the same time, okay.

But it's not something, quite candidly, that -- I don't think it's anything you should think about hard.

Right.

Just that -- just the aberrations of running the business.

Yes, and just overall in terms of kind of the cost profile or cost as a percent -- other types of costs are largely rising in line with sales growth.

We are seeing some acquisition and business mix impacts from things like stronger service growth and that's having some impact in our margins -- gross margins to date, in line with what we expected.

Yes.

And then on insurance comment about cost is really about -- we went to a policy renewal cycle in November of '06, right after Hurricane Katrina hit the market.

So we had bad market timing.

So overall, we just saw an inflation of insurance rates.

We would hope that we might see some turnaround on that in the market.

But who knows when the next time renewal comes up.

In the earlier call, a comment about -- and I made the comment that I would hope and expect to see pricing go up.

I want to make sure that I put a fine point on the reason I would say that is, look, we have over the years been getting more and more efficient as a business, and giving that efficiency, in a large way back to the marketplace, which is helping driving growth and market share and so forth.

We've still got a lot of market to grow.

But the other hand is -- and we've got efficiencies to grow.

But we're seeing costs go up in a variety of ways.

Building booms are making real estate costs higher.

Things that we've talked a little bit about.

Of course, there's energy costs.

So we're getting better at, and working harder at making sure we really do recover our true cost of stuff going up.

Whether -- and there are a lot of commodities that we can see flow up, whether it's concrete buildings or steel in (inaudible) or energy, and so forth.

So what we're doing is focusing hard, and I think our customers are more willing to understand that because we are able to show you that we have real cost increases coming at us.

All right.

Okay.

And just sorry, on the real estate taxes that you also mentioned in the release, is that -- is it possible to quantify or give us a bit of color as to how that's trending?

We don't have that specifically.

It was contributing to the overall -- .

To the overall pressure.

(inaudible) that we highlighted.

Okay.

And then I think you said in your prepared remarks that the -- we should expect a bit more spending in the second half.

Presumably that's in reference to the SG&A line.

And in fact if we look at how much you've raised the top end of the range on the revenue side and what's happened to the guidance on the implied OIBDA guidance, it doesn't look like the incremental margin is very high.

Are -- am I thinking about it the right way?

Or is there something about the incremental revenue that you're tacking on which is lower margin, or is it really just an increased spending plan in the second half?

It's a couple of factors.

The first is the new acquisitions since the last time we spoke to you, are going to add about $12 million to our balance of year revenue outlook.

But they're going to be moderately dilutive from an OIBDA point of view.

And that's principally related to the technology acquisitions and some of the international investments.

So if you back that out, that will explain part of the impact.

And the balance of it is basically the shifting of the spending that we had talked about, as well as kind of the mix of our overall outlook.

Great.

Thanks very much.

Chris Gutek, Morgan Stanley.

To quickly follow-up on the last question, so if there is dilution from the acquisitions at the operating income line, is that to say they're actually losing money?

For -- and again, I just want to clarify that these are some of the new ones that we've announced since the last call.

But on things like technology, IP and some of these international startup acquisitions, yes, they have a negative impact early on for us.

That doesn't mean they're losing money, that just means they're below our average margin mix.

Okay.

But at the actual operating income guidance number at the top of the range -- ?

You do get the impacts of integration costs, too, in the early periods.

Okay.

Okay.

Fair enough.

So I guess with the -- another related question would be with the revenue guidance having gone up, would it be fair to characterize that increase in guidance as primarily a function of the acquisitions, and to a lesser extent with the complementary services business exceeding expectations, but otherwise the underlying core business as sort of in line with expectations?

Yes.

Yes.

I think -- as I said in my remarks, the core business is running as we expect it to run.

We're not signaling -- we're not signaling a shift in growth rates or anything else.

They're strong and I think they'll stay strong.

You know, FX has an impact, of course, is our business mix and so forth out there.

Which has impact and it's hard to predict what that's going to be.

But it's similar underlying growth outlook for the back half of the year.

Right.

And specifically in the US, I'm curious, in the last couple months, are you seeing anything in your business in that suggests anything in terms of where the economy is going that might be different versus the interpretation of the Street economists?

In other words, any sign of slowing there that has you concerned about the prospects going forward?

No.

And I'm not sure we would see it.

The beauty of our business is, in good times and bad times, we tend to go right on.

I mean, we can see a little bit on the margin and what we could see, we're not seeing.

But the beauty of this business is, when times go bad, we do fine.

Right.

Could you guys quantify the -- for the whole Company the year-over-year benefit to margins for the higher recycled paper prices?

How meaningful is that, if you could quantify the number?

It gets a little complicated to quantify it because you have impacts from higher paper prices on the overall business.

But a rough estimate is in the range of 50 bits.

Okay.

And then finally, just to be clear on the longer term tax rate outlook, so on a GAAP basis you're saying 37%?

Yes, when you say on a GAAP basis, that's our estimate for Q3 and Q4.

And it's the effective tax rate excluding discreet items.

That's the new updated outlook.

And in terms of 2008 and beyond, would it be a similar type of number, or do you think you can drive that -- ?

We're not going to to get into specifics on the future years, but we're certainly hoping to leverage the initiatives we've put in place to improve that rate over time.

Okay.

And then finally in terms of the cash tax rate versus the GAAP expense tax rate, so the cash tax rate is rising toward the expense rate going forward?

Yes, our -- in dollars, we're -- we've paid about $12 million in cash taxes year-to-date.

And we expect to pay about double that for the full year.

So yes.

It's in line.

Okay.

Great.

Thanks.

Douglas Pratt, Mesa Capital.

Just to make sure I understood your comments, you said you thought that the acquired businesses would add about $12 million of revenue.

Is that for the remainder this year or is that next year?

The remainder of this year, and those would be the new one that we've announced since the last time we spoke on our last conference call.

Okay.

So then is it -- so their essentially, the businesses are about a $3 million run rate revenue contribution, based on that $12 million, just dividing by four?

It's what -- we're looking at that right now.

You're talking about a revenue contribution?

Yes.

We're looking into that right now.

Hold on one second.

I think they're higher than that because some of the acquisitions are -- had partial impacts in the quarter.

So it's parsing out the partial impact on the full year.

Apologies, we don't have that right here.

But I think that's right.

I'm sorry, so $12 million is not the full year run rate revenue?

It will be higher than that.

Like $15 million?

We just don't have that easily available.

Okay.

I'm just trying to get a sense of how much May and June benefited.

So it sounds like it was probably no more than maybe $2 million or $3 million revenue?

From those 12 acquisitions, it was a small impact.

I'm sorry?

For that $12 million, it was a small impact in May and June.

That's what I meant.

So like $2 million to $3 million, a couple million dollars?

Yes, again, we don't have the specific numbers.

Okay.

And I'm sorry, I didn't really understand the answer.

One of the other early questioners asked are they losing money.

I assume that was because you said they'd have a mildly dilutive impact?

Yes, the -- Brian said they're mildly dilutive.

What we mean is on a percentage basis.

We're not signaling that they are money losers.

Dilutive to margins, you mean?

Dilutive to margins, exactly.

And moderately -- for this year, we're going to have a moderate dilutive OIBDA impact, like $1 million for -- and that's a combination of integration costs and stage of development -- .

Yes, and if you parse it apart, the physical businesses we buy are money makers, but the two technology businesses are break even in one case, and one of them is pre-revenue.

It's intellectual property.

You buy the intellectual property, you buy the staff, so you buy the expense rate.

And that's where the big numbers come down.

Then you got to integrate it in a new platform, get it to the marketplace, and drive it.

But we bought some really good intellectual property and got a good group of people at what we think is a good price.

Okay.

And then finally, that use of the tax rate, normal tax rate we should use is 37% going forward?

That's right.

So about $0.03 a share came from lower taxes this quarter?

It should have -- it was about $20 million -- ?

Yes, that's right.

Okay.

Thanks very much.

Andrew Steinerman, Bear Stearns.

Could somebody comment on if the Company sees itself still operating within the five-year plan that was laid out at last analyst day now that we're coming up to kind of a next analyst day.

Yes, we're making progress, Andrew, you've been around long enough.

Nothing changes in this business in a hurry.

Always good to check.

I appreciate that.

And could you just give us -- ?

Andrew, if we change, I'll call and tell you.

Thank you.

Any case, the question was utilization.

You gave what capacity utilization was.

It's down 100 bits year-over-year.

We think it will come back as it fills in.

How much help to the margin line would just one point of capacity utilization imply?

(inaudible) is over here doing the numbers.

About 25 basis points.

That's a swag, but close.

Okay.

All right.

I appreciate it.

Thank you very much.

David Gold, Sidoti.

A couple of quick ones for you.

One, if you can comment on CapEx and the heavy step-up the second half.

I know you said it was a function of storage systems for physical capacity.

But just curious what is sort of driving the timing on that?

It's hard to predict when you do building outfits and so forth.

So the timing of some buildings come on line, that's a good part of it.

It's just when you do the steel.

And almost always, for whatever reason, it's -- people tend to, towards the end of the year, get it in and get the orders in and the steel in before the end of the year.

And then you come into the new year with some extra, and then you eat it.

You eat into it, and then you ramp up again.

It's -- I can't tell you if there's a good business reason for that.

Actually I can tell you some of the business reason.

The truth is is in the box business, Q1 is your strongest quarter for new boxes coming in, because people are cleaning out from the end of the year.

And so people are gearing up for their capacity (inaudible).

But we also had a -- we spoke before about the largest customer we ever closed.

We had that major customer where we actually built the new facility in a new city.

We started a new city on their behalf.

And really went real fast and outfitted a lot of -- a lot of steel for them.

So that's what took it up and then back down towards the end of the year.

So the easy way to think about it is demand?

Yes, yes, yes.

Sorry.

You should have asked me, yes.

Okay.

Fair.

And then -- .

And just for clarity's sake, since I'm rambling on a little bit, the easy way to think about 90-something-percent of our CapEx is demand.

Okay.

It's growth oriented.

We're not perfect quarter to quarter as to -- and just a lot of factors that go on, while one quarter will be up, and one will be a little down.

But if you look at it, it's demand based.

Sure.

Sure.

No, I'm just more asking because of the sharp sort of ramp in the second half.

But and then question two, Richard, you said -- let's see, your commentary on acquisitions, you said a slower second half.

And given how busy the first half was, it's not that telling.

So was curious if you can maybe give a little more color on maybe how much slower, or presumably we're not done.

But have we done the bulk of the spend that you might think to do this year, one.

And then two, you paid particular mind to some of the technology acquisitions, thinking on the acquisition front.

Is that where we're likely to see you focused?

Well, I'd hate to put out real guidance, but it's not going to be a $260 million second half.

It's -- but look, we've got a good pipeline.

Don't get me wrong.

I say slower, I didn't say slow.

So I want to be careful about that.

And we've got some interesting builds in the pipeline that we expect to get done.

So -- and -- but it isn't going to be $250 million.

I don't -- .

150?

Probably not.

Probably under that.

I hear 100.

Okay.

Anyway.

Your question on digital is, look, the way we're building out our digital business is different than the way we build out our physical business.

It is a build-by-partner philosophy.

And you've seen that we bought a couple of companies, (inaudible) that brought with it organization, intellectual property, and revenue.

And then we bought the Avalere, which brought with it intellectual property.

And what we're signalling to you, is we're going to keep doing those sort of things, and we're not telling you we wouldn't do something bigger in the digital space.

What I'm telling you is there's not a deep set of opportunities of companies that have revenue, organizational, and intellectual property, that mix.

That's part of what makes it a good business opportunity for us out there.

There's not a lot of people out there doing what we're doing.

And by the way, just now you got me talking about digital, the business is doing well.

They're having a good year.

And they're growing well, their bottom line is good.

And unless we push more money at them, they're free cash flow positive, meaning that unless we invest more through acquisitions or something like that, the team is doing a good job.

Perfect.

Thanks so much.

Scott Schneeberger, CIBC World Markets.

I guess following up on that last line of digital questioning, [Star-Zantaz] recently acquired, or to be closed in August.

Does that affect the landscape for you much?

If you could just talk about how the competitive landscape is, I guess, pricing in that arena?

Well, Zantaz, as you may or may not know, was sort of our biggest -- I'd say best head-to-head competitor in the e-mail archive space, in particular.

And so Zantaz is going to be bought by Autonomy.

And so what it really says is is that that space is consolidating, to me.

That you can expect that of all the big players in the technology space, one way or the other, will eventually produce some form of e-mail archive services, although by and large most of the technology companies are focused on selling it as a product, not as a service.

And as far as we're concerned, Zantaz was a good competitor before they were bought.

We expect they'll remain a good competitor after they're bought.

It remains to be seen what Autonomy would do with it.

I will tell you that we have relationships with Autonomy.

We use some of their technology.

So I don't think it changes the landscape at all.

Okay.

Thanks.

Switching gears a little bit over complementary services, special projects.

That looked really strong.

I guess could you speak a little bit about where that's coming from?

Is it a few large projects for large customers?

Is it broad based across smaller customers?

Just a little more color there, please.

Yes, it comes in two or three buckets, and just to reinforce some of them that I mentioned.

But one of the big buckets, obviously is the, as I said, the shred or recycled paper market.

That shows up in that category.

I think another bucket, though, is our Comac Fulfillment Services business.

They're rocking and rolling.

And a good part of their revenue, by its nature it's a business that is storage-based.

But the majority of their revenue really are in services, and a lot that is project-based.

And they'll service the pharmaceutical company, for instance, who will do a product rollout.

And when a big pharma does a product rollout or product recall or anything like that, it turns into big work for them.

And so those are the kinds of things in terms of the broad mix of special projects, they sort of look like they have looked.

It's generally a Fortune 1,500, Fortune 2,000 customer.

It's not your small customer that spends money on special projects cleaning up stuff.

And then last is our European business that has had some strong work.

Some of which, in our public sector space there, some of which won't recur.

And that's been a theme we've had before.

If you -- those who remember, after we bought Hays, we had a positive surprise in Hays.

And that is the year after we bought it, we had a real ramp-up in some public sector profit -- very profitable public sector business.

And that's a business in which, if you have a public sector contract with the government and if they have a need, and if they have budget, they spend it.

And they spend it before their budget year is over.

And if the next year they don't get a budget, they don't spend it.

And right after we bought Hays, we saw that dynamic where some of our customers had money and they spent it.

And then the next year they didn't get money.

So you see a little bit of zig zag in that business.

We saw that zig up and zag down.

And we see another zig up right now.

And we expect there will be a zag down coming.

Thanks.

Just one real quick follow-up on that.

Specifically in shredding and in fulfillment services, could you just speak to the competitive environment and pricing briefly?

Thanks.

Shredding is a business in which with a higher recycle paper prices, the service pricing side of revenue, shredding is down.

That's a market dynamic.

When you can get more for the paper, you charge less for the service, or the market demands it or the competitive landscape demands it.

And when you get less for the paper you want, you have to charge more for the service.

Net, net, net, you get about the same margin in terms of the business.

In the fulfillment business, pricing is a different thing there.

We have a fulfillment business at Comac, it's designed around quality.

And as I like to tell people, fulfill -- our Comac business is not driven, although they're growing really well, they're driven for doing really good quality work where -- and we service customers who really care about what they're doing.

That's a business in which you can get pricing all over the map.

And it's hard to compare.

We do really top-notch service for customers who care about what they're doing, where it's really is important to them.

And so if you look at the segments we go after, it's not a price-sensitive segment.

It's a quality segment.

And just to go back to the recycled paper and shredding pricing argument, one of the reasons it's hard to figure out the margin impact, it's hard to talk about the margin impact of paper in isolation, because although recycled paper prices are up in the short run, it looks like it's driving margin under that.

Street prices of services are down.

And it's hard to kind of parse the mix of the two.

It has been our experience that although you'll get paper prices up and you'll feel good in that quarter, so if they stay up, street prices of services adjust.

And then when they come down, they adjust again.

There's a little time lag there.

We -- when we first entered the shredding market some years ago, we had just come off of a high like this, and everybody and his brother was out offering to shred paper.

It was amazing.

And then when the market came down, half of those people got out of the business pretty fast.

And so you see that kind of dynamic.

What's happened in the market since then, though, it's changed.

Customers are more aware, and they're smarter about buying the service because when we entered the market, as I tell people, the shredding business was a fancy garbage business.

It is now an absolute data privacy-related compliance business.

And so the customers are smart about how they buy it.

That doesn't mean they're not interested in the best price, because they are.

But they're as interested in the quality of service.

And it's changed that ability for the market to expand capacity that fast.

And it's contracting and so forth.

It's a good business for us, it's growing.

It's growing in north of 20%.

In fact, substantially north of 20% on a worldwide basis.

And it's a business on a worldwide we've got over $200 million in revenue.

So for those who have been around Iron Mountain for a while, you wondered why we got in the shredding business some years ago.

We told you we thought we could build a good business out of it, and we think we're building a great business out of it.

And we think we've got a ways to go.

Great.

Thanks for the color.

Please proceed, sir.

Yes, I was just going to say, as I have promised in the past, I started this call by telling you it was summertime, I was going to keep it short.

And I guess we didn't.

But I promised in the past to try to keep these calls to an hour.

So I'm going to meet my promise to you today.

And I'd like to take one more call, and then we'll draw it to a close.

Edward Atorino, Benchmark.

Actually my question on SG&A was the first question answered.

Second, you sound like you're going to slow down acquisition activity.

Would that imply debt is going to also stabilize for the balance of the year?

Stabilize -- yes, you know.

Give or take a little bit, sure, sure.

Yes.

Got you.

And I tell you what, since Ed had to think of a second question, in all fairness, I'll take one more, operator.

Is anybody else wanting to ask a question?

Franco Turrinelli, William Blair.

I wanted to ask a little bit about the digital -- the document conversion services offering that you announced earlier in the quarter.

Seems to be taking a little bit further away from the traditional inactive records business.

Wonder if you could give us a little bit more color as to why and what you see there?

Sure.

Sure.

This has been a long part of our strategy, some of it unspoken, but now that we're doing it, I'll tell you what we're doing.

If you'll go back, and pardon me, this might take a few minutes to answer.

If you remember, Franco, in the days -- in fact, you used to ask me questions, and others used to ask me why would I go into this business.

My general thoughts were it's -- it can be a good business, but it's there.

It isn't going to go anywhere.

And the way I looked at the business was we had, and we've built the global leader in the physical records and information protection business in the world.

We've done that.

We got a little more footprint here and there.

We've done that and nobody's going to catch us, not possible.

And so starting about, time flies, but probably about six or so years ago, the way I thought about it is we went out and built a digital business, because we wanted to understand technology and we saw a great market opportunity.

And the truth of the matter is, is what customers need is management, physical records management, digital records, and now they need a bridge to connect the two.

And so we built one side of the river, the physical side.

We built the other side, the digital side.

And now we're building a bridge across the river.

And I didn't want to build a pier from the physical business going into DCS -- the document management solutions business would have been a pier out into the middle of the river.

I wanted to know where the other side was and make sure I could connect them when I got done, and we've done it.

We've got both sides of the river in pretty good shape.

Now we're building a bridge across.

The document management solutions business and the DCS, the conversion services, just an element of that, is the bridge across it.

Because of the size of our customer base, and now because of the knowledge and skill set we built up in technology, it allows us to bring technological solutions to physical records, and build bridges for customers in their programs.

And yes, that does take us into more active information.

The types of programs we're looking for do a couple things for us.

There's all kind of programs in that business.

It's a very fragmented, rather large market, and very fragmented opportunities there.

The opportunity set we're after are things in which it works with our customer base.

We're not out convincing people that don't deal with us in the first place.

That the nature of the application they're looking to do is sticky.

That is, you do it over and over, not just a big back file conversion and go on.

Although sometimes it's back file work to get it started, but it's sticky.

And that it's scalable, that we can do it in multiple cities and multiple countries.

And in fact, we're doing that today in about 40 U.S.

markets we've rolled it out to and another eight or ten countries outside the U.S.

And we'll continue driving that.

And that what we find is it not only (inaudible) conversion, it drives more hard copy storage.

In fact, in certain parts of the world, it's a great way to even actually find more archival boxes and so forth.

Those are the three things we do.

The financial side of it is the DMS business will produce lower overall OIBDA margins than our core storage businesses, but still very good margins.

And it will though, have substantially lower capital investment.

So this is a case of investing on top of the capital base we have, and driving more margin, more revenue out that capital base.

And you're seeing us being more active.

In the last two or three years, what you've seen us do is spend money in this space.

And investing quietly.

And that's what we've been doing.

And now it's happening, and we can smell it, we can feel it, and we can see it.

And it's starting to happen to us.

There's some particular verticals where we've -- we have invested and will invest more in the near term.

That would be, in particular, the healthcare vertical.

Without getting specific, because it's premature, but in the healthcare vertical, we have a couple of big problems that we're out to solve, in terms of managing physical, as well as digital records.

And over the next six months, you'll probably see us doing some things in those spaces.

Do I get to ask a follow-up?

Yes.

Last one, though.

As you point out, it's a space that's pretty large with lots of small, fragmented players.

Is it a place -- is it a space that you'd think of consolidating, or is this an internal growth?

It's an internal growth, played by and large because this -- and we have bought a couple little companies in that to build some knowledge in technology.

If you think about more like the digital, we would buy in that space for easy footprint, if the price were right.

We would buy in that space for people and knowledge, specialize in intellectual property if we needed it.

But what we've been working on in the last three or four years is building up internal intellectual property and technology, both in our DMS and our digital business.

And we don't need a lot.

And so we see this as more of an internal growth play, all over the world.

We see opportunity in this all over the world.

Thanks, Richard.

See, there is some change going on.

Yes.

By the way, I will signal that more than likely, I'll talk more about this at investor day.

That I'll probably give you -- I'll probably say the same things I just said, but it will take longer.

But try to give you a little more color on it.

So that being our last comment, we do appreciate you all spending more than an hour with us this morning.

Just to remind you, our business is strong, remains strong.

We've been through all the various facts as to why and so forth.

But we're feeling pretty good.

I don't want to -- I don't want to overhype you.

Look, those who have been around a while, this business is performing like we thought it would perform.

We're not telling you it's getting a lot better.

It's getting better every day.

And that's what we get out of bed to do, is make it get better every day, and it's getting better every day.

It's getting better at the revenue side, the quality of the revenue, the growth rate's getting better on the margin side.

It's a day at a time.

And that's the way we run the business, and it's working that way.

So we're feeling pretty good about it.

So we're on track to make our plan, I think for the year, including the increased guidance.

We're on track to continue (inaudible) business strategically.

And that doesn't come through -- from some of you as investors.

And by the way, I'm accused by what my organization of thinking the same way.

We all believe it's easy.

I do have to stop and slow down and tell you it's not easy.

It takes a lot of work.

It is a great market and a great opportunity.

But most important, we have a great Company, and that's because of the employees we have all around the world, all 19,000 of them.

I have to admit, they're not all great, but most of them are.

And we're working on those that are not.

So I have to thank those employees.

They've done a good job.

They're getting behind what we're trying to do on a global basis, and you can feel the momentum.

So, for that reason, it makes for a good summer for me.

So thank you again for coming.

Do remind you, Stephen said October the 2nd in New York City.

Put it on your calendar.

We hope to see you all then.

And other than that, I hope you have a good summer.

Thank you.

Ladies and gentlemen, we thank you for your participation in today's conference call.

This concludes the presentation, and you may now disconnect.

Have a good day.