鐵山公司 (IRM) 2008 Q1 法說會逐字稿

Good morning.

My name is Tina, and I will be your conference operator today.

At this time I would like to welcome everyone to the Iron Mountain Q1 2008 earnings webcast conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session.

(OPERATOR INSTRUCTIONS) Thank you.

Mr.

Golden, you may begin your conference.

Thank you, and welcome everyone to our 2008 first quarter earnings conference call.

After my announcements this morning, Richard Reese will give his state of the company remarks followed by Brian McKeon who will deliver the financial review.

When Brian is finished, we will open up the phones for Q&A.

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

Referring now to slide 2, today's earnings call and slide presentation will contain a number of forward looking statements, most notably our outlook for our 2008 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 investments are metrics we speak to frequently and ones we believe to be important in evaluating our overall financial performance.

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

Before I turn the call over to Richard, I would like to let you know that our 2007 annual report will be available on our website later today.

I encourage you all to visit the site and take a look at the report.

It is a great report and hopefully you will find it useful.

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

Good morning, everybody.

Welcome to the Q1 call.

As you saw from our announcement today, our business is performing well and we are really on track for delivering against our annual financial goals.

The strategy continues to advance not just the financial performance.

We are showing solid growth throughout our business in efficiency gains, which are, according to our strategy, we are using to fund our new service expansion and expansion of our global footprint.

Basically, as I have said many times, it has been business as usual and this was a good quarter, business as usual quarter for us.

Let's talk a little bit about it as it was a good start for the year and gives us the confidence that we will have a year as we had forecast, but as you know and most of the time we are able to bring our year's end on an annual basis and as again, we expect to do it this year.

We saw solid gains across most -- or all of our business segments.

There was modest acquisition activity, slower than last year as we expected.

We told you before that last year was an unusual high year for recent history and we expect this year to be back down, and in fact it is back down as we told you it would be.

Good revenue growth at 18% and solid internal revenue growth at 9%.

The quarter benefited from the acquisition activity that was strong last year and most of this closed after the end of the first quarter.

You will see the year to year comparison coming off a little bit as the year goes through.

Also, strong benefits from FX -- FX added 3% to the total revenue growth.

About a third of our revenue now is outside the United States or outside the U.S.

dollar, and of course our reported results are benefited from the weakening dollar.

I should remind you of course that one day at some point in the future if the dollar turns around we will see the other side of that curve.

But right now it's on the positive side for us on a reported basis.

Solid storage growth remains in the ranges we predicted and remained good at 8%.

Storage represents about [50%] of our total revenues and it was up for the 77th consecutive quarter.

But as you know, those who have followed our business for a long time, storage is really the driver.

It is off of the storage of which we drive all other services and our relationships that we create through storage are what we are using as the basis of our expansion of our new services strategy.

So we saw that storage growth -- good performance both in our physical businesses as well as in our additional digital business.

It is a large flywheel.

It is what keeps the business rolling regardless of good times and bad times.

Of course, over the years, I have talked a lot about the law of large numbers and how hard it is to keep growing something this big at these rates.

But we seem to find ways to do it.

And I think that is partly because of good execution of our organization and our sales force and partly because we are operating a real favorable market in which information continues to grow and we continue to benefit from that.

Service was also good at 10% internal growth and 23% overall.

That represents the other 46% of our revenue.

We saw some moderation in what we term core service growth for the quarter.

That was primarily related to our destructions which slowed a bit from Q1.

We've seen some acceleration of the destruction activity where customers are destroying old information in the second half of last year and we saw that acceleration come off some in Q1.

It does historically tend to go in those sort of patterns.

Unfortunately they are not predictable of what the patterns are precisely, as customers make decisions to clean up programs.

Sometimes you've seen an acceleration and then it comes back to normal.

We've seen that pattern and we've seen we have stepped back to a normal pattern now we believe.

Offsetting that, we saw strong -- and we've seen this trend for some time -- our complementary service growth is -- if we have talked about those.

Those are kind of our own categories of types of services that really complement our business.

That is, they are not directly in most cases driven off of our storage relationships, but things we can do for customers because we have this relationship, because we have the knowledge, because we have the skill and we have the value proposition they are looking for.

We are continuing to invest in those spaces.

We are continuing to see good performance there.

This particular quarter, the international businesses did a really good job in that space.

We also benefited from higher recycled paper prices in our shredding business and stronger than forecasted license sales in some of our digital business.

As I said, all in all a good quarter all the way across the board.

Total service revenue growth up 23% and of the course the difference between internal growth and the others besides FX was because the acquisitions.

And the two big acquisitions that really benefited the service sides were the RMS and our Stratify acquisitions.

Our strategy has been to invest in services that complement our strong storage relationships.

So just to make a comment about that, this has been a long theme for us and it is working.

It is continuing to drive our growth rate and does some other things for us.

It also changes the characteristics of the business some.

A little more volatility or lack of predictability in some of these categories, but service as a percentage of revenue will continue to expand.

I'm not quarter in quarter out.

Nothing happens that way in this business.

But that will be the long-term trend we are investing to try to make that happen.

Because really what is happening is we are investing in services that are much lower capital investment required that can benefit from our relationships that we do drive by storage.

As you know, storage is our high capital service line, our product line.

It turns around at most -- not all, but most of the services have lower margins than our storage.

So you get the overall margin mix impact.

But net net is it drives and helps increase return on invested capital as well as deepens the relationships with our customers which are all good things as far as we are concerned.

Net net, we feel good about the business.

We remain solid and stable.

On the top line regardless of the economy, we seem to do pretty well right now.

We are feeling good.

On the OIBDA basis, OIBDA growth is 14% from the quarter, excluding some one time losses of about $3.5 million from prior quarters on a comparison basis.

We saw good upside coming from OIBDA, both the flowthrough, the revenue performance and good profit flowthrough, although the OIBDA was constrained a bit by higher SG&A than in past.

These were expected.

It is not something we didn't expect and something we basically had forecasted and Brian will get into all the great details of this.

A big part of the higher the SG&A really is starting to fold in the acquisitions, particularly the digital services acquisitions -- Stratify, Accutrac and things like that come with higher -- they come with different financial characteristics.

Typically they come with higher gross margins but also much higher SG&A side.

And you are starting to see some of that shift as we integrate those kinds of acquisitions.

We also launched some new digital services, particularly our digital records center for medical images which is designed to store online medical images such as MRIs and CAT scans and so forth.

It is one of the largest growth segments of digital data on the planet and in a partnership with Hewlett-Packard HP technology and in a combined sales effort, we have gone to market with them.

We did start up costs, some of that during the quarter and so forth.

All this, is good things we are doing in the acquisition space as well as in the new services start up, but as I said changes the mix a little bit and causes some initial investment as we put it all together.

We also initiated investments late last year and some of that flowed through into Q1.

We spoke about that in through Q4 and the call for Q4 related to increased investments in some of our systems and processes, the strengthened chain of custody and security of customer assets, and of course we are continuing to build out sales resources, particularly in our continental Europe markets and other international markets.

It is a trend we went through on a big way in North America.

Some might remember we accelerated investment in sales as we learned how to do it and we saw the benefit of that over time.

We are learning in our international markets how to get better and better at that.

These are good markets and they are growing at strong double digits for us.

We are investing more in increasing the growth and going from market share over there as we do it.

We do expect some of these cost impacts, and Brian as I said will get into detail -- will moderate later in the year on a comparison basis.

On the key message here which you will hear over and over from us is--we aren't managing the business quarter to quarter.

It was a good quarter, but we are focused on delivering the annual goals.

A good start always helps you feel better about doing that.

And I understand there are skeptics out there, that people always have to have something to worry about.

But look at us in the long trend.

The business is doing fine and we are feeling good about it.

On the acquisition front, I did say it was modest, and it was modest.

There was a nice shredding business in New Zealand, fit in our strategy of taking many of our core services and expanding our global reach with them.

And we learned how to do something, and where there's a good market opportunity and there's a good return, we're going after it.

And shredding is one of those that -- not in all markets in the world, because there are not good opportunities in all markets of the world, at least not yet.

But there are some good markets in the world left that we are not in and we will continue to expand there.

We made a small hardcopy fold-in in Oklahoma.

It was about putting two small businesses together and driving for scale.

Those are the kinds of things we are focusing on doing in our acquisition strategy in certain parts of the world.

After the end of the quarter, we bought out a minority interest partner in Brazil and this was a successful round trip.

We had a partner since 2001.

With that partner and working together, we built a very nice business in Brazil, over 1,000 employees in four markets.

Brazil is one of the real large -- if you look at long-term, most people tell you that growth over the long haul you can look at India, China, Russia, and Brazil.

If you will notice carefully, in the last 24 months we have gone to India, China, Russia and we've been investing in Brazil and there is a reason for that.

Because we are looking to the long-term.

Just like we don't run the business quarter to quarter, be candid with you, we don't always run it year to year.

We're thinking about what this business ought to look like in ten years and periods after that.

We also acquired a small minority interest, 15% in a Swiss business.

That has been a market sort of this place in Europe that we have had trouble finding a good entry point.

We think we found a good entry point now and so we can frankly start to serve pan-European customers in a different way and some of our global customers in a different way.

The other thing I want to talk briefly about was the Stratify acquisition.

We closed that in December of 2007.

So we have had a little time on it to understand what we have gotten and so forth.

It was our third largest digital acquisition -- excuse me -- it is our third digital acquisition and our largest digital acquisition.

Can't even read my own writing, sorry.

As I said, we acquired it in 2007.

The integration process is proceeding as we planned.

Their Q1 results were excellent and ahead of our expectations.

They are off to a good start.

In fact, I just spent 2.5 days out in their offices in California last week just spending time with the team and other people getting really deep under the hood.

I wanted to leave it alone for a while and let them get a good quarter in, which they did before I started bugging them.

Because not only have a good business, we have a tremendous organization and some tremendous technologies and skills on the shelf that when I first took a hard look at them, I had a good instinct that that was there.

And I went deep to make sure, and the answer is that it was.

I'm feeling more excited than ever about the long-term and I stress that word "long-term" potential of what we can make out of that.

This is going to be a case of 1 and 1 equal 4, not even 3 in my opinion.

But don't anybody rush out and buy the stock because I said Stratify is wonderful.

That would be a very stupid thing to do in the short run.

Maybe not in the long run.

Last thing I want to talk about is because we had such technical difficulties on our last call.

Some that listened, the phones -- I won't get into the details.

It was a mess.

And we believe we have got ourselves repaired.

At least we have certainly a DR plan this time that better work if we have problems.

As I did announce last time, that I had informed the board and we had -- the board had decided that the right thing to do according to our succession plan that we have been working on at some time, it was time for me to change my role and to go to the role of an Executive Chairman and elevate Bob Brennan to the role of Chief Executive Officer.

We are still on path and expect to do that at the board meeting after annual shareholders' meeting where we are all standing for reelection.

And of course Bob is standing for the first time for election of the board of directors.

To stress what my role will be as Executive Chairman, I close carefully the title Chairman.

As I told some of the employees, when I drop the word executive that means I might go learn to play golf which would be a futile exercise anyway.

The reason why I chose the term "Executive Chairman" is the implication of that is I'm still working full-time.

That's what I'm doing and expect to do and expect to continue doing so long as I'm being useful and people want me to continue doing it.

It was the right time and place in the company's history and for me personally to change my focus.

I want to focus on -- if you look at my legacy and I will not talk a long time about my legacy because I don't believe in a lot of that stuff.

If you look back it is simple.

I led the team that accumulated this company -- I started at $3 million and we will do over $3 billion this year.

But just take since we have been public from $100 million in revenue to over $3 billion.

We have accumulated from being a single product line, single country, 20 to 25 city operation to 38 countries and a broad product line across the physical and digital universe.

And I'm proud of what the organization has done.

And each of those businesses are doing fine.

They are good businesses.

The real upside, though, if you want to look -- I keep chiding Bob a little bit as to what his legacy will have to be.

If you want to look to the future, the real upside is making 1 and 1 equal 4 out of these businesses and the opportunity absolutely is there to do that.

We are not going to be opportunity bound.

We are going to be execution bound and it is hard stuff because the problems that we face may sound simple from the outside, but if you go talk to customers, they are scratching their heads of how to do it in a cost effective manner.

And we understand how to do it.

They are complex problems and right now most of the solutions out there are complex and expensive and our goal is to create a series of simple solutions to solve altogether to solve a complex problem.

And I'm going to put a lot of my time and energy into doing that because I think that's where the greatest value enhancement I can have to helping our shareholders and helping our employees in the business.

That's better leverage of me than running the business over the next time period.

That's what I'm going to be spending most of my time doing.

Of course I will remain a close advisor to Bob and as Chairman of the Board and Member of the Board and operate at those levels too.

It has been a good time for me and I'm not leaving, so I will not give my swansong speech.

If you ever hear it, it will not be today.

With that, before I turn it over to Brian, a brief summary.

One other thing I do want to use my license, this is my -- I think 49th conference call and not my last.

It is probably my last which I will lead it and do most of the talking.

From time to time, I have been known to lecture the market, so if you will bear with me a little bit I will give you a slight lecture.

And I do it in your best interest, not necessarily in our best interest.

The business is running well and it was running well last quarter and the quarter before that.

The stock popped up and popped down, a little crazy volatility.

It is not a volatile business.

It probably tells me people didn't believe us is the only thing I can figure out.

The business will vary quarter to quarter.

I have read some headlines from the analysts today, and I appreciate the positive headlines, don't get me wrong.

They are always better than negative headlines.

They're talking about this being an inflection point.

I want you to understand we don't run the business that way.

We are running the business to meet our annual goals.

We have given you the numbers.

We will hit those numbers.

There are no guarantees in life, but we will do our best to manage the business to hit those numbers.

We don't manage the business except for people's internal incentive plans and a lot of other reasons to hit specific quarterly numbers.

We have made judgments oftentimes that go against specific quarterly numbers but go in the best interest of the annual numbers, and the best interest, quite candidly, we make some that go against them in the best interest of the long-term of the business.

And we will keep doing that.

We will communicate those things as it is going.

I want to be careful that people don't grab a hold -- this is a good quarter and I know people didn't like the last quarter.

I'm telling you there are no differences.

But regardless of that, I want to be careful that people don't grab or draw a ruler or press a button on your spreadsheet and drive us straight to the roof.

We will keep chugging away against our business.

We think the business is going to do well in what I personally believe is going to be a very tough economic environment.

Our business is changing and that makes it a little different than past.

Our new digital services, the service mix puts a slight more volatility into it, puts a slight more pattern shift than in the past.

Some of our businesses are weak in one quarter and others are stronger in different quarters.

Those mixes are changing and so forth.

Net net is we are running business for annual performance.

We are off to a good start.

We expect to do what we say we're going to do for the year.

And it's still a great business, and I still love it, and we look forward to taking your questions.

Brian?

Thanks Richard.

Good morning, everybody.

Q1 was a solid start to the year for Iron Mountain.

We posted strong revenue and OIBDA gains with early year results ahead of our forecast.

This reflects solid underlying business performance including better than expected results in certain aspects of our digital business combined with continued positive impacts from foreign exchange changes and high paper prices.

We will begin today with a review of our Q1 results.

We'll also review our cash flow performance, capital spending trends, and debt position through the first quarter and put these results in the context of our full year outlook.

We will conclude with a update of our 2008 full year guidance which we have refined, reflecting our solid early results.

We will also share our outlook for the second quarter.

Slide 4 highlights the key messages from today's review.

Iron Mountain delivered strong financial results in Q1 with revenue up 18% and comparable OIBDA 14%.

We posted high revenue gains across all major business units, supported by 9% internal growth, the benefits of our major acquisitions, and favorable foreign currency movements.

We also drove a strong OIBDA growth in the quarter, despite some dilutive impact from acquisitions completed last year and some carryover impacts from investments initiated in 2007.

On a reported basis, OIBDA increased 12%.

Included in OIBDA are net losses on asset writedowns of $3.5 million and $37,000 for Q1 2008 and Q1 2007 respectively.

When excluding these losses from both years, comparable OIBDA grew 14%.

As a result of our Q1 performance, we are refining our outlook for the full year, raising the low end of our revenue and OIBDA forecast ranges.

This reflects our confidence that we are on track toward achieving our full year financial goals.

Let's move onto looking at the details of our performance on slide 5.

Slide 5 compares results for this quarter to Q1 2007.

Overall, we had another strong revenue quarter support of a balanced growth across our key business units which drove the overall increase of 18%.

Our largest segment, North America Physical, posted 13% growth overall.

Internal revenue growth was 7%.

We saw solid growth in our secure shredding business with continued strength in recycled paper prices, which offset some softness in core service activity.

Overall growth continues to benefit from the ArchivesOne and RMS acquisitions.

Our International Physical business was up 28% overall.

Internal growth was 12% driven by strength in Latin America and Asia Pacific and solid performance in Europe.

We continued to see strong gains from complementary service growth across our international business.

International growth also benefited from select acquisitions that are strengthening our global footprint and from favorable foreign exchange changes which together added 16% to revenue gains.

Finally, our digital segment drove better than expected revenue gains, supported by consistent growth in storage revenues and better than expected performance from our Stratify acquisition.

Software license sales were also higher than expected, although still below strong 2007 levels.

Revenue gains helped drive a solid 19% year on year improvement in gross profit.

Gross margins were up modestly for the quarter compared to the same prior year period supported by higher recycled paper prices.

Growth in our digital service businesses which have higher gross margins also had a positive impact.

These gains were partially offset by impacts from higher energy costs and business mix.

SG&A growth was 23% in the quarter compared to prior year levels.

Higher rates of overhead growth were impacted by two primary factors.

The first involves the integration of our recent technology acquisitions including Stratify which have a relatively higher overhead cost base as a percentage of revenues.

Q1 SG&A growth also reflects carryover impacts from investments in security, international sales resources, and infrastructure initiated in 2007 as well as additional stock option expense related to higher than normal grant activity last year.

The impact to these factors on cost growth will moderate later this year, particularly in the fourth quarter where we have more favorable comparisons.

OIBDA was $176 million for the quarter up 12%.

As noted, included in OIBDA for Q1 2008 were net losses on the writedown of assets of $3.5 million.

The loss on the building we spoke of on our last call was slightly less than the $3 million we forecasted, but we did have some asset writedowns associated with the upgrade of our core inventory system.

Adjusting for these losses, OIBDA growth was 14% and OIBDA margin was approximately 24% in Q1.

Depreciation was $61 million and amortization was $8 million in the first quarter as expected.

Operating income was $106 million for Q1 2008, up 7% versus the prior year as OIBDA gains were partially offset by increased depreciation and amortization driven by 2007 capital spending and acquisitions.

Slide 6 breaks down our overall revenue growth.

It shows internal growth by major service line as well as the impact of acquisitions and foreign exchange, which added about 7% and 3% respectively to our growth ranges for the first quarter.

Internal revenue growth for the quarter was 9% in range of our full year goals.

Internal growth was comprised of 8% storage growth and 10% service growth, reflecting continued benefits from expansion of less capital intensive, more project based offerings.

Core service growth moderated in Q1 impacted by a slowdown in destruction revenues following strong growth in this front in Q3 and Q4 of last year.

Offsetting these effects was continued strong internal growth in complementary services.

We saw a solid project growth in international markets in Q1 and software license sales ran ahead of forecast.

Growth of recycled paper revenues across geographies remained strong, supported by continued high recycle paper pricing.

Keep in mind that complementary service revenue, which represents about 15% of our overall revenues, can fluctuate over time given changes in demand and timing for special project activity and variations and factors such as recycled paper pricing.

As noted in our last call, we do expect growth in complementary services to moderate as we work through this year due to comparisons to some large European public sector projects that are either completed or winding down.

Despite these anticipated impacts, we expect that our overall internal growth rates will remain solid through the year.

We believe we are on track to deliver against our full year internal growth goals.

Moving on to a review of Q1 with our review of Q1 P&L performance, Slide 7 bridges our Q1 operating income to net income and EPS results.

Q1 results on these fronts were basically as expected.

As discussed, operating income for the quarter was up 7% to $106 million as OIBDA gains were partially offset by year on year increases and depreciation and amortization.

D&A grew $12 million versus prior levels in Q1 reflecting increased CapEx spending and the impact of our 2007 acquisitions, most notably ArchivesOne and Stratify, which were completed after the end of Q1 2007.

Our Q1 interest expense increased compared to Q1 2007 as expected, driven primarily by increased debt for our 2007 acquisitions.

Other income was $6 million, or about $0.02 per share in Q1, primarily reflecting gains related to foreign exchange rate fluctuations as we mark our intercompany and third party debt to market.

In the first quarter 2007, we reported other income of $8 million or $0.02 a share related primarily to insurance gains.

Net income and EPS were $33 million and $0.16 per diluted share respectively, down moderately from 2007 levels, due primarily to lowering operating profit as I've discussed, including the $3.5 million of losses on asset writedowns and lower other income in the quarter.

In Q1, our effective tax rate was 34.9%, slightly below the 36% tax rate we forecasted in our last call.

The decrease was driven by the net tax impact of foreign currency gains and losses in different tax jurisdictions.

We are now estimating our tax rate before discrete items for 2008 to be approximately 38%.

The increase from the 36% we estimated on our last call is due to the tax impact of unbenefited net operating losses at some of our international startup businesses.

After 2008, we expect our tax rate excluding the impact of discrete items to decrease over time to approximately 36%.

Slide 8 summarizes our capital spending for the quarter.

It highlights our year to date results compared to the full year 2007 amounts and our current 2008 outlook which we are reiterating today.

Our Q1 2008 CapEx was $56 million, including $4 million for real estate.

Traditionally, the first quarter is the light CapEx quarter as some projects are scheduled for later in the year and many require time to plan and source before the significant expenditures are eventually made.

We're currently spending to our plan and expect to finish the year within the forecasted range.

Consistent with our long-term financial goals, we are focused on improving our overall capital efficiency by reducing CapEx spend as a percentage of revenues.

Some of this efficiency is related to business mix as we continue to see strong growth in our new services, which are less capital intensive than our core physical business.

The capital efficiency we gain through this mix shift offsets the relatively lower margin characteristics of these services, resulting in attractive incremental returns on investment.

Let's now move onto slide 9 and look at free cash flow for the quarter.

Slide 9 highlights our year to date cash flow performance compared to the same period in 2007.

For Q1, 2008, free cash flow was negative $20 million before acquisitions and discretionary investments in real estate.

The year on year decreasing cash flow reflects the payment in Q1 2008 of being unusually large.

2007 year ex CapEx a [balance] of $60 million and a $45 million increase in working capital usage.

The working capital increase was due primarily to increased accounts receivable driven by increased sales as well as the timing of normal payroll and AP cycles, which led to lower accruals and payables.

Keep in mind that free cash flow is best looked at on a full year basis, as the timing of certain cash events is not consistent throughout the year.

For example, the first quarter, historically our lowest cash flow quarter, was impacted by the 2007 CapEx accrual and the payment of our annual bonuses.

For 2008 we continue to expect free cash flow before acquisitions and discretionary investments in real estate to be approximately $25 million to $75 million.

As noted in our last call, 2008 free cash flow is impacted by the 2007 CapEx accrual I just spoke of being paid in Q1.

Now let's turn to slide 10 to review our debt statistics.

In terms of our debt portfolio we ended Q1 2008 in a position very similar to year end, as you can see on the slide.

Our weighted average interest rate is down to 7.1% and we are 75% fixed.

Consolidated leverage decreased to 4.4 times within our target range of 4 to 5 times OIBDA and maturity is now at 7.1 years with no meaningful repayment obligations until 2012.

Our liquidity also remains strong.

As of March 31st, we had more than $450 million of cash in availability under our revolving credit facility.

Let's move ahead to slide 11 to discuss our revised 2008 financial guidance.

Turning to slide 12, based on our solid start to the year we are refining our full year guidance, raising the low end of our target ranges for revenue and OIBDA.

Our full year revenue outlook is now $3.015 billion to $3.080 billion.

We're now targeting full year operating income of $474 million to $499 million.

Note that the operating income outlook includes impacts from the slightly higher than expected losses on asset writedowns recorded in Q1.

This would imply an OIBDA range of $766 million to $791 million for the year, or growth of 10 to 14% on a comparable basis, excluding gains and losses on asset writedowns.

We are maintaining our full year CapEx forecast of $440 million to $480 million.

At midpoint performance, this would equate to a modest reduction in capital spending as percent of sales in 2008 building on our 2007 progress.

Our expectations for Q2 performance are shown here as well, which implies revenue growth of 12 to 15% and 8 to 13% comparable OIBDA growth.

We'll continue to work through higher levels of cost growth in Q2 similar to Q1 driven by acquisition integration and carryover cost impacts from investments initiated in 2007.

As noted, we expect these impacts to moderate later this year, consistent with our full year plans.

In summary, we are off to a solid start.

We are driving solid growth across our business and we are confident that we are on track to deliver against our full year financial objectives.

Thanks, and we will now open the phones to answer your questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Vance Edelson with Morgan Stanley.

-- national opportunity.

Do you see multinational corporations as wanting to consolidate their business globally towards Iron Mountain or is it more they view it on a country by country basis?

How should we think about that?

In a lot of ways, there is no one answer.

It depends on the company, the industry, and a lot of things.

But there is overall trend to wanting to consolidate a variety of trends.

One is to have fewer vendors period, two is to drive more purchasing leverage through doing that, and the third thing is for compliance reasons having fewer vendors makes it cheaper and easier to manage.

The consistency of what you do on a global basis is becoming more and more important.

Having said all of that, you have to earn it locally.

There are very few companies.

There are more and more than there used to be that would make a true global decision.

But the more -- the general trend is to make more regional decisions under some consistent umbrella.

That's why we are trying to become strong in each of the major regions.

That's helpful.

Could you elaborate on the destruction variability from quarter to quarter?

Is that something that's predictable as in there are seasonal factors, or is it less predictable and we are not going to really be able to accurately model how that ebbs and flows?

There is some variation on that.

It's obviously driven -- we have some advance insight into that but it is --

A lot of it is there is -- like a lot of things there are a lot of complex trends, but by and large there is a baseline amount of that activity that happens like clockwork.

And then what happens is -- it doesn't take many very large customers to either do catch up -- that is, they will have put a lot of stuff on hold because of their retention programs -- we have seen this trend not very well managed -- they are afraid of the litigation and the compliance issues of doing that -- then they build a program.

Oftentimes we help them do that and they do a big catch up, maybe two or three years backwards.

It doesn't take but two or three of them to do that in a quarter to make it rise.

You also, by the way, sometimes see -- I have seen this pattern before and I don't know for a fact if we are seeing this yet.

But I have seen this pattern where in tough times people stop destroying because they would rather pay the monthly storage price this budget year than the one time fee to get rid of the box.

They're just protecting their --

It's possible we may have seen some of that impact on Q1.

I think on a full year basis we have a pretty good handle on that.

But we do see some fluctuations quarter to quarter.

That makes sense.

One last question, could you comment on increased energy costs and how you are passing that along to customers and whether that impacts the business at all?

The energy costs are about 2 to 3% of our revenues and that is split pretty evenly between basically costs that flow through our facilities -- energy for facilities, lighting, et cetera.

And the other half is related transportation.

It is somewhat higher than that in the first quarter because the seasonality nature of our business.

A significant number of our customers we have fuel surcharge arrangements for the transportation piece.

That is something that we can pass on, but we did see some negative impact in our margins in Q1 that was an offsetting factor --

In the short run it is like a lot of businesses -- the real variable stuff like in the rolling stock we have been working over the last 18 months or so to put in our contracts and our agreements for fuel surcharges.

And we are not 100% there with all customers, but we are on a path to get there.

So with high fluctuations and what buying at the pump, we can deal with it.

The other piece coming through heat and light and facilities, you can't index that so easily.

That shows up in price increases later.

In the near term we eat it.

In the long-term we expect to get it back.

That's helpful.

Thanks, guys.

Your next question comes from the line of Andrew Steinerman with Bear Stearns.

I'm going to take the bait on Richard's comments that quarter to quarter margins could be volatile.

Just to kind of have clarity on this, when we look at the margins in the first quarter excluding the $4 million write off, it would seem like the first quarter would be the low quarter for the year to make the overall margin goals that are implied in the middle of the guidance.

And I will also note as you guys were starting to layout that the first quarter of the year is usually the lowest quarter of the year on margins.

So when Richard called out volatility, did he mean that we could expect unusual volatility or normal volatility?

You are right on both points in terms of the implications for margin.

The first quarter is historically our lowest margin quarter and part of that is driven by the energy cost we just spoke of.

And our guidance would imply that we are going to have better and improving margins as we work through the year both in terms of quarter to quarter and also on a year on year basis.

There are two drivers to that.

One is we are expecting moderation in the cost growth later this year.

Andrew, I want to highlight it is probably be in a bit more in the Q4 than in the Q2 and Q3.

We are expecting improvement on that front.

And we are continuing to target improvement in gross margins, driven in part by real estate efficiencies.

I wouldn't read anything to Richard's comments signaling that we are expecting volatility this year quarter to quarter.

Just trying to highlight that margins do vary on a quarter to quarter basis and we're focused on delivering our full year goals and we are going to manage that way.

Sounds great.

Thank you.

Your next question comes from David Gold with Sidoti.

Good morning.

Couple of just clarification or follow-up questions.

One, on the comment in the release on international special project revenue helping in the first quarter, are those the same projects that you commented on that you are pointing to in fourth and first quarter that are running off as we speak a little bit?

Our commentary was talking actually about overall international complementary service growth, which includes Latin America and Asia Pacific, which did quite well on that front in the first quarter.

And we did see growth in Europe as well and that is continuing to benefit from a project that we are expecting to wind down relatively -- I think right after the first half of this year.

So that was the -- we tried to highlight last year that there were two European projects that year on year we were going to lose about $25 million in revenue year on year.

And that is going to be a factor that is going to contribute to moderation and our expectation we will see lower levels of complementary service growth on the back half.

That's helpful.

One other question if you can comment there or give a little bit more color on paper prices being strong year to year.

If you can remind us where we were a year ago versus this year.

Yes, in the first quarter of last year we had paper prices in the range of about [150] per ton and right now we are in [225] to [230] range.

We will start to see -- the prices really ramped up post Q1 last year and they have kind of moderated in terms of their increases.

They are a bit better than we thought they were when we were on our last call with you.

We will see less growth benefit from that if they hold at current levels as we work through the year.

Perfect.

Thanks so much.

Your next question comes from the line of Michel Morin with Merrill Lynch.

Good morning, this is Michel Morin with Merrill Lynch.

I was wondering -- I think you alluded to some real estate efficiencies that might help the gross margins a little bit later on.

Are you referring to winding down of the real estate rationalization project in Pickfords or is that all behind us already?

I think we were referring just to broad base that I believe it was last year we took on -- we went long on some space and that hits your margin and we are absorbing it.

We are taking fewer buildings this year.

(inaudible) we're upping our capacity utilization and it's flowing through the year.

You will see that from time to time -- that same trend by the way.

Some of it is opportunistic and some of it is just when you get the right circumstance, you take it.

We went pretty long in a couple areas.

The beauty of our business is if you go long, it is just how fast do you take to get utilization up and we are getting it up just fine.

Specific to that, the Pickfords rationalization project, is that behind you right now?

We are still working through that in the UK.

In fact we're --

No, we're less than the Australian --

I'm sorry.

I don't precisely know.

I know the big pieces I think are behind us in terms of the real estate.

The other thing we did in Australia is we chose to make that a central management hub for accounting, consolidation and overhead staff for Asia Pacific because of the small nature of a lot of the investments we are making there.

That we added extra costs down there relative to the size of the business.

That part we haven't grown through yet but I think the real estate side is pretty much behind us.

Great.

That's helpful.

On the SG&A side you mentioned a number of items.

I would wondering if you can elaborate a little bit on what you have been doing and when you would expect to complete these projects.

I think you specifically talked about building out the sales capability in continental Europe.

I was wondering when that started and what the timeline is.

I don't want to say never.

But the answer is, we have a long list of projects and things to invest in that could improve our business.

Whatever runs off through the rest of this year, I'm sure we will come up with another list for next year, but we will manage it within the context of what we have said.

And that is that we are investing for growth in the business because of the opportunity.

We are also committed to improving our operating results on a year over year basis as we go.

We have a long list to pick and choose from.

And as we pick and choose from the list, we will factor all that in and choose some.

Thank you.

Your next question comes from the line of Scott Schneeberger with Oppenheimer.

Thanks, good morning.

You have alluded in the past to some softness in the UK, I believe, and wanting to make some improvements there.

Can we get a quick update on how you feel that is progressing?

I think we are doing well.

We have made some management changes internally and externally over the last 18 or so months.

We feel like our sales forces are doing pretty well right now over there particularly in Europe -- I mean particularly in the UK.

We are driving better control systems and processes, better margins -- just a variety of things like that.

We are making good headway there.

I think our business is on plan as we are working through this year and we saw some constraint on growth from the increased destructions and terminations that Richard talked about last year.

The overall growth rate is a bit below where we would like it to be longer term, but I think we are on track.

But all the right trends in place to make that stuff happen.

What really drags the UK business is the public service business, which is the project you hear us whining about.

To give you a sense, those are interest, it is a different business.

It came along -- it is a related business but it has different financial characteristics.

And although we do some of the same work even for governments but primarily for private sectors around the world, this just happens to be relatively large.

It is the kind of business you win a government contract to manage their information and records and the trend seems to be that on the contract you make a fair return and then -- when they have budget money they call you up and spend it, and when they don't, they don't.

And it seems like the way they budget over there is they give them a lot one year and they take it away the next.

You have a good year, bad year, good year, bad year.

It makes us whine a lot.

The truth is it is a doggone good business and we are reluctant to throw out good businesses who make good money and have good returns on capital.

And it is one of them.

I'm sorry, we will have to keep whining probably.

Brian, following up on an earlier question on this government contract that is moving on through the year, you guys just said it should continue until the middle of the year fully.

Is that a little bit longer tail than you had previously expected?

No.

Sorry if there was confusion on this.

Last year we highlighted -- we had two contracts contributed about $25 million in revenue to our results last year.

One is done and the other one is going to be completed on about the same timetable that we had anticipated.

When we talked about this, we didn't get into specific quarterly impacts.

It is something when we put out our guidance for the full year of complementary growth of 2 to 10%, that was a key factor in our thinking of why that number was going to be down a bit year on year.

We wanted to make sure to highlight that a one.

Thanks.

Shifting gears a bit, you sound pretty excited about the Stratify acquisition and how that is progressing there.

Can you speak a little bit to, one, the competitive and pricing environment in that space?

And then two, will there be additional acquisitions that you will need to make to kind of pad what you have there?

Just a little bit of color on each, thanks.

To answer your second one, never say never on anything.

I don't see on the horizon the need to acquire in the space.

Unless we find some really whiz-bang something that we're missing.

Right now we have in our opinion the best whiz-bang technology and brains out there.

In terms of pricing, it is a space you can get all kinds of prices quoted and different customers buy on a different basis.

Our value proposition is to use technology to change the whole way that you run the process.

And in fact, what you wind up doing is you reduce the legal review time which is where all the real money is.

We can reduce it substantially.

We can save you 40 to 50% of the entire review cost and you may pay us more than you would pay another technology provider who does simple things for you and then you pay your lawyers twice as much money as you would.

Net net, if you look at the total cost, we are dramatically cheaper.

It is not a price issue.

It is making sure you understand what your costs are.

Even better than that, the way we get at the information and the way we organize it and the way we accomplish these things is that we also get deeper into the information and we know more about your data than you can find out otherwise using standard ways of looking at it.

And that is sometimes the difference between winning and losing.

And that's big money.

It is super stuff.

Thanks.

One final one, if I could, back at investor day, some discussion of maybe changes and perhaps kind of foreshadowing, there could be dividend, share repurchase pending.

Could you update us on that front?

Yes, I guess I made a mistake -- one of many I have made in my life -- to even talk about it.

Let me be clear so everybody on the call knows what you are talking about.

At investor day I made the statement -- intentionally but I made the statement -- that I had always told shareholders who have asked me over and over, when are you going to think about dividends or share repurchases and so forth.

And I've always, my answer has always been I don't know, but we are not thinking about it because we are not anywhere close to even thinking about it.

But when we do, I will tell you.

The truth is we have started to think about it.

We look at the models.

You look at models.

We know what the future looks like and we know how to run the business in a levered model.

We know that means no matter what we do, we will have a lot of excess capital.

What I said at investor day is I'm meeting my promise to you, basically.

I have started to think about it.

We have started to think about it.

And we don't give these kinds of things light thoughts.

It will take us a while.

No hurry.

I'm not trying to put a timeframe on it.

But I'm telling you it's close enough in my mind that this kind of thing takes thought.

Because you don't do things like start dividends willy nilly.

Because you turn them on, you can't turn them off.

There are a lot of ways to think about how to create shareholder value in stock buybacks.

Net net of it is, I fully expect we will return cash to shareholders in due course and we will try to do it in an intelligent fashion that benefits our shareholders in the maximum possible way.

And I'm not going to go through all the things I have thought about.

But we are working on it.

But timeframe, I wouldn't begin to give you a timeframe.

Thanks very much.

Your next question comes from the line of Franco Turrinelli with William Blair.

Good morning, Richard.

I guess sort of a similar question to one that was placed earlier.

I'm trying to understand as you think about your services, build out if you want to call it that way.

If the plan would be to focus on the current areas of competence and sort of deepen and maybe do the same kind of land grab we have seen you do in the traditional physical business, or if you are really seeing more of an expansion of services as being part of the future?

Maybe it is the third time I have said never say never in this call, but the focus right now, Franco, is just as I have said before.

We have accumulated a lot in these businesses we have, knowledge, skill, and opportunity.

So the real focus is on getting that to work together in the right ways.

That doesn't mean we won't find other opportunities to acquire, other opportunities to expand around the edges or fill in little pieces here and there.

We have really set the table pretty well.

It is now about getting it all to work together and extracting the majority of the value out of it.

It is not a strategy of let's just go out and buy, buy, buy.

Here again, I'm not ruling out acquisitions.

They are always part of our kit, our tool set, but it is a strategy we have accumulated a lot.

It is a strategy of building and making the stuff work together and you are getting it in the market in the right timeframe.

You can easily be ahead of a market or behind a market and those are the kinds of things I worry a lot about.

You are right up the [will house] of what I planned it and what I'm really already starting to focus a lot of my time to do and what I plan to do personally a lot of.

Sure.

That's helpful.

By the way, I was kind of looking back, the last time we talked about destruction was October of '03, which was an interesting reflection given what has happened since then.

Thanks, Richard.

Your next question comes from Edward Atorino with Benchmark.

Three questions.

One, on Stratify, I understand that category has been growing about 30 to 35% in sort of the e-discovery area.

Would you care to sort of talk about what Stratify would've done against that kind of bogey?

Second, SG&A expenses are almost 30% of revenues.

I think that is an all time high.

Is this sort of a new norm, because of the change in mix and is there a long-term target?

I thought one path to a higher margin was to leverage higher revenues without higher SG&A.

Could you talk about that for a second?

And lastly what did the traditional box business do?

I know you talk about physical stuff, but what was the growth in the good old fashioned box business and what percent of revenues is it now?

Let me try to take this on.

In terms of the Stratify growth, I think the growth ranges you talked about are in line with what we are hoping to achieve in the business this year.

I can't comment specifically on the market growth, but that's the kind of growth we are hoping for on that front.

In terms of SG&A spending, we have seen increases in SG&A as percentage of revenue and part of that is driven by some changes in our business mix over time.

As Richard highlighted, some of the acquired businesses, particularly in the technology space have a relatively higher overhead base, and also hit higher gross margins in many cases.

And as we build our full year goals and what we are trying to achieve, we factor that those type of mixed dynamics into what we are looking to achieve.

So I think we are comfortable and are on track for our full year goals and on track toward our longer term goals.

And that factors in potential changes in business mix over time.

So this is sort of the new norm quote-unquote.

Yes, I don't know how would you define the norm, but I think--.

29.7%, just kidding.

I think our goals are to deliver good OIBDA performance relative to our revenue growth and we will balance and trade off impacts from business mix and gross margin in SG&A.

In terms of the storage business, our global physical storage business was within our target range.

It was at the lower end of our target range at 7 to 9%.

And some of that is impacted by the higher level destructions we saw late last year just [falling] over, but we are within our expected range for this year.

What is the box business as a percent of total revenue right now, U.S.?

Roughly half.

Same overseas?

Well, the overseas would be more skewed toward the box business.

I don't have the precise number.

It varies by region.

It would be varied by region, but it would be more skewed to that.

Thanks.

I'm going to try to meet my commitment to keeping the call to an hour and we are about a minute over that.

We will take one more question and we will wrap up.

Your final question comes from Andrea Wirth with Robert Baird.

Good morning.

First wondering on the international business, did that business still grow in the double digits if you exclude special projects and acquisitions?

We are just checking right now.

Let's do a little math.

The internal growth was 12% and -- it would be close to that level I think when we excluded the complementary.

In terms of special projects, was there anything meaningful, new wise booked this quarter as far as special projects go?

We don't have the -- unless it was just huge -- we don't have the visibility.

It is so broadly dispersed across geography and customer basis to really know that on a (inaudible) basis -- we know when you land a super, super giant but --

Nothing that we are highlighting.

Nothing that we would know of.

Put it that way.

I want to look at pricing a little bit.

What was the contribution of pricing in the quarter?

We are making progress in storage pricing in North America.

And we were up we think a north of the 1% range last year and this year we are hoping to move that to a 2% plus.

We feel we're on the right track on that front.

So still believe that you can get closer to 2% or above this year.

We are making progress.

Just last question, in terms of the banks and financial institutions and all the turmoil they are experiencing, what has been the impact of that on your business and has it been meaningful yet?

Or do you think it is still something that maybe there is a lag effect and you will eventually see more impact from that?

We haven't seen anything yet.

Most of them are customers and as one absorbs the other, it is more of an impact of working hard to integrate programs and rationalize them and so forth.

Yes, I think we will see more of that happening in time.

The good news about our business is even if some of them were to be in serious trouble, they still have to keep their records around, and typically they get litigated for years after that.

We still I believe have the records for Drexel Burnham, if I remember correctly, which were paid for in advance a long time ago.

I don't think we will see dramatic impact.

I will tell you we're a leveraged model.

We watch the capital markets carefully.

We have tremendous bank syndicates that we appreciate a lot and high yield markets have been good to us.

We always will do -- we will watch those markets carefully to make sure we have continued access to capital and play conservative if we go into what I believe personally will be some pretty tough times for companies.

We won't get out of an economy unscathed.

Nobody ever does.

But I would rather be here than in most companies I know of looking at what I think is going to happen over the next two or three years.

Obviously I'm fairly gloomy about the outlook.

That's helpful.

Nice quarter.

Thank you.

Thank you very much.

We appreciate it and it is a little over an hour, so let me get on out.

Not a lot of summary except to remind you it was a good quarter.

Don't get too excited.

We're going to hit our year.

Think about it from that perspective.

Hopefully you're hearing the message.

We're trying to get you to [quit] worrying about quarters and so forth and so on, because we are not running the business that way and you spend a lot of time and energy worrying about stuff you don't need to be worried about.

Trends are trends but in our business they take a long time to unfold.

You couldn't see it in one quarter if you tried.

Every time we've tried, we've been wrong.

Hopefully you have gotten that message and you got the message we feel pretty good about our business and we are on track for the year.

Just to remind those of you, Jeff and Stephen will be Merrill Lynch conference May 14 in New York City and Bob, Brian, Stephen and I will be at William Blair conference June 18th in Chicago.

We look forward to seeing many of you out there as we go out on the road.

Thank you for your time and patience and I appreciate you tolerating me for the 49th consecutive conference call.

And you are not over listening to me yet, but it is the last time I will drone on so long.

Have a good day.

Thank you.

Thank you.

This concludes today's conference.

You may now disconnect.