鐵山公司 (IRM) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Iron Mountain Q4 2013 earnings call webcast.

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

Later we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions).

As a reminder this conference call is being recorded.

I will now introduce your host for today's conference.

Melissa Marsden, you may begin.

Thank you, Nicole, and welcome everyone to our fourth-quarter 2013 earnings conference call.

I am Melissa Marsden, Senior Vice President of Investor Relations, and this morning we will hear from Bill Meaney, CEO, who will discuss highlights for the quarter and strategic initiatives followed by Rod Day, CFO, who will cover financial results and guidance.

After prepared remarks we will open up the phone for Q&A.

As is our custom, we have a user controlled slide presentation available 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 2014 financial performance.

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

Please refer to today's press release, the Safe Harbor language on this slide and our most recently filed annual report on Form 10-K for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements.

In addition, we use several non-GAAP measures when presenting our financial results.

The reconciliations of these non-GAAP measures as required by Reg D can be found again on the investor relations page of our website as well as in today's press release.

Before I turn the call over to Bill Meaney, I would like to add two things.

First, registration is now open for our Investor Day to be held on March 26 at the Pierre Hotel in New York.

You can find registration details on the investor relations website under events.

Second, I would like to thank Stephen Golden for his years of service to Iron Mountain Investor Relations.

As many of you know, Steve will be leaving Iron Mountain end of March and I know you all join me in wishing him well in his future endeavors.

Also Faten Freiha, our new Director of IR is with us today and looking forward to working with you moving forward.

With that, Bill, begin.

Thank you, Melissa, and good morning to everyone joining us today.

Before I discuss the results for the quarter, I want to take a moment to acknowledge the tragic fire that struck one of our record storage facilities outside Buenos Aires earlier this month.

We are deeply saddened by the death of the brave first responders who rushed to save our facility as well as their colleagues injured while fighting the blaze.

As reported, all Iron Mountain employees who worked in that facility are safe and accounted for.

The building was equipped with both fire detection as well as sprinkler systems and we continue to work with authorities and participate fully in the investigation to understand what happened.

Whilst that is ongoing, our collective thoughts and prayers remain with the brave firefighters and their families and those injured fighting the blaze.

I also wish to thank four employees of Iron Mountain who rushed into the fire to fight it until they were ordered to leave by the fire brigade.

Their display of bravery, selflessness has been moving to all of us and I am proud to be one of their colleagues.

Turning now to the performance of our business, we had a strong finish to the year.

Financial results for the fourth quarter were in line with our expectations excluding restructuring charges related to our organizational realignment.

In addition, we achieved solid operating results as we advanced our strategic plans to sustain the durability of our high return business in developed markets, expanded into high growth emerging markets and evaluated investment opportunities in promising and emerging businesses.

Total revenue for the quarter was $769 million excluding charges of $19 million related to our organizational restructuring which were in line with the amount previewed in our third-quarter report.

Adjusted OIBDA was $214 million and adjusted earnings per share was $0.22 per share for the quarter.

The execution of our reorganization went as planned and we continue to maintain good cost discipline in the wake of these changes.

It is early but we expect the combination of these organizational changes, enhanced enterprise cost control and the adjusted OIBDA improvement achieved in our international businesses will support our continued high-level profitability.

In our international business, all regions ended the year in line with or ahead of expectations to deliver the adjusted OIBDA improvement target of 25% established three years ago.

To put that into perspective, this achievement represents an improvement of roughly $100 million in annualized OIBDA over that timeframe.

Our fourth-quarter results were slightly impacted by foreign currency fluctuations and decreases in paper pricing.

We continue to monitor these factors as we move into 2014 but at present, the impact is not significant enough to warrant adjustments to our 2014 full-year outlook.

Overall, business fundamentals for the fourth quarter excluding restructuring charges were in line with our expectations and fairly consistent with trends in the recent quarters.

Constant dollar storage rental growth for the quarter was quite strong at 4.9% driven by 12.5% growth in international and consistent 2.2% growth in North America.

Total storage rental internal growth was 1.3% in the fourth quarter.

This growth rate was impacted by contract renewals, some upfront costs associated with competitive wins.

Our outlook for the storage rental internal growth in 2014 remains consistent with the 2% to 2.5% level we have seen in recent periods.

Flow-through from acquisition activity earlier in the year was a meaningful growth driver.

We continue to view acquisitions as an important element of our strategy to extend our durable storage rental revenue.

We closed on more than $320 million of transactions globally during the year whilst building a robust pipeline of additional opportunity.

In all cases, our M&A activities must exceed our cost of capital and follow our return on invested capital guidelines.

In developed markets, our leading platform of people, properties and services allowed us to quickly and accretively integrate acquisitions and achieve targeted returns.

During the fourth quarter, we closed on our acquisition of Cornerstone Records Management in the US.

As we worked through the integration of Cornerstone, revenue for the partial period was just shy of our target whilst OIBDA contribution came in slightly ahead of expectations.

Additionally, the first storage facility consolidation from this acquisition occurred in late January and we have several more plans for the first half of the year helping us more quickly realize the integration benefits versus our original spend.

As we have noted, we expect this transaction to build attractive fold-in economics with (inaudible) of 10% plus which translates into the midteens in terms of equity returns.

In emerging markets, our strategy remains to acquire or partner with local storage companies to expand our market leadership, enhance returns and capture the initial wave of records outsourcing in these markets.

These acquisitions also provide new business from local customers and deepen our relationships with multinational customers who increasingly seek the security and efficiency that can be gained by consolidating records and information management with one global provider.

Late in the quarter we completed the acquisition of Databox in China.

While it is a relatively small transaction, this deal provides a platform from which we can thoroughly investigate the broader market opportunity and learn from our new customers and employees.

It also provides entry into several key cities including Shanghai, Beijing, Guangzhou, Chengdu, and Chongqing which are in addition to our current locations in China namely Hong Kong and [Shenzhen].

This transaction is in addition to four deals we successfully onboarded in Latin America in 2013 which will bring in roughly $60 million in annualized revenue.

In all cases we are on track with our business models which are based upon exceeding risk-adjusted hurdle rates which exceed our cost of capital.

We have a strong pipeline of additional opportunities in emerging markets.

Whilst these markets represent just 10% of our total business today with a 23% increase in constant dollar storage rental growth for the year, they are an important part of our long-term growth strategy and offer significant expansion potential.

With regard to emerging businesses, we are on track construction of our first datacenter outside of Boston and expect to bring it online before the end of the second quarter.

As we noted in our 2014 guidance, we expect to invest roughly $40 million in this business in 2014 doing so in phases to minimize risk and our recent wins and pipeline appeal support our capital plan for the year.

It is early days but at present pricing and returns appear healthy in our target segments.

We will have more on this emerging business at our Investor Day in late March but we are pleased with the progress we are making and the response from both new as well as our current data protection customers.

Let me briefly touch upon our preparations for reconversion.

Our actual REIT capital and operating expenditures came in within the range we projected back in 2012 and we have successfully completed the internal work necessary to enable us to comply with REIT requirements.

Following roughly six months of dry run [since] testing we began operating in a manner consistent with being a REIT as of January 1, 2014.

My sincere appreciation and thanks to all who have worked hard this week to get us to this point.

By all measures this was a massive undertaking and we brought the project in on time and on budget.

Of course we don't control every step of the process and we don't yet have final written rulings from the IRS or our outstanding private letter ruling for PLR.

However, we took these steps to prepare us for a decision, help preserve the related tax benefits for our stockholders for 2014, and to be able to demonstrate recompliance on a look back basis should we ultimately be successful in converting.

As I noted on last quarter's call, we don't intend to provide interim updates as to the nature of our communications with the IRS and we cannot make any assurances that the IRS will ultimately provide us with a favorable ruling on our racking or other requests.

Once again, the REIT structure does not impact our strategy or how we execute it, it enhances our return.

Our strategy continues to be focused on sustaining the durability of the business, maximizing free cash flow and supporting attractive stockholder returns regardless of whether or not we ultimately convert.

We generate significant free cash flow and the amount we have available pursuing strategic investment isn't appreciably different as a REIT or a C-Corp.

We have many attractive opportunities to invest to grow the business over the long term and we will do so prudently consistent with our capital allocation focus.

As we advance our strategic plan, I wish to reiterate that we are committed to enhancing long-term shareholder returns under either a REIT or a C-Corp structure.

Over the long term, we will strive for consistent moderate dividend growth whilst permitting the flexibility to pursue high return investment.

As we look out to this year, we are reiterating our guidance which assumes solid constant dollar revenue growth and adjusted OIBDA growth in line with the long-term goals we have talked about in the past.

We see consistent trends for storage rental in North American and a moderation in the rate of service activity decline.

Internationally we are improving our commercial focus as being a good trajectory as we move into 2014 driven by both organic growth and high returning acquisition.

To summarize, we had a solid quarter punctuated by the closing of additional acquisitions, achievement of further milestones related to the REIT preparedness and progress on the execution of our realignment and implementation of our strategic plan.

We believe our plan will help us sustain the durability of the business and support long-term growth.

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

Thanks, Bill, and thank you everyone for joining us today.

Let's now turn to slide 3 which highlights the key messages in today's review.

We delivered good results in the quarter four supported by strong constant dollar storage rental growth and international profit gains as well as benefit from recent acquisitions in Latin America and North America.

Storage rental growth grew 5% on a constant dollar basis in the quarter supported by a consistent 2% gain in North America and 13% growth in international.

Adjusted OIBDA performance was in line with expectations in Q4 driven by our international business which achieved its three-year margin improvement goal and by sustained cost management.

Included in our fourth-quarter adjusted OIBDA and adjusted EPS is $19 million restructuring charges as discussed on our last earnings call.

Looking at the full-year, our revenue, adjusted OIBDA, adjusted EPS results all landed in our guidance ranges.

CapEx was a bit higher than originally expected as we accelerated capital projects from 2014 into 2013 and free cash flow benefited from lower cash taxes due to timing of payments.

Today we are reiterating our 2014 full-year guidance put forth at our Q3 earnings call.

We continue to expect solid constant dollar growth of 2% to 4% total revenues and 2% to 5% for adjusted OIBDA.

Let's move on to slide 4 to review our financial review in more detail.

Slide 4 compares our results for this quarter to the fourth quarter of 2012.

Q4 operating results were generally in line with our expectations and consistent with recent trends.

Enterprise revenues were 3% constant dollar basis as our international segment continues to produce strong results.

International posted 10% constant dollar revenue growth supported by 13% storage rental growth including benefits from our recent acquisitions in Colombia and Peru.

North America posted flat constant dollar revenue growth and 2% storage rental gains offset by lower complementary service revenues.

FX rate changes reduced revenue growth by approximately 130 basis points in the quarter.

Adjusted OIBDA was $214 million or 3% excluding the $19 million restructuring charge.

The key driver of profit performance was continued improvement in our international segments where adjusted OIBDA excluding $4 million of restructuring charges increased 32% year on year in Q4.

Adjusted EPS for the quarter was $0.15 per share or $0.22 per share excluding restructuring charges compared to $0.20 in Q4 2012.

Adjusted OIBDA and adjusted EPS exclude the impact of costs associated with the REIT conversion which reduced reported EPS by $0.04 per share net of tax.

GAAP earnings per share of $0.25 including $14 million of costs, $11 million of other expense and a tax benefit related to foreign dividends, favorable audit settlements and released certain valuation reserves.

Our structural tax rate in the quarter was 39%.

Let's now take a close look at our revenue on slide 5. Slide 5 shows components building to our overall revenue growth.

For the quarter, storage rental growth of 4.9% on a constant dollar basis drove overall revenue performance.

Year-on-year global net volume growth was 5.8% including a 4.5% benefit from our 2013 acquisition.

North America reported 2.2% constant dollar storage rental growth reflecting relatively flat records management volume, pricing of just under 1%, and benefits from our recent acquisition.

North American pricing gains were below recent quarters reflecting impacts from contract renewals and some upfront costs associated with competitive wins.

For the full-year, price gains were 1.3%.

International storage rental growth was 12.5% on a constant dollar basis for the quarter reflecting 29% growth in emerging markets supported by strong organic benefits from acquisitions.

Internal storage rental growth remained strong with a 6.3% gain in the quarter.

Total service revenues were down 40 basis points on a constant dollar basis and international service growth supported by acquisitions was offset by North American service declines driven by lower complementary service revenues.

Average paper prices declined 13% year on year resulting in $5 million less revenue in Q4.

For the full-year, average paper prices were down 10%.

Overall, total internal growth was negative 1.1% in Q4 and 1.3% gains in storage rental more than offset by 4.4% service declines.

Let's now move to slide 6 and review our full-year results.

Slide 6 listed our full-year 2013 performance compared to 2012.

Our results reflect consistent business trends with reported revenue of $3.03 billion up 2% on a constant dollar basis.

Adjusted OIBDA excluding restructuring charges of $23 million was up 1% on a constant dollar basis.

Adjusted EPS was $1.03 per share, down 15% compared to 2012.

This reflects the impact of restructuring charges, full-year impact of additional shares issued with a special dividend in November 2012 and higher interest expense.

These impacts more than offset lower income tax expense.

Capital spending for the year was $223 million excluding $66 million of real estate and $23 million of reconversion capital.

As a percent of revenues, CapEx excluding real estate and REIT CapEx is 7.4%.

Capital spending finished slightly higher than guidance as we accelerated certain projects including sustainability projects from 2014 into 2013.

Free cash flow for 2013 was $390 million compared to $347 million last year.

The year-on-year increase reflects lower cash taxes which were partially offset by higher capital spending.

The 2013 adjusted OIBDA and adjusted EPS results here shown exclude $83 million of costs associated with the REIT conversion.

These costs reduced reported EPS by approximately $0.30.

In addition, $23 million of REIT-based CapEx I just discussed, we paid $53 million in taxes towards our [D&A tax liability].

All told these items reduced free cash flow by $130 million.

We have included a slide outlining the actual and expected REIT costs and related expenditures in the appendix in this presentation.

Let's now turn to slide 7 to review our results by segment.

Slide 7 shows key metrics for each of our three segments comparing 2013 to 2012.

Consistent with our business strategy, we sustained high returns on our North American segments where we continue to build our international segments, a significant driver of profit and cash flow gains.

North America continues to deliver high profits and strong cash.

For 2013, our North American business segment reported revenues of $2.2 billion.

We sustained adjusted OIBDA margins of 41% and increased storage gross margins and SG&A savings offset restructuring costs and pressures from lower service revenue.

We are also sustaining capital efficiencies spending 5.5% of revenues including real estate.

Our international segment continues to pose strong constant dollar revenues, adjusted OIBDA and cash flow gain.

Adjusted OIBDA increased 19% on a constant dollar basis benefiting from solid global growth and cost improvement initiatives in Western European markets.

International adjusted OIBDA margins have expanded more than 300 basis points.

Excluding the impact of restructuring costs in 2013, we achieved our goal of 25% international segment margins.

Finally, corporate expenses were up compared to prior years driven by the restructuring costs and increased legal and professional fees.

Let's now take a look at our debt statistics on slide 8. Solid cash flow generation enables us to maintain a sound balance sheet.

We are well positioned in terms of cash and financing capacity.

At quarter end, liquidity was more than $900 million with $120 million in cash and $820 million of additional borrowing capacity.

As discussed on our last call in the amendment of credit agreements, we changed our consolidated leverage ratio for compliance purposes to a net total lease adjusted leverage ratio which is an EBITDAR-based calculation as [leases] to our total debt.

This better aligns our rating agencies to our leverage.

At the end of Q4, that ratio was 5.0 with a requirement not to exceed 6.5.

To align with this new calculation, we are establishing a target of net total lease adjusted leverage range of 4 to 5. This equates to our previous range of 3 to 4 excluding lease financing.

Our net total leased adjusted leverage ratio of 5.0 times which is at the high end of our quoted range has increased over the past three years as planned to support shareholder payout, expenditures in connection with our proposed conversion to a REIT and recent acquisitions.

Further as previously stated, we expect leverage to temporarily exceed our target range in the short term due to costs associated with REIT conversion.

Our strong cash flow support continued advancements of our cash flow allocation strategy and our REIT conversion.

In 2013, we paid $207 million in cash dividends and $159 million of REIT costs including REIT-related CapEx and tax payments related to the depreciation recapture.

We are managing our balance sheet consistent with our strategy while advancing substantial payouts to shareholders and we remain well positioned to fund our business plan.

Let's now turn to slide 9 for a view of our 2014 outlook.

Slide 9 summarizes our 2014 operating outlook.

As I mentioned earlier today, we are reiterating our full-year 2014 guidance.

We are expecting full-year revenues of $3.09 billion to $3.17 billion and adjusted OIBDA of $930 million to $960 million.

Our expectations for adjusted EPS and free cash flow remain the same as well.

As we have been highlighting, we are incurring significant one-time operating capital costs associated with our potential conversion to a REIT.

These costs relate to systems investments, legal and tax work, advisory fees and other miscellaneous costs to implement the proposed structure.

We invested to ensure that we met the January 1, 2014 deadline in compliance with all REIT requirements.

We have met that hurdle rate.

We were able to delay certain costs primarily associated with additional country conversion and now expect between $32 million and $47 million to be incurred in 2014 and we are tightening our guidance range to $185 million to $200 million for these REIT costs.

We are also tightening the range for our depreciation recapture payments to $210 million to $225 million.

We have included a table with these REIT related costs in the appendix for your reference.

That concludes our review.

In summary, Q4 was a good quarter supported by strong international performance and recent acquisitions.

Our full-year performance was in line with our guidance.

We continued to execute our business plan, sustaining high profits and cash flow in North America and driving strong growth and higher returns in our international business.

We continue to advance work in connection with REIT conversion as part of our long-term approach to enhance value creation for shareholders.

Thank you.

We now would be happy to take questions.

(Operator Instructions).

Scott Schneeberger, Oppenheimer.

Thanks.

Good morning.

Could you guys just provide us with some thoughts with regard to the margin, kind of bouncing around the quarter.

But congratulations on the 25% target achievement.

What do you see going forward, would it be better help or be a hindrance as we look out into 2014 and beyond?

Is that question specifically related to international or is the business as a whole?

On the international, I am sorry if I didn't specify.

Yes, so on the international, we expect further improvements in the international margin really as a continuation of the strategy that we been having.

It kind of builds leadership position in the markets in which we operate and from that enable us to drive high-margins on the back of it.

So we see continued improvement on that side.

One thing, Scott, just to give you a bit of extra flavor to that is that what we are talking about is in terms of the current portfolio.

The other side of it, which we always say on the international side is that we are constantly adding new -- I shouldn't say new markets but new acquisitions to be pipeline into the portfolio play as well.

So in other words if we look at our most mature market -- the markets where we have established being positioned that Ron has alluded to, is those returns are even with what we see in North America for instance.

When we actually enter a new market or build out our capacity market like what we are doing in Brazil, we see a regular (technical difficulty) in terms of those margins over time but we also need to understand that as we actually go into new markets that we start at one end of the spectrum and then build it to the other.

The only thing I would just say is in all those cases though is we go into the view that we have to -- even on the initial acquisition our return, our hurdle in terms of return on capital.

But over time even beyond the initial returns on invested capital we see the returns start mimicking what we get in North America as we get those market leading positions if that makes sense.

Thanks.

(inaudible) Service is still moving along.

I realize a little bit of headwind from paper prices but could you speak a little bit to trends you are seeing with retrievals, with [construction]?

And then also evidence of special project activity picking up and historically I think you view that as potentially a precursor for activity in the business and then (inaudible) the storage.

Just any color you can provide along these lines.

Thank you.

We did see some moderation in the rate of decline in service activity as wended the second half of 2013 and that continues and as we worked our way through into Q4.

I think we are nervous about calling it a big fundamental shift in the business, it was bit of a change in trend but at least there was a continuation of slightly more positive signs through Q4.

And then coming to your question about DNS or related services, how it drives storage, I think there is kind of two parts to that.

I think first and foremost is that our customers are much more interested in solutions that we provide around their whole information management requirement.

Hence the reason why over a year ago we started going to a much more vertical process in terms of how we align our salesforce to our customers.

We talked about that on previous calls in terms of the industry verticals that we had.

One of the main reasons for that is to be able to address for our larger enterprise customers those requirements that they have around a total solution.

So there you are absolutely right.

I think especially in emerging markets we have seen a very strong link in terms of providing those services and additional storage.

But I think this is very much related to our vertical strategy in addressing a solution around information management beyond just storing the physical document or electronic information.

Okay.

Thank you very much.

I will turn it over.

George Tong, Piper Jaffray.

Good morning.

Storage rental internal growth this quarter decelerated to 1.0% which is below your 2% plus growth in the prior quarters.

Is this something we should be concerned about?

I think what we saw in Q4, there was a number of pricing actions that we took around contract wins and some contract renewals which resulted in a number of payments that we -- or discounts that will be made in the beginning of the contract.

We could have had a slightly dampening effect in Q4.

I think the outlook for 2014, we are expecting to get back orders from the 2% range being historical.

Got it.

That is very helpful.

Then switching gears to the wholesale datacenter business, could you give us a little bit of color there in terms of initiatives and how much capital that you are planning to allocate, how much customer (technical difficulty) you have lined up?

I think on that, George, I think we are still consistent with the guidance that we have given previously that we are allocating about $40 million worth of CapEx for 2014 and I think the way you should think about that is about 80/20.

80% of that is linked to strong or high visibility around customer commitments or requirements; 20% is what I would call fundamental infrastructure.

We are still very much driven by making sure that we have customers that are leading the vast majority of our CapEx in that business.

That is very helpful.

Thank you.

Kevin McVeigh, Macquarie.

Great, thanks.

Just to circle back to the core services, what are you modeling for paper prices in 2014, number one?

And then number two, was there any weather impact because it seems like between a $5 million headwind from paper in Q4 there was probably some weather related impact I would imagine on the service activity levels.

It is probably firmer than what those numbers suggest so I'm just trying to reconcile while we are headed into call it a bottom when it seems like fundamentals are improving pretty steadily there.

Maybe I will start with the paper price.

We are not calling really any up or down but sorted office paper we saw $133 a ton in Q4.

(technical difficulty) been our projections going to project that [forward] as opposed to making (inaudible) relations up or down.

So we will see if it was to improve, that would be good if it goes down further to negative (technical difficulty) That is how we are going to do the outlook in terms of service.

On the service side we did see some weather related impact.

The winter just keeps giving in the Northeast especially -- actually across the country.

So we have seen some of that but we don't try to project much into that.

I think that is fair to say.

But I think also if you unpack our service revenue to a certain degree as Rod said previously, if you look at what we would call the retrievals or refiles which is the kind of the core part of our service revenue, we do see a flattening out of the decreasing trend in that part of the business.

The paper trend is probably the biggest single impact in terms of our service revenue for Q4 which Rod had highlighted, down from the previous year associated with some specific projects which are related to our document management services.

But you are right to call out that weather has put a certain amount of headwinds on our service revenue in Q4.

Understood.

Bill, in terms of the rate, when is the last -- like what is the last day of 2014 where it can be retroactive to the first of the year?

I guess said another way, what date does that peel or need to come in where it can still be effective for all of 2014?

Actually I think October 2015, Rod will keep me on it -- because it is when we actually have to file our return for 2014 with all of the normal extensions so it is roughly I think October 2015.

Rod, do you agree with that?

Yes.

Got it.

And then just one other thing on that, it looks like on the outlook you pulled for the lack of a better word in the Q3 slide deck kind of the outlook at 2014 to 2016 across the REIT related and other expenditures.

Now it is all coming into 2014.

What drove that change, is that just better visibility or am I overanalyzing anything there?

I think you are probably overanalyzing it.

We are just now showing guidance in 2014 and assuming that we have a positive ruling from the IRS, is there will be ongoing REIT costs associated with not just supporting the normal reporting for a REIT but also as we convert more countries from a CRS to a QRS.

So I think you are overanalyzing.

We are just showing the guidance now for 2014.

Helpful.

If you do the E&P, would that be a similar mix in terms of stock versus cash as what you did the first time?

Yes, exactly.

Okay, thank you.

Andrew Steinerman, JPMorgan.

I wanted to go back to storage rental internal growth which decelerated like a point, 1.3.

I know you anticipate it to go back to 2, 2.5 for 2014.

I just don't see why the type of pricing that you are talking about ,initial pricing on contract would only affect one quarter.

I think as Rod alluded to on the first thing, Andrew, it was related to a few specific large customer renewals and retroactive (technical difficulty) we had to give associated with that which we took the impact in Q4.

It is a very specific around a couple of large customers and so we have visibility going out for the rest of 2014 and those are much more one-off adjustments.

And when you are in the renewal environment even if you have to make those type of adjustments retroactively, are there price escalators built into the out years with the long-term contract that you are seeing recently?

It depends on the contract, Andrew, but you are right to say that generally we do see escalators that are high to CPI.

But it depends on how long the contract is for but generally what you are saying is correct.

And then lastly, when we talk about the fourth quarter that is mostly just that price retroactivity that you just talked about when you look at volume growth for storage internal growth, is there much change there?

No, actually the volume growth remains on track.

It really is related to a couple of specific large contract renewals.

Rod, if you will entertain this question because I get it a fair bit.

It is about AFFO and I know we talked about it at the last Analyst Day and the Company presented around that.

When you look at the Company's free cash flow guidance of 300 to 340 what factors should investors take into account when trying to calculate AFFO?

Andrew, Steve here.

You are talking about a couple of different things but the biggest differences between what kind of a basic AFFO would be and the way we report our free cash flow is obviously taxes, [because] a full burden of taxes in our free cash flow does not exist to a large extent in an AFFO calculation.

And additionally the AFFO only subtracts out maintenance CapEx from the cash generated by the business and in our free cash flow calculation, we subtract maintenance CapEx as well as normal growth and other sorts of things excluding the real estate.

So those are the two big differences between the two cash flow base number.

I know the figure that we used in the past when talking about maintenance CapEx but is the definition for AFFO different than Iron Mountain's previous comments, older comments on how much of your CapEx is maintenance CapEx?

No, not really.

The definition should be the same.

We will -- in a REIT scenario, we will likely report it slightly different.

We will indicate what portion of that maintenance CapEx refers specifically to real estate and what portion refers to the other non-real estate assets.

Perfect.

Steve, thanks so much.

(multiple speakers) should remain the same.

Thanks.

I appreciate it.

(Operator Instructions).

Shlomo Rosenbaum, Stifel.

Good morning.

Thank you for taking my question.

I just wanted to ask a little bit more about the Cornerstone acquisition and I understand that usually the first stage of the acquisition is to go ahead and integrate it in order to get the cost synergies.

I was just wondering if there are initiatives right now to kind of broaden the [tail] space over there and to try to go after the end market which is not historically kind of a (inaudible) market?

I think is the question -- I think that was one of the key attractions for us on Cornerstone.

There were really kind of two aspects.

One is the operational aspect which we highlighted and we are actually nicely ahead of plan in terms of being able to get that.

The other part was the fact that Cornerstone had a very good representation in the middle market part of the business.

In part of our realignment strategy which we talked I think on the last call and go into more detail on the Investor Day, was really is getting much more focused through the 19 regions that we set out across North America to go after that middle market.

And Cornerstone fits very nicely into that initiative because that is where their sweet spot was.

So are you already started building out the sales over there or are we still kind of early stages to think (inaudible) build the business?

No, we have already done that.

In fact we have already incubated a number of their salespeople into our organization both on the boots on the ground as well as on the performance management associated with that to go after that market.

That is actually already complete.

Okay.

And then just slide 11, the $500 million to $1 billion on estimated E&P distribution, is that a total number or is this kind of incremental number?

I just want to understand that for 2014?

That is incremental.

So it should be a total of $500 million to $1 billion that will come in 2014 in a similar type of mix as to what we saw years ago?

Yes.

Thank you very much.

(inaudible) Jefferies.

Thanks for taking my question.

I've got one quick housekeeping question and then a follow-up.

Would you mind like in previous quarters breaking out North America organic storage growth versus international in Q4?

We will take that off-line.

We will get back to you on it.

Okay.

Thank you so much.

Another question, recall it would be competitive for us.

Reported results earlier this (inaudible) about 2.8% constant currency growth excluding M&A.

Yours is probably like 1.5% or so lower in the last two quarters.

Is that a mix issue, is there anything else that we should be thinking about by comparing the companies?

Any color would be great.

Thanks.

Obviously [Ricoh] have less sources in North America compared to international relative to (inaudible) but I think I would have a bearing on the results.

Yes, because you have to -- their records -- pure records management in North America is about a 10th of ours so as Rod said, they are more biased towards the international market.

Got it.

Yes, that makes a lot of sense.

Thanks, guys.

Appreciate it.

Manav Patnaik, Barclays.

I just had a question around the acquisitions pipeline and obviously you guys had a fair number, $320 million this year.

How should we expect that based on what you are seeing today?

Should that annual percent be at a (inaudible) level relative to I think it was the 100 to 150 that you guided on today?

I think that the guidance we gave at the last Investor Day is the right general expectation.

I think at Investor Day coming up in March will give you a better view in terms of where we think we are going to end up over the next three years in terms of our acquisition pipeline because we have built a pretty robust pipeline mainly focused at the emerging market.

And our focus is primarily driven at the emerging markets which tend to be smaller in size but in higher growth areas.

So I think the guidance that we gave last time I think still is the right general guidance and I think we will give you more color in terms of what the impact of our acquisition pipeline should look like over the next three years when we all meet at the end of March.

Okay.

Just on the Chinese acquisition, I mean could you maybe just frame the size of that acquisition, your market, your presence rather today and what that could mean?

Actually I just came back from China so I can give you a little bit of an update on that is that first of all, it is a nice little acquisition as we said it is not massive but it actually builds out our location across China.

It gives us a similar footprint as our other what I would call international competitors or a little bit bigger than some of our international competitors in China.

So we feel pretty good about that.

I think that it is fair to say right now with our China footprint we have a footprint that is attractive and meets the requirements of our international clients.

But we are still not what I would call a buyer or SOE, state-owned enterprise.

And there, there are larger and local competitors that are serving the state-owned enterprise market.

So right now it is early days in China but we feel good that we've now got a platform that first of all, can satisfy our international customer base.

And second, gives us a lot more intel on the ground in terms of other opportunities.

But we are still what I wouldn't call a large bulk provider of services for the state-owned enterprise.

Fair enough.

Just last one sort of on the [legal] now spinning off.

Have you seen any change in strategy or more opportunity for these acquisitions going after at all?

I think so far we haven't.

I mean I know they announced a couple of acquisitions this past week.

They were always a good competitor.

Before they spun out there, I'm sure going to continue to be a good competitor now that they've spun out.

So I can't say there would be any change.

I think that they will I think like us be very disciplined in terms of the way that they allocate capital especially now that they are a public company.

So I don't see any major change (inaudible) of that.

All right.

Thanks a lot.

(Operator Instructions).

(inaudible), Wall Street Journal.

I just wanted to see if you could fill us in on the status in the investigation on the fire in your warehouse in Buenos A6ires and if there is any kind of an indication of the cause of that fire?

Are there signs that there was possibly arson involved or not?

If you could just kind of fill us in on that.

I think first and foremost is that we have been working with the authorities to assist in any way that we can their investigation.

Because this is being led by obviously the local authorities so we don't have any information other than what is already out there being released by the authorities but I think it would be wrong for us to even speculate at this point.

We can't really go beyond what we have said.

It did have fire detection, fire suppression systems in the operation.

We did have security guards on duty 24 hours so there were people monitoring the facility but this was clearly a very tragic event and the only thing I would just add is that nobody spends more than we do in terms of trying to prevent these types of occurrences.

But at this point, we are cooperating with the authorities, like them, we want to find out what the root cause was.

Thank you.

I am showing no further questions in the queue.

Thank you very much, operator.

In summary, we had a good quarter and wrapped up a solid year underscoring the durability of our storage rental business.

We began to execute on our REIT organization realignment and advanced initiatives to extend the durability of our business.

This included acquisitions in both the emerging and the developed markets that will generate attractive returns on our capital as we integrate these businesses into our core and additional investments in the emerging data center business.

These initiatives are consistent with our continued focus on prudent capital allocation and maximizing total returns and we believe they will support sustainable long-term growth and allow us to deliver durable returns to our shareholders.

We look forward to sharing more details with you at our upcoming Investor Day and thank you for joining us this morning.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude today's call.

You may all disconnect.

Have a great day everyone.