鐵山公司 (IRM) 2014 Q4 法說會逐字稿

Good morning. My name is Tabitha and I will be your conference operator today. At this time, I would like to welcome everyone to the Iron Mountain Q4 earnings conference call.

(Operator Instructions)

I will now turn the call over to Melissa Marsden. Please go ahead.

Thank you, Tabitha and welcome everyone to our fourth quarter and year end 2014 earnings conference call. This morning, we will hear from Bill Meaney, CEO, who will discuss highlights for the quarter and year as well as progress towards our strategic initiatives, followed by Rod Day, CFO, who will cover financial results and updated guidance for 2015. After our prepared remarks, will open up the phones for Q&A.

As we have done for the past couple of quarters, we have posted our earnings commentary and supplemental disclosure package on our investor relations page of the website at www.ironmountain.com under Investor Relations/Financial Information.

Referring now to page 2 of that supplemental package, today's earnings call and slide presentation will contain a number of forward-looking statements, most notably our outlook for 2015 financial performance. All forward-looking statements are subject to risks and uncertainties. Please refer to today's press release, earnings commentary, 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 to these non-GAAP measures as required by Reg G are included in the supplemental reporting package. With that, Bill, would you please begin?

Thank you Melissa good morning everyone. Before I begin I think given recent news stories following on from our December announcement with respect to a proposal to acquire Recall, I think I should just make a statement before we get into our discussing our results for both the quarter and the year. We strongly believe that our acquisition of Recall would provide both companies' shareholders within the unique opportunity to participate in the growth of the combined businesses with attractive growth prospects.

We believe that there is significant value creation potential from such a transaction for both companies' customers as well. We continue to try to figure out ways to narrow the valuation gap, but we will only pursue a deal at the right price. We have nothing to report at this time.

With that, let me turn to our results. We are pleased to report another quarter of strong operating performance, wrapping up an eventful year of good progress on our three-year strategic plan and our successful conversion to a REIT. During 2014, we continued to improve results in our developed markets, expanded our exposure to faster growing emerging markets, and generated momentum in our emerging business segments.

In addition, we expanded our REIT investor outreach, and we were added to the MSCI REIT and the FTSE NAREIT indices. Inclusion in these important benchmarks is important for generating a higher level of awareness of Iron Mountain as an attractive REIT investment.

Let me now turn to financial highlights. Rod will have more in a few minutes.

On a constant dollar basis, our financial results for 2014 were right in line with our expectations. The significant strengthening of the dollar in the fourth quarter impacted our reported figures as it did for most multinationals, resulting in growth in total revenue and adjusted OIBDA of over 3% including restructuring charges.

But on a constant dollar basis, we believe -- which we believe more accurately reflects core operating performance, growth in these measures was just under 5%, at the top end of our ranges. These results are supported by the durability of our storage rental business and are in line with our three-year plan to achieve 4% compounded annual growth on a constant dollar basis in both total revenues and adjusted OIBDA.

Turning to operating highlights, total storage revenue, a key economic driver of our business, was up 5.4% in constant dollars for the year, driven by strong growth of 13% in our international business and roughly 3% gains in both our North American records and information management and data management segments. These results reflect our continued focus on driving net positive records management volume and storage rental revenue growth in developed markets and further penetration into higher growth emerging markets.

In developed markets, we further sharpened our focus with the fourth quarter sale of our shred trade operations in the UK, Ireland, and Australia. We chose to divest these businesses because they were much smaller than our North American operations, and we did not benefit from the same scale. At the same time, we acquired secure records management in Canada, which brought us nine facilities and 3 million cubic feet of records, including available space to support the onboarding of a major new customer.

In records management, we added more than 18 million cubic feet of net storage volume worldwide on a base of 500 million cubic feet at the beginning of the year or 3.6% net growth. The growth was in part achieved as a result of the significant turnaround from negative to positive internal volume growth -- in other words, before any impact of acquisitions we achieved in North America.

Importantly, North America represented 20% -- or more than 20% of our gains for the year, excluding volume from acquisitions. Globally, we maintain customer churn of under 2%. This is unchanged from Q3 levels but represents a 30% improvement over the level of customer losses experienced two years ago.

This combination of improved customer retention, growth in new sales, and consistent new volume from existing customers drove 3.5% internal storage rental growth in the fourth quarter, continuing the steady improvement we achieved throughout the year. Our strong fourth quarter growth rate did benefit from favorable comps relative to the 1.3% internal storage rental growth in the same period last year, but even when normalizing for that, we saw a nice pickup and are pleased with our momentum as we head into 2015. Our internal storage rental revenue growth expectations for this year are in the range of 2% to 2.5%.

Turning to emerging markets, we are making good progress towards our goal of 16% of total revenue from emerging markets by the end of next year. These high-growth countries represent 13.9% of our total revenues at the end of the year on a constant dollar basis, using our 2014 FX budget rates and a 12.8% on reported basis.

You will hear from Rod that FX currency rates will be a drag on reported performance this year. Whilst our operating margin and virtually all our countries are naturally hedged and preserved, like most multinationals, we're not immune to the effects of currency translation in terms of absolute earnings impacting US dollars. However, given our opportunity to expand internationally on what is today a relatively small international base, we like the fact that we have the benefit of investing in US dollars overseas during this part of the currency cycle.

We continue to see attractive growth potential in both storage and service in these markets as they are beginning to embrace outsourcing of enterprise storage, especially given the durability of our business. Both internal total revenue and internal storage rental growth in these markets was more than 15% in the fourth quarter. In addition, unlike more mature multinationals whose growth rates are fairly similar around the globe, we are in a unique position to invest our capital in markets where we are still early in the growth cycle, enabling us to capture higher growth rates off our lower basis, thereby enhancing our returns in the medium to long-term.

Given this as a backdrop, acquisitions continue to be an integral part of our strategy with a focus on high-growth emerging markets. We completed $190 million of acquisitions in 2014, including the records inventory of smaller records management companies, with more than $125 million of the total in emerging markets through Eastern Europe, Latin America, and the Asia Pacific regions.

We have a strong pipeline of acquisition opportunities in emerging markets with more than 4 times the coverage needed to achieve our goal of 16% on a constant dollar basis. And we will continue to evaluate those opportunities in light of our targeted returns and favorable underlying growth dynamics that support the durability of our business.

Within our emerging business opportunity area, we continue to make progress in our data center operations. We have invested more than $70 million to date with $35 million of that in 2014 expanding our capacity in the underground facility and delivering our first phase in Boston. Whilst absorption in our Boston data center is just beginning to pick up on a blended basis, we have achieved a stabilized, unlevered return on invested capital in this business of 9%, which we feel is good, given how recently we added our new capacity and expect that this return will stabilize at 11% to 12% on a fully utilized basis.

We continue to evaluate other emerging business opportunities that leverage our unique platform as a leader in enterprise storage. We see the potential to extend our brand strength and chain of custody and logistics to a broader range of offerings.

Many of these opportunities are customer driven, where they've asked for our assistance in solving an enterprise storage need, whether it be upstream in their supply chain, or downstream to support distribution. We expect to have more on this at our investor day in October.

These facets of our strategic plan all support the durability of our business, the sustainability of our cash flow, and our fit as a REIT. When you consider the nature of our business, our enterprise storage foundation compares very favorably with self storage.

We have superior customer credit quality given our service to more than 92% of the Fortune 1000. We serve more than 155,000 business customers, which leads into a diversified revenue stream and low customer churn of less than 2% per year.

Unlike consumer self storage where customers tend to be in transition and frequently have more temporary needs, the average life of a box in our facilities is 15 years. This means we have very low volatility.

In fact, we posted 26 years of consecutive growth in storage rental revenue, which persisted even throughout the great financial crisis. And like self storage, we have a service component to our business that is inextricably linked to our customers' underlying storage needs.

We also compare very favorably with the industrial sector if you think about the nature of our operating facilities. The major difference is that our real estate costs are incurred by the square-foot but we generate storage rental revenue by the cubic foot.

We are essentially renting air. This multiplier effect generates a significant spread between our cost and our return on investment. It yields a very high net operating income per square foot and is core to how we create value for our stockholders.

Similar to the industrial sector, we have a low maintenance CapEx requirement, but our turnover costs are even lower on a per foot basis. And when we invest in incremental Racking Structures within an industrial shell, we can generate very strong returns due to this volume dynamic.

As we talked on recent calls, we intend to buy $800 million to $1 billion of our leased facilities over the next 8 to 10 years, shifting our mix to a higher percentage of owned properties. This supports our REIT status, but it also means we have more optionality over the long-term. If we consolidate in our market and exit buildings that we own, we can lease them to customers for other industrial or distribution uses or we can create value by selling them or redeveloping the underlying real estate in infill markets for alternative use.

Importantly, the REIT structure is consistent with our capital allocation goals and does not limit our ability to fund our business plan. As we become more active in buying in our properties and execute on our acquisition pipeline, we expect to fund that incremental investment with additional borrowing and/or equity issuance similar to the manner in which most REITs fund external growth.

You may have seen that the Board declared our first-quarter dividend of $0.475 per share this week. At a $40 stock price, our implied cap rate is about 7.5%, well above where other property sectors are trading.

At the same share price, our dividend represents a 4.8% yield, well in excess of most REITs. Combined with our goal to grow adjusted OIBDA by 4% on a compounded rate, our dividend level supports our goal to deliver total shareholder returns in line with that the 8% to 9% TSR or total shareholder return of the S&P 500. And this goal is prior to any potential upside from additional emerging business opportunities.

Now I'd like to turn the call over to Rod.

Thanks, Bill. We continue to execute well against our strategic plan. And we are pleased with our strong operating performance for the year. Our results underscore the durability of our storage rental business, and demonstrate the benefit of acquisitions we have made in emerging and developed markets.

I will begin today with an overview of our fourth quarter and full-year financial performance followed by an update on our outlook for 2015. I will then address our capital deployment activities and conclude within a discussion of various REIT metrics. Please note that throughout my prepared remarks, I will reference selective slides from our comprehensive supplemental reporting package which can be found on the investor relations portion of our website.

Turning to our financial results for the quarter and the year, let me direct you to the financial highlights on page 8. Supported by strong storage rental growth, total reported revenues were $778 million, up approximately 1% compared with Q4 of 2013 and up 5% on a constant dollar basis. For the year, total revenues grew by 3%, to $3.1 billion, or by 4% on a constant dollar basis and in constant dollars at the top end of our guidance range.

Adjusted OIBDA for the quarter was $220 million, compared with $195 million in 2013. For the full year, adjusted OIBDA grew by 4% to $926 million or by 5% to $934 million on a constant dollar basis.

For comparison, adjusted OIBDA for 2014 included $3.5 million of costs associated with the Company's restructuring initiatives. In addition, adjusted OIBDA in 2013 included $19 million in the fourth quarter and $23 million in the full-year of restructuring costs.

Adjusted EPS for the quarter was $0.25 per diluted share, compared with $0.21 in 2013. For full-year 2014, adjusted EPS of $1.36 was within our guidance range. As we highlighted on our Q3 earnings call, adjusted EPS for the full year was impacted by REIT compliance costs and an increase in depreciation and amortization expenses associated with our conversion to a REIT as well as acceleration of real estate consolidation from some of our acquisitions.

It's important to note that adjusted EPS for 2013 was restated to be on a comparable basis using our structural tax rate of roughly 15%. Our structural rate for the year came out to 14% as a result of lower pretax income in international jurisdictions which was impacted by the strengthening of the US dollar. We continue to believe that our tax rate will be approximately 15% to 16% over the long-term.

The fundamentals of our business remains small strong as evidenced by solid storage rental revenue growth. On page 9, topline growth for the quarter on a constant dollar basis was up 5%, reflecting solid storage rental revenue gains of 5% and service revenue growth of 4%.

The growth in service revenue was driven by increased project activity, improvement in paper revenue, and recent acquisitions. On a constant dollar basis, full-year total revenue growth was 4%, driven by storage rental revenue gains of 5% and service revenue growth of 3%.

Also on the same page, we showed total worldwide volume growth. We continue to demonstrate improvements in net volume growth and records management with total year on year volume growth of 3.6%, including acquisitions, or 1.9%, excluding acquisitions. Growth excluding acquisitions maintained a steady improvement in performance that we have seen in the last two years.

Within this, we continue to see strong volume from existing customers who added approximately 30 million cubic feet of storage worldwide in this category. This number of boxes is consistent with prior years though the percentage growth dips to just below 6% in Q4, driven by the denominator effects of our growing base of records under management.

Let's turn to page 12, where we present components of growth on a segment basis. Q4 and full-year segment results were generally in line with our expectations. But our strong storage rental revenue continues to exhibit durability.

North American records and information management or RIM delivered positive storage rental internal growth and maintained strong adjusted OIBDA margins of 38.5% during the fourth quarter and the year. North American data management or DM delivered storage rental internal growth of 6% in the fourth quarter and 2% for the year.

During the fourth quarter, the strong storage rental growth in DM more than offset the decline in service revenues resulting in adjusted OIBDA expansion of 130 basis points. Declines in service revenues in data management continue to reflect the trend towards reduced activity and related transportation revenues as our customers rotate their tapes less frequently and the business becomes more archival.

The international segment continued to generate attractive results with 8% storage rental internal growth, and 4% internal service revenue growth for the quarter. For the full year, storage internal -- storage rental internal growth was 6% and internal service revenue growth was 2%.

The international business continued to deliver profitability on a portfolio basis in line with our mid-20[%]s targets for the year. Adjusted OIBDA margins for the fourth quarter were impacted by costs related to continuous improvement integration expenses and other IT project expenses.

Let me direct you now to page 11, where we lay out our performance for the year against our guidance. Bill covered this at a high level, noting that constant dollar revenue and adjusted OIBDA were at the high end of our growth expectations. Our full-year FFO and AFFO were also in line with our expectations excluding the impact of FX.

Our total distributions for the year including the E&P purge or special distribution were about $1.1 billion. Approximately $200 million was return of capital, representing less than 20% of the total.

It is common for a REIT to have some portion of its distributions characterized as return of capital, particularly in its initial year. In order to qualify as a REIT, it was critical that we purge our entire legacy E&P including the E&P from our foreign QRS entities before the end of 2014. We intentionally built a level of conservatism into our distribution estimates as we did not want to risk under distributing and failing to qualify.

Also highlighted on this page, our investment in capital expenditures we have made during the year. Real estate investment of $200 million for the year were in line with the midpoint of our guidance.

Our maintenance CapEx was $83 million, at the low end of the guidance range. Non-real estate investments of $43 million was slightly below the low end of our guidance range. This was driven by the timing of certain IT investments which will now occur in 2015.

Acquisitions for the year were at $189 million, at the low end of our guidance range. Although the acquisition pipeline is large, we are very selective in the acquisitions that we undertake, and we ensure that they meet our hurdle rates.

Turning now to our outlook for 2015 on page 10, business trends and operating fundamentals remain consistent. Operationally, we remain on track to achieve our long-term financial objectives, given the durability and strong fundamentals of our business. That said, we have updated our 2015 guidance to reflect FX headwinds and our new constant currency rates which was based at rates at the beginning of this year.

We are projecting constant dollar revenue growth of 1% to 5% and growth in adjusted OIBDA of 1% to 5%, in line with our strategic plan. We expect adjusted EPS to be in the range of $1.15 to $1.30.

To be clear, this guidance, similar to the preliminary guidance we provided at the last earnings call, reflects our anticipation of an absolute increase in total earnings in constant dollars, offset on a per-share basis by the impact of shares issues in connection with a special distribution, and in addition, the impact of FX. Driven by the consistent growth in our business and stable fundamentals, we expected normalized FFO to be between $425 million to $465 million with AFFO between $480 million and $520 million.

Please note that for 2015 guidance, we have deducted non-real estate investment from our AFFO calculation in response to constructive feedback. While not strictly maintenance related capital expense, these expenditures are necessary for us to support our REIT IT and customer interface systems and are somewhat recurring in nature. Therefore, we believe this change to our definition of AFFO is a more conservative approach.

As you saw yesterday, we announced our first quarterly dividend for the year of $0.475 per share. We will continue to believe that our cash flow supports our dividends at current levels, and we expect our dividends to grow in line with operating performance.

From a capital spend standpoint, we expect investment in real estate to be $230 million to $270 million including investment in racking. Maintenance CapEx consistent with prior years is expected to be in the $70 million to $90 million range. Non-real estate investment is also expected to be in the $70 million to $90 million range, which is higher than recent years due to the inclusion of REIT compliance related CapEx and the timing of certain IT investments.

Acquisition investments are expected to be $150 million to $250 million. It's difficult to be precise here as acquisitions are opportunistic in nature. We will update our outlook again on our Q1 earnings call to reflect any changes if any including the impacts of any further changes up or down in FX.

Shifting to the balance sheet, pages 26 and 27, present our debt maturity schedule and related metrics. At quarter end, we had liquidity of more than $700 million.

As forecasted at our investor day last year, our lease adjusted leverage ratio would increase to support shareholder payouts, expenditures in connection with our proposed conversion to a REIT and recent acquisitions. At quarter end, it was 5.4 times as planned. At today's stock price our debt to total market capitalization is roughly 36%.

Turning now to REIT specific metrics on page 20, we provide our global real estate portfolio, which highlights our leased and owned facilities worldwide. The number of leased facilities increased slightly compared to the third quarter of 2014 as a result of our international acquisitions through which we assumed a few operating leases. As we begin to consolidated facilities and execute on our real estate purchase plan, we expect to increase a portion of owned facilities by square footage.

On page 21, we have provided storage net operating income or NOI per rack square foot, which highlights the attractive economics we derive from our real estate. We continue to achieve strong storage NOI from combined records management and data management of approximately $29 per rack square foot worldwide due to the multiplier effects of renting our space by the cubic foot. This level compares favorably to NOI per square foot for most property types within the REIT sector.

On page 22, our racking and building utilization rates are high and have improved slightly since the last quarter at 91% and 83% respectively for the records management portfolio. We believe that due to frictional vacancy, our maximum racking utilization is in the mid-90%s. When we enter into a new facility, we generally target to achieve stabilized utilization in about three years time.

On page 29, we have provided components of value, a summary of the various parts of our business to facilitate valuation. As reminder, we present both the storage NOI and service OIBDA excluding rent expense in order to present storage economics on a consistent basis whether leased or owned. To balance that, we provide total rent expense in the liabilities area.

We think about our valuation as a REIT by applying the self storage or industrial cap rates to our annualized NOI from our storage rental business. On top of the market value of our storage business, we add the value of the services business by applying an appropriate multiples.

We also provide other tangible assets, our current investments in buildings and racking, as well as the book value of recent acquisitions. We also provide liabilities, including our annual rent expense to which we apply cap rates and deduct as another form of debt.

We hope you find this disclosure useful. And as we have said in prior communications, we will continue to enhance our supplemental reporting and welcome feedback. With that, I will now turn the call back to Bill.

Thanks, Rod. Before we move to Q&A, I'd like to summarize this morning's key points. Our 2014 financial results were on track with our expectations prior to the impact of foreign currency, and in fact revenue, on a constant dollar basis was at the top end of our range. Moreover, we look for similar constant dollar growth in 2015 consistent with the three-year plan we laid out at our investor day nearly a year ago.

Our fourth quarter operating results demonstrated the success of our initiatives to drive volume and storage rental growth in both our developed and emerging markets, and we are maintaining momentum as we move into 2015. We have attractive high return investment opportunities in all of our segments, including potential acquisitions in developed and emerging markets and interesting initiatives to leverage our enterprise storage brand through emerging business opportunities.

We're maintaining our dividend in line with the growth and operating profit which represents an attractive yield while providing cash flow to fund required CapEx and a portion of our growth investment. We will continue to maintain our capital allocation discipline and like most REITs we will look to fund external growth with a new capital at the first demonstrating our ability to generate the appropriate returns. Our business is durable, and predictable, and is characterized by attractive fundamentals compared with self storage and industrial property types.

Whilst FX has been a drag in the recent quarter, we also see the current FX environment as an opportunity to take advantage of the strong US dollar to increase our small but growing investment in the high-growth emerging markets at favorable rates.

With that, operator, we are ready to take questions.

(Operator Instructions)

Andrew Steinerman, JPMorgan.

Internal growth and service up 3% and surely I did catch also that it was an easier comp. You mentioned even normalizing for the easier comp, this looks like a recovery.

Could you go over some of the components of what drove a positive experience in North American service on an organic bases and looking into 2015? Do you think this will be a volatile division, or do you think it will be firming up?

Andrew, I think you were clipped at the beginning. I think your -- I don't think that -- I hope we got all that. You are asking about the internal growth, and we called out the fact that we are guiding for 2%, 2.5% and we had a very strong quarter. And you want to understand how volatile that is and what drove the improvement, is that correct?

On the service side of North American box.

On the service side. Okay. I think on the service side, I will let Rod talk you through it because you also asked for the different components. And I think I would say as an introductory remark before Rod takes you through the different components of that, because there -- as you know there are multiple things in our service revenue, some of it is it driven by paper prices, some of it's driven by the ins and outs associated with our records management business.

There are different components that are more volatile and more in direct control of the operation. So I think we have seen an improvement around our imaging business and paper prices. And we have a new dedicated leader that's just looking at our digital or scanning operation.

So we have seen an improvement in that area. But we still see some of the underlying trends, especially in our data management area, in terms of some of the services associated with transport. But Rod, you may want to talk about it in more detail.

Yes. I think that's right, Bill. The way I think about service revenue, Andrew, and I think you do as well is that the service revenue that we can directly influence and is obviously independent, if you like, from some of our core records management business. And then there's service activity that is dependent on the activity of what's going on within the core storage side.

I think what was positive for us in Q4 -- if we look at the first area, so the stuff that we can influence directly, we had a particularly good quarter in what we call projects. So that's where we do specific assignments for customers to help them more with their records management issues, and that was a good strong performance. In addition, we also had the benefit of a good shred performance during Q4, some of which was driven by an improved paper price that we've seen tip up a bit in Q4.

In terms of the activity, associated with our records business, within the RM side, although there was still a modest decline, the decline is not as serious as we've seen. So again, I think you know you're always nervous about calling the bottom of that, but at least it was a more favorable quarter than we've seen and actually follows on from Q3 in that regard. I think the contrast to that would be as Bill said, within the DM side, we did see quite a significant drop in service activity associated with tape and tape rotation.

So now let's talk about 2015. As Bill said, we have actually done a bit of reorganization on the service side particular within North America as you get more focused to our scanning business and our shredding business, which I think will benefit us.

And I would hope that within the RM side, although there is probably still be continuing declines with activity associated with box, that should be -- that will be at lower levels. But on the DM side, I do think we will continue to see quite significant reductions.

So in summary, in terms of the activity that we can control, I think we will be -- I'm hoping for a good performance there. On the stuff that is more difficult for us to control, RM, more positively being DM, I think will continue to struggle. Bill?

The only thing I would add to that, Andrew, is on the DM side, there's a couple initiatives that we are doing to try to mitigate that. First of all we, do have a new offering in secured destruction which we're seeing albeit off a small base, but very rapid growth off that base. So I think you will start seeing that come through in some of the service numbers associated with the DM business.

The other aspect is that we have taken a focus on maintaining and in some cases trying to add additional volume on what we call our premium transport services around DM which is dedicated transport. So there are a couple puts and takes and initiatives that we just started in the last quarter of last year, and we expect those to continue to come through. But the overall trend in DM as it becomes more archival like the box business, the DM business is a little bit behind in terms of the lifecycle of that.

Okay. Thank you.

Kevin McVeigh, Macquarie.

Real nice job. Obviously, I don't know if you can comment on Recall at all, but they reported they said there's further discussions things like that.

Just any updates in terms of how you are thinking about that, Bill, particularly given, the pullback in the Aussie dollar. Does that impact the approach? And are there any milestones that as you think about the potential transaction from a timing perspective, or is it just any update at all if you can talk to it?

Well, thanks for that. I guess, Kevin, you probably expect I don't have much more to say than what my statement is, is that we obviously see an attractiveness of such a transaction which is the reason why we put a proposal for it in December.

And we look at different aspects of the business, and it is attractive. But it's really a question of whether or not we can get to a value that works for both sides. But I think I don't have any more to say than in my opening statements.

Okay. That's helpful. And then just one other thing, if I had it right, it looks like on the initial 2015 guide, the internal growth was 1% to 2%, now we're saying 2% to 2.5%. Is that right?

Say that again? I'm sorry.

I'm sorry. The internal growth overall in the 2015 guide, I thought initially was 1% to 2%, and if I have it now, I think you bumped that up to 2% to 2.5%. Is that right?

Yes. I think just to be clear, there's probably a distinction between -- well, there is a distinction between total internal growth and storage internal growth. So Bill referenced storage internal growth of being 2% to 2.5%, which is the number that we would expect for 2015, which is distinct from total revenue growth.

Got it because it seems like -- you've done a real nice job there. And then just, one other question in terms of -- with the drop in fuel, I know you had fuel surcharges, did that work against you? I guess it seems like the internal growth is probably even stronger than what you'd suggest if some of those surcharges were starting to run off, or am I think about that incorrectly?

No. You're right, actually. It does have an impact. It did have a relatively small impacted to be honest in the back end of Q4. It obviously doesn't impact the EBITDA, but it does impact the revenue slightly.

Okay. And then just one last one and I apologize, I will get back in the queue. It sounded like Bill, you announced a major new customer.

It doesn't look like the CapEx from a racking perspective picked up. Was that a secured customer, or was that an organic and any sense of just what vertical that's in?

I think you're referring to is in relation to the Secure acquisition, I said it also helped us onboarding a major new customer. Is that what you are referring to Kevin?

Yes.

Yes. No. I think that -- well, it did help us a little bit in terms of the amount of CapEx we're racking that we needed to deploy for that because we were able -- when we bought Secure, they had some spare capacity in some of their facilities which we're able to use to onboard this new customer. So I think that is true, and that's up in Canada.

Okay. Super. Thanks so much. Nice job.

Thanks, Kevin.

Andy Wittmann, Robert W. Baird.

Thanks for taking my questions. I wanted to start by digging into some of the restructuring costs in the fourth quarter. You may have said this on the conference call, Rod, but I missed it. What were the restructuring costs this year and last year in 4Q specifically?

Okay. So, let me just got mine --

So I just want to get a sense of the comparability of the margins.

No. I've got it here. So the restructuring charge for this year in Q4 was zero. And for last year was $18.6 million.

Okay. So that implies that the margins are somewhat weaker here. As we look at the segments it looks like some of that was driven internationally.

It looks like the guidance for next year takes a low end of the EBITDA growth down a smidge. I guess, Bill, when you think about that, what's the driver there? Does that continue to be the international performance? Or is it something else? Could you help us understand that a little bit better?

Well, I think that if you look at -- our international performance is still in the range that we said slightly below the 25% that we reported last year. But it really is dependent in terms of how we grow the emerging market portfolio because it's a -- it will ebb and flow as we add new countries into the portfolio.

As we said before it's -- you put something in the funnel and it grows to mimic US margins which are even much higher than the 25% a year ago we reported in the international segment. So that will ebb and flow in that range as we actually add new investments as we build market-leading positions in the various geographies on the emerging market portfolio.

And I'd just make a comment on FX just so -- because that's the difference if you like between the guidance. So we have approximately 40% of our revenues internationally and we've seen a 12% decrease in FX on those revenues across the basket of currencies.

So that impact around 4% to 4.5%. You can see that the scale of the issue if you like, and that's what -- that's really the only thing that's driven the change in guidance.

Got it and then just how much of the factor has pricing been? I know several quarters ago now there were some large customers that you decided that it wasn't worth of the loss of the customer to keep down the churn.

I think that ultimately was obviously I think a smart decision. How much has that continued, Bill, and how much is pricing may be a factor in your margin performance?

It's a good question. Andy, the pricing -- at the beginning of the year, we probably weren't as sophisticated as we need to on pricing. In the middle of the year, we hired a new person in charge of pricing, and we onboarded in November our new Chief Marketing Officer with that comes under.

So we have seen during the course of the year being able to up our game in the pricing area. So this year obviously, we turned around the performance in North America from a volume perspective, so that helps as well.

And we put those two together, which especially towards the second half of the year in terms of adding more sophistication and more horsepower in our pricing area that you put those two together. And that's why we feel pretty confident that when we talk about internal-storage revenue growth, for next year in that 2% to 2.5% range.

And if you recall, in Quarter 1 last year we started off at 1.3%. So it's been a nice trend, and we've been building some momentum through the year, both on the volume side and now in the latter half of the year on the pricing side.

That's really helpful. If you could afford me one more question, I guess this one's for Rod on the capital structure. Debt to EBITDA, now at 5.4 times, just wanted to get your sense of your comfort level there. I guess last time we checked that was at the high end or slightly above your targeted range.

Has there been a change in the way you look at the range? Or is this really staying there recognizing that you may be able to get a lot more EBITDA if you can come to terms with Recall without having a lot of incremental debt and therefore taking you better into your targeted range that way. I just trying to understand how you're thinking about that if there is a need for fresh equity through a public offering, or if you feel like you're going to re-equitize the balance sheet through a deal and if that's what's preventing you from maybe reducing the leverage that way.

Actually I don't really want to talk about Recall and how that may or may not impact of things. Let me just talk about it in isolation.

I think the first point to say is that the leverage ratio of 5.4 is exactly what we predicted at our Investor Day presentation. So there's obviously no surprise in that, and we've landed precisely at the point where we thought we would.

I will start over the long term, a range of 4% to 5% we think is optimal from a cost of debt, cost of equity trade-off. But in terms of raising any further equity, as Bill referenced in his remarks, we would do that on the basis of having compelling investments to make in a bid in acquisitions or in real estate in particular. Very common for a REIT that's the situation that we're in, and that's how we would look to fund things going forward. Anything to add on that, Bill?

No. I think that's spot on.

Thanks guys for the answers.

George Tong, Piper Jaffray.

If you looked at records management volume growth this quarter, ex acquisitions, it was relatively consistent on a quarter-over-quarter basis. But if you look at the fourth-quarter organic storage revenue growth, it accelerated from 2.2% to 3.5%. Given the volume growth was consistent on a quarter-to-quarter basis, is the difference essentially coming from stronger pricing trends?

Yes. That's a good -- there is actually a slight improvement in terms of our volume growth towards one quarter. But you're right, George, it doesn't explain the full difference by any means.

Two things that are going on. One, we benefit from relatively weak comparatives last year because as you may recall, on our earnings call this time last year, we were talking about a number of pricing adjustments downward that we had to make during that period. So in a sense, the year-on-year comparison is slightly false.

But even if you strip that out, we have seen an improvement, a disproportionate improvement relative to our volume. And that comes back to in terms of the overall mix, price. And that's what Bill was referencing earlier in terms of ability, if you like, to get more pricing traction than we've been able to do maybe earlier in the year.

Yes. I think that's right. So as you called out, we started off Q1 at a storage rental, internal revenue growth of 1.4%. We ended up the year 3.5% as you say even if you correct for the things that Rod is talking about, you were in the upper half of the 2%s in terms of internal revenue storage growth rate. So we've seen a really nice trend in pick-up during that period.

I think we also guided at the beginning of the year that we were -- we did call out that we were underperforming. And we were very comfortable that we could get to the 2%, 2.5% range. And we think will be able to continue that momentum this year.

And just to pick you up on one other thing is that we have seen a nice progression in terms of the volume growth, the storage volume growth over the last say two years where we've gone from Q1 and 2013 in terms of internal storage, volume growth i.e. before acquisitions of 1.1% net growth, and we've progressed up to this last quarter of 1.9% growth. So we seen a very nice expansion, and that's really been driven by both better offense and defense in terms of retaining customers and also gaining new customers. So we feel like things are starting to come together, so we feel pretty confident that we will be able to maintain that momentum into 2015.

Great. That's helpful. And last quarter, your [C] dollar OIBDA growth was indicated to be 2% to 5% while this quarter the range was widened to 1% to 5%. Can you talk about how your views on margins have evolved over the past quarter?

Really, no material shift. Other than the thought -- other than the issue of FX as I was referencing earlier. So that's really the only change that we have to our thinking.

Okay. And then, last question from me, real estate acquisitions, I think in the past you've indicated they will be largely funded by ATM offerings which is typical of REITs. Can you discuss returns you've seen from recent real estate acquisitions you've done and what the plan is for 2015?

Yes. So in terms of the returns that we would expect from acquisitions, I would distinguish between acquisitions that we make in developed markets and acquisitions that we make in emerging markets. And given the risk profile within emerging markets, we look for higher returns than we would expect -- than in developed markets.

The range that we look for is 9% to 11%, but I'm always worried about quoting averages here because each deal we look at on a case-by-case basis. And risk adjust and make sure that we're getting good quality returns on a case-by-case basis. The average is 9% to 11%, typically higher in emerging, and it's easier to take lower returns in developed where it's more predictable.

Great. Thank you.

Shlomo Rosenbaum, Stifel.

Could you -- it looks to me that the services revenues I just followed up on Andrew's question is better than it's been in a very long time. Can you give us just the organic services revenue in North American aggregate? Was it positive?

North American service revenue -- for the quarter, Andrew, or just for the year?

For the quarter.

Okay. Sorry. Yes. No. Definitely. So on a constant currency rate, we're at 2.4% in records management, which is a good performance. But we have seen a decline of 4.2% in data management, but certainly in the North American space, that was a strong performer -- sorry, in the RIM space, that was a strong performance compared to where we've been.

And if I put them together, North American, in general, services is positive now?

Yes.

Okay. Very good. And then what's going on in the US government market? You guys added some capacity I saw up in the news like a month ago. Is the government ripe to go after that really huge market you guys were talking about for years?

Yes. No Shlomo. I think it's a good question, and you probably also noticed I think we had a press release a couple weeks ago that we have a new head of federal has a lot of depth and experience in that area. No. We have -- as you know, we invest when we can see the revenue coming.

And I think we feel like we're getting pretty close on a number of discussions with the federal government. And we still see that as a very big unvended opportunity for us, so yes.

We are -- is probably a little bit overstated to say we're bullish, but we feel that we're building momentum in that vertical. And we're really pleased by how fast our new leader of the federal business seems to be getting his feet under the desk.

Okay. Great and then middle market. Any update there in terms of the strategy post -- that acquisition you made a little while ago?

Yes. I think that the -- on the Cornerstone acquisition I think you're referring to, we talked about getting some of that D&A to go after that market. So do think that's a real opportunity for us because as I think I've said before, is our market share or representation in that market is almost a quarter of what it is in the large enterprise market.

And that is a market that tends to have better internal growth rates amongst themselves and good pricing. So that is an area where we had taken some of the D&A from Cornerstone and we have some of our folks working on how to better go after that.

And also the reorganization that we did a year ago is already starting to show some benefits in terms of better penetrating that market, and that was breaking -- getting the salespeople aligned with the local territories much tighter. So I would say we're still in the early part of the game on that, but we are starting to see -- we definitely see the opportunity and we are starting to slowly see some results in that area.

Okay and this is for Rod, just going and looking at the change in the AFFO calculation, is that $70 million that you moved out of AFFO because it's somewhat more recurring -- is that the non-real estate investment line on slide 10?

That's correct. Yes. That's exactly right. And the statistic -- just to give you a little bit of history on that, we were talking to a number of REIT investors, and there was confusion around what's maintenance for a company like us.

So we've always had the real estate and maintenance spend within our friend AFFO. And following feedback we thought it was appropriate to include this additional spend, which is generally recurring in nature, and therefore it gives us more conservative, more prudent view of what the AFFO number should be.

So is there a difference between the $70 million that came down in the $70 million to $90 million range?

Sorry. I don't --

In other words, take AFFO in the whole definition to the new definition is down $70 million, but the range is $70 million to $90 million, is there an improvement somewhere else?

No. That's the only adjustment.

Okay. Would you mind just walking us through the sources and uses for next year? If I'm starting with an AFFO that should be roughly $500 million and I take the midpoint of real estate investment, maintenance CapEx, business and customer acquisitions, I net it out on the $500 million and I would go to about negative $30 million. You [owe some] about $400 million in dividends.

Is there -- there is clearly you have about $600 million in liquidity. If you fill that all with debt, you bump up about that. Just how should we think of it from a modeling perspective?

I think what I'd rather, if that's okay because that would be a long detailed analysis, if we could do that off-line, very happy to do that. But it will take quite some time to work that through with you.

Okay. Appreciate it. I will take it off-line than. Thank you very much.

Dan Dolev, Jefferies.

I want to take a step back and look at the last few years and ask you, if I look at the last three years, you spent about all in $1.5 billion in CapEx,. And if I look at EBITDA progression, so call it, since 2011, it is down about 2.5%. So what return were you aiming to get on the CapEx, and why isn't EBITDA growing if you did get a return on that CapEx? Thanks.

So I think what you need to just disentangle is what's been going on with in some of the underlying performance of the business certainly in the 2011, 2012 period and the returns that we're getting from the CapEx that we spend. So during the 2011, 2012 period, two things were happening.

One is we had a poorer performance on our services side of the business and it impacts our business negatively. And the second is depending on which EBITDA you're looking at, we're investing in REIT costs which obviously has a benefit further down the P&L in terms of tax.

And if you were then to strip out the CapEx investments that we've made, the typical returns we look to get on those certainly in excess of our WAC which is 8%, and obviously that will very depending on the particular investment we are making. But then if you layer them back on top, that will then contribute in a positive way to EBITDA.

Okay. Understood. And one last follow up, on the dividend, you sounded a little bit more reserved if I understood correctly on the 2015 dividend. Are you still committed [$4.10] to [$4.20]?

I think we are -- the reason why we gave the dollar guidance in the previous quarter was really because there was so much going on with the dividend with the special purges and E&P purges and special payments and what have you that we were getting questions coming in from investors. And it was quite a confusing pitch as we thought that would be helpful number to put out.

Now we are through all that. We will just guide on the quarterly basis in terms of our per-dividend payment. As I think Bill referenced in his remarks, our policy if you like is to grow that dividend in line with our operating performance, and that's what we will do.

Yes. And I will just say that I think it's also clear, where we're guiding now is on a per-share basis. And I think I fumbled over cents, but it's $0.475 per share is what we're guiding over.

And that as Rod said grows in line with operating income because we're now through the purge area. I think with that I'd like to turn it back over to the operator.

At this time, I will turn it back over to Bill Meaney for closing remarks.

Yes. I think I've already done the remarks, operator. I just want to thank you all for joining us this morning for our call, and we look forward to speaking to you in three months.

Thank you that does conclude today's conference call. You may now disconnect.