鐵山公司 (IRM) 2015 Q3 法說會逐字稿

Good morning and welcome to the Iron Mountain Q3 conference call.

(Operator Instructions)

I will now turn the conference over to Faten Freiha, Director of Investor Relations.

Thank you, Sheila. And welcome everyone to our third-quarter 2015 earnings conference call. This morning I will be filling in for Melissa Marsden who could not be here with us today due to a family matter. We will begin the call with Bill Meaney, our CEO, who will discuss highlights for the quarter and progress towards our strategic initiatives; followed by Rod Day, CFO, who will cover financial results.

After our prepared remarks we will open up the phones for Q&A. As we've done for the last two quarters we've posted our earnings commentary and supplemental disclosure package on the investor relations page of our website at www.ironmountain.com under Investor Relations Financial Information.

Referring now to page 2 of the supplemental, today's earnings call and slide presentation will contain a number of forward-looking statements, most notably our outlook for 2015 and 2016 financial performance. All forward-looking statements are subject to risks and uncertainties. Please refer to today's press release, earnings commentary and 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, Faten. Good morning, everyone. We are pleased to report solid third-quarter results that were at the upper end of our profit expectations and underscore the durability of our core business. It is based upon this continued demonstration of the growth and durability of our business that our Board of Directors has resumed our growth and dividends and has pulled forward the dividend increase by declaring a quarterly cash dividend of $0.485 per share.

I suspect most of you on the call today either attended in person or listened to the webcast of our investor day about two weeks ago. Therefore, I won't go into a long discussion of our strategy, goals or longer-term expectations, as I believe time would be better spent on Q&A.

That said, I would like to briefly reiterate a few main points from our event and relate how our Q3 results fit within that framework. For those who haven't heard the live event or listened to the replay, we laid out our vision for the year 2020,given that we are rapidly approaching the end of the three-year strategic plan that we introduced at our investor day in the beginning of 2014. More specifically, we described our past performance and go-forward vision for our three strategic dollars -- developed markets, emerging markets and adjacent businesses.

In developed markets, our strategic plan over the last two years has turned around these relatively flat internal growth markets and driven more than 7 million cubic feet of net new record, all prior to acquisition. In emerging markets, our sales expanded from representing 10% of total revenue in 2013 to 14.3% of total revenue by the end of Q3 on a constant dollar basis. These markets are growing 10% to 15% per year before acquisitions. And our goal to reach 20% of total volume from these markets by 2020 is within our grasp. Roughly 18% of the 20% goal will be reached by internal growth alone.

In adjacent businesses, we expect revenue to represent 5% of our total worldwide revenue in 2020,up from just 2% today. Currently, our adjacent businesses are comprised of our data center business and our recently announced acquisition of Crozier Fine Arts Storage, the leading art storage business in the US. This is a natural extension of our film and sound business. Crozier comes with about 0.5 million square feet of owned real estate, and achieves about 10% sales growth per year before acquisitions. We anticipate closing this deal in December.

This all adds up to a shift in mix with 25% of our revenue coming from faster growth markets and businesses by 2020. That's up from 15% today with the majority of the increase coming from internal growth. The expected impact from this shift is that by 2020 annual internal profit will grow by roughly 5%, or 7% with acquisitions, versus 2% and 4%,respectively,today.

We also enhanced our transformation program to deliver a total of $125 million of overhead savings, up from the $100 million we announced this summer. You can see from the bridging schedules in the supplemental that we recorded $9 million of charges in Q3 related to this program.

We expect to realize partial year benefit of the first $50 million in savings in the fourth quarter, offsetting this charge. The full $50 million annualized benefit will flow through in 2016 and beyond. And our next set of actions to be taken in early 2016 will represent another $50 million of annualized savings in 2017. So, we're getting more from our efforts in this program and we're getting it faster than originally anticipated.

We outlined our plans to continue to increase the percentage of owned real estate over time through our programs, which delivered improved operating economics with the consolidation of facilities. Lastly, we demonstrated future cash generation on a run rate basis to support growth in dividends and investment, both on a standalone basis and including Recall.

On a standalone basis the continued strong and durable cash-based business, coupled with the transformation program, will at a minimum allow us to increase the dividend per share by 15% between 2015 and 2018,whilst reducing leverage by 0.4 of a turn. Including Recall, our minimum dividend per share delivered 24% growth between 2015 and 2018 and reduces leverage by 0.7 turns. This is all without issuing equity beyond the shares issued to purchase Recall.

Now turning to Q3 financial and operating highlights, total revenue for the quarter grew by 2% on a constant dollar basis, reflecting continued solid storage rental gains of 4.2%. The impact from foreign currency on total revenues was roughly 7%, reflecting the continued strong appreciation of the dollar against several of our major functional currencies. Moreover, we should note that we did not have any meaningful acquisition activity this quarter as we deferred transactions to assess how they may be affected by the Recall acquisition. Having now fully assessed the benefit of the Recall acquisition, we have resumed M&A activity with an appropriately adjusted focus to account for Recall's footprint.

This quarter we continued to see good internal growth with storage rental up 2.8% for both the quarter and year to date, reflecting continued strong growth from data management, other international and Western Europe. As we look at the remainder of the year, we are seeing consistent trends and are maintaining our view for internal storage rental revenue growth in the mid 2% range.

Looking at volume in records management, we added roughly 14 million cubic feet of net storage volume worldwide on a trailing 12-month basis, representing 2.7% net growth. Globally we retained 98% of all customers. This is in line with our second quarter and a 20% improvement from the customer turnover we experienced just two years ago.

We continue to see the same number of boxes being inbounded, some 30 million cubic feet, from our existing customers year after year, demonstrating the durability of the storage rental business. The durability of our business is demonstrated by solid growth in bookings we are seeing across major verticals. In addition, we are encouraged by year-to-date low double-digit increase in the mid-market customer bookings as we continue to increase our focus on the small to midsize enterprises where our market share of the total market is roughly 10%.

We are pleased to report solid improvement in our service gross margins as a result of numerous initiatives. Q3 total service gross margin was 28.5%. However, when normalizing for the reclassification between storage and service, Q3 total service gross margins were approximately 26.8%. And we are well on track to achieve our expected end-of-year run rate of between 27% and 27.5%.

Now let's turn to the Recall transaction. This deal is extremely compelling in terms of strategic fit and is supported by meaningful synergies that drive significant accretion. With the benefit from a number of months of detailed and joint integration planning with our Recall counterparts, we remain comfortable with the estimated total net synergies of $155 million, with $110 million of that to be achieved in 2017.

As we have noted in the past, there is potential upside to these figures as we work through real estate consolidation opportunities. We remain on track from a regulatory standpoint and we continue to target a close in early 2016.

As I've said previously, our business is underpinned by roughly $1.5 billion of net operating income, which is comparable to that generated by leaders in both the industrial and self storage sectors. What distinguishes our business is its inherent durability, and it is this durability that delivers consistent levels of operating performance even in the most volatile times.

With that I'd like to turn the call over now to Rod.

Thanks, Bill. We are pleased with this quarter's strong operating performance and the momentum we continue to see in our business. Our results continue to underscore the strength and durability of our storage rental business and the incremental returns we're generating from our investments.

Similar to Bill, my remarks this morning will be brief. I will begin with an overview of our quarterly and year-to-date performance, including a review of results by segments, and an update on costs related to the potential Recall transaction. Finally, I will touch briefly on our outlook for 2015 and 2016.

Let's turn to our worldwide financial results. Referring to pages 8 and 9 of our supplemental, total reported revenues for the quarter were $747 million compared with $783 million in the prior year. This decline reflects the continued strengthening of the US dollar, which impacted total revenues by approximately 6.6% or $50 million year over year.

Excluding FX, on a constant dollar basis revenues grew by 2%. Year-to-date reported revenues were $2.26 billion compared with $2.34 billion in 2014. And again, excluding FX, also grew by 2% on a constant dollar basis.

Total revenues were driven by solid constant dollar storage rental revenue growth of more than 4% for the quarter and year to date. This was offset by modest service revenue declines of roughly 1.3% for the quarter and 1.1% year to date. The decline in our constant dollar service revenue was partially driven by the disposition of our shredding businesses in the UK and Australia.

Consistent with prior quarters, we are providing bridging schedules for total revenue, adjusted OIBDA and adjusted earnings per share, which explain key variances in year-on-year performance. These schedules are on pages 20 through 22 of the supplemental.

In addition, this quarter we are providing a bridging schedule on page 23 to explain the change in our total service gross margin. In the schedule we have normalized for the accounting adjustment that Bill referenced. And our projected year-end run rate of 27% to 27.5% was consistent with that normalized basis.

Total adjusted OIBDA for the quarter was $228 million compared to $235 million in 2014. Excluding FX adjusted OIBDA was up 2.3%. Our adjusted OIBDA for Q3 2015 included $9 million of charges related to our transformation program. Excluding these costs, adjusted OIBDA would've been $237 million or grown 6.5% on a normalized constant dollar basis. Year-to-date adjusted OIBDA grew by 1.5% on a constant dollar basis.

For the fourth quarter we expect to incur very little in charges related to the transformation initiative. Please note that our savings outlook for transformation remain consistent with what we laid out in our investor day.

Adjusted EPS for the quarter was $0.31 per diluted share compared with $0.35 in the third quarter of 2014. The decline in adjusted EPS year on year is driven by a 9% increase in share count related to the special distribution we made in Q4 of 2014, as well as the restructuring charges related to transformation. Excluding the increase in share count, and the transformation cost, normalized adjusted EPS grew by 8.7% for the quarter.

Our structural tax rate for this quarter came out at 16.5% compared with 16.3% for the prior year and 13.9% in Q2. The sequential increase in our structural tax rate was driven by the expenses related to the Recall acquisition and debt refinancing costs, which lowered our QRS pretax income. We continue to believe that our tax rate will be approximately 15% to 16% in the short term. Our blended rates following the close of the potential Recall acquisition will be closer to 20%, as we noted when we announced the deal.

Normalized funds from operations, or FFO, per share was $0.55 for the quarter and $1.53 year to date. While adjusted funds from operations, or AFFO, was $137 million for the quarter and $395 million year to date.

Let's turn to our financial performance by segment. In North America records and information management, or RIM, internal storage rental revenue showed a decline of 0.3% for the third quarter and is flat year to date. North American RIM internal storage rental growth can vary on a quarterly basis and is often impacted by the timing of large contract renegotiations. For the last eight quarters it has varied from 0.9% to minus 0.4%.

North American RIM internal service revenue declined this quarter due to continued decrease in retrieve refile activity levels and the timing of nonrecurring imaging projects that were in the year-ago period. Adjusted OIBDA margins in RIM remain solid at 40% for the quarter and year to date.

North American data management, or DM, delivered storage rental internal growth of more than 5% in both the third quarter and year to date. However, internal service revenue declined by 4.9% for the quarter and 4.1% year to date as we continue to see declines in tape rotation and related transportation activity in the business. During the third quarter, DM adjusted OIBDA margins remained strong and 51.6% compared with 50.8% in Q2.

The Western Europe segment generated solid results, with 1.4% storage rental internal growth for the quarter and 2.8% year to date. Looking at internal service revenue, declines in activity were partially offset by increases in nonrecurring imaging and other projects. Adjusted OIBDA margins remain strong in Western Europe at 31.2%.

The other international segments, which is made up primarily of emerging markets and Australia, had strong growth in both storage and service revenues. Storage rental internal growth was 11.5% for the quarter and 11.4% year to date. Service internal growth was 12.3% for the quarter and 10.9% year to date. We continue to expect adjusted OIBDA for the segment to deliver profitability on a portfolio basis in the high teens and low 20%s range in the short term, as we expand our exposure in these fast-growing markets.

Let's touch on the Recall acquisition briefly. As we mentioned at our investor day, we're making good progress with the regulatory process and we anticipate closing the deal early in 2016. To prepare for closing, this quarter we incurred approximately $15 million of professional and advisory fees, including costs to prepare for Recall's REIT conversion.

We expect about $25 million to $30 million of additional Recall costs in the fourth quarter. Please note that these expenses are excluded from our adjusted OIBDA calculations as they are one-time in nature. Importantly, these costs were included in our guidance related to the Recall acquisition when we announced the deal.

As I mentioned at the outset, our outlook for 2015 and 2016 remains consistent with the guidance we provided earlier this month at our investor day. The one exception to that is that we have tightened our expected real estate investment range and lowered it by roughly $30 million at the midpoint relative to the projections provided at our investor day due to the focus on and timing of our real estate consolidation program.

Given FX fluctuations and to provide better visibility of the underlying performance of our business, we are providing constant dollar guidance figures for 2016, and our plan is to continue that practice. Please note that our current 2016 guidance is based on 2015 constant dollar budget rates which were set in January 2015. When we report full-year 2015 results in February, we will provide an updated 2016 guidance based on 2016 constant dollar budget rates, which will be set in early January 2016.

We've got the question from some of you on our dollar guidance for 2016. Assuming constant September 30 FX rates, our exit FX impact for the quarter on total revenue, where approximately 40% of it is denominated in non US dollars, is roughly 3.5%. Again, holding that constant for 2016, it implies a 3.5% FX impact on revenues, which translates into roughly $120 million impact for the full year.

Beyond the dividend increase that Bill mentioned for the upcoming quarter, we laid out at our investor day minimum projected dividends per share guidance through 2018 on a standalone basis, and a combined basis with Recall. Please refer to the presentation and webcast for more details.

Late in September we raised $1 billion of debt at 6%, enabling us to pay off some of our very high interest legacy debt and lowering our average interest cost. At the quarter end we had liquidity of approximately $1.7 billion. Note that this figure is prior to the October 2015 redemption of our outstanding 6.75% Euro notes, 7.75% US notes, and 8-3/8% US notes. Following the redemption liquidity would be approximately $900 million. Lastly, our lease adjusted debt ratio was 5.7 times, as expected.

Turning now to page 34 of the supplemental where we highlight our investments for racking projects in process, building development and building acquisitions by major geographic region, the total expected investment and anticipated NOI and returns. Please note that these investments represent growth related investments and exclude consolidated related spend.

As you can see on this page, we achieved high returns on our growth racking and building development projects. So far this year our investment in M&A and real estate investment activity has been lower than typical as we prepare for the potential Recall acquisition. We are focusing future plans for synergy potential fueled by real estate consolidation between the companies.

Overall, we believe this was a solid quarter and we are pleased with the progress we've made so far in advancing our transformation program and stabilizing service gross margins. We remain on track to deliver our guidance for 2015 as well as our long-term objectives. Looking ahead, we will continue to focus on enhancing shareholder value by extending the durability of our storage rental business, which drives our cash available to fund the dividends and core growth investments.

With that, operator, we'll now take questions.

(Operator Instructions)

Andy Wittmann, RW Baird.

Good morning. Thank you for the details. I wanted to ask about the relationship between some of the organic volumes and the organic revenue growth rate in your two mature markets. It looks like in North America RIM organic revenue was minus 1.2%. But volumes were about flat. And a similar relationship in Western Europe where revenue was down 3.3% but -- I'm sorry, organic volumes were up over 3% but total revenue was just on the positive side of flat. Is there a pricing dynamic that's in there or is there something else going on? If you could give us some color around that relationship it would be helpful.

Andy, I think there's two aspects. One is, one set of data, if we look at the price change measured in revenue in terms of constant dollar storage, it's quarter on quarter. And when we look at volume it's trailing 12 months. So, you can't quite put the two of them together.

But if you look in North America, North America is achieving similar type net volume growth organically or before acquisitions, as we were last year. So, it's actually up in terms of volume. We've had some pricing adjustments this quarter due to some renewals, which I think we talked about a little bit on investor day. It's not unusual during certain times of the year.

If you go back over, say, the last two to three years you will see that we have maybe two, three, four quarters of positive internal storage revenue growth in North America. And then it is punctuated by one or two quarters, generally, of negative, which is usually associated when we are doing renewals. But because one set of data in terms of if we look at the revenue side is quarter by quarter, you can't link that to volume which is just on trailing 12 months. I don't know, Rod, if you want to add anything to that.

No, I think that's right. It's difficult to do the comparisons on a true like-for-like leases.

Okay. That makes total sense.

The only thing I would add, Andy, from a modeling standpoint it's what we have been saying consistently. You can back out the volume increases that we're getting, both in North America and in Europe. So, that's easy. And then in terms of the revenue increase, we still are achieving somewhere between 0.5% to 1% annual price increase in those markets. We are starting to move a little bit more towards the upper part in that range through some of the technology we've added, but it's basically in that 0.5% to 1% on top of the volume growth that we're getting.

Okay. Thank you. That's helpful. And then, Rod, after doing the October notes, refi onto the line, the [coordinates] are a little bit tighter, are you looking at tapping the unsecured market to turn some of that debt out? Or is there complications with the pending Recall deal that you have to factor into your calculus here? Some of your thoughts on the capital structure would be helpful, I think.

No, I think we're happy with the capital structure that we have at the moment, having paid off the very high interest notes that we had. Effectively what we are looking to do is hold what we have, see what happens through the Recall deal, which, as I say, we anticipate trying to close in early Q1, which we're still working through the regulatory process there. It gives us some capital to assist with that closure, if you like. But we're going to hold what we've got and see how we get on with Recall.

Okay. I will leave it there, thank you.

Kevin McVeigh, Macquarie.

Thanks. Nice job. I'll ask about Recall just one more time because it will probably be the last time before it closes. Bill, I know you're working through the regulatory. Are there any goal posts or anything that we should look at? Or is it just something you will update once you are through the regulatory process? Because obviously something came out of the UK last week. From the authorities, it looks like relatively benign but is there any kind of disclosures or just things we should focus on as we get closer to the close process?

I appreciate the question. I think, as you can imagine, the regulators like these discussions to be kept confidential as we go through them. But just to give you guidance, I think it's pretty much what we said at investor day. We are engaged with the four regulatory authorities that have shown interest in the transaction, which is US, Canada, the UK, as you mentioned, and Australia. We feel that we are well engaged with those authorities so on track for a Q1 close. And discussions are ongoing.

Where we sit today we feel good that it's in line with our expectations when we set out on the course. Nothing has changed. Generally, these things take 6 to 12 months when you go through a regulatory process in the United States, for instance. But we continue to guide at the lower end of that range because we feel good where we stand.

Great. And then as you think about the progression, the volume growth, I've always thought that you start to see destructions and permanent removals start to trail off, and then new volume growth from existing customers kicks up. Does that ratio still hold through as we're coming out of this cycle in terms of things we look forward as the volume growth starts to reaccelerate here?

You're right. You've watched this for a long time. There are ebbs and flows. I am not sure you can always do the cause and effect between term outs and destructions, and customer withdrawals. But I think there is ebb and flow between the two.

And the other thing I should point out is the new sales growth is part art and part science because some of that new sales growth comes from existing customers. And it's in that split between new sales growth and what comes from, quote, existing customers is as much to do in terms of the way the compensate our sales force. In other words, if they get some growth out of an existing customer but we deemed it as a new area or new location or new department, then we call that a new sale.

So, I think there is some ebb and flow between the two. And, as you know, if we look at the heavily regulated industries, which is a big part of our business, a lot of that is affected by different litigation that's going on around the world. So I think there is some cause and effect but I wouldn't overplay it. There's a certain amount of randomness to it.

Thank you.

George Tong, Piper Jaffray.

Hi, this is Adrian Paz on for George Tong. Just looking at your updated guidance, it seems like there's slightly better OIBDA margins at the midpoint versus last quarter. Can you discuss what is making incrementally more positive on margins?

I will let Rod answer that. I think just on a high level, there's a couple of things. One is, if you even look over time, we're pretty good at driving productivity out of the business because when you start off, what I was saying earlier, is that we get currently in this low inflation environment we get somewhere between 0.5% to 1% increase in price. Obviously our labor cost in certain markets goes up faster than that. So, we continually drive productivity through the business, and that's what really drives our OIBDA growth.

And then I think you can expect, also, when some of the transformation gets fully realized, now that we are through most of the restructuring costs in this quarter, you can expect that will even pick up a little bit more. But, Rod, you may comment further.

Yes, maybe just to build on what you're saying. You're obviously right in terms of the point that was made. If you look at our guidance, take the C dollar guidance that we updated at investor day, in effect what we're saying is that from a revenue point of view we see our sales at the middle of the range. On contribution we see our sales more towards the higher point of the range and obviously therefore the OIBDA margin goes up.

Really what's behind that is the work that we've been doing on efficiencies around service margin and also around the transformation efforts that we have referenced. Some of that has come through in 2015 faster than we originally anticipated when we set the guidance back in January. And really that's was behind the improvement we are seeing.

Got it, thanks. And can you discuss which emerging markets are showing the strongest growth, and if that growth reflects expansion in those markets or it's increasing volumes?

I think on the emerging markets we are seeing it pretty much across the board but it depends on the size of the base. For instance, I just came back from Eastern Europe and took a couple of members of the Board along with me so that they could see up close what we are doing out there and also see some of the talent we've got. Eastern Europe continues to grow extremely well.

So, does Latin America. The challenge in Latin American, Brazil, which is our largest operation, for instance, in terms of growth, if you measure it in Brazilian real, it is strongly double digit and continues to do well. The issue, of course, in places like Brazil is the translation of that because the real has been under pressure.

And then Asia, which is a smaller portion of our portfolio, but again has very strong growth rates, whether you look at India or you look at places like Hong Kong, Singapore and China. The one thing I would point out, though, is that in markets -- even markets like Brazil where we've been under pressure from a real standpoint, when you translate that in US dollars the growth may be muted slightly -- is we've also been able in some of these cases, like Brazil, been able to borrow locally in real, which has helped hedge some of that translation.

I would say pretty much across the board we haven't seen any slowdown in the emerging markets. And all the countries typically run in that low double digit of internal growth before acquisitions.

Great, thank you.

Andrew Steinerman, JPMorgan.

I know there's a couple of questions already on FX, but if it's possible, Rod, could you just give us the mix of currency so we can do those calculations ourselves, the mix of currencies?

Obviously we deal in quite a number of currencies in terms of what's impacting our numbers. And I think in terms of the short-term impact, where we've seen the hit has been Canadian dollar, Russian ruble, Aussie dollar, the Brazilian reais, and Colombian peso. They have been hitting us during Q3. If you take a longer-term view, so more looking year on year, then there's wider effects coming in from sterling, in particular, where obviously we have quite a significant business.

The only thing I'd like to add to that, Andrew, is that, whilst you are seeing the FX headwinds in revenue, you'll notice that it gets muted pretty quickly as we start going through the OIBDA in the EPS line. And where we are at a stage is, in some sense, the timing is not bad for us because we are using strong US dollars to invest and build out this portfolio, which is still relatively small portion in terms of the countries where the currency is mostly impacted, which is in the emerging markets. I'm not saying that the other markets aren't a factor.

If you say 40% of our sales are in foreign currency, but the currencies that are impacted typically are in that little less than 15% emerging market area. And those are areas where our OIBDA margins at this point are lower because we're building scale in those markets.

So, we're taking strong US dollars to build out these markets right now. And their impact, even with the negative FX impact, the impact on OIBDA in the earnings is muted. It's obviously fully affected at the revenue line, but when you see what happens to earnings it is muted.

I agree, you need to model it out, but the earnings is not as sensitive as you might think to the FX; whereas, you do see the full sensitivity on the revenue line. That's why we felt comfortable about already starting to increase our dividend because we feel that we've got enough momentum in the business that we can continue and start back on our growth trend in terms of dividends.

I'm hoping I can ask a second question. Could you, Rod, talk a little bit more about the OIBDA margin of 30.5% in the third quarter? Were there any one-off helps to that margin? And what puts and takes should we keep in mind as we compare the third-quarter OIBDA margins to the implied fourth-quarter margin in the guide?

No, nothing particularly unusual in Q3, obviously other than the fact, we actually booked the $9 million restructuring charge, which actually lowered the margin slightly. I think as we look to Q4, again sitting here today, I am not seeing anything particularly unusual that should come through. Obviously we won't have a repeat of the $9 million charge and there will be some benefit from that actually hitting us in Q4 as a result of the slightly lower cost base. But other than that, I think it's pretty much steady as she goes.

Okay, thank you so much.

Shlomo Rosenbaum, Stifel.

Good morning. Thank you for taking my questions. I'm just trying to compare the storage revenue that was in North American RIM that was slightly negative versus the trends that we're seeing in the charts where you have positive volume growth. And the positive volume growth, if you exclude the acquisitions, has been modestly creeping downwards, but you still got positive growth, but we are seeing negative revenue on an organic basis. Can you just explain that?

Sure, Shlomo. Let me start off and then Rod can add any color that he thinks that I missed out. I think first let's look at the revenue growth. If you go back, say, to Q4 2013 and just look at the number of quarters, you will see that North American storage rental revenue growth has gone negative 0.4%, negative 0.3%, plus 0.3%, plus 0.4%, plus 0.9%, plus 0.5%. And then the last two quarters a negative 0.1% and negative 0.3%.

So, you will see, first of all, which I was referring to earlier, you'll see that moving around. You can back into that through the supplemental. On the revenue side, because, as you can appreciate, when we renegotiate large enterprise deals, that in any given quarter you can get a significant impact in terms of the revenue associated per cube. So there's a disconnect between that volume growth.

Over a long period of time, though, if you look at the trend over a long period of time, we still see, if you take the revenue growth and if you look on an annualized basis, we are getting between 0.5% and 1% in terms of price per cube growth. Then you get those two bits combined and that will give you a good guide in terms of what the internal storage revenue growth is for a particular market.

You're right to point out that we continue to drive significant, I'd say on a percentage basis, relatively small percentage growth in North America. But in terms of volume, because of the size of the North American business, the large numbers, we continue to deliver a significant amount of organic cube volume growth in North America. And over a 12-month period you should think about 0.5% to 1% price growth on top of that cube growth.

But any given quarter, depending on where we are in renewal cycles, especially for the large contracts, if you go back over the last 8, 9, 10 quarters, you will see that movement around where we'll have one or two quarters where it will be negative, two or three quarters will be positive, and it just moves around.

When I look at the trends on the volume growth, if you take the total Company and then North American, which probably is having the largest impact, you're seeing a modest organic trend down over the last four quarters. I'm excluding acquired volume because I think that's appropriate for this. But if you look at it you're seeing organics, say, going, in North America, 0.6%, 0.5%, 0.4%, 0.1%. And in total you're going 2%, 1.9%, 1.8%, 1.7%. We had seen a run up, that whole organic number had been trending up from the middle of 2013 through basically Q3 2014, and then we are starting to see that coming down. Is there any color you can give to those numbers moving in that direction?

I think is what I think Kevin asked earlier in terms of the to's and fro's customer cycles. There is a bit of that. I think also it's fair to say on a percentage basis it is coming down slightly, partly driven by customer activity, but a big part of it is just the large numbers. So, if you look at the volume of cubes coming in, we're still seeing very consistently across the board 30 million cubes coming in on a gross level and, let's say, 40 million net coming in.

One of the things where you will see us try to even tap into another market which we think is quite large is what we're doing in the mid market. I think if you look at where we are on the mid market side, I think actually I misquoted, is we're in low double-digit growth if we look at year-on-year bookings for new sales across the board. But in the mid markets year to date we're up over 60% in terms of bookings in the mid market where we only have 10% market share.

So, I think there are some things where we can tap into, quote, another large market, but I think it is fair to say that if you look at our normal hunting ground, if you will, it's the law of large numbers and there is a limit in terms of how much more we can get from those customers.

Okay, that's fair. Rod, can you just explain that reallocation of margin between the services and the storage business? What is that all about?

It was actually predominantly to do with our data center business where we had some costs that were in the service line that when we really analyzed we thought they should be in the storage line. So, that artificially enhanced the service margin in Q3. We didn't want to give the impression that the true underlying run rate was 28.5% which is what we recorded. it is more like 26.8%. It was just a reallocation of costs following a more detailed review.

Does that support the REIT structure when there's real like that?

In that case it has a very minor impact. So it doesn't affect our assets or anything in any meaningful way.

Okay. If I could just squeeze in one more, there's a pretty large range at the end of the year right now, $0.15 on EPS. Is there any reason why it's so large? Is there something that you're anticipating, some investments that you're still contemplating at this point in time that can move it around?

No. Obviously we are subject to FX volatility, which during Q3 moved against us. Actually if you looked during the first few weeks of October it's moved slightly back in our favor. So, that can swing the numbers around. But in terms the fundamentals of the business, it's relatively stable.

Okay, thank you so much.

(Operator Instructions)

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Okay, thank you, operator. Thank you everyone for joining us. I know it's a busy time for everyone. But just to sum up, we are very pleased the way the quarter came out. We thought it was a very good quarter driven by the continued strong operating performance. And that's delivered profit that's at the upper end of our expectations. So, we feel really good about the quarter and, hence, the recommencing of our dividend increases that we declared this morning. Thank you, everyone, and have a good day.

Thank you. This concludes the call. You may now disconnect.