Iron Mountain Incorporated (IRM) Q1 2014 Earnings Report, Transcript and Summary

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Iron Mountain Q1 2014 Earnings Webcast. [Operator Instructions] Thank you. I will now turn the call over to Ms. Melissa Marsden. You may begin your conference.

Thank you, and welcome, everyone, to our First Quarter 2014 Earnings Conference Call. I'm Melissa Marsden, Senior Vice President of Investor Relations. This morning, we'll hear from Bill Meaney, our CEO, who will discuss highlights of the quarter and strategic initiatives, followed by Rod Day, CFO, who will cover financial results. After prepared remarks, we'll open up the phones 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. 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 G, can be found at 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 that, on February 28, we stated that we were in discussions with the IRS on a number of our PLR requests and we did not intend to provide additional interim updates with respect to any of the specific PLR requests, or generally, our progression through the IRS's PLR process. Accordingly, we will not be discussing the status of our PLR request on today's call. With that, Bill, would you please begin?

Thank you, Melissa, and good morning, everyone. I would like to thank those of you who attended our investor conference last month. We very much appreciate the opportunity to present our strategy for future growth and to demonstrate the durability in low volatility, which have become a hallmark of Iron Mountain. Before I discuss our results for the quarter, I want to knowledge that many, if not all, of you who are looking for an update with respect to our conversion to a REIT. As Melissa just said in our forward-looking statements, we will not be discussing the status of our PLR request on today's call. Turning now to the performance of our business. Total revenue for the quarter was $770 million, up 4.7% on a constant dollar basis with adjusted OIBDA of $229 million and adjusted EPS of $0.26 per share, all of which were in line with our expectations. We maintained our high enterprise adjusted OIBDA margins of roughly 30% during the quarter with consistent performance in our North American segments and international margins coming in slightly ahead of our targeted level of about 25%. In addition, we achieved solid operating results as we advanced our strategic plan to sustain the durability of our high-return business in developed markets, expand into high-growth emerging markets and invest in emerging business opportunities, the most advanced of which is our data center business. Storage rental revenue, the key economic driver of our business, was up 5.3% in constant dollars, reflecting strong growth of nearly 13% in our international business and constant dollar growth of roughly 3% in both North American Records and Information Management or RIM and North America Data Management or DM. This breakout for North America is consistent with the way we manage our business and is reflected in our new segment disclosure, which I discussed during our Investor Day. Rod will have more detail on our segmented results shortly. Total storage rental internal growth was 1.4% for the first quarter. North America RIM internal growth was impacted by a mix shift to slightly lower average pricing on some contract renewals, which were biased towards a mix of enterprise customers. These contract renewals have led to better retention rates and we have seen North America RIM volume up approximately 600,000 cubic feet from the end of Q4 on an internal basis. As we noted at our recent event, there are several elements to driving storage growth in our developed markets. It is a mix of organic volume growth from existing customers; sales from new customers, including those that were previously un-vended; and some fold-in M&A at the right price with solid returns. And on top of that, you have price. We continue to analyze optimum pricing across our customer base and that sometimes means taking some deliberate price dilution to win long-term volume and/or sustain the durability of our customer relationships. All this being said, we continue to be able to invest in our customer relationships and product development through ongoing productivity enhancements. We maintained our North American RIM margins with a 37.5% margin versus 37% last year through continuous improvement initiatives, which we undertake to yield both real productivity gains and to modify our cost base as the business becomes more archival for certain segments. Our financial and operating results were further enhanced by the successful integration of acquisitions completed in 2013. Acquisitions continue to be an integral part of our strategy. They enable us to achieve leadership positions in emerging markets and leverage our unparalleled platform of people, properties and services in developed markets. As always, our acquisition strategy is guided by our capital allocation approach through which we must exceed our cost of capital and achieve targeted returns in excess of our hurdle rates. Moreover, we always undertake acquisitions with a view how an investment can further both our market leadership, as well as the continued durability of our business. We've been actively executing against our deal pipeline since the beginning of the year, completing 5 international transactions representing $60 million of total consideration and another $5 million of tuck-in acquisitions in the U.S. In developed markets, our leading platform allows us to quickly and accretively integrate acquisitions and achieve targeted returns. These tuck-in acquisitions have very attractive fold-in economics with ROIC of 10% plus or roughly mid-teens equity returns. Internationally, we closed 3 deals in Turkey and Poland. Both are emerging market transactions with attractive growth characteristics where we have achieved or are developing market leadership positions. Constant dollar storage rental growth from emerging markets was 32% in the first quarter with an internal storage rental growth of 13%. As we recently highlighted, we have a strong pipeline of additional opportunities in emerging markets, representing more than 3x the level needed to achieve our goal of generating an incremental $100 million to $120 million in revenue from emerging market acquisitions by the end of 2016. Combined with 10% plus compounded annual growth in revenue from our existing base, we believe we can grow this portion of our business to 16% of total revenues by the end of 2016 from 11.6% of total constant dollar revenues today and from a previous base of 10% less than a year ago. With regard to emerging businesses. We are on track with bringing our first data center near Boston online by the end of the second quarter. We invested an additional $6 million in the first quarter to complete the first phase of the construction and we are pleased with the interest we are seeing. Since applying a focus on the business a year ago, we have seen all of the existing customers in our underground data center in Pennsylvania increase their custom with us by 10% to 15%, in line with industry averages. We completed our first foray into the colo market in the underground last December, and we have already contracted for 30% of the space with a pipeline equal to approximately 10x the remaining space available. Additionally, we are seeing more deals and larger deals in our pipeline. For the first phase of our 3-phase, 6-megawatt campus near Boston, we have strong customer interest with a pipeline of about 3x our initial capacity there. We are still in the early stages of developing this business, but we are pleased with what we're seeing in terms of interest and expect to achieve attractive returns on investment. We continue to monitor our progress and invest capital in a success-based manner. As we look forward to the remainder of 2014, we anticipate continued solid constant dollar revenue, storage rental revenue and adjusted OIBDA growth in line with the long-term goals we've discussed in the past. We expect consistent trends for durable storage rental revenue in developed markets and a moderation in the rate of service revenue declines. In our emerging markets, we are maintaining and modestly improving our profitability even as we add to our emerging market base. We are on track to make this segment, which achieves low double-digit internal storage growth rates, a more significant portion of our overall sales mix. Moreover, in our emerging business area, we continue to identify and test opportunities, which are near adjacencies to our core business and resonate with our customers. Overall, it was a solid quarter anchored by further progress on our strategic plan. We believe we are on track to deliver against our 2014 goals, as well as our longer-term objectives. As a reminder, those are to: first, deliver total shareholder returns in the range of 8% to 9% in line with the S&P 500, provide predictable earnings and dividend growth with low volatility and nurture our ability to generate potential upside from additional emerging business opportunities. On a final note, whilst we are not providing any PLR updates, as we have said and reiterated at our Investor Day, we believe we fit well as a REIT due to our sizable real estate portfolio and attractive characteristics such as a high net operating income per square foot, low turnover costs and high customer quality and retention. The REIT structure also complements our strategy whilst enhancing payouts to our stockholders and highlights our highly disciplined approach around asset allocation. As a REIT, we would continue to generate the cash flow necessary to sustain the durability of the business and support attractive stockholder returns in line with our long-term strategic plan. Now, I'd like to turn the call over to Rod.

Thanks, Bill. Let's now turn to Slide 3, which highlights the key messages from today's review. We delivered solid results in Q1, which were supported by strong constant dollar storage rental growth, good profit performance and the benefits from recent acquisitions in emerging and developed markets. As Bill stated, storage rental growth grew 5.3% on a constant dollar basis in the quarter. This was supported by 3.0% and 2.8% growth in the North American Records and Information Management and Data Management segments, respectively, as well as 12.7% growth in the International segment. Adjusted OIBDA was in line with expectations in Q1. Included in our first quarter adjusted OIBDA and adjusted EPS is $2.4 million of restructuring charges, as well as $3.5 million in charges for the insurance deductible associated with the recent fire in one of our facilities in Argentina. We expect to incur an additional $3.3 million in the remainder of 2014 in connection with the organizational realignment. Our Q1 '14 CapEx of $47 million, excluding real estate and REIT costs, was in line with our expectations. Free cash flow of negative $20 million was primarily driven by higher cash interest expense, the payment for restructuring charges accrued at the year end, as well as the timing of payables. Looking at the free cash flow on a rolling 12-month basis, this was $320 million, in line with our projections. At this time, we are not making any changes to our guidance. Although 2014 full year results will be boosted by recent acquisitions, this increase to revenue will be partially offset by the FX losses based on current rates. In addition, there is some volatility relating to costs in Argentina, but at this time, our best view is these fall within the range of our guidance. Let's move on to Slide 4 to review our financial results in more detail. As we discussed previously, during this quarter, we amended our reporting structure to align the way we manage the business. We changed the composition of our North American segment to the following 3 operating segments: first, North American Records and Information Management or RIM; second, the North American Data Management or DM; and finally, the emerging businesses. Emerging businesses are currently a component of the corporate and other segment. As we break down the numbers, Q1 operating results were generally in line with our expectations and consistent with recent trends. Enterprise revenues grew 4.7% on a constant dollar basis as our International segment continued to produce strong results. Indeed, International posted 12.8% constant dollar total revenue growth helped by benefits from our recent acquisitions in emerging and developed markets. North American RIM posted 2.7% constant dollar total revenue growth. North American DM posted a 1 .5% decline in constant dollar total revenue. As we mentioned at our recent Investor Day, this business is becoming more archival in nature, which has created headwinds in the service revenue, although, to be clear, we continue to see consistent growth in DM storage revenue. Our corporate and other segment reflects revenue from our data center business. FX rate changes reduced total growth by approximately 160 basis points in the quarter. Adjusted OIBDA was $229 million, up 0.5% including the previously mentioned $2.4 million restructuring and the $3.5 million insurance deductible charges. A key driver of profit performance was the continued improvement in our International segments, as well as margin improvement in our North American RIM segments. Adjusted EPS for the quarter was $0.26 per share compared to $0.27 in Q1 2013. GAAP earnings per share were $0.22, including $10 million of REIT costs, $5 million of other expense and $8 million of gains primarily from the disposal of property assets in the United Kingdom as we continue to consolidate our operations. Our structural tax rate for the quarter was 39.4%. Let's now take a closer look at the components of revenue growth on Slide 5. Overall, total revenue internal growth was 0.5%. When we add the benefit from acquisitions of 4.2% and the offsetting 1.6% impact from negative foreign currency movements, total revenue reported growth was 3.1% for the quarter. Storage rental growth of 1.4% reflects the pricing mix that Bill described. However, we maintain solid margins in the business due to our speed and agility initiatives. Looking at the storage service split. Total storage rental growth of 5.3% on a constant dollar basis drove overall revenue performance. North American RIM reported 3.0% constant dollar storage rental growth, reflecting flat records management volume, pricing of 0.8% and the benefits from recent acquisitions. Records and Information Management pricing gains were below historical quarters, which reflects taking some appropriate pricing management to win and/or sustain the durability of customer relationships. North American DM reported 2.8% constant dollar storage rental growth driven by organic revenue, which was 2.3% for the quarter. International storage rental growth was 12.7% constant dollar for the quarter, reflecting 32% storage rental revenue growth in emerging markets, supported by strong organic growth and the benefits from acquisition. Internal storage rental growth remained strong with a 5.2% gain in the quarter. Total service revenues were up 3.8% on a constant dollar basis, supported by recent acquisitions, as well as increases in imaging projects and shredding activity, offset somewhat by a decrease in paper pricing when compared with the period 1 year ago. In North American RIM, paper-related revenue increased due to volume increases, but this was partially offset by average paper price declines approximately 5% year-on-year. On a more general level, as noted in recent quarters, we have seen a moderation in the rate of decline in our North American RIM service business. DM Service revenues are experiencing headwinds associated with the trend towards reduced activity levels and related transport revenues. International service growth was boosted by acquisitions and special projects. Let's now move to Slide 6 to discuss our volume growth. As we mentioned at our Investor Day, our proprietary customer insights platform is giving us a better view on customer thinking and that's resulting in lower levels of termination. Also as noted, despite secular trends in the use of paper, we continue to see roughly the same amount of incoming volume from existing customers. In addition, we are seeing an uptick in new sales, and of course, volumes are bolstered by acquisition activity. The resulting worldwide net volume growth of 6.7% in Q1 '14 is compared to the previous year. Let's now move to Slide 7 to discuss our segments in more detail. Consistent with our strategy, we're sustaining high returns in our North American segments as we continue to build out our International segment as a significant driver of profit. North America Records and Information Management delivered solid profits and reported revenues of $446 million increasing 2.7% on a constant dollar basis. This increase was driven by acquisitions. Adjusted OIBDA margins improved by 50 basis points year-over-year due to reduced overhead costs as a result of our restructuring efforts. We're also sustaining capital efficiency with spending at 3.8% of revenues excluding real estate. North American Data Management delivered revenues of $97 million for Q1, which declined by 1.5% on a constant dollar basis, primarily due to the decline in service revenues. This service decline was the result of a trend towards reduced activity and related transportation revenues as the business becomes more archival. Adjusted OIBDA margins declined by 400 basis points year-over-year due to the service revenue headwinds and cost reductions not yet being in proportion to the decline in revenue. Our International segment continues to post strong revenues and contribution progress. Adjusted OIBDA increased 23.8% on a constant dollar basis, benefiting from good global growth and cost improvement initiatives in developed markets. The International business continued to deliver profitability on a portfolio basis, in line with our mid-20s target with adjusted OIBDA margins of 26.2% for the first quarter. Finally, corporate and other revenue was down due to a change in contract terms with an early-stage customer as we continue to build out our pipeline in the data center business. Adjusted OIBDA was down compared to prior year levels, driven by the insurance deductible, restructuring costs, compensation and consulting fees relating to various strategic initiatives. Let's now talk about our acquisitions for 2014 on Slide 8. Acquisitions are an important element of our stated business strategy to drive continued profitable growth in our developed markets and to further penetrate attractive emerging markets. Through the end of April, we have completed 5 core transactions, investing approximately $60 million. These include 3 deals in Turkey and Poland, which enhanced our leadership position in these emerging markets, and the acquisition of a leading provider of off-site data storage and data protection services in Australia. In addition, we increased our ownership of a joint venture in Denmark. Post-acquisition, we generally realize the benefits of operating efficiencies within the first year or so. However, acquisition integration costs impacts our adjusted OIBDA for the first year. Benefits derived from rationalizing the real estate portfolio in an acquisition may take up to several years depending on the size of the business, lease expiration dates and the volume that needs to be moved. All of this is factored into our valuation models as we make our investment decisions. Our acquisition pipeline remains robust and we will continue to evaluate these opportunities through disciplined capital allocation and a return on capital lens, ensuring we create value for our shareholders. Let's now turn to Slide 9 and look at our current debt. Solid cash flow generation enables us to maintain a sound balance sheet. We are well positioned in terms of cash and financing capacity. At the quarter end, liquidity was about $560 million with $170 million in cash and $390 million in additional borrowing capacity. Our total lease-adjusted leverage ratio of 5.1x, which is the high end of our targeted range, has increased over the past 3 years as planned to support shareholder payouts, 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 the REIT conversion. Our strong cash flows support continued advancement of our capital allocation strategy and our REIT conversion. In Q1, we paid $53 million in cash dividends and $10 million of REIT costs including REIT-related CapEx. We're managing our balance sheet consistent with our strategy while advancing substantial payments to shareholders, and we remain well positioned to fund our business. So this concludes our review. In summary, Q1 was a good quarter, supported by sustained storage rental performance, continued high levels of profitability in our North American segments and strong International performance and recent acquisitions. We continue to execute against our strategy, extending our reach into high-growth emerging markets, driving continued profitable growth in our developed markets and prudently pursuing new business opportunities that are adjacent to our core business. And with that, operator, we're ready to take questions.

[Operator Instructions] Your first question comes from George Tong.

Could you provide some color on your organic storage revenue trends? I see they improved fractionally from last quarter, but the organic internal growth remains below your 2% historical range. Just some color on what drove performance in the quarter or when you might expect growth to return back to your 2% historical level.

George, thanks for your question. The 1.4%, and if you see our historical trends which were kind of 2%, 2.5%, I think we made a deliberate decision and you can see it in terms of our retention rates. Our retention rates are up about 30 basis points and when we were looking at renewing large enterprise customers, we look at retention, obviously, which is a key driver in terms of our long-term economic performance, the terms, in other words, how long those are. So for example, we just renewed a financial service client where we not only increased the volume that we have with that client, but we went from a normal 5-year contract to a 10-year contract. So we put all that into the mix when we look at that. So overall, what we're trying -- what we look at is optimizing or maximizing the revenue and profitability of our customers and we look at price, we look at volume and retention, we look at the length of the contract and the contract terms, all with a view in terms of building the durability of our business. So if you put that in the mix and you see where we've delivered on the OIBDA, so you said, well, historically, we were at 2%, 2.5%. We were at 1.4%, but we increased retention by 30 basis points and we still hit our OIBDA target. So it's a number of things, the variables that we look at. And when we look at these specific renewals, it made a lot more sense to make sure that we improved our retention rate, especially with a view of signing up longer contract terms.

That's very helpful. And could you provide some additional detail on the organization realignment actions you've taken in the quarter and what benefits from a cost perspective you expect to see as a result?

I think that the -- first, it's consistent with what we said on an earlier call, I think, it was back in October when we discussed our reorganization, is that whilst there is a reduction in our cost base associated with it, that was not the motivation for our realignment. And the realignment was triggered back in October, but some of that is just falling through in terms of the restructuring costs in quarter 1 of 2014. So the reorganization was, for the most part, completed last year, but there were some kind of carry-on in terms of the first quarter. The main part of that was taking out 2 layers in our North American organization and mimicking what we have probably internationally that comes naturally around the country organization and we've instilled this -- installed something similar in the United States where we've put a lot more accountability into the local markets and that was really with a view to be more competitive in the mid-market segment. Combined with our acquisition of Cornerstone, those 2 things came together with the reorganization, as I say, again with a view to be more competitive and have more accountability going after the mid-sized segment.

I'll go to the next question. It is from Scott [indiscernible].

I guess, following up on George's first question, I think you partially answered it. But we've seen a nice trend in terminations and destructions and you were talking about retention, but could you delve in a little bit more on the progress you've made there and what you're seeing?

I can -- maybe I'll give the first part of the answer and then let Rod emphasize because he was also referring to some of the tools that we've introduced. But we have brought in some more, I would say, sophisticated tools and then made some investments to better predict when we seem to be losing traction with customers. And when we go in early on, you have a much more, I would say, robust discussion, which includes how long we can renew the contract for. So we saw some contracts, which normally renew for 3 years and we renewed them for 5 years, as I highlighted just previously. We had a contract where we didn't have anywhere near the share of wallet that we do now. Actually, we went from having a fraction of their wallet to 100% of their wallet and instead of a 5-year contract to a 10-year contract. And when we look at that, that leads to not only better retention rates, which as we said you can see the results in this quarter. Whether you look at North America or you look at our overall business, we've improved retention rates by about 30 basis points. But in addition is we are gaining better terms and conditions in terms of the length of those contracts, which, as you know, for us, this is a -- it's all about the durability and low volatility of our business. And then, Rod, I don't know if you want to add anything to that.

Well, just to build on that a little bit, Bill, there's really 2 sides to the equation here. Scott, one is we've invested in sort of predictive analytics to better understand the likelihood of customers terminating or destroying then trying to work with them in a more proactive way, both for our benefit as well as their benefit. And I do think we're seeing the consequences of that starting to come through in some of our key volumetrics. The other thing that we use to sort of build from that is to think more about the long-term value of the customer relationship rather than as sort of just a short-term quick win that we might try and get. So by thinking about that and then structuring that value into the contract over a longer period of time, again we think it's better for us and better for the customer. So hopefully, and I think we are operating in a more sort of sophisticated manner.

Is this fairly broad based? Are you seeing any variances across the end markets, which you serve with regard to destructions and terminations, and for that matter, new business wins?

I think that probably the best way, you have to have a little bit of a helicopter view, especially our exposure to financial services where you have legal holes in specific markets that can skew the data one way or the other on any given period. I think we have to look at -- I think probably the better way to look at it is do we see a different trend, say, in North America versus our other developed markets, say, in Western Europe or Australia. And I would say that we see very consistent -- we're using similar approaches to the market that Rod just described and I would say we're seeing similar trends, almost identical trends, across both of those markets in the improvement that we're getting.

And then, finally, if I could slip in one more. Just how is the pricing environment across storage and service, what you're seeing, what may be some of the pushbacks you're hearing from customers or are they fairly open to the strategies you're applying?

I think the price -- again, I'm going to let Rod maybe follow up. But I think, first of all, on the price is that, from our customers, is it's much more important in terms of what their overall, both quality and cost, of their whole records program is. And quality is about, obviously, making sure -- if you think about this as a safety deposit box for some of the most valuable documents for our customers, it's making sure that those things are stored in a way and can be retrieved in a timely fashion when they need them. And the other thing is to make sure they have a robust records management program, which means that they retain the things that they need to and they don't retain the things that they don't need to. So that's -- and then the other aspect is how much does that whole program cost? So those are the types of discussions that we have with our customers rather than on a specific price. I think, in any low-inflation environment is that everybody is driven by trying to get more productivity out of their operations and we're not immune to that like any other vendor. But the conversation we're having with our customers is how can we reduce the cost of their total program and at the same time, improve the quality of that program, which may mean lower volume for some customers in certain areas, but it definitely doesn't mean lower margin from our standpoint.

I think that's right, Bill. Really, what we're trying to get at is what value can we bring to the customer? It's a complicated mix. It's not just storage, there's a whole lot of service elements that we provide as well. And as the industry leader, we're concerned to make sure we bring that value and demonstrate that value to the customer. So as part of our negotiations, it's a sort of wider and more holistic discussion, I suppose, rather than just a simple price discussion. And I think by doing that, it's good for us and it's good for the customer.

[Operator Instructions] Your next question comes from Shlomo Rosenbaum. Josh James - Stifel, Nicolaus & Company, Incorporated, Research Division: This is Josh James, actually, filling in for Shlomo. I just wonder if you could give us an update...

Shlomo, I'm sorry, can you just speak up? We're just barely hearing you. Josh James - Stifel, Nicolaus & Company, Incorporated, Research Division: This is actually Josh James filling in for Shlomo. I was wondering if you could just give us a quick update on how the Cornerstone acquisition is progressing?

I think in terms of the integration, Josh, it's ahead of plan. I think the revenue is slightly lower than what we originally expected. But in terms of overall OIBDA delivery, it's -- we're comfortably ahead of plan. I mean, that was, in effect, much more similar to a large pickup and move. The other thing, as I alluded to earlier on the call, is where we've picked up significant benefit is insight on how our commercial operations can be better aligned to serving customers in what I would call the mid-market. So I think between those 2 things in terms of our ability to integrate and synergize it quicker than we thought and then also pick up some DNA about going after or aligning some of our commercial operations to the middle market, I would say it's gone quite well. I don't know, Rod, if you want to comment about on any of the financial?

Yes, I mean, I think just on the revenue point, just to be clear, it was never that far off in terms of our expectations when we went into the deal sort of few hundred thousand. And actually, as we've been able to work with the business, that gap, if you like, has been closing as the months have progressed. So actually, I think we're encouraged by their performance, by what we've seen top line and bottom line pluses, as Bill said, very sort of secondary benefits in terms of better understanding of small and mid-market that we can gain from.

Your next question comes from Dan Dolev.

Question about North American OIBDA margins. They've been down a few quarters in a row. What would need to happen for North America margins to maybe bottom or start to reaccelerate at some point?

I think, it's really -- I'll let Rod comment more specifically, but it's really a tale of 2 stories. I think the OIBDA margins of North America haven't gone down when you look at our storage business. But as the business becomes more archival, then the service side of the business does take certain headwinds and there are 2 things going on: one is paper prices makes a fairly large impact on that, but the other thing is that as the business becomes more archival, whether you look at the RIM business or the DM business, is that you can only -- you can only be so proactive in terms of restructuring your cost base because you still have to service the customers until they become that less active. So it is kind of a thing where we can be proactive to a certain degree, but during this transition, until the declines in service revenue or the archival nature kind of flattens out in the business, there will continue to be pressure under the service side of the margins. But to be clear on the storage side is we are maintaining our margins on the storage side, and in fact, in most cases, improving them. So I don't know, Rod, if you want to...

Yes, I think that's right. And you can see that a little bit in our numbers for the quarter actually. Because on the RIM side, the Records and Information Management side, if you look year-on-year, our margins actually improved by 50 basis points. And there's sort of 3 drivers of that, if you like. One is sort of ongoing good performance within storage. Two is the sort of slowdown in the rate of decline that we've seen in service within the RIM side of things. And three, sort of within that context, we've also been very proactive about taking out costs to try and sort of make sure we can maintain and enhance margin. So you can see that coming through in the RIM segment. If you look at Data Management, though, you do see a decline in margins, which is where the service decline is more accentuated at this point. And that presents us with a challenge, if you like, in terms [ph] of having to sort of take costs out as quickly as we can, so at least try and mitigate that impact. So it depends a little bit in terms of where we're at within the segment. But at least on the RIM side, we're up. And Data Management where we are seeing more of these service headwinds, we're down, but taking action on the cost side.

And I think on the -- the only thing I would just add to what Rod said is on the -- and if we look at Data Management, remember, we're talking about a base of 60% OIBDA margins on that business. And the storage component, whilst we've seen a decline as the business becomes -- tape is used much more for archive than backup purposes, we've seen an increase in our storage volume even though that tape format is becoming more efficient, et cetera. So we actually -- the amount of data that we're storing continues to grow. It's not for backup as much anymore, it's much more for archival. And you need to do this in the context that we're talking about at 60% margin business.

[Operator Instructions] Your next question comes from Andy Wittmann. Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division: I didn't want to ask about your IRS process, but I did want to get your view on any implications or your thoughts really around the successful conversions of Lamar, CBS Outdoor and what that could potentially mean for the kind of overall thinking?

Well, that was a good way of, Andy, not asking a question about the REIT process. All I can say is we congratulate them both. I mean, we're in a completely different business segment, so I don't think you can read much into their process versus ours. But I appreciate the question. Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division: I mean, what you gave us is fair and to hear that is actually helpful. Also wanted to get a thought, just kind of on that sales strategy for the mid-market, as well as what you did with the verticalization. Are you seeing benefits from that already or is that still yet to come? Just kind of your view of the success there.

I think that there's still a lot more to come. I think we are clearly seeing some. I mean, I think that the 30 basis points of improvement on retention -- don't forget, retention is almost the same as selling for us because of our presence and leadership in a lot of these segments, right. So retention is an important bellwether and it is getting closer to the customers through verticalization, through using better analytical tools that Rod discussed in his remarks. I think this is all starting to have a benefit. That being said, some of the things that we're doing around the middle market and even for a large enterprise customers, I think it's early days. As we discussed at Investor Day, we're in the process of standing up a central marketing operation under a chief marketing officer that's still being implemented. So I do think there are ways where, as a company, we can use our unique scale to further our leadership position and I think that there's more to be done, but we are starting to see some benefits, as we've highlighted, around retention. Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division: Great. And then maybe just a final question, Rod. I was hoping you could give us a little bit of a flavor as to the acquisitions that you've done this year. I guess, we've kind of heard you've added some acquisitions, you've had some FX headwinds. No change to the guidance because, obviously, the annuity is large. But can you help us -- can you put a pencil to the paper on what the FX dollar headwind and the revenue benefit is from the acquisitions for the year?

So approximately, for the acquisitions, we'd be looking at around $20 million, something like that. And there will be more detail in the 10-K on this. And similar kind of offset on the FX side. Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division: And to be clear, the 2014 contributions, so it's partial year contribution from these acquisitions, not the run rate annualized contribution of revenue?

No, sorry, that's annualized. But the fact is we sort of made these acquisitions fairly early in the year, so actually wouldn't be far off that number.

There are no further questions. I will now turn the call over to CEO, Bill Meaney, for closing remarks.

Thank you, operator. To wrap up, we delivered a solid quarter with strong constant dollar growth and margins. We have many attractive investment opportunities in order to grow our business over the long term and we'll do so prudently, consistent with our focused capital allocation approach. At the same time, we will continue to sustain the durability of our storage rental business, expand our presence in emerging markets and pursue attractive emerging business opportunities. We believe our durable platform and deliberate growth plan will continue to deliver opportunity and maximize total returns for our shareholders. Moreover, the value of these returns are further enhanced due to the higher certainty and lower volatility inherent in the nature of our business, which combines a durable and global customer base with superior scale. Thank you for joining us this morning.

This concludes today's conference call. You may now disconnect.