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Edited Transcript of IRM earnings conference call or presentation 27-Apr-17 12:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 Iron Mountain Inc Earnings Call

Boston Apr 28, 2017 (Thomson StreetEvents) -- Edited Transcript of Iron Mountain Inc earnings conference call or presentation Thursday, April 27, 2017 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Melissa Marsden

Iron Mountain Incorporated - SVP of IR

* Stuart B. Brown

Iron Mountain Incorporated - CFO and EVP

* William L. Meaney

Iron Mountain Incorporated - CEO, President and Director

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Conference Call Participants

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* Adam Parrington

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Karin Ann Ford

MUFG Securities Americas Inc., Research Division - Analyst

* Keen Fai Tong

Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst

* Y. Cho

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Iron Mountain First Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Melissa Marsden, Senior Vice President of Investor Relations. Please go ahead.

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Melissa Marsden, Iron Mountain Incorporated - SVP of IR [2]

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include a short slide presentation that will be referenced during today's prepared remarks. The user-controlled slides are available on our Investor Relations website, along with the link to today's webcast. You can find the presentation at ironmountain.com under About Us/Investors/Events & Presentations. Alternatively, you can access today's financial highlights press release, the presentation and the full supplemental financial information together in one PDF file by going to investors.ironmountain.com under Financial Information. Additionally, we have filed all the related documents as one 8-K, which is also available on the website. On today's call, we'll hear first from Bill Meaney, Iron Mountain's President and CEO, who will discuss highlights and progress toward our strategic plan; followed by Stuart Brown, our CFO, who will cover financial results and guidance. After our prepared remarks, we'll open up the lines for Q&A.

Referring now to Page 2 of the presentation. Today's earnings call, slide presentation and supplemental financial information will contain forward-looking statements, most notably our outlook for 2017 financial and operating performance. All forward-looking statements are subject to risks and uncertainties. Please refer to today's press release, the earnings commentary, 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 financial measures when presenting our results and the reconciliations to these measures as required by Reg G are included in our supplemental financial information. With that, Bill, would you please begin?

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William L. Meaney, Iron Mountain Incorporated - CEO, President and Director [3]

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Thank you, Melissa, and good morning, everyone. We are pleased to report solid first quarter results. We achieved financial performance in line with our expectations, underpinned by the durability of and the consistent growth in our high-margin records management storage business. We are particularly pleased by the strong top line growth seen across the business. We also continue to demonstrate progress in building positive momentum in the service side of the business as we grow new offerings to offset legacy transport services.

Overall, we performed well against our strategic plan. At its core, our strategic plan is about extending our durable business model through continued investment in our large and developed market core whilst expanding into faster-growing emerging markets and seizing opportunities to provide new innovative storage solutions to both our existing customers as well as new segments.

As most of you are aware, last week, we hosted our Investor Day in New York, featuring several members of the senior executive team responsible for delivering results across our reporting segments. The event included breakout sessions that provided insights into how we approach innovation and a peek into the garage to highlight some of our current initiatives. Given that the content from that event is so fresh and our first quarter results are consistent with the trends and trajectory we discussed last week, we'll keep our prepared remarks brief.

If you weren't able to join us in person last week, the webcast replay, presentation slides and transcript of our Investor Day are all available on our website. I would encourage you to review those materials as that form allows for a deeper dive as well as exposure to additional members of the management team than can be accomplished in a typical earnings call or a one-on-one meeting. During Investor Day, we also touched on how our rapid integration of Recall transaction and success with our Transformation Initiative have significantly enhanced the adjusted EBITDA and AFFO that support recent dividend increases and are providing a solid foundation for future growth in dividends in excess of inflation.

Turning to first quarter highlights. On the third page of the earnings call presentation, total revenue, adjusted EBITDA and core storage fundamentals were in line with our expectations, both on an internal and total basis. And we continued to make progress on our goal of reducing SG&A as a percentage of revenue, reaching 24.2%, down 100 basis points from last year and down 30 basis points from the fourth quarter of 2016.

We also achieved storage internal revenue growth in Q1 of 3%, with positive internal volume growth in all reporting segments and a worldwide average of 1.9%. New volume from existing customers of more than 34 million cubic feet over the past 12 months was consistent with what we've achieved in recent years and included the expected increase from Recall. This demonstrates the consistency of customer behavior related to storage of new regulatory and legal documents.

We continue to maintain our focus on driving volume growth whilst also beginning to realize some improvement in pricing through revenue management efforts. Based on the strength of these core fundamentals, we remain comfortable with our 2017 full year guidance.

Slide 4 is a quick review of progress against our 2020 strategic plan during the quarter. In developed markets, which includes both North American RIM and our Western European segment, we continue to drive positive internal storage revenue growth with 3.2 million cubic feet of internal volume growth on a trailing 12-month basis.

In terms of our progress with expanding our business model into faster-growing emerging markets, we are just shy of 18% of total revenue on a 2014 constant dollar basis, a major improvement from about 10% just 3 years ago. Year-over-year progress against this goal was supported by acquisitions closed during the quarter. Also noted last week, our pipeline is substantial and provides solid coverage of what we need to execute to bring emerging markets to 20% of total revenue by the end of 2020.

In adjacent businesses, we continue to see attractive opportunities in our data center business, as discussed last week. During the quarter, we closed on the acquisition of a small art storage business in Brooklyn that has a long history of providing storage and transport services to prominent collectors, gallery owners and museums in the New York metro market.

Combining expansion in both emerging markets and adjacent businesses, we made further progress in Q1 with shifting our revenue mix in line with our 2020 plan goals as noted on Slide 5. Our objective is to reach 25% of total revenues from our higher growth portfolio. Supported by the acquisition of Recall, we are approaching 20% of our mix coming from these businesses. As previously noted, our guidance includes M&A as well as strong organic growth to support this transition, both in emerging markets as well as in adjacent businesses. As this shift progresses, we expect to see faster EBITDA growth.

Our progress in shifting our revenue mix along with the benefits from both Recall integration and our Transformation Initiative can be seen in the year-over-year comparisons of financial performance on Slide 6. We've substantially integrated Recall's business and implemented actions that enabled us to achieve synergies faster than our original expectations and we have enhanced EBITDA growth through our transformation efforts. The financial impact from these efforts is flowing through. As stated in our fourth quarter earnings call and noted again last week, we expect to generate $180 million of combined savings benefit for 2017, with roughly $20 million of that to be reinvested into innovation, operating expenditures and shared service efficiency programs. Whilst integration is largely complete on a management and culture basis, we remain on track to add another $50 million of bottom line benefit from transformation, bringing the total from these 2 efforts to $230 million by 2020.

As you can see, the weighted average increase in our shares outstanding year-over-year is roughly in line with revenue and adjusted EBITDA growth in the mid-20% range. Additionally, we increased our quarterly dividend per share by 13% in the fourth quarter. So the majority of this improvement is going directly to shareholders without compromising future growth.

Turning to Slide 7. We're all familiar with the link between rising interest rates and REIT public market valuations and the additional correlation between rising interest rates and rising inflation.

Given that we are a real estate company generating more than 80% of our gross profit from storage rental-related activity, we believe we are unique among REITs in our ability to pass through inflation in the form of upward-only, CPI-type escalators in our contracts. Typically, these are annual escalation provisions. Additionally, the fact that our storage gross margins are around 75%, inflation escalators have a positive and compound effect on margins, especially during periods of high inflation. I would add that the shorter term rental contracts are balanced against our average box age of 15 years and 98% customer retention. So the average customer stays with us for 50 years, supporting the durability of the rental income stream.

Remember that rising interest rates don't have an impact on customer storage demand and the net operating income doesn't change if the market value of the underlying real estate fluctuates.

In summary, we had a very good first quarter and we continue to execute on all 3 pillars of our strategic plan. In the short term, these accomplishments support both the reinvestment necessary to extend the durability of our business and continue growth in cash flow and our ability to grow our dividend. This is all whilst continuing to advance our growth in EBITDA ahead of debt and hence, delever over time and concurrently continuing to create value through our M&A activities.

With that, I'd like to turn the call over to Stuart.

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Stuart B. Brown, Iron Mountain Incorporated - CFO and EVP [4]

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Thank you, Bill, and good morning, everyone. I'm pleased to be reporting on another strong quarter that demonstrates the durability of our business and the success of our business plans. Similar to Bill, my comments will be brief this morning and cover key highlights, certain operational and financial metrics and our outlook for 2017, which remains unchanged since February.

Before diving into the details, let me walk you through the key financial highlights. First, we achieved strong internal storage revenue growth of 3%, excluding Recall and other smaller acquisitions. This is consistent with last quarter's performance of 2.9%, and reflects solid underlying business fundamentals and continued volume growth across all major markets.

Second, we maintain consistent adjusted EBITDA growth of over 24% from the acquisition of Recall and underlying margin improvement. Third, the integration of Recall and our Transformation Program continues to be on track as evidenced by the 100 basis point decline in SG&A as a percentage of total revenue this quarter, as Bill discussed.

Let's now turn to Slide 8, which shows our key financial metrics. First quarter total revenues growth of 25.1% was in line with our expectations, driven by acquisitions and the strong internal storage revenue growth. The internal storage revenue growth of 3% was driven primarily by net internal records management volume growth of 1.9% as well as benefits from our revenue management efforts. Service revenues increased 26.6% in the first quarter, 0.6% of which was internal growth. The improvement in internal service growth resulted from higher paper prices as well as increases in project-related revenue. At current paper pricing, we expect to benefit through the first half of the year until we begin to cycle against last year's price increases.

Compared to a year ago, the first quarter adjusted gross margin declined 120 basis points due to the mix of Recall's lower margins, including higher rent expense. As preacquisition, Recall leased close to 90% of their facilities on a square-foot basis. Sequentially, adjusted gross margins declined 80 basis points from the fourth quarter as a result of the seasonality of utility costs and compensation expense.

Adjusted to exclude Recall integration costs, selling, general and administrative expenses increased 20.1% from a year ago. SG&A as a percent of total revenues, however, decreased 100 basis points from last year due to the transformation and integration benefits as well as a reduction of bad debt expense. The 24.4% increase in adjusted EBITDA was driven by acquisition benefits, top line growth and the SG&A improvements just noted.

Adjusted EBITDA was impacted by $6 million of expense this quarter related to the innovation investments, which we talked about last quarter. As a percentage of total revenues, the adjusted EBITDA margin in Q1 was 31.2%, 10 basis points lower than a year ago, due to the mix of Recall's lower-margin business, mostly offset by other business improvements.

Looking at the adjusted EBITDA margin on a sequential basis, that is to track progress on synergies and transformation, the EBITDA margin declined 50 basis points from Q4, due partly to the seasonality -- the seasonally higher operating expenses in the first quarter as well as the $6 million of expense related to innovation. Excluding just for the $6 million, adjusted EBITDA would've been 31.8%, up 10 basis points sequentially from Q4 2016.

Growth of adjusted EPS to $0.24 per diluted share for the quarter was negatively impacted by $0.03 related to the year-over-year increase in our structural tax rate, which was 14% a year ago and 23.1% this quarter. The tax rate was above our guidance, partly driven by a change in U.K. tax legislation, whose application was recently clarified. The legislation affects our interest deductibility and we have included this in our effective tax rate while we are actively pursuing remediation and restructuring to mitigate its impact. In addition, our tax rate has been impacted by our anticipated mix of earnings.

Despite our Q1 structural rate, we expect that our full year 2017 structural rate will be closer to the higher end of our guidance or approximately 20%. AFFO was in line with our expectations at $170.9 million. Compared to a year ago, AFFO growth was limited as we lapped against the cash tax benefit, resulting in a $34 million swing in cash taxes paid. Remember that the calculation of AFFO was changed in the third quarter of last year so that it reflects cash taxes. While annually cash taxes will generally reflect our structural tax rate, we will have some quarterly volatility, such as this quarter when AFFO is reduced by a net $30.4 million compared to a year ago when cash taxes were actually a benefit of $3.6 million.

Let's turn to Slide 9 to cover internal growth performance by segment for the quarter. In North America Records and Information Management, or RIM, internal storage revenue growth continued to be strong. This performance was driven by price improvement and volume growth. We saw improvement in the North American internal service revenue due to growth in the shred business, including higher paper prices, and improvement in information governance and digital solutions, which provides digital imaging services to our customers.

The North American Data Management internal storage revenue grew 2.7%. However, internal service revenue declined due to the ongoing reduction in tape rotation, as discussed in our Investor Day. The adjusted EBITDA margin in North America data management declined year-over-year, primarily as a result of increases in investments associated with product development. However, remains a very healthy 52.3%.

The internal storage revenue growth in Western Europe of 1.7% improved from the fourth quarter. While internal service revenue growth of 4.4% benefited from an increase in special projects in the U.K. and new customer wins in Germany and Spain. The Western Europe adjusted EBITDA margin declined year-over-year, due primarily to a one-time tax benefit in the U.K. of approximately $3 million, which we discussed a year ago.

In the Other International segment, which includes the larger legacy Recall Australian business, we continue to see strong storage and service internal revenue growth and improving margins.

As for Corporate and Other, Adjacent Business internal service revenue showed a small $600,000 decline related to lower project revenue in art storage.

Moving to Slides 10 and 11, quickly. Consistent with the fourth quarter call, Slide 10 shows the relative size of each segment and its contribution to our results through a storage and service lens. Storage continues to provide more than 80% of adjusted gross profit, with the remainder from services. As you heard in our Investor Day, we continue to innovate on new service offerings for our customers, focusing on value-added services, which deliver gross profit growth.

Slide 11 contains the same information as Slide 10 but viewed on a product line basis.

Before turning to our outlook for 2017, let me quickly touch on the composition of our global business. The chart on Slide 12 remains consistent with the data provided on the Q4 conference call. As you can see, roughly 60% of worldwide revenues are generated in the U.S. and importantly, approximately 70% of adjusted EBITDA is in U.S. dollars. This demonstrates that the impact of foreign currency -- foreign exchange fluctuations are somewhat muted on adjusted EBITDA. Also, we continue to match our foreign denominated debt to create natural currency hedges to mitigate translation exposure, while also being tax efficient. At quarter end, 23% of our debt was in currencies other than the U.S. dollar.

Let's turn to our guidance for 2017 summarized on Page 13 of the deck. Our outlook for business trends and fundamentals remains unchanged since February on a constant dollar basis. For full year 2017, at the midpoint, we expect adjusted EBITDA to grow by 17.5%. With adjusted EBITDA margins expanding to around 33%, an increase of about 200 basis points compared to 2016. In addition, AFFO is expected to grow by 11.5% at the midpoint, supporting our expected dividend growth of 7% in 2018.

As noted in February, our guidance assumes that we invest about $20 million in operating costs associated with innovation initiatives and global shared service programs. We continue evaluating several storage and service line innovations and should these innovations meet or exceed specific success-based hurdles, related operating expenses -- expenditures associated with commercialization of these initiatives could have a minor impact on full year adjusted EBITDA expectations. That being said, we have not made any commitments at this point and have not changed our guidance to reflect this.

Turning to Slide 14. Our projected cash available for distribution and investments, or CAD, also remains unchanged from the Q4 earnings call. For 2017, we continue to expect CAD to cover our anticipated full year dividend and required maintenance capital expenditures, with approximately $125 million of capital remaining to support core growth racking and other discretionary value-creating investments. And requiring about $200 million of external funding for the remainder, excluding Recall costs.

Shifting briefly to the balance sheet. We had liquidity of nearly $1 billion at quarter end and a lease-adjusted debt ratio of 5.8x, which is in line with our expectations. In the short term, we expect our leverage ratio to remain above long-term targeted levels following the Recall acquisition and then trend down as we collect divestiture proceeds, fully realize the synergies in transformation benefits and continue internal growth. We expect our lease-adjusted debt ratio to be 5.6x at year-end and then trending down to 5x in 2020, as we laid out in our Investor Day.

To remain at our targeted capital structure and to take advantage of market conditions, we expect we will term out a portion of our borrowings with longer-term debt at attractive rates, thereby extending our average maturity. Overall, we are pleased with our first quarter performance and results that are consistent with expectations. We are well positioned to deliver on our financial projections for the year, having started with strong internal growth momentum.

As I said last week at our Investor Day, our steady growth, strong margins and very effective field leadership will allow Iron Mountain to thrive in all business cycles.

With that, I'll turn the call over to Bill for closing remarks.

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William L. Meaney, Iron Mountain Incorporated - CEO, President and Director [5]

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Thank you, Stuart. And before turning it over to the Q&A, I would like to just briefly summarize some of the key points. First, we continue to execute well on our plan. We are pleased with the performance across all metrics and particularly call out our organic revenue growth because this provides the fuel in the tank for the business. And putting this all together, it furthers the durability of our business model, the cash flow and dividend growth as well allows for investment for future development.

With that, I'd like to -- operator, turn it over to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Andrew Steinerman with JPMorgan.

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Y. Cho, JP Morgan Chase & Co, Research Division - Analyst [2]

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This is Michael Cho in for Andrew. I just want to touch on the services segment, for a minute. I think you discussed paper prices and some project-related revenues this quarter. But just more broadly than that, I realize Iron Mountain is pressing into and introducing new services to offset previous growth headwinds. But also those new services could come with lower gross margin profile. How should we view this quarter's results in that context where services' organic grew and margins expanded as well?

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Stuart B. Brown, Iron Mountain Incorporated - CFO and EVP [3]

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Michael, this is Stuart. What you see, we benefited a little bit from paper pricing, but to take a step back, I mean, we've been experiencing a decrease in activity in records and tape rotation, as we've talked about. And so the team has been doing a great job talking to customers and working more on solution selling. So while the new activities that we're working on for our customers will likely be at lower gross margins in our storage business, when you look at it compared to our service business, we wouldn't expect any real degradation of gross margins from that. And again, we're focused on gross profit and solution selling. So when you think about different activities that we've got going on out there for our customers and they're looking for help managing things like HR records, scanning businesses, so that they can monetize and take advantage of the records that we store for them, we think that there was not going to be any real degradation in the gross margin in that. And over time, the innovations that we're working on today, is a number of these as Bill talked about earlier, are still in the garage and early days. These are things we're going to continue to innovate on as we talk to our customers.

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Operator [4]

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Our next question comes from George Tong with Piper Jaffray.

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Keen Fai Tong, Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst [5]

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Bill, can you discuss progress in penetrating the middle market channel in the quarter following the Recall transaction? I asked since 1Q records management volume growth, as you noted, accelerated to 1.9% from 1.7% in 4Q. How much of that acceleration represents improvement in the middle market versus other potential drivers you're seeing?

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William L. Meaney, Iron Mountain Incorporated - CEO, President and Director [6]

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It would be wrong to say that, that 0.2% uptick that you're seeing is from the middle market. That being said, you're right to say one of the areas where we're building kind of tailwinds to the business is the middle market and we continue to be pleased in terms of the results we're getting it. I mean, in fact, actually before Investor Day, whilst I was in New York, I was calling on a financial service customer. And actually, through their independent agents, is that's another area where we're starting to look at offerings on where we can help support some of the people that support them. And that's clearly, the smaller end actually, the SMB market. So we're starting to build real momentum in that segment, but I think it would be too early to call out all the volume increase that we're seeing is coming from there.

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Keen Fai Tong, Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst [7]

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Right. And any specific drivers you would call out in terms of the volume growth acceleration?

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William L. Meaney, Iron Mountain Incorporated - CEO, President and Director [8]

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A lot of it comes back to almost what Stuart was saying before, because as we're actually getting better at new service offerings in the service area, we're providing solutions, and those solutions, the exhaust from a lot of those solutions are more storage. And I think, I maybe mentioned this on previous calls is that we're actually taking a page out of our playbook that we used when we started building our services in the emerging markets because many times in the emerging markets, where the category of storing documents is not well understood, our first offering to those customers was solving a specific problem and solution. And it was a service that we provided. And part of that service is we built a further relationship with them and built more storage on the back of it. So I think the -- what I would say at this point is that we are getting better with our sales force in the developed markets. Because in the emerging markets, we always had to kind of approach it that way by getting much more about solution selling rather than transaction sales and that's having benefits, both in the service as well as on the storage.

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Keen Fai Tong, Piper Jaffray Companies, Research Division - Principal and Senior Research Analyst [9]

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Got it, that's helpful. And digging quickly into the services piece of the business. Can you elaborate on your pipeline for project-based services revenues and the ability for these new services to offset declines in legacy transport?

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William L. Meaney, Iron Mountain Incorporated - CEO, President and Director [10]

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I think that the -- we're continuing to see good progress on that, but as I said at the last call, it will be lumpy. In other words, almost by the very nature of project revenue, so it's much easier to predict on an annual basis than it is on a quarter-by-quarter basis. But we're starting to build real scale in that. So obviously, even the volatility will start looking smoother and smoother as we build a bigger base of project-based revenue. But if you think about the drag of the -- or the downtick in the legacy transport business as the business becomes more about proof than use, then you can see that the performance that we have -- we're very pleased with the strong positive internal sales performance that we had in service this quarter. And think of it about 50-50. In other words, 50% of that was through building a lot of these new product -- project-based service offerings, and the other half was the growth in our shred and paper business. So it is clearly having a strong impact in terms of offsetting what was our -- the predominant portion of our service portfolio, which was transport in the past.

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Operator [11]

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Our next question comes from Karin Ford with MUFG Securities.

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Karin Ann Ford, MUFG Securities Americas Inc., Research Division - Analyst [12]

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Just want to go back to the first quarter organic storage growth of 3%. And then you're still guiding to 2% to 2.5% for the year. Can you just talk about the cadence of that growth? How you expect it to progress through the year?

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Stuart B. Brown, Iron Mountain Incorporated - CFO and EVP [13]

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Karin, this is Stuart. If you think about it, first of all, 2016, we really had an uptick in storage growth last year, in the second half of the year. And again, I'll point out, that was after the Recall acquisition, so really showing that our commercial team is really staying focused on delivering. And so we anticipate that we'll be, in the second half, on a year-over-year growth basis, it will slow down because we will have tougher comps. That said, I think at this point, having what we've delivered in the first quarter, we'll be closer to the 2.5% than the 2% in the guidance.

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Karin Ann Ford, MUFG Securities Americas Inc., Research Division - Analyst [14]

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That's helpful. My second question is a bigger picture one. I hesitate to ask it because I know you converted to a REIT not too long ago. In light of the Trump administration's proposal to reduce corporate tax rates down to 15%, in that environment, would it make sense for Iron Mountain to remain a REIT?

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William L. Meaney, Iron Mountain Incorporated - CEO, President and Director [15]

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It's a good question, Karin. And you can -- rest assured, you can imagine we're watching it very closely. But I think, first, remember that we do have a very large service portfolio. So tax reform would be a real benefit for us because we pay full corporate taxes on still our service part of the business, which you can see in our structural tax rate is not insignificant. So if we can get real tax reform even -- let's take what was proposed yesterday, but who knows what's going to finally shoot out. That would be a real benefit to us. That's kind of the first point. The second point I would say is, it is something we're heavily engaged, both directly on our own steam as well as through NAREIT. So for instance, I personally have been to Washington twice this year, and it's not because I like the place. But I've been down there twice since the beginning of the year with our government affairs people, as well who -- and the person who leads our government affairs is a former tax attorney or is a tax attorney. So it is one of the key things that we focus on when we're on the Hill as well as with NAREIT. And I was with a bunch of CEOs with NAREIT in late winter. And one of the things, particularly, that we are sensitive to, and it hasn't been clarified, is how the dividends that flow through the qualified REIT subsidiary, which are nonqualified dividends, how those are going to be treated under the new tax legislation because the past, we, both we and NAREIT are very focused to make sure those dividends get treated at the same tax rate as the pass-through because it keeps it at a level playing field. So specifically, the one thing that did come out in the proposal that we saw yesterday is we would be continuing our lobbying efforts, both as Iron Mountain and through NAREIT, to make sure that nonqualified dividends coming through the REIT subsidiaries would be treated on the same basis as any tax rate for a pass-through.

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Operator [16]

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(Operator Instructions) And our next question comes from Shlomo Rosenbaum with Stifel.

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Adam Parrington, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [17]

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This is Adam on for Shlomo. One question I had, my other question's been answered. There's a comment in the presentation about the several innovations that if you meet or exceed success-based hurdles, the related OpEx associated with the commercialization would impact EBITDA. Can you just explain that a little bit more? Is that kind of a recognition item in terms of operating versus capitalization? Or is that kind of incremental expenditure?

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William L. Meaney, Iron Mountain Incorporated - CEO, President and Director [18]

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Actually, it would be both. I mean, first of all, I should say if something comes -- starts developing in the garage that looks promising, it's actually a good news story. But we haven't built anything in because at this point, we're still in the exploration phase. But it would be both OpEx and CapEx. But then, if you look at it in terms of the total numbers that we're guiding to, it would be noise in those numbers. So it wouldn't affect, in any significant way, either our EBITDA or our CapEx guidance at this point. But we're just calling out that it's -- we haven't baked that in at this point because we don't know how things develop in the garage.

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Operator [19]

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And this concludes our question-and-answer session for today. I would like to turn the conference back over to management for any closing remarks.

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William L. Meaney, Iron Mountain Incorporated - CEO, President and Director [20]

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I'd just like to thank everyone for participating this morning. I know it's a busy season, and also for those of you that joined us last week at Investor Day, we hope you enjoyed it as much as we did and, again, we appreciate your time. So have a good morning or good afternoon wherever you are. Thanks.

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Operator [21]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.