Melissa Marsden - Senior Vice President, Investor Relations William Leo Meaney - President and Chief Executive Officer Roderick Day - Chief Financial Officer & Executive Vice President.

Kevin D. McVeigh - Macquarie Capital (USA), Inc. George K. F. Tong - Piper Jaffray & Co (Broker) Andrew Charles Steinerman - JPMorgan Securities LLC Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc. Sachin Shah - Albert Fried & Co. LLC Han Zhang - Churchill Capital.

Good morning. My name is Felicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Iron Mountain Q1 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you.

I will now like to hand the conference over to Melissa Marsden, Senior Vice President, Investor Relations. Please go ahead..

Thank you, Felicia, and welcome, everyone, to our first quarter 2015 earnings conference call. As I'm sure, everyone joining us this morning knows, we also announced an agreement in principle to acquire Recall.

This morning, we'll hear from Bill Meaney, our CEO, who will discuss highlights for the quarter, some key points related to the proposed transaction, as well as progress toward our strategic initiatives; followed by Rod Day, our CFO, who will cover financial results. After our prepared remarks, we'll open up the phones for Q&A.

As we have done for the last few quarters, we have 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. We've also posted there a brief presentation related to the proposed Recall transaction at the same location.

Referring now to page two of the supplemental, today's earnings call and slide presentation will contain a number of forward-looking statements, most notably, our outlook for 2015 financial performance. All forward-looking statements are subject to risks and uncertainties.

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

In addition, we use several non-GAAP measures when presenting our financial results. The reconciliations to these non-GAAP measures as required by Reg G are included in the supplemental reporting package.

With that, Bill, would you please begin?.

Thank you, Melissa, and good morning, everyone. Let me first extend our apology for such a short notice on the change in timing for the release of first quarter results. But given that it was driven by our agreement in principle to acquire Recall, we felt it was important to combine the news.

I would like to start by saying, we are pleased to announce that our results in the first quarter meet or exceed our expectations. We continue to build operational momentum in the business, which is, in turn, driving strong financial results in spite of the significant FX headwinds.

However, given the breaking news associated with the agreement in principle to acquire Recall, I'd like to start with the discussion of this agreement. First, I should say, we are very excited about our agreed proposal to acquire Recall.

We think this proposed transaction represents an attractive value proposition supported by significant synergies and believe it will be highly accretive. Our revised offer reflects the strengthening of the U.S. dollar and other favorable changes since our last proposal, particularly regarding transaction related tax assumptions.

Of course, we have yet to complete due diligence to reach a definitive agreement and the successful completion of the transaction is subject to customary conditions noted in today's press release. We have a few slides related to the proposal, the proposed transaction that we have posted to our Investor Relations website, which I'll touch on briefly.

Turning first to slide three, the proposed acquisition is an all stock deal at a fixed exchange rate of 0.1722 of an Iron Mountain share for each Recall share.

Additionally, we've made a provision that each Recall shareholder can elect up to a maximum of 5,000 shares to be paid in cash at AUD$8.50 per share subject to a cap on the total cash consideration of AUD$225 million.

On slide five, we estimate there is an opportunity to achieve synergies of between US$125 million and US$140 million driven by economies of scale from the combination of infrastructure and overhead. We expect to realize 50% of these synergies in year two, which will already yield by year two, high-single digit accretion in EPS, FFO and AFFO.

Another benefit of the proposed transaction in the medium term is that, it supports our de-leveraging strategy. Additionally, we have complementary market platforms with Recall having a more developed presence with the small-to-medium businesses in the U.S. whilst we have more significant presence with larger enterprise customers in the U.S.

Turning to slide six, we also have complementary geographic coverage with Recall having more exposure to faster growing international markets.

Slide seven provides a bit more detail on the benefits to Recall shareholders, including the ability through stock ownership to participate in future upside and be supported through a secondary listing in Australia.

Slide eight shows more detail on our estimated net synergies as well as our expected integration and other costs that would be incurred in year one to achieve those synergies.

Assuming the midpoint of the synergy range, consensus estimates of Recall's 2015 EBITDA and the fixed exchange ratio, we estimate our going-in EBITDA multiple is just over 12 times and is reduced by 4 turns to 4.5 turns on a fully synergized basis, demonstrating the benefits of the proposed transaction.

Lastly, on slide nine, we've provided a list of next steps in the process. With that overview of the proposed transaction, let me turn to our results. We are pleased to report another quarter of strong operating performance, extending recent progress with continued positive organic volume growth in solid storage rental internal growth.

We continue to execute on our three-year strategic plan, which rests on three pillars; getting more from our developed markets, expanding our presence in faster growing emerging markets, and continue to explore adjacent opportunities in our emerging business segment.

Rod will have more details in a few minutes but I'll start by highlighting that on a constant dollar basis, our financial results for the first quarter were in line or ahead of our expectations, with total revenue up 2% and adjusted OIBDA up 5.7% on a constant dollar basis or 4.5% on a constant dollar basis if normalized for restructuring charges as shown on page 20 in our supplemental.

We saw further strengthening of the U.S. dollar in the first quarter, which impacted our reported results, but the fundamental trends in the business remains solid and we are pleased with the momentum. Our results are supported by the durability of our storage rental business and are in line with our strategic plan.

If you reviewed our supplemental disclosure before the call today, you probably noted that we added a further breakdown of our International business. Effective with this quarter's reporting; we've broken the former International segment into Western Europe and Other International.

With this segment change, we've consolidated executive leadership of North America and Western European markets under Patrick Keddy to provide better focus and alignment within our developed markets.

Patrick has run our UK and Western European markets for several years now, having originally joined us from Pitney Bowes, where he ran its entire business outside the U.S., including operations in 28 countries.

JT Tomovcsik will continue to run our North American Records and Information Management business and Eileen Sweeney will add Western Europe to her leadership responsibilities and will head Data Management in all developed markets. She and JT will coordinate their efforts through Patrick.

This integration of executive leadership in North America and Western Europe will allow us to present a single face to our major customers in our largest markets and we'll be better positioned as a global service provider not just a company with a global footprint.

Marc Duale will continue to run emerging markets through the Other International segment, which covers Latin America, Asia-Pacific and Central and Eastern Europe. This segment also includes Australia as it is easy to manage within this segment due to the geographic proximity.

We think this structure will better fuel our continued momentum in developed markets and continue our expansion in emerging markets, thereby more closely tying performance to our strategic plan.

Turning to operating highlights, total storage revenue, a key economic driver of our business, grew by 4.6% on a constant dollar basis during the quarter, reflecting continued strong growth from the Other International segment and consistent trends in Western Europe as well as North America, RIM, and DM or Data Management.

Worldwide, internal growth in storage rental of 3%, continued to show resilience.

Whilst, internal growth did benefit slightly from favorable comps relative to the 1.4% internal storage rental growth in the same period last year, we are seeing continued momentum and are maintaining our view for internal storage rental revenue growth for 2015 of between 2% and 2.5%.

In Records Management, we added roughly 18 million cubic feet of net storage volume worldwide on a trailing 12-month basis, representing 3.5% net growth.

This growth was in part achieved as a result of the significant turnaround we are continuing to achieve in North America from negative to positive internal volume growth, or in other words, before benefit from acquisitions. Importantly, North America represents nearly 25% of our net volume gains for the trailing 12 months excluding acquisitions.

Globally, we maintained customer retention of 98% in line with our fourth quarter 2014 levels, but a significant improvement over the level of customer turnover experienced just two years ago.

In our Data Management business, we continue to see solid storage revenue growth, although as noted in recent quarters, we are still experiencing headwinds related to reduced frequency of customer tape rotation.

Whilst we continue to evaluate ways to right-size our cost structure to align with this trend, we are continuing to develop new product and services in the Data Management segment to leverage our strong customer relationships in the more than 200,000 stops we make each month.

During the quarter Google named us as the ingestion partner for its new Nearline cloud solution. This means we are the preferred provider to assist Google Cloud customers in uploading all the data saved in legacy data storage formats that predated cloud storage so they can better use big data. We plan to begin offering this service later this summer.

We also are seeing good early reception to our Restoration Assurance Program that helps customers retrieve data from legacy media and optimize their backup environment for future technologies.

Moreover, just last week we announced a strategic relationship with EMC to deliver cloud backup and replication services, which helps customers optimize their on-premise and off-premise data protection strategy. We are the only one of their providers to offer data domain replication to the cloud with tape-out capabilities.

These new initiatives are in their early days, and we are not guiding to a specific contribution from them, but they demonstrate our thought leadership, innovation capabilities and partnership with other world leaders in information management like Google and EMC.

Turning to emerging markets, we are making good progress towards our goal of 16% of total revenue from emerging markets by the end of next year. These high growth markets represent 13.6% of our total revenue at the end of the quarter on a constant dollar basis.

Like most multinationals, we do have exposure to the effects of currency translation in terms of absolute earnings and cash impact in U.S. dollars.

While FX variability does impact the absolute dollars we report, the impact on our gross and adjusted OIBDA margins is almost completely muted because most of our expenses are denominated in local currency, thereby creating a natural hedge. On the other hand, the current FX environment gives us a positive window in terms of investments.

Given our opportunity to expand internationally on what is today a relatively small international base, we believe we can create significant value over time by investing selectively in these higher growth markets using strong U.S dollars during this part of the currency cycle.

We continue to see attractive growth potential in both storage and service in emerging markets as they are still in the early part of the outsourcing of enterprise storage. Internal storage rental growth in our Other International segment was 11.1% in the first quarter.

Rod will describe more fully the impact of foreign currency exchange rate impacts on our reported performance for the quarter. Furthermore, we intend to pursue attractive investment opportunities that extend durability of the storage rental business.

As we've discussed on recent calls, we plan to buy $700 million to $1 billion of our leased facilities over the next eight years to 10 years, shifting our mix to a higher percentage of owned properties.

On average, we are achieving a spread of roughly 150 basis points between our going-in cap rates and market cap rates, whilst positioning ourselves to capture long-term residual value from ownership. Importantly, the REIT structure is consistent with our capital allocation goals. It does not limit our ability to fund our business plan.

As we became more active in buying in our properties and executing on our acquisition pipeline, we expect to fund that incremental investment with additional borrowing and/or equity issuance similar to the manner in which most REITs fund external growth.

As you think about opportunities to grow our storage rental business, it is important not to lose sight of the solid durability of the business, which is underpinned by roughly $1.5 billion of net operating income from our storage business alone.

This amount of NOI is comparable to that generated by the leaders in the industrial and self-storage sectors. And we have other attractive business characteristics that compare favorably with REITs. Our enterprise storage foundation is similar to self-storage, but we serve more than 92% of the Fortune 1000 with superior customer credit quality.

We have a diversified base of more than 155,000 business customers with 98% customer retention and a 15-year average life of box in our facilities. Our business has a very low volatility, as highlighted by a track record of 26 years the consecutive growth in storage rental revenue even throughout the recent recession.

And like self-storage we have a service component to our business that is inextricably linked to our customers' underlying storage needs.

We also compare very favorably with the industrial sector with the major difference that our real estate costs are incurred by the square foot but we generate storage rental revenue by the cubic foot, yielding a very high net operating income per square foot.

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

To wrap up, we're excited to be announcing the proposed transaction with Recall and reporting a quarter of strong operating performance. Our results were in line with or ahead of expectations and we remain on track to achieve our long-term goals.

Our business is durable and generates strong cash flow that more than covers our dividend and provides a portion of growth CapEx. And as we look at our longer-term growth potential, we have multiple capital allocation opportunities to invest in attractive returns that exceed our cost of capital and support long-term growth in our dividend.

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

Thanks, Bill. We're pleased with the momentum we continue to see in our business and the strong operating performance we saw in the first quarter of 2015. Our results continue to demonstrate the durability of our storage rental business and the benefits of acquisitions we made in developed and emerging markets in prior periods.

Before I begin, I'd like to note that our outlook for 2015 doesn't contemplate potential contribution or impact from the proposed transaction with Recall. As noted by Bill, we have yet to reach a definitive agreement; we're just embarking on the due diligence process.

To frame my remarks, I'll begin today with an overview of our first quarter performance, including a review of our new segment disclosure. I'll briefly touch on our outlook for 2015, which remains unchanged since our update in February of this year. Finally, I will address other metrics through a REIT lens.

Let's turn to our worldwide financial results for the quarter. Referring now to pages eight and nine of our supplemental, supported by strong storage rental growth, total reported revenues were $749 million, up approximately 2.2% compared with Q1 of 2015 on a constant dollar basis.

Reported revenue for the quarter declined by 2.7% year-over-year as a result of the continued strengthening of the U.S. dollar, which impacted total revenues by approximately 5% or $37 million. Adjusted OIBDA for the quarter was $231 million compared with $229 million in 2014, up 1.2% on a reported basis and 5.7% on a constant dollar basis.

Adjusted OIBDA increased year-over-year due to improved storage profits, somewhat offset by a reduction in service profits. In addition, overhead expenses declined partly as we are seeing the benefits of our efficiency initiatives.

To illustrate the 4.5% year-over-year improvement in normalized adjusted OIBDA, we've included a bridging schedule on page 20 of our supplemental package. Normalized funds from operations or FFO per share was $0.50 for the quarter, while adjusted funds from operations or AFFO was $128 million.

The year-over-year decline in AFFO was driven by variances in deferred tax expenses. Adjusted EPS for the quarter was $0.32 per diluted share compared with $0.35 in the first quarter of 2014. The decline in adjusted EPS year-over-year is driven by a 10% increase in share count related to the special distribution we made in the fourth quarter of 2014.

In addition, adjusted EPS was impacted by an increase in interest expense related to higher levels of debt and a slightly higher structural tax rate. The increase in borrowings was driven primarily by REIT conversion related expenses such as E&P purge and the D&A recapture payments.

Our structural tax rate for Q1 2015 came out to 16.2% as result of a slight mix change driven by a higher income from foreign jurisdictions. It's important to note that adjusted EPS for 2014 was restated to be on a comparable basis using our structural tax rate of roughly 15%.

We continue to believe that our tax rate will be approximately 15% to 16% over the longer-term. To illustrate the changes to adjusted EPS, we've included a bridging schedule on page 21 of our supplemental.

The fundamentals of our business remained strong, as evidenced by solid storage rental growth of 5%, offset by a decline in service revenue of 1% on a constant dollar basis.

As Bill mentioned, in an effort to look more closely tie our leadership structure to the strategic plan, we have broken out the former International segments into two segments, Western Europe and Other International, to facilitate managing the business along the developed emerging lines we've talked about in the past.

I will now discuss Records Management or RM volume trend across this new segmentation. As you can see in the supplemental, on pages 10 and 11, we've expanded our disclosure by illustrating Records Management volume trends by segments.

As you can see, we've achieved positive volume growth of 1.2% in North America, 5.4% in Western Europe, and 12.9% in the Other International segments, reporting Global Records Management net volume growth of 3.5%. We continue to experience strong organic growth with first quarter total year-on-year volume growth of 1.9% excluding acquisitions.

Underlying this growth is the stable incoming volume from existing customers who added approximately 30 million gross cubic feet of storage in the last 12 months, which is consistent with prior periods. Let's now turn to our financial performance by segments.

North America Records and Information Management, or RIM delivered positive storage rental internal growth and expanded OIBDA margins by more than 300 basis points during the first quarter. This expansion in adjusted OIBDA margins was driven by a decline in overhead costs as we continue to execute on our speed and agility efforts.

North American Data Management or DM delivered storage rental internal growth of 5.2% in the first quarter. However, service declined by 5.9% as DM tape management becomes more archival.

During the first quarter, DM adjusted OIBDA declined to 52.7%, partly as a result of the new product launches related to our Restoration Assurance Program and other initiatives that Bill covered in his remarks. We believe these will prove very positive investments for the longer-term.

The Western Europe segment generated solid results, with 3.7% storage rental internal growth, which was partially offset by a decline of 2.6% in internal service revenue. The Western Europe business is similar to North America in its level of market maturity.

However, there are certain countries within these segments, where we don't have a strong leadership position, which in turn results in profit margins that are lower than North American margins, although returns are still well above required hurdle rates.

In addition, it's important to note that the Western Europe segment includes head office costs, which reduces our adjusted OIBDA margins. Excluding the head office costs, the margin in this segment would be in the mid to high 30% range.

Adjusted OIBDA margin percentages remain stable in the first quarter despite the decline in service revenues, although absolute dollar adjusted OIBDA fell primarily as a result of FX headwinds. The Other International segments, which is made up of emerging markets in Australia, showed strong growth in both storage and service revenues.

Storage rental internal growth was 11.1%, and service internal growth was 6.8%. We expect adjusted OIBDA for this segment to deliver profitability on a portfolio basis in the high-teens to low 20%s range as we continue to expand our exposure in these fast growing markets.

Adjusted OIBDA for the first quarter was impacted by FX headwinds and integration costs. Historical data for Other International on a full year basis will be available in our amended 10-K which will be filed in the short-term.

As I mentioned at the outset, our outlook for 2015 remains consistent with the guidance we provided in February during our fourth quarter earnings call. In addition, at this time, our guidance doesn't reflect the benefit or impact of the potential Recall transaction. Business trends and operating fundamentals remain consistent.

Operationally, we remain on-track to deliver our long-term financial objectives, given the durability and strong fundamentals of our business. That said, the strengthening of the U.S. dollar continues to impact our reported results. However, we believe that, we will remain within the ranges of our guidance.

As a reminder, our guidance includes an expectation of roughly 12% decline in reported non-U.S. dollar denominated revenue for 2015 relative to FX rates in place in 2014. Revenues outside the U.S. make up 40% of total worldwide revenue. As a result, we expect the FX impact on total revenue for 2015 to be 4% to 5%.

Lastly, although there is no seasonality to our quarters, there is typically a moderate ramp in revenue performance as the year progresses. Our strong cash flow continues to support our dividend at current levels, and we expect our dividends to grow in line with operating performance.

Our estimate for cash available for distribution and discretionary investment for 2015 remains $470 million, which gives us ample dividend coverage and the ability to fund a portion of our core growth investments.

As we've previously said, we expect to fund discretionary investments including real estate and acquisitions through external funding whether through equity or borrowings. Shifting to the balance sheet, at quarter end, we had a liquidity of more than $780 million. Quarter end, our lease adjusted ratio was 5.5 times as planned.

At Monday's stock price, our debt to total market capitalization is roughly 38%, in line with major REIT averages. Turning now to REIT specific metrics, as we begin to accelerate consolidation of facilities and execute on our real estate purchase plan, we expect to increase the portion of owned facilities by square footage.

We continue to achieve strong storage NOI approximately $27 per racked square foot worldwide, which compares favorably to NOI per square foot for most property types within the REIT sector. Our racking and building utilization rates are high at 91% and 83%, respectively for the Records Management portfolio.

We believe that due to frictional vacancy, our maximum racking utilization is in the mid-90%s. When we enter into a new facility, we generally target to achieve stabilized utilization in about three years' time.

We added a new page to the supplemental, page 32, which highlights our investments for racking projects in process, building development and building acquisitions by major geographic region, their total expected return and anticipated returns. We will continue to enhance our disclosure as we move forward through the year.

Lastly, similar to prior quarters, we are providing components of value, a summary of the various parts of our business to facilitate valuation. As a reminder, we present both storage NOI and service OIBDA excluding rent expense in order to present storage economics on a consistent basis whether leased or owned.

To balance that, we provide total rent expense in the liabilities area. In an effort to ensure transparency to our shareholders, we will continue to enhance our supplemental disclosure and provide more details to help you better understand our business and its underlying fundamentals. As always we welcome your feedback.

Operator, with that, we will now take questions..

And your first question comes from the line of Kevin McVeigh with Macquarie..

Hey, congratulations on Recall and actually the results, just a great outcome and obviously with the REIT just very good execution.

My question was more along the lines of what does the organic growth look like, the combined entity post the deal? And then just – and I know it's probably little bit ways out but how does that impact kind of the dividend and just leverage ratios on a pro forma basis to the extent you can give us any color?.

Hi. Good morning, Kevin..

Hey, Bill..

I think you're going to appreciate that we haven't done our due diligence to this point, so to give us – to give you specific guidance, we're just not in a position to do that.

I think that – I think you can probably get a sense of it in terms of we – we're looking at something that synergizes in the 7.5 times to 8 times range based on the $125 million to $140 million worth of synergies we've guided. So it is clearly very accretive on EPS, FFO and AFFO, which obliviously drives to deleveraging and dividend growth.

But at this point, we haven't done the due diligence on the company so we're not in a position to guide for that..

Okay.

And then just those synergies, Bill, they assume any potential divestitures you might have to do to the extent there is any trust concern?.

You can probably appreciate that we have taken counsel on the anti-trust side and we feel that there is a very good – a very good beneficial path through any of the hurdles that we may meet in terms of regulatory..

Super. Thanks..

Your next question comes from the line of George Tong with Piper Jaffray..

Hi, thanks. Good morning. And I'll also extend my congratulations on your agreement to acquire Recall. You've outlined cost synergies between $125 million and $140 million.

Can you discuss your confidence around achieving these synergies and provide some thoughts on how much tax synergies you might achieve from the transaction?.

Thanks, George. I think, first of all the synergies include both tax and operational benefits. I mean it's probably fair to say we've been a little bit conservative because we've just been relying on really public information and we haven't been able to do due diligence.

So we feel very confident that we can deliver those numbers but you'll notice we're probably less bullish than some of the analysts' reports that have been written previously on.

So we are pretty comfortable and that is – that's including all the regulatory aspects, tax aspects and operational aspects built into that number, the puts and takes associated with that..

Yes, maybe just to build on that, Bill and George, as you know we've done hundreds of acquisitions over the year, obviously not on this (33:55) scale. But we try to use that experience when – to come to bear in sort of calculating what we think is a sensible range for synergies (34:05)..

That's helpful.

And can you walk through your expectations for the regulatory approval process, including timing and your expectations around market share discussions?.

Again, we've taken a counsel on that. In other words, we've been in consultation for a period of time now with external counsel that specializes in that area, and we think we can achieve a satisfactory outcome. But we haven't finalized the proposal, we haven't done any fillings.

So at this point to speculate on that I think it would be pure speculation. But we do feel that based on the studies that we've done so far with external counsel that we'll achieve a satisfactory outcome..

Great.

And then last question, can you talk about how this transaction impacts your ability to continue to operate as a REIT?.

This – our – again that was one of our key pieces of analysis that we did when we looked at the acquisition is to determine our level of confidence that we could both acquire it and absorb it into our REIT structure, in other words, convert the Recall assets into a REIT.

And again, we will confirm that through the due diligence process, but we are highly confident that we can do that. So we wouldn't do it otherwise unless we could convert the Recall assets into the REIT..

Great. Thank you..

Your next question comes from the line of Andrew Steinerman with JPMorgan..

Hi, it's Andrew.

Just tell me if I missed this, again I would like to know the question asked before out of the $125 million to $140 million, how much are the potential tax savings from REIT conversion?.

I can give you a sort of approximate number, Andrew, based on our analysis so far. We think it's around $10 million, could be slightly more. But clearly that's one of the elements that we'd hope to get a better handle on through due diligence..

Okay. So you are only assuming $10 million, so that could be a conservative estimate..

Well, you have to look at the size of Recall's business in North America that is storage related, so don't forget their business is not that large in North America, it's a global business, but it's in North America where you have the tax benefits. So their tax liability in North America is not as big as you may think..

Yeah. So we don't get – there wouldn't be savings on the shredding business as an example..

Well said. So if I can get one more question. Okay. So let's assume low tax benefits, be conservative there, you're talking about still four times turn pre to post synergies. If you look at Iron Mountain's history, it's really kind of been two times to four times, so this would be towards the high end of the synergies.

And when I look at Recall's racking utilization of about 90%, that's really close to Iron Mountain's racking utilization. What other things do you know again from the public that makes you feel like you can get towards the high end of pre to post synergies, synergization multiples..

Andrew, if you – the thing that's a little bit unique about Recall, it is at the higher end, but we have achieved that before as you pointed out. And the reason why we feel that it's at the higher end and maybe it exceeds some of our best integrations is that Recall is one of the few out there that runs an international platform.

So they have a lot – if you look at their SG&A, it's very different than the SG&A of a small regional player. Because they are actually built – they are running a global company with all the costs that are associated with that, albeit they are doing at a scale that's one forth our size.

So if you look at their SG&A, I think you can get a handle on why we feel that the $125 million to $140 million is actually a conservative or – we feel very confident around that number..

Okay. That was a good reminder. Thank you..

And your next question comes from the line of Shlomo Rosenbaum with Stifel..

Hey, guys thank you for taking my questions. Bill, could you talk a little bit about the realistic timeframe – in the first year you talked about – you mentioned maybe half the synergies.

What's the realistic timeframe to kind of get the balance of the synergies? Is this something that facility consolidation really takes kind of two years to five years or how should we think of that in terms of conceptually and potentially modeling it?.

Shlomo, you've been around a long time, so you answer the question for me. But no, I think, it's a good question. So just to clarify, in year two there we think we'll be half way through the synergies. So the first year, I mean, first year we're assuming is 2016 just for people to be level set. So, year two would be 2017.

So we think 2016 is a lot of the heavy lifting in terms of the restructuring, then in 2017 is when you start – that that cost starts falling away and you start seeing the benefits split bleed through. So 2002 – I think at – year two 2017 we see about half the benefits coming through.

And exactly as you say, we'll get a better handle on it through due diligence but the rest of it comes through – a lot of it is driven by the real estate consolidation and that generally takes the timeframe you're talking about two years to five years. It depends on the nature of their leases and our leases in the areas that we're overlapping..

Okay.

And then just from a fundamental perspective, how is the volume growth in North American Records Management this quarter over the second half of last year, you guys generated positive growth, can you kind of talk about will the trend continue, was it up, down, the same?.

I'm sorry, I didn't get the question.

I heard the beginning of it you were referring back to the continued growth, the internal volume growth in North America but what was – what did you say at the end?.

Yeah. I just – did the trend – we had for years seen volumes be down, but kind of revenue be flat to up a little bit because of pricing.

The second half of last year, we saw North American volumes get to be positive, do we – in this first quarter what was the trend in North American volumes?.

Actually in the supplemental on page 10, we've broken this all the key numbers out in more detail than we've done historically.

And what you can see, if you were to strip out business acquisitions to just sort of look underlying, there was a 0.5% growth year-on-year in Q1 2015, which actually compares quite consistently with the previous three quarters.

And then if you go back further in time looking at this chart, at the beginning of 2013, you can see that to your point was when we were at zero or negative growth..

One thing I want – and this was feedback that we received from a number of analysts and investors.

So hopefully if you look in the supplemental on pages 10 and 11, I'd direct you to those, in part of the organizational shift and putting all of the developed markets under a single leader, is we've been – we've broken out and built a lot more transparency in terms of how our volume works.

And then – so hopefully you'll start seeing, you can see how that trend has been building as you say, as Rod pointed out, Q1, we maintained the same 0.5% positive volume growth as we did in Q4, just in the North American business. And you have to remember you can say those are small percentages but it's off a very big base.

So North America alone we have over 370 million cubic feet. So it's significant..

Okay.

And if I just want to look ahead a little bit into the future, in terms of the REIT structure, what happens if paper pricing kind of bounces back to what it was like three years, three and half years ago, do you have enough kind of room in the REIT structure that you're not worried about coming close to any of the – kind of the restrictions that are over there in terms of assets and income?.

I'll let Rod kind of answer it in detail, but the one thing, I think we covered this on previous calls, you need to keep in mind is that there is, at some point, actually increasing profitability on our shred helps us the way the test works because there is a back and forth. In other words, we have to get shred to a certain level of profitability.

So, having higher prices – having higher profitability in shred doesn't necessarily lead to the result that you think it does. So that's kind of at a very high level way of saying we have plenty of headroom, but, Rod, you may want to be a bit more specific..

Yes, there's actually a specific on shred, as Bill says around sort of cross subsidization between the QRS and the TRS, so that if we increase the profitability of shred, it would actually work to the advantage of some of our REIT tests.

But I think the broader point and – that you make, Shlomo, is that around just sensitivity to issues within the business and do we have enough cushion within our REITs and against the REIT test to be able to handle that. We think we do.

It's something that we're very conscious of and we analyze lots of different scenarios and sensitivities to try and ensure that that is the case..

And very specifically which is probably what's behind your question is if we look at the acquisition of Recall, we don't envision a problem of combining. Recall's business is quite a bit smaller, their strip quite a bit smaller than ours in North America. And we don't see a problem in terms of combining those two businesses..

Okay, very good. Thank you..

And your next question comes from the line of Sachin Shah with Albert Fried..

Hi, good morning. Congratulations on the Recall possible offer. I just wanted to just make sure as far as risk to transaction.

I know you're conducting due diligence, but is there anything that you expect that you may uncover or something that may not cause this deal to move forward after you completed due diligence?.

We wouldn't be making a public announcement about the deal if we thought there was a high risk item that would crater the deal. I mean clearly we have to do the due diligence. So, we haven't made a binding agreement, but we have an agreed proposal with Recall and we wouldn't do that if we expected to have a major hiccup in the process.

So, we don't see anything..

Okay.

And in the presentation, you mentioned the ratio is fixed and so in the due diligence process is there a subject for another revision or the due diligence is just confirmation of what's the fixed exchange ratio of 0.1722?.

It's fixed and it's subject to confirmatory due diligence. So, there's no – I mean there's no expectation or you'd have to renegotiate the whole term. So, it really is that we've done enough work on it that we're very comfortable that that is the right valuation. And Recall's board also feels that it's the right valuation for their shareholders.

And now the next three weeks to four weeks that we highlighted in the press release is about confirmatory due diligence..

Okay. Just one last question, if you don't mind.

On the regulatory approvals, you mentioned that you are not expecting any kind of essentially hiccups, any idea what they may be? Is it just to U.S., Australia, or is there any other jurisdictions that may be needed – major jurisdictions?.

I think you can understand at this point we're not going to comment on what the regulatory authorities in different jurisdictions may think or not think of it.

The only thing I would just repeat is that we have taken extensive counsel from external advisors or lawyers on this point and we believe that we will achieve a satisfactory outcome in those jurisdictions..

Okay. So, that's not part of the due diligence, that's already done. The due diligence is more operational..

We will also learn more about the regulatory aspects during the due diligence. Due diligence is primarily operational, but we will learn a number of things during that period which will be helpful..

Excellent. Thank you very much. Have a great day..

Thank you..

And your next question comes from the line of Han Zhang with Churchill Capital..

Hi. Good morning, guys. Thanks for taking my question.

My question is, you said you won't comment on what are the regulatory approvals you're seeking, but could you just tell me more about in which jurisdictions you are seeking those approvals, I mean U.S., Australia, but for example, is China involved?.

At this point, we don't expect an issue in China. Both of our businesses are very small in China. I mean, the Chinese government will take their own view, I'm sure. But it's – both of us have – I mean, it improves both of our position, but neither one of us are very large in the China context..

Okay.

And could you tell me how many dividends would you expect to pay before the close of the deal?.

Well, it depends on the closing of the deal. We pay quarterly. So, you can see that we expect this deal to close within 12 months. So that would be the maximum you would expect. But I mean, we've – we can't guide on how long it's going to take us to go through the various regulatory authorities to consummate the merger.

But we pay quarterly generally, right?.

Hi. This is Ramesh, Zhang's colleague.

Have you had any informal discussions with any regulators at this point in time?.

No. We haven't..

Thank you..

Thank you..

.

Well, looks like we are through the Q&A, operator.

I just want to thank you for your flexibility, and again apologies for the short notice, but I think you can imagine that given the timing of achieving a positive result on the acquisition of Recall, we felt it was important to combine that with our earnings call which was originally scheduled for Thursday.

So, again, thank you very much for your flexibility, and just to reiterate that we're very pleased in terms of our results in the first quarter, continue to show real momentum in the operating performance and improvement in the business.

And of course, we're very excited to finally end the speculation around Recall and to have agreed a proposal to acquire the company. So thank you very much and have a good day..

Thank you. And this concludes today's conference call. You may now disconnect..