Iron Mountain Fiscal 2Q10 Financial Results

Iron Mountain Incorporated reported its financial results for the second quarter ended June 30, 2010.

The Company announced revenue, Adjusted OIBDA and operating income growth of 5%, 8% and 9%, respectively, compared to the second quarter of 2009. These results were supported by continued benefits from operational improvement initiatives that drove substantial gross margin gains. Solid operating profit gains and controlled capital expenditures drove $141 million of free cash flow before acquisitions and discretionary investments (FCF) on a year-to-date basis. The Company maintained its full-year 2010 outlook for profit growth and adjusted its revenue outlook to reflect the impacts of recent foreign currency exchange rate fluctuations and consistent internal growth trends.

"Iron Mountain continued to demonstrate the attractiveness of its business model by delivering strong profit and cash flow performance despite macroeconomic factors that are constraining top line growth," said Bob Brennan, president and CEO. "Operationally, the business is running very well, generating the necessary resources to invest in our growth agenda and positioning the Company well to deliver considerable incremental value when the economy improves."

Key Financial Highlights – Q2 2010
Iron Mountain reported total consolidated revenues of $780 million for the second quarter, a 5% increase over the prior year period, supported by 2% total internal revenue growth. Storage revenue internal growth was consistent at 3%, with gains moderated by economic factors, which have constrained storage volume growth in recent quarters. Total service revenues grew 1%, reflecting solid growth in complementary service revenues supported by recent increases in recycled paper prices. Core service revenue growth was (1)% as a result of lower activity levels caused by the weak economy. The year-over-year strengthening of major foreign currencies against the U.S. dollar increased the revenue growth rates by approximately 2% compared to the second quarter of 2009. This increase was less than originally forecasted due to the recent strengthening of the U.S. dollar.

The Company reported gross profits (excluding depreciation and amortization) of $471 million with its gross profit margin improving from 58.1% in the second quarter of 2009 to 60.4% in the second quarter of 2010. Sustainable benefits from productivity improvements and pricing gains, particularly in the Company’s North American and International Physical Business segments drove higher storage and service gross margins.

Adjusted operating income before depreciation and amortization (Adjusted OIBDA) for the quarter was $236 million, up 8% on a reported basis compared to the second quarter of 2009. Excluding the impacts of foreign currency rate changes, second quarter Adjusted OIBDA grew 7%. Selling, general and administrative costs in the second quarter were up 9% compared to the prior year period. Excluding the impacts of the foreign currency rate changes, these overhead costs increased 8%, driven by business growth, the acquisition of Mimosa Systems, Inc. in February 2010 and investments against growth initiatives. These increases were partially offset by lower incentive compensation expense.

Operating income for the second quarter of 2010 was $150 million, up 9% on a reported basis compared to the same period in 2009 reflecting the Adjusted OIBDA gains described above.

Net income attributable to Iron Mountain Incorporated for the quarter was $41 million, or $0.20 per diluted share, compared to $88 million, or $0.43 per diluted share, for the second quarter of 2009. The decreased reported earnings were impacted by a higher effective tax rate, reflecting the impact of discrete tax items and a $22 million decrease in Other Income due to foreign currency rate changes within the quarter, which more than offset the higher operating income in the second quarter of 2010 compared to the same prior year period. The structural tax rate for the second quarter was 39%. The impact of discrete tax items, primarily related to foreign currency rate changes, added another 15 percentage points to the effective tax rate in the quarter. Adjusted EPS for the quarter was $0.28 per diluted share, an increase of 13% compared to the same prior year period.

Net income for the second quarter of 2010 included $4 million of Other Expense compared to $18 million of Other Income included in net income for the second quarter of 2009. Both the $4 million of Other Expense and $18 million of Other Income reported in the second quarter of 2010 and 2009, respectively, were related to foreign currency rate changes.

Capital expenditures excluding real estate incurred in the first six-months of 2010 totaled $103 million, or 6.6% of revenues. The Company is sustaining capital efficiency gains reflecting ongoing control over spending levels and benefits from moderating growth rates.

The Company’s FCF for the six months ended June 30, 2010 was $141 million compared to $121 million for the six months ended June 30, 2009. Higher operating income in the first half of 2010 compared to the same prior year period drove the year-over-year increase in FCF. The Company’s liquidity position remains strong. As of June 30, 2010, the Company had nearly $1.1 billion of liquidity, including cash of $340 million and availability under its revolving credit facility of $750 million. The Company’s consolidated leverage ratio of net debt to EBITDA (as defined by its senior credit facility) was 3.1 times at June 30, 2010. This ratio is well below the covenant limitation of 5.5 times included in its senior credit facility.

Dividends and Share Repurchases
On June 4, 2010, the Company announced that its board of directors declared a quarterly dividend of $0.0625 per share for shareholders of record as of June 25, 2010, which was paid on July 15, 2010. For the period April 1, 2010 to June 30, 2010, the Company repurchased 1.8 million shares of its common stock for a total aggregate purchase price of approximately $44 million under its $150 million share repurchase program. As of June 30, 2010, the Company has repurchased an aggregate of 2.2 million shares for a total cost of approximately $54 million leaving approximately $96 million in aggregate purchase price available under the share repurchase program.

Acquisitions
During the second quarter, as part of Iron Mountain’s efforts to expand its European presence, the Company acquired full ownership of its existing minority-owned business in Greece. Iron Mountain’s acquisition strategy focuses on acquiring attractive businesses that provide a solid platform for future growth, expand the Company’s geographic footprint and service offerings and enhance its existing operations.

Financial Performance Outlook
For 2010, the Company is maintaining its 2010 profit growth outlook. Expectations for full year reported Adjusted OIBDA growth of 7% to 11% remain unchanged as do the expectations for double-digit Adjusted EPS growth. With respect to revenues, the Company adjusted its full year guidance to reflect foreign currency rate changes and consistent internal growth trends. The recent year-over-year strengthening of the U.S. dollar against the major currencies is expected to decrease reported results by approximately 1% in the second half of 2010. Macroeconomic trends have constrained top line growth during the first half of 2010. It is expected that these trends will continue for the balance of the year constraining internal revenue growth below the improved internal growth range of 4% to 6% originally targeted for 2010. The Company now expects reported revenue growth to be in the range of 4% to 5% supported by internal growth of approximately 3%, consistent with recent trends, with acquisition revenues and the impact of year-over-year foreign currency rate changes adding between 1% and 2% to growth based on recent exchange rates. The Company is lowering its expected capital expenditures for the year to approximately $280 million reflecting refinements to its capital spending plans. The calculation of Adjusted EPS assumes a 39% structural tax rate and 204 million shares outstanding.

This guidance is based on current expectations and does not include the potential impact of any future acquisitions (dollars in millions):