Iron Mountain: Fiscal 1Q12 Financial Results

Iron Mountain Incorporated announced its financial results for the first quarter ended March 31, 2012.

The company reported operating results for the quarter in line with expectations, including total revenues of $746 million and Adjusted OIBDA of $221 million.

Adjusted EPS for the quarter was $0.29 per share ($0.35 per share on a reported basis). Continued strong results in the International Business segment, including constant currency revenue growth of 5% and Adjusted OIBDA growth of 15%, were a key driver of the overall financial performance in the quarter.

In April 2012, the company expanded its operations in the Brazilian market with the acquisition of Sao Paolo-based Grupo Store. It is reiterating its guidance for full-year 2012 and adding the impact of the Brazilian acquisition to this outlook.

"2012 is off to a good start supported by continued solid storage revenue growth," said Richard Reese, Iron Mountain’s chairman and CEO. "North America performed as planned, sustaining high returns and our overall financial performance was again highlighted by strong results in our International business. We drove higher Adjusted OIBDA margins in that segment, supported by strong gains in Latin America and Western European markets. Consistent with our strategy to attain market leadership in high-growth emerging markets, we acquired Store, a leading records management business in Brazil. This is a great business in an important market that will help drive growth and returns in our international business."

First quarter 2012 results met expectations as the underlying business trends remained consistent. Revenue for the quarter was $746 million, a 1% increase (constant currency) compared to the same prior year period. Storage growth, a key driver of revenue performance, was sustained at 3% on a constant currency basis, supported by strong performance in our International Business segment and consistent volume and price trends in North America. On the service side, the company continued to see strong growth in our hybrid services with additional growth coming from increased project revenues. Activity-based services, particularly in North America, declined moderately, as expected. Commodity-based revenues also impacted total revenue performance as a 31% year-over-year decline in average recycled paper prices in the first quarter of 2012 more than offset increased revenues from fuel surcharges. Unfavorable foreign currency rate changes reduced reported revenues by approximately 1%. Our Adjusted OIBDA margin increased 40 basis points in the first quarter of 2012 compared to the same prior year period, driven by profit gains in our International Business segment.

Three-year Strategic Plan Update
In April 2011, we announced a new three-year strategic plan. The plan contained three key areas of operating focus:

• sustain cash flows and leadership in the North American Business segment,
• drive substantial improvements in our attractive, growing international portfolio and
• focus on our core physical business.

The company continue to advance its strategic plan and achieve key milestones, including driving higher returns in its International Business segment, establishing a leadership position in an emerging market (Brazil) and completing the first $1.2 billion phase of our $2.2 billion stockholder payout commitment. The International Business segment reported strong constant currency revenue growth rates of 5% for total revenue and 7% for storage revenue compared to the first quarter of 2011. Adjusted OIBDA increased 15% (constant currency) in this segment, keeping us on track to achieve our goal of 700 basis points of margin expansion by the end of 2013.

Investing in high-growth, high-potential markets such as Brazil is key to our strategy for substantial improvement in our attractive international portfolio. The recently completed acquisition of Sao Paolo-based Store is consistent with that strategy and establishes us as a leading records management company in this international market. Strong revenue growth and expected post-integration margin expansion will help drive returns in the International Business segment beyond this year.

Financial Review Q1/2012
Iron Mountain reported revenues of $746 million in the first quarter of 2012, flat compared to the same prior year period. Constant currency revenue growth was 1%. Unfavorable foreign currency rate changes reduced reported revenues by approximately 1%. Consistent storage revenue growth was driven by sustained 2% and 7% constant currency growth in the North American and International Business segments, respectively. Global records management net volumes increased by more than 1% over prior year levels, in line with recent quarterly performance. Service revenue growth was (2)% in the first quarter of 2012 on a constant currency basis. Strong hybrid revenue performance and increased revenues from projects were more than offset by expected declines in activity-based core service revenues, primarily in North America, consistent with prior quarters, and lower recycled paper prices. The decrease in paper prices drove a $5 million reduction in revenues and Adjusted OIBDA.

Gross profit was $431 million, or 57.8% of revenues, for the first quarter of 2012 compared to $430 million, or 57.6% of revenues, for the same prior year period. Storage gross margins improved by 240 basis points year-over-year due primarily to lower occupancy costs. Service gross margins were down year-over-year due to decreased recycled paper revenues, the reclassification of certain overhead expenses to cost of sales, as previously disclosed, and the growth of lower margin businesses, including our hybrid services. Adjusted OIBDA was $221 million for the first quarter of 2012, or 29.5% of revenues. Strong profit growth in International Business segment was a key driver of overall Adjusted OIBDA margin performance.

Overhead cost control, including benefits from international cost improvement initiatives, and the reclassification of certain overhead expenses to cost of sales, drove a 1% decrease in selling, general and administrative costs compared to the first quarter of 2011. Included in overhead expense is approximately $2 million related to the work of the special committee of the board of directors formed to evaluate ways to maximize value through alternative financing, capital and tax strategies-including the evaluation of a possible conversion to a real estate investment trust.

Adjusted OIBDA, Adjusted EPS and FCF are non-GAAP financial measures. Please see Appendix B of this press release for definitions of these terms and a reconciliation of each non-GAAP measure to its most comparable GAAP measure.

Income from continuing operations was $61 million for the quarter, or $0.35 per diluted share, compared to $81 million, or $0.40 per diluted share, for the first quarter of 2011. The decrease was primarily due to higher interest expense related to higher debt levels in support of our stockholder payout program and a higher effective tax rate.

The structural tax rate for the first quarter was 39%, as expected. Including the impact of discrete tax items, primarily related to foreign exchange rate changes, the effective tax rate for the quarter was approximately 29%. Adjusted EPS for the first quarter of 2012 was $0.29 per diluted share, compared to $0.28 for the prior year period. The per share benefits of the lower shares outstanding in the first quarter of 2012 compared to the prior year period was offset by increased interest expense.

Capital expenditures excluding real estate in the first quarter of 2012 totaled $32 million, or 4.3% of revenues. Historically, capital spending is lower in the beginning of the year and increases over the course of the full year. We are currently spending to our plan and expect to meet our full-year targets as discussed below. We spent $1 million on real estate during the first quarter of 2012.

The company’s FCF for the quarter ended March 31, 2012 was $23 million compared to $58 million for the quarter ended March 31, 2011, primarily reflecting lower income from continuing operations and higher accrued incentive compensation payouts compared to lower prior year levels. As of March 31, 2012, the company had $707 million of liquidity, including cash of $178 million and availability under its revolving credit facility of $529 million.

The company’s consolidated leverage ratio of net debt to EBITDA (as defined by its senior credit facility) was 3.5x at March 31, 2012, at the midpoint of our target 3x to 4x leverage range. This ratio is below the covenant limitation of 5.5x included in our senior credit facility.

Acquisitions
In April 2012, the company acquired Store, an information management business based in Sao Paolo, Brazil, for approximately $80 million in cash.

Dividends and Share Repurchases
On March 8, 2012, the board of directors declared a quarterly dividend of $0.25 per share for stockholders of record as of March 23, 2012, which was paid on April 13, 2012. During the first quarter of 2012, the company repurchased 1.1 million of its common shares for an aggregate purchase price of $35 million. As of March 31, 2012, the company had repurchased a total of 37.7 million of its common shares for a total cost of approximately $1.1 billion since it began its share repurchase program in March 2010. As of March 31, 2012, there was approximately $66 million remaining under the existing authorization for future share repurchases.

As part of its three-year strategic plan, the company announced its intention to return $2.2 billion in cash to stockholders by the end of 2013, with $1.2 billion being paid out by May 2012. Through March 31, 2012, the company has returned $1.1 billion to stockholders against these commitments, including $0.1 billion in ordinary dividends and $1.0 billion in share repurchases. The company completed the first $1.2 billion phase of its payout commitment with its regular quarterly dividend paid in April 2012.

Financial Performance Outlook
The company is reiterating its full-year 2012 financial guidance and adding the impact of the Store acquisition in Brazil. It is planning for consistent revenue growth trends, excluding impacts from recent declines in recycled paper prices. Supported by consistent storage internal growth of approximately 3%, it is expecting underlying internal growth to be between 1% and 3%, consistent with 2011 internal growth of 2%. A 31% decline in paper prices compared to the average for 2011 is projected to reduce our internal growth rates by approximately 2% to a range of (1)% to 2%. Moderate declines in North American core service activities and lower paper prices will constrain service revenue growth and partially offset storage revenue gains. At recent rates, foreign currency exchange rates are expected to decrease reported revenue growth by approximately 1%. Our outlook for constant currency Adjusted OIBDA growth (excluding the impact of lower paper prices) is between 1% and 5%. Lower paper prices are expected to have a (5)% impact on Adjusted OIBDA growth. We expect this decline will be partially offset by continued Adjusted OIBDA margin expansion in our International Business segment and sustained high returns in North America. As a result of the Store acquisition, we are adding $25 million to our revenue outlook and $5 million to our capital spending outlook. There will be no impact on Adjusted OIBDA as operating profits will be offset by integration expenses in 2012.

Adjusted EPS for 2012 is expected to be in the range of $1.20 to $1.36. The per share benefit of fewer shares outstanding in 2012 will be offset by lower Adjusted OIBDA as described above and higher interest expense due to increased leverage in support of our stockholder payout program. The calculation of Adjusted EPS assumes a 39% structural tax rate and 172 million shares outstanding. The company expects capital expenditures for the year to be approximately $220 million, including an estimated $25 million for real estate. As a percent of revenues, capital expenditures excluding real estate are expected to be slightly lower than 2011. Our outlook is for FCF to be in the range of $320 million to $360 million. Lower Adjusted OIBDA, higher interest and tax payments and the impact of high year-end capital accruals will constrain FCF in 2012. The increase in cash tax payments is due primarily to changes in the tax law.