Iron Mountain: Fiscal 4Q12 Financial Results

Iron Mountain Incorporated reported financial and operating results for the fourth quarter and year ended December 31, 2012.

Total revenues for the quarter were $758 million, up 2.2% compared with last year, driven by solid storage rental growth. On a constant dollar (C$) basis, total revenue growth for the fourth quarter was 2.5%, reflecting solid storage rental gains of 4.8%, offset by a modest 0.5% decline in total service revenues. Adjusted OIBDA for the fourth quarter was $207 million and Adjusted EPS was $0.20 per share ($0.15 per share on a GAAP basis).

For the full-year, revenues were $3.0 billion, Adjusted OIBDA was $912 million and Adjusted EPS was $1.21 per share ($1.05 per share on a GAAP basis), all within the company’s full-year 2012 guidance.

"Our solid operating performance in the fourth quarter concludes a year of consistent growth in our storage rental business which more than offset moderate declines in core services," said William Meaney, Iron Mountain’s president and CEO. "Strong constant dollar storage rental growth of 5% in the fourth quarter reflects healthy increases of more than 12% in our international business, driven by robust organic growth and acquisitions, and more than 2% in our North American business."

"Looking forward, we are well positioned to deliver against our financial objectives in 2013 and will continue to pursue strategies to sustain the durability of our storage rental business. We have opportunities to invest in fast-growing emerging markets through an approach that is consistent with our focus on attractive returns. In developed markets, we are tapping into the unvended segment and are beginning to see results from the refocusing of our sales and account management teams into vertical market segments. We will continue to apply a strict capital allocation approach to our business," Meaney added.

Financial Review
Total revenue performance for the quarter was supported by strong storage rental gains, which continued to provide a solid foundation for overall financial performance and offset a modest decline in total service revenues. A decrease in activity-based service revenues and lower recycled paper revenues drove the decline in service revenues; however, the negative impact of paper prices was much less than earlier in 2012, as the steep decline in pricing began in the fourth quarter of 2011. Strong growth in Document Management Solutions and storage-related services in Latin America helped to offset the decline in developed market service revenues. Foreign currency rate changes had a minimal impact on revenue growth rates during the quarter. Global storage volume growth was 1.8% on a year-over-year basis, driven by a 9% increase in international storage rental volumes and relatively flat North American volumes. Net pricing increased approximately 2% in the quarter.

Adjusted OIBDA margins for the fourth quarter were down 480 basis points (a decline of 120 basis points for the full-year), primarily driven by service revenue declines, costs associated with accelerated facility closures in the United Kingdom and the southeast United States, international acquisitions (primarily the Grupo Store acquisition in Brazil), and increased selling, general and administrative (SG&A) expenses. The increase in SG&A costs was due primarily to the realignment of the sales and account management organizations to enhance focus on vertical market opportunities, changes to equity-based incentive plans and year-end adjustments to accruals. Lower recycled paper pricing negatively impacted Adjusted OIBDA margins by approximately 35 basis points compared with the fourth quarter of 2011. The company remains on track toward our goal of achieving 25% international margins by the end of 2013. Excluding the impact of the 2012 acquisitions and accelerated closure of the U.K. facility, international margins improved by roughly 40 basis points in the fourth quarter and 150 basis points for the full year.

The decline in Adjusted EPS for the quarter compared to the same prior year period was due primarily to the impacts to Adjusted OIBDA noted above and higher interest expense associated with additional borrowings to support stockholder payout programs and costs related to the company’s proposed conversion to a real estate investment trust, or REIT. These impacts more than offset lower depreciation and amortization expense and lower income tax expense.

Free Cash Flow (FCF) for 2012 before acquisitions, real estate and capital expenditures related to our proposed conversion to a REIT was $347 million, slightly above the mid-point of the company’s guidance of $320 million to $360 million. Capital expenditures totaled $182 million (excluding $54 million of acquired real estate and $13 million of REIT-related capital expenditures), or 6.1% of revenues for the full-year. The company’s liquidity position remains strong at $911 million and its consolidated leverage ratio of net debt to EBITDA (as defined by its senior credit facility) was 3.9x at quarter end, within its target range of 3x to 4x.

Dividends
On November 21, 2012, the company issued 17.0 million new shares of its common stock in connection with the payment of the previously announced special dividend of $700 million, or approximately $4.06 per share (the "Special Dividend"). The Special Dividend, which represents a significant portion of the distribution that would eventually be required should the company successfully convert to a REIT, was paid 80% in stock and 20% in cash. Additionally, Iron Mountain’s board of directors declared a quarterly dividend of $0.27 per share for stockholders of record as of December 26, 2012, which was paid on January 17, 2013. As a result of the additional shares issued in connection with the Special Dividend, this quarterly dividend represented an increase in the aggregate quarterly dividend paid of nearly 10% over prior levels.

Financial Performance Outlook
The company reiterated its 2013 full-year guidance for revenue, Adjusted OIBDA and FCF originally issued at its Investor Day event in October 2012. We have increased our capital expenditure outlook to approximately $290 million, including approximately $75 million for real estate. The increase in the capital spending outlook incorporates approximately $22 million associated with the relocation of our Boston headquarters announced in the fourth quarter of 2012 and approximately $11 million for the acquisition of a previously leased facility in Dallas, Texas in the first quarter of 2013. The FCF outlook is unchanged from November as the increased outlook for capital expenditures is being offset by lower cash taxes due to the timing of payments. Also, we have updated our Adjusted EPS outlook to reflect our expectations for higher depreciation and interest expense and the increase in shares outstanding following the Special Dividend paid in November 2012. Adjusted EPS for 2013 is now expected to be in the range of $1.13 per share to $1.24 per share assuming a tax rate of approximately 39% and 190 million weighted average shares outstanding.