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Iron Mountain: Fiscal 1Q13 Financial Results

Decline in total service revenues

(in US$ million) 1Q12  1Q13
 Revenues 746.5  747.0
 Growth    0%
 Net income (loss) 56.0 20.5

Iron Mountain Incorporated reported financial and operating results for the first quarter ended March 31, 2013.

Total revenues for the quarter were $747 million. On a constant dollar (C$) basis, total revenue growth for the first quarter was 0.5%, reflecting solid storage rental gains of 4.4%, partially offset by a decline in total service revenues.

Adjusted OIBDA for the first quarter was $227 million, up 2% from the same period in 2012. Adjusted EPS was $0.27 per share ($0.10 per share on a GAAP basis) in the current period, compared with $0.29 per share in the first quarter of 2012 ($0.35 per share on a GAAP basis).

"During the first quarter, we delivered solid operating performance driven by consistent storage rental growth," said William Meaney, Iron Mountain’s president and CEO. "Strong constant dollar storage rental growth of 4.4% reflected continued healthy revenue increases of 12% in our International business and consistent 2% gains in North America. Margin contribution from our International business continued to improve, supported by solid performance in our western European operations."

Durable growth in storage rental, driven by regulatory and compliance requirements, continues to offset expected service declines. As the company has previously noted, decreases in service revenues reflect a trend toward reduced retrieval/re-file activity and the related transportation revenues. Declines in service revenues were relatively higher in the first quarter of 2013, reflecting more difficult comparisons in international shredding and project revenues, as well as declines in destruction and termination fees. The company expects these impacts to moderate through the year.

"We feel good about the direction of our business for 2013, with storage rental growth in line with our expectations," Meaney said. "While early, we are making progress with the realignment of our sales and account management organizations, and we are beginning to see the benefits of this structure in vertical markets where our efforts are further advanced, such as in healthcare."

"In addition, we continue to see opportunities to invest to sustain the durability of our storage rental business at attractive returns. We have an active pipeline of fold-in and smaller business acquisitions in North America, and we have additional opportunities to enhance our presence in fast-growing emerging markets through investment in joint ventures and consolidation of local businesses," Meaney added.

Financial Review
Strong C$ storage rental gains for the first quarter continued to provide a solid foundation for overall financial performance and more than offset a decline in total service revenues. Global storage rental internal growth was 3% on a year-over-year basis, driven by 5% internal growth in international and 2% in North America. Global records management volume growth was 2.8% on a year-over-year basis, driven by 13.5% growth in the international business (including the second quarter 2012 Grupo Store acquisition). North America records management net pricing increased approximately 2% in the quarter. Solid growth in Document Management Solutions helped to offset the core service revenue declines in developed markets and lower shredding services revenue in the International Business segment. Paper pricing had a minimal impact on results, as the average price during the first quarter was fairly consistent with the same prior year period. Foreign currency rate changes had a modest negative impact on revenue growth rates of approximately 0.4% during the quarter.

Adjusted OIBDA margins for the first quarter were up 70 basis points to 30.5% compared with the same prior year period, primarily driven by continued International profit gains, overhead cost controls in North America and lower corporate expenses. The decrease in selling, general and administrative expenses, excluding REIT Costs, was due primarily to continued margin improvement initiatives in the International business segment, lower stock-based compensation expense and lower account management expense in North America. The company maintained solid Adjusted OIBDA margins of approximately 41% in North America and drove further profitability improvement in its International Business segment, remaining on track to achieve 25% International Adjusted OIBDA margins by the end of 2013.

The decline in Adjusted EPS for the quarter compared to the same prior year period was due primarily to higher shares outstanding as a result of the 17 million new shares issued in connection with the special dividend paid in November 2012 and higher income tax expense.

Free Cash Flow (FCF) for the first quarter of 2013, before acquisitions, real estate and capital expenditures related to our proposed conversion to a real estate investment trust, or REIT, was $50 million, compared with $24 million for the same prior year period. Capital expenditures totaled $45 million (excluding $20 million of acquired real estate and $6 million of REIT-related capital expenditures), or 6.0% of revenues for the quarter. FCF and capital expenditures are best evaluated on a full-year basis because capital expenditures do not occur evenly throughout the year. The company’s liquidity position remains strong at $842 million, and its consolidated leverage ratio of net debt to EBITDA (as defined in its credit agreement) was 3.95x at quarter end, within its target range of 3.0x to 4.0x.

Dividends
On March 14, 2013, Iron Mountain’s board of directors declared a quarterly cash dividend of $0.27 per share for stockholders of record as of March 25, 2013, which was paid on April 15, 2013.

Financial Performance Outlook
Today the company reiterated its 2013 full-year guidance. This guidance is based on current expectations and does not include the potential impact of any future acquisitions or divestitures (dollars in millions, except per share data): Revenues from $3,020 to $3,100 (0% – 3%) (includes (1)% – 2% internal revenue growth.)

To read the earnings call transcript       

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