Iron Mountain: Fiscal 2Q13 Financial Results

Iron Mountain Incorporated reported financial and operating results for the second quarter ended June 30, 2013.

Total reported revenues were $755 million, compared with $752 million in 2012. On a constant dollar (C$) basis, total revenue growth was 1.3%, reflecting storage rental revenue gains of 3.0%, partially offset by a modest decline in total service revenues. Adjusted OIBDA was $233 million, compared with $239 million in 2012. Adjusted EPS was $0.29 per share ($0.14 per share on a GAAP basis), compared with $0.37 per share ($0.24 per share on a GAAP basis), in 2012.

For the year to date, total reported revenues and adjusted OIBDA were consistent with the same period in 2012 at approximately $1.5 billion and $460 million, respectively. Adjusted EPS was $0.56 per share ($0.24 per share on a GAAP basis), compared with $0.66 per share ($0.60 per share on a GAAP basis), for the same period in 2012.

Second quarter and year-to-date reported adjusted OIBDA were reduced by approximately $5 million due to the effect of an increase in legal accruals which impacted second quarter and year-to-date adjusted EPS by $0.02 per share.

"Our financial and operating results for the second quarter reflect our continued focus on sustaining the durability of our storage rental business, enhancing the profitability of our International operations and supporting future growth through attractive acquisitions," said William Meaney, Iron Mountain’s president and CEO. "During the quarter, we achieved solid constant dollar storage rental growth of 3.0%, reflecting strong increases of 6.6% in our international business and consistent 1.8% growth in North America."

"In addition, we continued to make good progress toward our goal, established two years ago, to increase adjusted OIBDA margins in our international business to 25% by the end of 2013, achieving 24.6% for the first half of the year. This progress reflects strong contribution from our United Kingdom and western European businesses and improved efficiency from our business in emerging markets," Meaney said.

"Also during the quarter, we closed on three acquisitions that expanded our presence in the United States, Brazil and France, and we have a solid pipeline of attractive acquisitions in both our developed and emerging markets," said Meaney. "Overall, we are pleased with the performance of our business year-to-date, which is in line with our expectations, and we will continue to pursue investment opportunities that sustain our durable core business and generate attractive returns."

Financial Review
Consistent storage rental revenue growth, supported by regulatory and compliance requirements, drove solid performance in the quarter and continued to offset expected service declines. Global storage rental revenue growth was 3.0% C$ for the quarter, driven by 5.6% internal growth in the international business, 1.2% internal growth in North America and benefits from acquisitions.

Global records management volume grew by 1.4% on a year-over-year basis, supported by strong 6.7% volume growth in the international business, primarily driven by solid increases from emerging markets in central Europe and recently completed acquisitions. Records management volume growth rates in the international business remained strong, but moderated in the second quarter, reflecting reduced growth rate benefit from the acquisition of Grupo Store in Brazil that was completed during the second quarter of 2012. North America records management net pricing increased by approximately 1.2% in the second quarter, while foreign currency rate changes in the second quarter reduced reported revenue growth rates by approximately 0.5%.

As the company has previously noted, service revenue declines reflect a trend toward reduced retrieval/re-file activity and related transportation revenues. As anticipated, declines in service revenues moderated during the second quarter to (1.1)% C$ due to strong growth in Document Management Services, increased special records management project volume and more favorable year-over-year comparisons, offset by a decrease in activity-based services. Shredding volumes increased in North America, but were offset by a decrease in recycled paper pricing when compared with prior year averages.

Adjusted OIBDA margins for the second quarter decreased by 90 basis points compared with the second quarter of 2012, primarily driven by the $5 million in legal accruals noted earlier (a 60 basis point impact) and service revenue declines. Year-to-date adjusted OIBDA margins in North America remained solid at 41.7%, with the International business achieving 24.6%. Excluding the legal accrual impacts, year-to-date adjusted OIBDA margins improved by 20 basis points.

The decline in adjusted EPS for the quarter compared to the same prior-year period was due primarily to an additional 20 million fully diluted weighted average shares outstanding, including the 17 million new shares issued in connection with the special dividend paid in November 2012, higher interest expense and the legal accrual noted earlier. These impacts more than offset lower income tax expense in the period.

Free cash flow for the first half of 2013 before acquisitions, real estate and capital expenditures, operating costs and cash taxes related to the proposed conversion to a real estate investment trust, or REIT, was $154 million, compared with $117 million for the same period in 2012. Capital expenditures for the first half of 2013 (excluding $28 million of real estate and $14 million of REIT-related capital expenditures), totaled $86 million, or 5.7% of revenues. The company’s liquidity position remains strong at $794 million and its consolidated leverage ratio of net debt to EBITDA (as defined by its senior credit facility) was 4.1x at quarter end.

Dividends
On June 6, 2013, Iron Mountain’s board of directors declared a quarterly cash dividend of $0.27 per share for stockholders of record as of June 25, 2013, which was paid on July 15, 2013. 

To read the earnings call transcript