Iron Mountain: Fiscal 3Q13 Financial Results

Iron Mountain Incorporated reported financial and operating results for the third quarter and year to date ended September 30, 2013, compared with the same period in 2012.

Total reported revenues for the third quarter of 2013 were $756 million, compared with $748 million in 2012. On a constant dollar (C$) basis, total revenue growth was 2.2%, reflecting storage rental revenue gains of 3.6% and service revenue growth of 0.2%. Adjusted OIBDA was $240 million, compared with $244 million in 2012. Adjusted EPS was $0.31 per share ($0.03 per share on a GAAP basis), compared with $0.34 per share ($0.31 per share on a GAAP basis), in 2012.

For the year to date, total reported revenues were $2,257 million compared with $2,247 million in 2012. Adjusted OIBDA was $701 million for the year to date compared with $706 million in 2012. Adjusted EPS was $0.88 per share ($0.27 per share on a GAAP basis), compared with $0.99 per share ($0.91 per share on a GAAP basis), in 2012.

Third quarter and year-to-date Adjusted OIBDA were reduced by approximately $5 million related to charges to realign the organization, with an additional $25 million in charges expected in the fourth quarter of 2013. This realignment will help advance the company’s growth strategy and reduce operating costs to mitigate anticipated decreases in service activity (see p. 3 for additional information related to updated guidance for the remainder of 2013). Third quarter and year-to-date 2013 Other Income (Expense) includes $44 million of charges related to the early extinguishment of debt. The effect of these charges, offset by the related tax impact, on third quarter and year-to-date GAAP EPS was $0.15 per share.

“During the third quarter, we continued to deliver on our strategy by achieving solid storage rental growth, improving international margins while integrating acquisitions in new emerging markets, and enhancing future growth opportunities through attractive acquisitions and investment in adjacent businesses,” said William Meaney, Iron Mountain’s president and CEO. “As we work to advance our strategic plan, we will incur some restructuring costs, but we believe these changes will build on our core organizational strengths and enhance our ability to invest for long-term growth and sustainable returns.”

“Overall, our underlying performance remains consistent with recent trends. Third quarter constant dollar storage rental growth of 3.6% reflects strong increases of 9.5% in our International business and consistent 1.6% growth in North America,” Meaney added.

On October 17, 2013, the company closed on the $191 million acquisition of Cornerstone Records Management, a provider of records storage and data protection services to small and mid-sized businesses in the Mid-Atlantic and Northeast U.S. regions as well as in Southern California, Denver and Houston. The transaction follows the recent acquisitions of the records management and data protection businesses of G4S in Colombia and File Service in Peru. In total, the company has completed acquisitions valued at approximately $320 million in 2013, furthering its objectives to sustain the durability of the business in high-return, mature markets and establish leadership in high-growth emerging markets.

In support of the company’s strategy to identify, test and scale emerging businesses, the company broke ground on its first regional data center in Northborough, Massachusetts in September 2013. The development of this new facility follows Iron Mountain’s entry into the multi-tenant data center market earlier this year when it began leasing wholesale and retail colocation space in its unique underground facility in western Pennsylvania.

Operations Review
Consistent storage rental revenue growth of 3.6% C$ for the quarter drove solid performance and continued to offset flat service revenue. Internal storage rental growth for the quarter was 6.5% in the international business and 0.9% in North America.

Third quarter global records management volume grew by 3.2% on a year-over-year basis, supported by strong 11.7% volume growth in the International business, primarily driven by solid increases from emerging markets in central Europe and Latin America, and recently completed acquisitions. In North America, records management net pricing increased by approximately 1.3% in the third quarter compared with the prior-year period in 2012, augmenting modest volume gains. Foreign currency rate changes in the third quarter reduced reported revenue growth rates by approximately 1.3%.

As the company has previously noted, service revenues reflect a trend toward reduced retrieval/re-file activity and related transportation revenues. Third quarter service revenue growth was roughly flat at 0.2% C$ compared with the prior-year period. These results reflect a 1.3% increase in core service revenue driven by recent acquisitions and new incoming volume with related transportation fees, offset by a 2.9% decrease in complementary services due to delayed timing with some Document Management Services special projects and lower recycled paper pricing when compared with prior year averages.

Financial Review
Adjusted OIBDA margins for the third quarter decreased by 80 basis points to 31.8%, compared with the third quarter of 2012, primarily due to the recognition of the $5 million of restructuring related charges noted earlier. Excluding these charges, Adjusted OIBDA was flat compared with the third quarter of 2012. Year-to-date Adjusted OIBDA margins in North America remained solid at 41.7%, with the International business achieving 25.2%.

The decline in Adjusted EPS for the quarter compared to the same prior-year period was due primarily to an additional 19 million fully diluted weighted average shares outstanding, including the 17 million new shares issued in connection with the special dividend paid in November 2012, and higher interest expense. These impacts more than offset lower income tax expense in the period.

Free Cash Flow (FCF) for the year to date in 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 $265 million, compared with $209 million for the same period in 2012. Capital expenditures for the year to date in 2013 (excluding $39 million of real estate and $20 million of REIT-related capital expenditures), totaled $124 million, or 5.5% of revenues. The company’s liquidity position remains strong with $1.1 billion of total availability. The company amended its credit facility in August 2013, and the net total lease adjusted leverage ratio was 4.9x at quarter end, as compared to a maximum allowable ratio of 6.5x.

The calculation for this ratio is net debt including the capitalized value of lease obligations divided by EBITDAR as defined by the senior credit facility, whereas the company’s previous consolidated leverage ratio did not adjust for leases. The company’s leverage ratio under the previous calculation method was 4.2x for the third quarter of 2013.

Dividends
On September 11, 2013, the board of directors declared a quarterly cash dividend of $0.27 per share for stockholders of record as of September 25, 2013, which was paid on October 15, 2013.