Iron Mountain: Fiscal 2Q08 Financial Results

Iron Mountain Incorporated announced its financial results for the quarter ended June 30, 2008, reporting strong revenue and operating income before depreciation and amortization (OIBDA) growth and earnings of $0.18 per diluted share.

Highlights:

• Revenue and OIBDA up 15% for Q2 driven by solid performance across business segments
• Operating income increased 11% to $124 million; net income $0.18 per diluted share
• Company announces positive revisions to full year guidance based on solid first half performance

Iron Mountain posted strong year-over-year revenue growth of 15% in the second quarter supported by internal growth of 9%, with acquisitions and favorable foreign currency changes contributing approximately 6% to total growth. The Company drove strong revenue gains across its North American Physical, International Physical and Worldwide Digital business segments. Total revenue growth was highlighted by continued strength in service revenue growth, supported by international gains and strong performance in the digital business. OIBDA of $197 million for the quarter exceeded the Company’s forecasted range reflecting benefits from strong revenue growth and a 17% year-over-year increase in gross profit. Net income for the quarter was $36 million, or $0.18 per diluted share, and capital expenditures were in line with Company expectations for the quarter.

"We are pleased with our strong second quarter results and solid first half performance. We’re driving solid growth across our business, reflecting our team’s focus on disciplined execution in servicing our customers," said Bob Brennan, President and CEO. "We continue to advance our growth strategy, reflected in solid growth in service revenues, expansion of our international business and strong performance in our developing digital business."

Key Financial Highlights – Q2 2008
Iron Mountain’s total consolidated revenues for the quarter grew 15% over the prior year period to $769 million driven by solid internal growth of 9% and augmented by several acquisitions completed in 2007, most notably ArchivesOne, Inc., RMS Services – USA, Inc. and Stratify, Inc. Storage internal growth of 8% was as expected. Core service internal revenue growth of 9% was supported by continued strength in shredding services and strong performance in the physical data protection business. Complementary service revenues posted 9% internal growth highlighted by strength in digital services, physical data protection and recycled paper revenues. See Appendix A at the end of this press release for a presentation of Selected Financial Data.

The Company posted a 17% increase in gross profits for the quarter driven primarily by strong revenue growth combined with real estate and productivity gains. Gross profit margin improved from 53.9% in the second quarter of 2007 to 54.9% in the second quarter of 2008 due to higher storage gross margins, increased recycled paper revenues and strength in the digital service businesses. These benefits more than offset the impact of the shift in revenue mix, as labor and transportation intensive services such as secure shredding and Document Management Solutions (DMS) grew faster than storage. OIBDA for the quarter grew 15% over the prior year period to $197 million, reflecting the Company’s revenue performance and gross margin gains. Selling, general and administrative costs increased 20% in the quarter, ahead of revenue gains, reflecting impacts from integration of recent acquisitions and increased investments in security, new products and infrastructure enhancements initiated in 2007. The impact of these investments is expected to moderate later this year. See Appendix B at the end of this press release for a discussion of OIBDA and the required reconciliation to the appropriate GAAP measures.

Operating income for the second quarter of 2008 was $124 million, up 11% compared to the same period in 2007, as OIBDA gains were partially offset by increased depreciation and amortization expense, driven primarily by higher levels of capital expenditures in 2007 and acquisitions. Net income for the quarter was $36 million, or $0.18 per diluted share, including other expense, net of $4 million, or $0.01 per diluted share. The components of other expense, net, including the impact of foreign currency fluctuations are detailed in the table below.

The Company’s effective tax rate for the quarter was 41.0%, including approximately 3% related to the net tax impact of discrete items, including the interest on its tax reserves. Based on the current view of its 2008 projected tax position, the Company expects its tax rate before the impact of any foreign currency rate fluctuations and other discrete items for 2008 to be approximately 38%. Included in the 38% rate for 2008 is approximately 2% resulting from the unbenefited net operating losses of certain start-up entities. Beyond 2008, we expect our tax rate before the impact of any foreign currency rate fluctuations and other discrete items to decrease over time to approximately 36%.

The Company’s Free Cash Flow before Acquisitions and Discretionary Investments for the six months ended June 30, 2008 was $20 million reflecting higher capital expenditures as the higher 2007 year end accrual reversed into the first quarter and higher use of working capital compared to the same period in 2007. The use of working capital was driven by increased accounts receivable balances due to sales growth, and reductions in accounts payable and accrued expense balances due to the payment of annual bonuses, and the timing of normal payroll and accounts payable cycles relative to quarter end. See Appendix B at the end of this press release for a discussion of FCF and the required reconciliation to the appropriate GAAP measures.

Acquisitions
Iron Mountain’s acquisition strategy focuses on acquiring attractive businesses that provide a strong platform for future growth by expanding the Company’s geographic footprint and service offerings while enhancing its existing operations. Since the end of the first quarter, the Company completed two acquisitions, a records management business in North America and a DMS business in France, entered the Swiss market via a minority interest in a local records management business and acquired the remaining 29% minority interest in its Brazilian business. In addition, the Company divested itself of its North American commodity product sales business effective June 1, 2008. Consistent with its treatment of acquisitions, the Company will eliminate all revenues associated with its data products business from the calculation of its internal growth in 2008 and 2009. Adjusting for this divestiture had no impact on the Company’s internal growth rates for its first quarter ended March 31, 2008.

Financial Performance Outlook
Iron Mountain is issuing its financial performance outlook for the third quarter ending September 30, 2008 and making positive revisions to its outlook for the full year ending December 31, 2008. This guidance is based on current expectations and does not include the potential impact of any future acquisitions. For the full year, the Company is targeting 12% to 13% revenue growth and 11% to 14% OIBDA growth, performance consistent with its long-term financial goals. Please note that targeted OIBDA growth excludes current and prior year impacts from asset dispositions. The Company’s outlook for the full year ending December 31, 2008 set forth below includes the $3 million loss on asset write-offs reported year-to-date 2008 (dollars in millions):