Iron Mountain Incorporated (IRM)

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Iron Mountain Inc. (IRM)

Q1 2010 Earnings Call

April 29, 2010 8:30am ET


Bob Brennan - Chief Executive Officer

Brian McKeon - Chief Financial Officer

Stephen Golden - Vice President of Investor Relation


Kevin Mcveigh - Macquarie Research

Andrea Wirth - Robert W. Baird

Vance Edelson - Morgan Stanley

John Healy - Northcoast Research

Eric Boyer - Wells Fargo Securities

David Gold - Sidoti



Good morning. My name is Bonny and I will be your conference operator today. At this time I would like to welcome everyone to the Iron Mountain first quarter 2010 earnings call webcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the call over to Mr. Golden, Vice President of Investor Relation. Please go ahead, Sir.

Stephen Golden

Thank you, and welcome everyone to our 2010 first quarter earnings conference call. After my announcement this morning, Brian McKeon will review our financial results, followed by Bob Brennan’s CEO remarks. When Bob is finished with his comments we’ll open up the phones for our Q&A.

For our custom, we have a user controlled slide present on the Investor Relations page of our website at Referring now to slide 2; today’s earnings call and slide presentation will contain a number of forward-looking statements most notably our outlook for our 2010 financial performance.

All forward-looking statements are subject to risks and uncertainties. Please refer to today’s press release, the Safe Harbor language on this slide and our most recently filed annual report on Form 10-K, for a discussion of the major risk factors that could cause our actual results to be materially different from those contemplated in our forward-looking statements.

As a remainder, on our last earnings call we introduced two new metrics; adjusted OIBDA, and adjusted EPS, as part of our ongoing efforts to enhance our investor communications. We used several non-GAAP measures when presenting our financial results; adjusted OIBDA, adjusted EPS, and free cash flow before acquisition and investments among others are metrics we speak to frequently, and ones we believe to be important in evaluating our overall financial performance.

We provide additional information and a reconciliation of these non-GAAP measures to the appropriate GAAP measures as required by Red G at the Investor Relations page of our website, as well as in today’s press release.

With that, I would like to introduce our CFO, Brain McKeon.

Brain McKeon

Thanks Steven. Slide three highlights the key messages from today’s review. We posted solid results in the first quarter of 2010. Revenue growth of 7% was in line with expectations. Storage internal growth was solid at 4%. Service internal growth was 5%, as it’s strength in complementary service revenues, including benefits from higher paper prices offset continued softness in core services.

As we work to strengthen our revenue growth, we continue to drive strong profit and free cash flow performance. For the quarter we delivered adjusted OIBDA growth of 11%, driven by gross margin expansion of nearly 200 basis points. This expansion continues to be supported by productivity and pricing gains. Proper gain in capital efficiency drove year-to-date free cash flow of $54 million.

Adjusted EPS for the quarter was $0.23 per share, an increase of 19% compared to the same period last year. Our reported EPS was $0.12 per share, including the impacts of the higher effective rate and a change in fiscal year end for Iron Mountain Europe from October 31 to December 31. I’ll discuss these items more fully later in my remarks.

Overall Q1 was a solid start to the year, we are on track towards delivering strong full year financial performance, consistent with the goals shared on our Q4 earnings call. We are refining our guidance today to include the expected impacts of the recent earthquakes on our Chilean Business, including items such as insurance deductibles and remediation costs.

Let’s now turn to slide four and begin or review of the first quarter results. Slide four compares results for this quarter to the first quarter of 2009. As I mentioned, revenues for the quarter were up 7% to $777 million. From a segment perspective, North American Physical posted 4% internal growth, supported by 4% storage internal growth, and strong complementary service revenue performance.

Overall gains were constrained by continued pressures on core service activity levels, including the impacts from our usually severe winter weather in several major markets. Our international physical segment reported 6% internal growth, supported by solid 8% growth in core revenues.

These gains were moderated by declines in complementary revenues, due primarily to lower project activity, and our legal segment reported revenue growth of 3% for the first quarter, including benefits from the Mimosa acquisition we completed at the end of February. Internal growth for the segment was minus 1% as eDiscovery gains were offset by impacts from lower subscription sales in the recent quarters.

Sustainable benefits from productivity initiatives and pricing gains, particularly in our North American Physical segment drove higher service gross margins supporting a 190 basis point improvement in our consolidated gross margin. Higher storage gross margins, aided by improved price in North American physical, and gains in our international physical business were also key contributor growth to gross margin improvements.

Adjusted OIBDA grew 11%, driven by strong gross profit gains. Below the adjusted OIBDA line, depreciation was $76 million, and amortization was $9 million, in line with our forecast.

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