Iron Mountain Incorporated (IRM)

IRM 
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Iron Mountain (IRM)

Q4 2010 Earnings Call

February 24, 2011 8:30 am ET

Executives

Brian McKeon - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Robert Brennan - Chief Executive Officer, President and Director

Stephen Golden - Vice President of Investor Relations

Analysts

Philip Stiller

Andrew Steinerman - JP Morgan Chase & Co

Vance Edelson - Morgan Stanley

Eric Boyer - Wells Fargo Securities, LLC

Gary Bisbee - Barclays Capital

Kevin McVeigh - Macquarie Research

Presentation

Operator

Good morning. My name is Bonnie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Iron Mountain Fourth Quarter 2010 Earnings Call webcast. [Operator Instructions] I would now like to turn the call over to Mr. Stephen Golden, Vice President of Investor Relations. Please go ahead, sir.

Stephen Golden

Thank you, and welcome, everyone, to our 2010 fourth quarter earnings conference call. Joining me this morning are our CFO, Brian McKeon, who will review our financial results; followed by Bob Brennan, CEO, remarks. When Bob is finished with his comments, we'll open up the phones for Q&A. Per our custom, we have a user controlled slide presentation on the Investor Relations page of our website at www.ironmountain.com.

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 2011 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 you know, we use several non-GAAP measures when presenting our financial results. Adjusted OIBDA, adjusted earnings per share and free cash flow before acquisitions 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 the reconciliations of these non-GAAP measures to the appropriate GAAP measures as required by Reg G at the Investor Relations page of our website, as well as in today's press release.

With that, I'd like to introduce our CFO, Brian McKeon.

Brian McKeon

Thanks, Stephen. Slide 3 highlights the key messages from today's review. Our Q4 results were in line with our expectations, capping off a solid year of financial performance for the company. Revenue gains were constrained by continued softness in core service activity levels and lower eDiscovery revenues. Despite these impacts, we continue to drive strong financial results, supported by international growth, expansion of hybrid services and continued productivity gains supporting gross margin improvement.

For the full year, we achieved 4% revenue growth, 9% growth in adjusted OIBDA and double-digit growth in adjusted earnings per share and free cash flow. Please note that our reported EPS for the fourth quarter of $0.16 per share included a $0.14 per share impact related to the finalization of the digital goodwill impairment charge initially recorded in Q3.

Our 2010 results build our strong long-term track record of financial performance. Our focus in recent years has been expanding our leadership position, while optimizing returns in the businesses we’ve built. We continue to advance a disciplined approach to operations management and capital allocation that supported a 440 basis point improvement in adjusted OIBDA margins, and a nearly 1,000 basis point improvement in free cash flow margins over the last four years. These improvements are sustainable and set the foundation for long-term success.

Our confidence in our business model and outlook supported our board's decision to increase our dividend by 200% in December. We intend to build on this track record in 2011. We plan to continue to drive solid free cash flow and adjusted EPS gains, supported by disciplined capital spending and lower interest costs. We're targeting moderate revenue growth despite expected constraints from continued soft core service activity trends and lower eDiscovery revenues. We'll be refining our revenue and adjusted OIBDA outlook today to reflect our updated expectations.

Let’s now turn to Slide 4 and begin the review of our financial results. Slide 4 looks at our full year operating performance compared to 2009. As noted, our Q4 results concluded a solid year of financial performance with profitability and cash flow generation reaching record high levels. Revenue increased 4% to $3.1 billion. Gross profit increased 8% to $1.9 billion, reflecting a 210 basis point improvement in gross margin for 2010 compared to 2009. These results are supported by continued benefits from North American productivity initiatives, solid international operating performance and higher recycled paper prices.

Adjusted OIBDA grew 9% for the full year of 2010 compared to the same period in 2009. Strong gross margin gains, controlled overhead spending and lower incentive compensation expense, which added about three points to growth, drove the increase.

Solid operating performance and lower interest expense drove a 17% increase in adjusted EPS compared to 2009. Capital spending was $268 million for 2010, including $14 million for real estate. Strong operating profit gains and capital spending efficiencies drove an 11% increase in 2010 free cash flow, despite a $52 million increase in cash taxes.

Let's now turn to Slide 5 to review our Q4 results. Slide 5 compares our results for this quarter to the fourth quarter of 2009. Q4 results were in line with our outlook. Enterprise revenue growth was 1%, down slightly from Q3, reflecting a moderated benefit from higher recycled paper prices. Enterprise revenue gains were supported by sustained 2% growth in storage revenues and by expansion of hybrid services. These gains offset continued softness in core service activities and lower eDiscovery revenues.

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