Iron Mountain Incorporated (IRM)

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Iron Mountain (IRM)

Q1 2011 Earnings Call

April 28, 2011 8:30 am ET


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

C. Reese - Executive Chairman and Chief Executive Officer

Stephen Golden - Vice President of Investor Relations


Vance Edelson - Morgan Stanley

Zachary Fadem - Barclays Capital

Andrew Steinerman - JP Morgan Chase & Co

Eric Boyer - Wells Fargo Securities, LLC

Scott Schneeberger - Oppenheimer & Co. Inc.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Nathan Brochmann - William Blair & Company L.L.C.

Kevin McVeigh - Macquarie Research



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 First Quarter 2011 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. Welcome, everyone, to our 2011 First Quarter Earnings Conference Call. Joining me this morning are Richard Reese, our Chairman and CEO; and Brian McKeon, our CFO. After their prepared remarks, we'll open up the phones for Q&A. For our custom, we have a user-controlled slide presentation 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 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 also use several non-GAAP measures when presenting our financial results. Adjusted OIBDA, adjusted EPS 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 Richard Reese.

C. Reese

Thank you, Stephen. Good morning, everyone. Welcome to our First Quarter 2011 Quarterly Earnings Call. As you know, I haven't done these calls in a few years so this is my first one back, and I'm happy to tell you that we've got good performance to report, even though I didn't have a heck of a lot to do with it since I've only been back in the job for a couple of weeks. But the team's done a great job, the business is running well. And we're off to a good start to hit the plan that we put forth in great detail last week, the 3-year strategic plan, as we shifted our business into the third phase of our long-held 3-phase strategy, that of the phase of capitalizing on the hard work we did in the earlier years and the investment cycle of the business, building it up. We're now turning to reap the rewards of that on behalf of our shareholders and the rest of our stakeholders of the company.

So today, I'll talk briefly about the results for the quarter, and then turn it over to Brian, who will give you great detail and then we'll come back and take your questions. And I'm going to review the quarter, frankly, a bit in the context of the plan. So it was a good first quarter, we're off to a good start and it gives us confidence that we'll be able to achieve our goals for the entire fiscal year.

Revenue was up 3% to $799 million and that was on the back of strong storage revenue growth of 5% reported and really, 3% internal for us, which is an uptick. We're seeing a continued trend of steady improvements on units for storage, supported by lower destruction activities and strong new sales, particularly in North America, as the investments we've been making according to our plan are paying off.

We also have seen some continued weakness in some of our recurring service lines and of course, when destructions are down, the good news is it helps storage over the long run. The bad news is it's a little light on the services in the short term, but it's a trade we would take all the time.

So in general, I think as a company, we're feeling better about some of the trends and starting to see some of the changes from the economy, but I want to be very, very careful to caution you, this is a business that moves very slowly. That's its strength and its weakness. And I would caution anybody from taking these positive signs and trying to forecast up. What we're telling you is we think we're going to be in line with our expectations for the year, and we have a lot of confidence that we'll be able to do that.

So with that, well, let me pull it back. Let me just take it all down a little bit. The other reported numbers, the adjusted OIBDA is up 4% on our operating basis, really a little less on a reporting basis because that way, it excludes certain one-time expenses that Brian will go through for you in detail. And adjusted EPS is up 24%. So as I said, a good start for the quarter. We have a pretty good confidence or even better than pretty good confidence for the fiscal year, assuming banks continue in line, and we'll get through the details as we go.

If we look over at some of the pieces and as we said last week, we put forth a 3-year plan. The key elements of it was an acceleration into the third phase of the capitalization phase of our business. And it had a variety of components. But by and large, we've made some -- put a stake in the ground on a couple of issues: One is to increase our after-tax return invested capital by about 330 basis points, up to 11% by 2013. And two is just to return to our shareholders in the form of stock buybacks and/or dividends $2.2 billion of cash with $1.2 billion of that coming in the next 12 months. These commitments haven't changed. You'll hear us continue to talk about them over the next couple of years, as we deliver on them, according to estimates as we deliver on them. If we take the business of our North America is following the strategy. It is the market leader. I've spoken of it many times. It is the goose that laid the golden egg. And so our strategy is to make sure we take care of the goose and invest in it correctly, so she can continue to lay the golden eggs. And that was a combination of maintaining and sustaining margins, while at the same time, investing some in sales and marketing to increase the growth rate or at least keep the growth rate on the trajectory and overcome any secular trends that may be out there. And first quarter reflected these trends very well. Our storage internal growth was 3%. That's up from a 2% number of last year. Our contribution to our new sales in our Records Management business, North America from our sales force, the so-called new from new, is almost double what it was the first quarter of last year. So the investments we've started making towards the end of last year in the change in focus is paying off, and we would expect it will continue to pay off. Again, I'll caution you that it takes a lot for all these to flow through our reported numbers on an annuity based business. But we like the trends we're seeing and we would continue working those trends.

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