Iron Mountain Incorporated (IRM)

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Iron Mountain (IRM)

Q2 2011 Earnings Call

July 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


Andrew Steinerman - JP Morgan Chase & Co

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

Scott Schneeberger - Oppenheimer & Co. Inc.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Gary Bisbee - Barclays Capital

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 Q2 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 2011 second 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 to questions for your Q&A. Per 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 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 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.

Also please note that all of the financial results presented in today's materials reflect discontinued operations treatment, the digital businesses we sold and the expected sale of our New Zealand operations. All historical results have been restated to conform to this presentation.

With that, I would like to introduce our Chairman and CEO, Richard Reese.

C. Reese

Thanks, Stephen, and good morning, and welcome to our call. This morning, I'll be intentionally brief, and that it's summer time, we've had a good quarter, but there's nothing really extraordinary to talk much about. So I'll kind of run through it fairly quickly, then Brian will go through the numbers and some of the details. And then, of course, we will take your questions and answers.

Q2 was a good quarter, in line with our expectations. We're on target for the year, and frankly, on target to -- it's a good start for our 3-year plan in terms of the financial performance that we laid out a few months ago. The trends are pretty much in line with Q1, so there's not -- as I said, not a lot specifically to talk about.

Reported revenues were up 5% in total that were led by International, internal growth at 4% and North American internal growth at 1%. Our storage trends remain stable at internal growth of 3% on storage.

As we've been talking about for quite some time, we've seen a moderation in our storage trends. Some of that is economic, and some of that is continued secular pressure. But we've seen stabilization, and that stabilization trends have continued into the quarter. Churn, it's sitting around 7% in organic additions, in the same range of the last 7 quarters, in fact, in around 7%.

New sales had about 2% up of -- which is a moderate improvement and been improving slowly over the last quarter 2. As you know, we've focused our business and the sell of our digital business on our core business, and that we are seeing some benefits of focus, and some benefits of getting the sales was really focused back into these core services. As we've said many times, there's a lot of open market opportunity for us, and we've probably diluted our focus a little too much, having too broader product line and too many shiny objects for the sales force. And I think, although we've still got some pretty interesting shiny objects in our core business, getting them focused back on the core seems to be working for us.

Core service continued to remain soft for the same trends we've been talking about for some time as we've not seen a pickup in retrieval activities and other core activities. Overall service dollars were up, but that was driven primarily by paper prices for our Shredding businesses, as well as fuel surcharges related to the price of fuel rising over the last few months, really kicking in and starting to flow through.

But as I said, the core service activity remains soft and remains a drag, not an increase or anything in the trend, but just remains the same trend line and the drag on our all overall growth rates.

Financial bottom line performance adjusted OIBDA was on an operating basis up 2%. But that $227 million, that excludes about $10 million of onetime costs. If you will remember, I've been saying for the last quarter or 2 that as we are exiting digital and shifting our strategy to focus on the core and focus on driving returns, that you would see some noise in our reported numbers for a couple of quarters. This is sort of some of that noise, and Brian will go through it in details. But it's primarily related to some of the proxy cost items and some other things like that, and you will see in future quarters some onetime costs finishing those things out, as well as the special committee process we've talked about, and as well as reduce some of the strategic assets is what we're going. So the sounds of the categories we've been telling you was coming, and Brian will get into details as we get there.

So as I said, it was a good quarter. The organization and the business are performing well. It's performing in line. I think the execution of our team is quite outstanding, and we're not only making good financial progress, we're making good progress of transitioning our business in terms of our mindset, in terms of our strategy, in terms of dusting off out products a bit, and really focus ourselves back into the core markets. And we expect that, that will pay good rewards over the coming years.

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