Investor Relations Contact: Stephen P. Golden Vice President, Investor Relations sgolden@ironmountain.com (617) 535-2994 |
FOR IMMEDIATE RELEASE
Iron Mountain Incorporated Reports Third Quarter 2007 Financial Results
Company Signs Definitive Agreement to Acquire Electronic Discovery Business Stratify, Inc.
| · | Strong 18% revenue gains and cost leverage drive OIBDA performance above high end of forecast range; |
| · | Revenue performance supported by strong service revenue growth and the 75th consecutive quarter of increased storage revenues; |
| · | Operating income before depreciation and amortization grows 28% to $192 million and net income is $51 million, or $0.25 per diluted share; and |
| · | The Company raises full year financial outlook to reflect year-to-date financial performance. |
Boston, MA - October 31, 2007 - Iron Mountain Incorporated (NYSE: IRM), the global leader in information protection and storage services, today announced its financial results for the quarter ended September 30, 2007, reporting strong revenue growth, higher operating income and earnings of $0.25 per diluted share. In a separate release, the Company announced the signing of a definitive agreement to acquire electronic discovery business, Stratify, Inc.
Iron Mountain posted solid operating income before depreciation and amortization (“OIBDA”) growth of 28% in the third quarter supported by strong revenue growth, gross margin improvement and continued overhead expense control. Included in OIBDA for the quarter was a $5 million gain primarily associated with proceeds received in connection with the July 2006 warehouse fire in London. The Company had balanced revenue performance across its North American Physical, International Physical and Worldwide Digital business segments with overall gains supported by robust service revenue growth. Acquisitions and favorable foreign currency fluctuations also contributed about 6% to overall revenue growth.
“We continue to be pleased with the performance of the business this year,” said Richard Reese, Chairman and CEO. “We are delivering solid revenue and OIBDA growth across our portfolio. The business is running well and we are continuing to invest as we grow, making investments consistent with our strategy that enhance our ability to provide comprehensive, end-to-end solutions to our customers’ most complex information management challenges. Our pending acquisition of Stratify, Inc., announced earlier today, is one example of how we are investing within that context.”
In keeping with its strategy to distribute new services and extend its leadership position in targeted digital markets, Iron Mountain announced the signing of a definitive agreement to acquire Stratify, Inc. for approximately $158 million in cash. Stratify, based in Mountain View, California, is a leader in advanced electronic discovery services for the legal market, offering in-depth discovery and data investigation solutions for AmLaw 200 law firms and leading Fortune 500 corporations. This acquisition is subject to regulatory review and customary closing conditions and is expected to be completed by the end of the year.
Iron Mountain Reports Third Quarter 2007 Financial Results / Page 2
Key Financial Highlights - Q3/2007
Iron Mountain’s total consolidated revenues for the quarter grew 18% to $702 million driven by solid internal growth of 12% and augmented by several acquisitions, most notably ArchivesOne, Inc. and RMS Services - USA, Inc. The Company’s overall revenue growth was highlighted by continued strength in service revenue internal growth (16%) led by increased special project revenues in both North America and Europe and strong recycled paper revenues. Solid storage (8%) and core service (10%) internal revenue growth rates were also key factors in the Company’s revenue performance for the quarter.
OIBDA for the quarter grew 28% to $192 million, including the $5 million gain, reflecting the impact of the Company’s robust revenue performance and solid cost leverage, benefiting from continued control of overhead spending. Selling, general & administrative expenses decreased 70 basis points as a percentage of revenues. Additionally, the Company posted a moderate increase in gross margin resulting primarily from increased higher margin service revenues. This improvement more than offset dilutive margin impacts from acquisitions and increased real estate taxes and property insurance costs. 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 increased 33% to $129 million, indicative of higher OIBDA and higher depreciation and amortization expense reflecting the impact of recent acquisitions. Net income for the quarter was $51 million, or $0.25 per diluted share, including other expense, net of $9 million, or $0.03 per share. The components of other expense, net, including the impact of foreign currency fluctuations are detailed in the table below.
Also impacting net income was a decrease in the Company’s effective tax rate for the quarter. The 17.0% tax rate reflects the net positive tax effect of certain foreign currency gains and losses recorded in different tax jurisdictions and other discrete items such as tax rate changes in the UK and decreases to our tax reserves as a result of certain state matters. Absent the impact of any additional foreign currency rate fluctuations and other discrete items, the Company expects its effective tax rate to be approximately 37% for the fourth quarter of 2007. All per share amounts have been adjusted to reflect the three-for-two stock split effected in the form of a stock dividend on December 29, 2006.
The Company’s year to date Free Cash Flow before Acquisitions and Discretionary Investments (“FCF”) for the nine months ended September 30, 2007 is $95 million reflecting a 17% increase in cash flows from operating activities, approximately $29 million of insurance proceeds related to the July 2006 warehouse fire in London and controlled capital expenditures. We expect our full year 2007 capital expenditures to be between $385 million and $415 million. 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 second quarter of 2007, the Company completed several important acquisitions, most notably, the previously announced acquisition of RMS Services - USA, Inc., the industry’s leading provider of outsourced file room solutions for hospitals, which closed in September 2007. Furthering its European expansion strategy, Iron Mountain also acquired records management businesses in France, the Netherlands and Ireland, all of which were previously reported.
Iron Mountain Reports Third Quarter 2007 Financial Results / Page 3
Financial Performance Outlook
The Company is raising its financial performance outlook for the full year ending December 31, 2007 to reflect its year-to-date financial performance and updated estimates for Q4 2007 results. Due to the uncertainty around the timing of the closing of the Stratify transaction, no updates have been made to the Company’s financial outlook with respect to that specific transaction. The following statements are based on current expectations and do not include the potential impact of any future acquisitions, including the acquisition of Stratify, Inc. (dollars in millions):
| | | | | Full Year Ending December 31, 2007 | |
| | | Quarter Ending December 31, 2007 | | Previous | | Current | |
| | | Low | | High | | Low | | High | | Low | | High | |
| Revenues | | $ | 697 | | $ | 712 | | $ | 2,669 | | $ | 2,704 | | $ | 2,700 | | $ | 2,715 | |
| Operating Income | | | 116 | | | 123 | | | 434 | | | 453 | | | 456 | | | 463 | |
| Depreciation & Amortization | | ~66 | ~$241 | ~247 |
| | | | | | | | | | | | | | | | | | | | |
| Capital Expenditures | | | | | | | | | 395 | | | 425 | | | 385 | | | 415 | |
| Internal Revenue Growth | | | | | | | | | 8 | % | | 10 | % | | 8 | % | | 10 | % |
Iron Mountain’s conference call to discuss its third quarter 2007 financial results will be held today at 11:00 a.m. Eastern Time. In order to further enhance the overall quality of its investor communications, the Company will simulcast the conference call on its Web site at www.ironmountain.com, the content of which is not part of this earnings release. A slide presentation providing summary financial and statistical information that will be discussed on the conference call will also be posted to the Web site and available for real-time viewing. The slide presentation and replays of the conference call will be available on the Web site for future reference.
About Iron Mountain
Iron Mountain Incorporated (NYSE:IRM) helps organizations around the world reduce the costs and risks associated with information protection and storage. The Company offers comprehensive records management and data protection solutions, along with the expertise and experience to address complex information challenges such as rising storage costs, litigation, regulatory compliance and disaster recovery. Founded in 1951, Iron Mountain is a trusted partner to more than 100,000 corporate clients throughout North America, Europe, Latin America and Asia Pacific. For more information, visit the Company's Web site at www.ironmountain.com.
Iron Mountain Reports Third Quarter 2007 Financial Results / Page 4
Forward Looking Statements
This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and federal securities laws, and is subject to the safe-harbor created by such Act. Forward-looking statements include our 2007 financial performance outlook and statements regarding our goals, beliefs, future growth strategies, investments, objectives, plans or current expectations. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from those contemplated in the forward-looking statements. Such factors include, but are not limited to: (i) changes in customer preferences and demand for the Company’s services; (ii) changes in the price for the Company’s services relative to the cost of providing such services; (iii) in the various digital businesses in which the Company is engaged, capital and technical requirements will be beyond the Company’s means, markets for the Company’s services will be less robust than anticipated, or competition will be more intense than anticipated; (iv) the cost to comply with current and future legislation or regulation relating to privacy issues; (v) the impact of litigation that may arise in connection with incidents of inadvertent disclosures of customers’ confidential information; (vi) the Company’s ability or inability to complete acquisitions on satisfactory terms and to integrate acquired companies efficiently; (vii) the cost and availability of financing for contemplated growth; (viii) business partners upon which the Company depends for technical assistance or management and acquisition expertise outside the United States will not perform as anticipated; (ix) changes in the political and economic environments in the countries in which the Company’s international subsidiaries operate; (x) other trends in competitive or economic conditions affecting Iron Mountain’s financial condition or results of operations not presently contemplated; and (xi) other risks described more fully in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 under “Item 1A. Risk Factors”. Except as required by law, Iron Mountain undertakes no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Iron Mountain Reports Third Quarter 2007 Financial Results / Page 5
APPENDIX A
Selected Financial Data:
(dollars in millions, except per share data) | | Q3/2006 | | Q3/2007 | | Inc (Dec) | | YTD/2006 | | YTD/2007 | | Inc (Dec) | |
| Revenues | | $ | 596 | | $ | 702 | | | 18 | % | $ | 1,741 | | $ | 2,003 | | | 15 | % |
| | | | | | | | | | | | | | | | | | | | |
| Gross Profit (excluding D&A) | | $ | 318 | | $ | 379 | | | 19 | % | $ | 942 | | $ | 1,077 | | | 14 | % |
| Gross Margin % | | | 53.5 | % | | 54.0 | % | | | | | 54.1 | % | | 53.8 | % | | | |
| | | | | | | | | | | | | | | | | | | | |
| OIBDA | | $ | 150 | | $ | 192 | | | 28 | % | $ | 447 | | $ | 520 | | | 17 | % |
| OIBDA Margin % | | | 25.2 | % | | 27.4 | % | | | | | 25.7 | % | | 26.0 | % | | | |
| | | | | | | | | | | | | | | | | | | | |
| Operating Income | | $ | 97 | | $ | 129 | | | 33 | % | $ | 292 | | $ | 340 | | | 16 | % |
| Interest | | $ | 50 | | $ | 58 | | | 14 | % | $ | 144 | | $ | 169 | | | 17 | % |
| | | | | | | | | | | | | | | | | | | | |
| Net Income | | $ | 27 | | $ | 51 | | | 93 | % | $ | 92 | | $ | 125 | | | 36 | % |
| EPS - Diluted | | $ | 0.13 | | $ | 0.25 | | | 92 | % | $ | 0.46 | | $ | 0.62 | | | 35 | % |
| | | | | | | | | | | | | | | | | | | | |
Components of Other Income (Expense), net: | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Exchange Gains (Losses) | | $ | 2 | | $ | (9 | ) | | | | $ | 11 | | $ | (5 | ) | | | |
| Insurance Related Gains | | | -- | | | 1 | | | | | | -- | | | 13 | | | | |
| Debt Extinguishment Charges | | | (3 | ) | | -- | | | | | | (3 | ) | | (6 | ) | | | |
| | Q3/2007 | YTD/2007 |
Components of Revenue Growth: | | |
| | | |
| Storage internal growth rate | 8% | 9% |
| Service internal growth rate | 16% | 12% |
| | | |
| Total internal growth rate | 12% | 10% |
| | | |
| Impact of acquisitions | 4% | 3% |
| Impact of foreign currency fluctuations | 3% | 3% |
| | | |
| Total revenue growth | 18% | 15% |
NOTE: Columns may not foot due to rounding.
APPENDIX B
Operating Income Before Depreciation and Amortization
The Company uses Operating Income Before Depreciation and Amortization (“OIBDA”), an integral part of its planning and reporting systems, to evaluate the operating performance of the consolidated business. As such, the Company believes OIBDA provides current and potential investors with relevant and useful information regarding its ability to grow revenues faster than operating expenses. Additionally, the Company uses multiples of current and projected OIBDA in conjunction with its discounted cash flow models to determine its overall enterprise valuation and to evaluate acquisition targets. OIBDA is not a measurement of financial performance under accounting principles generally accepted in the United States, or GAAP, and should not be considered as a substitute for operating or net income or cash flows from operating activities (as determined in accordance with GAAP).
Iron Mountain Reports Third Quarter 2007 Financial Results / Page 6
Following is a reconciliation of operating income before depreciation and amortization to operating income and net income (in millions):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | | 2006 | | 2007 | | 2006 | | 2007 | |
| | | | | | | | | | |
OIBDA (Operating Income Before Depreciation and Amortization) | | $ | 150 | | $ | 192 | | $ | 447 | | $ | 520 | |
| Less: Depreciation and Amortization | | | 53 | | | 63 | | | 154 | | | 181 | |
| | | | | | | | | | | | | | |
Operating Income | | $ | 97 | | $ | 129 | | $ | 292 | | $ | 340 | |
| | | | | | | | | | | | | | |
| Less: Interest Expense, net | | | 50 | | | 58 | | | 144 | | | 169 | |
| Other (Income) Expense, net | | | 1 | | | 9 | | | (9 | ) | | (2 | ) |
| Provision for Income Taxes | | | 19 | | | 11 | | | 64 | | | 47 | |
| Minority Interest | | | -- | | | 1 | | | 1 | | | 1 | |
| | | | | | | | | | | | | | |
Net Income | | $ | 27 | | $ | 51 | | $ | 92 | | $ | 125 | |
| | | | | | | | | | | | | | |
NOTE: Columns may not foot due to rounding.
Free Cash Flows Before Acquisitions and Discretionary Investments, or FCF
FCF is defined as Cash Flows From Operating Activities less capital expenditures (excluding real estate), net of proceeds from the sales of property and equipment and other, net, and additions to customer acquisition costs. Our management uses this measure when evaluating the operating performance and profitability of our consolidated business. FCF is a useful measure in determining our ability to generate cash flows in excess of our capital expenditures (both growth and maintenance) and our customer acquisition costs. As such, we believe this measure provides relevant and useful information to our current and potential investors. FCF should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as cash flows from operating activities (as determined in accordance with GAAP).
Following is a reconciliation of Free Cash Flows Before Acquisitions and Discretionary Investments to Cash Flows from Operating Activities (in millions):
| | | Nine Months Ended September 30, | |
| | | 2006 | | 2007 | |
| | | | | | |
Free Cash Flows Before Acquisitions and Discretionary Investments | | $ | 38 | | $ | 95 | |
| Add: Capital Expenditures (excluding real estate), net | | | 231 | | | 221 | |
| Additions to Customer Acquisition Costs | | | 10 | | | 12 | |
Cash Flows From Operating Activities | | $ | 279 | | $ | 328 | |
| | | | | | | | |
NOTE: Columns may not foot due to rounding.
Iron Mountain Reports Third Quarter 2007 Financial Results / Page 7
Iron Mountain Incorporated
Condensed Consolidated Statements of Operations
(Amounts in Thousands except Per Share Data)
(Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | | 2006 | | 2007 | | 2006 | | 2007 | |
| Revenues: | | | | | | | | | |
| Storage | | $ | 338,313 | | $ | 383,390 | | $ | 985,331 | | $ | 1,104,234 | |
| Service and Storage Material Sales | | | 257,297 | | | 318,443 | | | 755,504 | | | 898,800 | |
| | | | | | | | | | | | | | |
| Total Revenues | | | 595,610 | | | 701,833 | | | 1,740,835 | | | 2,003,034 | |
| | | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | | |
Cost of Sales (Excluding Depreciation and Amortization) | | | 277,227 | | | 322,598 | | | 798,885 | | | 925,566 | |
| Selling, General and Administrative | | | 167,602 | | | 192,274 | | | 494,730 | | | 561,624 | |
| Depreciation and Amortization | | | 53,146 | | | 63,207 | | | 154,267 | | | 180,669 | |
Loss (Gain) on Disposal / Writedown of Property, Plant and Equipment, Net | | | 505 | | | (5,033 | ) | | 494 | | | (4,639 | ) |
| | | | | | | | | | | | | | |
| Total Operating Expenses | | | 498,480 | | | 573,046 | | | 1,448,376 | | | 1,663,220 | |
| | | | | | | | | | | | | | |
| Operating Income | | | 97,130 | | | 128,787 | | | 292,459 | | | 339,814 | |
| | | | | | | | | | | | | | |
| Interest Expense, Net | | | 50,462 | | | 57,556 | | | 144,294 | | | 169,113 | |
| Other Expense (Income), Net | | | 583 | | | 8,504 | | | (9,122 | ) | | (2,454 | ) |
| | | | | | | | | | | | | | |
| Income Before Provision for Income Taxes and Minority Interest | | | 46,085 | | | 62,727 | | | 157,287 | | | 173,155 | |
| | | | | | | | | | | | | | |
| Provision for Income Taxes | | | 19,205 | | | 10,647 | | | 64,388 | | | 46,754 | |
| Minority Interest in Earnings of Subsidiaries, net | | | 267 | | | 746 | | | 1,171 | | | 1,308 | |
| | | | | | | | | | | | | | |
| Net Income | | $ | 26,613 | | $ | 51,334 | | $ | 91,728 | | $ | 125,093 | |
| | | | | | | | | | | | | | |
| Net Income Per Share - Basic | | $ | 0.13 | | $ | 0.26 | | $ | 0.46 | | $ | 0.63 | |
| Net Income Per Share - Diluted | | $ | 0.13 | | $ | 0.25 | | $ | 0.46 | | $ | 0.62 | |
| | | | | | | | | | | | | | |
| Weighted Average Common Shares Outstanding - Basic | | | 198,308 | | | 200,203 | | | 197,908 | | | 199,742 | |
| Weighted Average Common Shares Outstanding - Diluted | | | 200,585 | | | 202,111 | | | 200,241 | | | 201,757 | |
| | | | | | | | | | | | | | |
| Operating Income before Depreciation and Amortization | | $ | 150,276 | | $ | 191,994 | | $ | 446,726 | | $ | 520,483 | |
| | | | | | | | | | | | | | |
Iron Mountain Reports Third Quarter 2007 Financial Results / Page 8
Iron Mountain Incorporated
Condensed Consolidated Balance Sheets
(Amounts in Thousands)
(Unaudited)
| | | December 31, 2006 | | September 30, 2007 | |
ASSETS | | | | | |
| | | | | | |
| Current Assets: | | | | | |
| Cash and Cash Equivalents | | $ | 45,369 | | $ | 90,751 | |
Accounts Receivable (less allowances of $15,157 and $18,869, respectively) | | | 473,366 | | | 560,085 | |
| Other Current Assets | | | 160,986 | | | 100,561 | |
| Total Current Assets | | | 679,721 | | | 751,397 | |
| | | | | | | | |
| Property, Plant and Equipment: | | | | | | | |
| Property, Plant and Equipment at Cost | | | 2,965,995 | | | 3,322,417 | |
| Less: Accumulated Depreciation | | | (950,760 | ) | | (1,124,081 | ) |
| Property, Plant and Equipment, net | | | 2,015,235 | | | 2,198,336 | |
| | | | | | | | |
| Other Assets: | | | | | | | |
| Goodwill, net | | | 2,165,129 | | | 2,412,240 | |
| Other Non-current Assets, net | | | 349,436 | | | 541,210 | |
| Total Other Assets | | | 2,514,565 | | | 2,953,450 | |
| | | | | | | | |
| Total Assets | | $ | 5,209,521 | | $ | 5,903,183 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| | | | | | | | |
| Current Liabilities: | | | | | | | |
| Current Portion of Long-term Debt | | $ | 63,105 | | $ | 28,381 | |
| Other Current Liabilities | | | 575,542 | | | 629,082 | |
| Total Current Liabilities | | | 638,647 | | | 657,463 | |
| | | | | | | | |
| Long-term Debt, Net of Current Portion | | | 2,605,711 | | | 3,074,299 | |
| Other Long-term Liabilities | | | 406,600 | | | 445,805 | |
| | | | | | | | |
| Minority Interests | | | 5,290 | | | 6,820 | |
| | | | | | | | |
| Stockholders’ Equity | | | 1,553,273 | | | 1,718,796 | |
| | | | | | | | |
| Total Liabilities and Stockholders’ Equity | | $ | 5,209,521 | | $ | 5,903,183 | |
