Iron Mountain: Fiscal 1Q08 Financial Results

Iron Mountain Incorporated announced its financial results for the quarter ended March 31, 2008, reporting strong revenue growth, higher operating income before depreciation and amortization (OIBDA) and earnings of $0.16 per diluted share.

Iron Mountain posted strong year over year revenue growth of 18% in the first quarter supported by solid internal growth of 9%, with acquisitions and favorable foreign currency changes contributing approximately 10% to total growth. The Company drove strong revenue gains across its North American Physical, International Physical and Worldwide Digital business segments. The Company’s overall revenue growth was highlighted by continued strength in service revenue growth supported by solid internal growth of 10% and better than expected performance in its digital business. OIBDA of $176 million for the quarter exceeded the Company’s forecasted range reflecting benefits from stronger than expected revenue gains. Net income for the quarter was $33 million, or $0.16 per diluted share and capital expenditures were in line with Company expectations for the quarter.

"Our first quarter results provide a solid start to 2008 and position us well to achieve our full year financial goals," said Richard Reese, Chairman and CEO. "We delivered strong revenue and OIBDA performance across our portfolio as we continued to post solid internal storage growth and benefit from gains in our expanded service offering and growing global footprint. The business is running well and we continue to invest in new services and infrastructure, consistent with our strategy, to enhance our ability to provide comprehensive solutions to our customers and increased value to our shareholders."

Key Financial Highlights – Q1 2008
Iron Mountain’s total consolidated revenues for the quarter grew 18% over the prior year period to $749 million driven by solid internal growth of 9% and augmented by several acquisitions completed in 2007, most notably ArchivesOne, Inc., RMS Services – USA, Inc. and Stratify, Inc. Storage internal growth of 8% was as expected. Core service internal revenue growth of 7% was impacted by lower destruction levels following heightened activity in the third and fourth quarters of 2007. Complementary service revenues posted 15% internal growth highlighted by strong recycled paper revenues and strong special project revenues in international markets. See Appendix A at the end of this press release for a presentation of Selected Financial Data.

The Company posted a 19% increase in gross profits for the quarter driven primarily by strong revenue gains. Gross profit margins improved modestly, supported by higher recycled paper revenues and strong growth in the digital service businesses, including Stratify, which have higher gross margins. These benefits more than offset the impact of revenue mix, as labor and transportation intensive services such as secure shredding and Document Management Solutions (DMS) grew faster than storage, and higher energy costs. OIBDA for the quarter grew 12% over the prior year period to $176 million, reflecting the Company’s revenue performance and gross margin gains. Selling, general and administrative costs increased 23% in the quarter, ahead of revenue gains, reflecting impacts from integration of recent acquisitions and increased investments in security, new products and infrastructure enhancements initiated in 2007. The impact of these costs is expected to moderate later this year. OIBDA growth was also impacted by a $4 million net loss on asset write-offs in the quarter. Excluding the impacts of asset write-offs from both years, OIBDA grew 14% in the quarter. 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 for the first quarter of 2008 was $106 million, up 7% compared to the same period in 2007, as OIBDA gains were partially offset by increased depreciation and amortization expense, driven primarily by higher levels of capital expenditures in 2007, and acquisitions. Further, operating income for the first quarter of 2008 included a $4 million net loss on asset write-offs compared to a net loss of $37 thousand in the first quarter of 2007. Net income for the quarter was $33 million, or $0.16 per diluted share, including other income, net of $6 million, or $0.02 per diluted share. The components of other income, net, including the impact of foreign currency fluctuations are detailed in the table below.

The Company’s effective tax rate for the quarter was 34.9%, including approximately 3% related to the net tax impact of foreign currency gains and losses in different tax jurisdictions. Based on the current view of its 2008 projected tax position, the Company expects its tax rate before the impact of any foreign currency rate fluctuations and other discrete items for 2008 to be approximately 38%. Included in the 38% rate for 2008, is approximately 2% resulting from the unbenefited net operating losses of certain start-up entities. Beyond 2008, we expect our tax rate before the impact of any foreign currency rate fluctuations and other discrete items to decrease over time to approximately 36%.

The Company’s Free Cash Flow before Acquisitions and Discretionary Investments (FCF) for the three months ended March 31, 2008 was negative $20 million reflecting higher capital expenditures as the higher 2007 year end accrual reversed into the first quarter and higher use of working capital compared to the same period in 2007. The use of working capital was driven by increased accounts receivable balances due to sales growth, and reductions in accounts payable and accrued expense balances due to the payment of annual bonuses, and the timing of normal payroll and accounts payable cycles relative to quarter end. 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 2007, the Company completed two acquisitions, a shredding business in New Zealand and a hardcopy business in North America, established operations in Switzerland through a minority-owned joint venture and acquired the remaining 28% minority interest in its Brazilian business.

Financial Performance Outlook
Iron Mountain is issuing its financial performance outlook for the second quarter ending June 30, 2008 and revising its outlook for the full year ending December 31, 2008. This guidance is based on current expectations and does not include the potential impact of any future acquisitions. For the full year, the Company is targeting 10% to 13% revenue growth and 10% to 14% OIBDA growth, performance consistent with its long-term financial goals. Please note that targeted OIBDA growth excludes current and prior year impacts from asset dispositions. The Company’s outlook for the full year ending December 31, 2008 set forth below includes the $4 million loss on asset write-offs reported in the first quarter.
 

Iron Mountain Inc.