Iron Mountain Management Discusses Q2 2012 Results - Earnings Call Transcript

Iron Mountain (IRM)

Q2 2012 Earnings Call

July 26, 2012 8:30 am ET

Executives

Stephen P. Golden - Vice President of Investor Relations

C. Richard Reese - Executive Chairman, Chief Executive Officer and Chairman of Strategic Review Special Committee

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

Analysts

Gary E. Bisbee - Barclays Capital, Research Division

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

George K. Tong - Piper Jaffray Companies, Research Division

Thomas Allen - Morgan Stanley, Research Division

Kevin D. McVeigh - Macquarie Research

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

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

Nathan Brochmann - William Blair & Company L.L.C., Research Division

Presentation

Operator

I'd like to welcome to Iron Mountain Second Quarter 2012 Earnings Call Webcast. [Operator Instructions] Mr. Golden, you may begin your conference.

Stephen P. Golden

Thank you, and welcome, everyone, to our 2012 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 the phones for Q&A. Per our custom, we have a user-controlled slide presentation at 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 2012 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 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 reconciliation 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 Chairman and CEO, Richard Reese.

C. Richard Reese

Thank you, Stephen, and good morning, everybody. And welcome to our second quarter investor conference call. We had good operating results for the quarter. I'd characterize them frankly as good results in a slow world. I'll go through and give you some update on the trends and what's going on, and then -- and I'll have a few comments about the REIT process, which I'm sure you're all eager to wait to hear.

The headline is you're not going to hear everything you want to hear about their REIT because it hasn't changed a lot, but we will at least give you some color and some update. And then Brian will go through the detailed numbers and, as usual, we'll take your questions. With a little luck, we will attempt to make this call shorter than average because I think things are fairly clear and it's summertime.

So let's get started. As I've said, I think we have good execution in the organization, and the businesses are performing well against our plans. We're doing it not only on a tactical or an annual operating basis, but you should be comfortable that we're also advancing our long-term strategy to continue building out a very durable storage annuity business. So we're making progress on both fronts and finally trying to balance all those to deliver the short-term results while keeping an eye on the future. And I think the company and the team is doing a good job at that.

As I said, we'll update you on the REIT process, where the only significant news, which we did announce on our press release, is that we have submitted formally our request to the IRS for a private letter ruling. And as you know, that we are going to be relatively silent and absolutely not to speak to any details on that while we let them do their work and so forth.

So let me talk a little bit about the operating results. Storage, which is the key driver and everything we focused on in our business had good 6% constant dollar revenue growth, which was about 4% of that, 4 points out of 6 was internal growth on the balance from acquisitions. Service trends remain consistent within the past year or 2. There were some puts and takes, but constant dollars service growth was about flat excluding the impacts of the lower paper -- recycled paper prices. Recycled paper prices in the quarter were the major issue to us, with the 37% decline from last year, and it reduced reported service revenue growth by a negative 4% but also total revenue growth by 1.5 points.

North America, as we had planned and as we communicated, sustained good strong margins of 42% and adjusted OIBDA levels while posting 2% internal growth of storage. But total revenue growth in North America felt the brunt of recycled paper trends, it's hard to say, as North America accounts for about 85% of that total recycled paper volume. International had strong storage growth at 13% in constant dollars, which was 8% internal and the balance from acquisitions. They had some slight softness we experienced in International and service trends, which we suspect is part of the slowdown globally, particularly in the U.K. and in Europe and in their economies. But those trends were only slight. And as I said, overall as a company, our service revenues were about flat.

Internal growth in International, particularly storage, trended up slightly due to the higher-than-average customer acquisition activity, this was just a good, strong quarter. And although the dynamics in International aren't strong, this will move around a bit. So we're not forecasting these numbers. You can't draw a line forward from these numbers. These are great numbers, but I don't predict they will reoccur over and over every quarter. You will see some come back to this level in the future, but it's going to move around just a bit.

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