Iron Mountain Inc. (IRM) announced fourth-quarter 2009 adjusted (excluding the impact from foreign currency rate changes and other discrete tax items) earnings of 27 cents per share, beating the Zacks Consensus Estimate of 24 cents. EPS of 27 cents was up 23% from 22 cents reported in the year-ago quarter. The increase in earnings was driven by higher operating income and a lower effective tax rate.
Total revenues for the quarter were $779.3 million, an increase of 3.6% from the $752.6 million reported in the year-ago quarter. This was in line with the company’s guidance range of $766 million to $786 million. Growth in internal revenue (excluding the effects of foreign currency fluctuations and acquisitions) was 3% year over year. Currency had a 1% favorable impact on revenue due to strengthening of major foreign currencies against the U.S. dollar, while the impact of acquisitions was 0%.
By segment, storage represented $437.6 million in sales, up 5.3% year over year. Service sales were $341.7 million, up 1.4% year over year. The internal growth rate in storage was 5%, core service 1% and complementary service -1%.
Moderate internal growth rate of storage revenue reflected the impact of higher destruction rates in the North American Physical and International Physical businesses and longer sales cycles across segments.
Core service revenue growth was impacted by lower activity levels, related to the handling and transportation of items in storage and shredding. Complementary service revenues decreased year-over-year, as a result of softness in more discretionary revenues, such as project revenues and fulfillment services, partially offset by gain in eDiscovery services and recycled paper revenues.
Operating Results
Gross margin was 58.9% versus 55.5% in the year-ago quarter, driven primarily by improved storage gross margin and productivity gains in North America, as continued progress on transportation and record center optimization initiatives drove higher service gross margin. Gross margin also benefited from the improved performance in the International Physical business and from the reclassification of certain vehicle leases as capital leases.
SG&A costs in the fourth quarter were up 7%, or 6% excluding foreign currency exchange rate changes compared to the prior-year period as the company continued to make investments in growth and productivity initiatives. Despite this increase, operating margin for the fourth quarter increased to 18.9% from 16.7% in the year-ago quarter. Excluding the impact of gains and losses from sale of assets, operating income increased 14%, or 16% on a reported basis.
Adjusted OIBDA (operating income before depreciation and amortization) for the quarter was $230 million, or 29.5% of revenue versus $202 million, or 26.9% of revenue in the year-ago period. OIBDA grew 14%, or 12%, excluding the impact of exchange rate fluctuations and lease restructuring compared to the year-ago quarter.
The company witnessed higher margins driven by sustainable operating dimprovements and supported by higher internal revenue growth from the storage segment, which more than offset forecasted weakness in service internal revenue growth.
Balance Sheet
The company exited the quarter with $446.7 million in cash and cash equivalents versus $449.3 million in the previous quarter. Long-term debt (including the current portion) was $3.25 billion versus $3.30 billion in the previous quarter. Net debt to EBITDA was 3.3 times at December 31, 2009, driven by strong operating cash flow performance ($617 million in 2009) and limited acquisition activity during the last two years. This ratio is well below the covenant limitation of 5.5 times.
In the quarter, the company maintained tight control over capital spending and continued to improve its capital efficiency. Capital spending incurred in 2009 totaled $285 million or 9.4% of revenues. As a result of increased cash flows from operations and controlled capital expenditures, Iron Mountain generated a record $336 million of free cash flow in 2009, an improvement of $154 million or 85% compared to 2008.
Share Repurchase and Dividend
Management also announced the authorization of $150 million in share repurchase program and initiated its first ever quarterly dividend. The new dividend is 25 cents per share annual rate to be paid quarterly. The first quarterly payment will be made on April 15, 2010 for shareholders of record on Mar 25, 2010.
Guidance
The company raised its 2010 outlook to reflect improved operational performance and its recent acquisition of Mimosa Systems, Inc. IRM expects improved revenue growth supported by continued progress in strengthening returns in the North American Physical business segment and improved profitability from the International Physical segment.
For the first quarter of 2010, Iron Mountain expects revenues in the range of $770 million to $790 million, operating income in the range of $126 million to $136 million, and depreciation and amortization of approximately $84 million. Adjusted OIBDA is expected to be in the range of $210 million to $220 million.
For 2010, Iron Mountain expects revenues in the range of $3.19 billion to $3.26 billion (a 6% to 8% growth from 2009, on a reported basis) and internal revenue growth of 4% to 6%. Operating income is expected to be in the range of $591 million to $636 million (an 8% to 16% growth from 2009), and depreciation and amortization of approximately $339 million. OIBDA is expected to be in the range of $930 million to $975 million (a growth of 7% to 12% from 2009) primarily reflecting continued strong performance and higher recycled paper prices.
The company expects to incur a capital expenditure of $320 million for the full year. EPS is expected to be in the $1.07 to $1.20 range (9% to 22% growth from 2009 level). These gains will be partially offset by the dilutive impact of the Mimosa acquisition due to integration costs to be recorded in 2010.
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