01—Abstract
Summary
Summary of the 10-K filed February 23, 2017. Cited figures are marked; the original filing is the authoritative source.
Iron Mountain Incorporated (NYSE: IRM), a Delaware corporation founded in 1951, stores physical records and data backup media and provides related information management services to more than 230,000 customers in 45 countries as of December 31, 2016.
The company operated as a REIT beginning January 1, 2014, and its 2016 results were dominated by the May 2, 2016 acquisition of Recall Holdings Limited for a total purchase price of approximately $2,166.9 milliona. Total revenues rose to $3,511.5 million in 2016 from $3,008.0 million in 2015, and net income attributable to Iron Mountain was $104.8 million, compared with $123.2 million in 2015. Adjusted EBITDA increased to $1,087.3 million, with an Adjusted EBITDA margin of 31.0%, while total long-term debt grew to approximately $6.3 billion and total assets reached $9.49 billion.
The filing highlights that the company's growth is driven by recurring storage rental revenue, which rose to $2,142.9 millionb in 2016 from $1,837.9 million, while internal storage rental revenue growth was 2.3% and internal service revenue growth was negative 0.6%. Management expects 2017 internal storage rental revenue growth of approximately 2.0% to 2.5% and capital expenditures of approximately $320.0 million to $370.0 million. Recall integration and divestiture costs are significant, with cumulative Recall Costs of $178.96 million through 2016 and total expected acquisition and integration expenditures of approximately $380.0 million.
The company also declared a dividend of $0.55c per share on February 15, 2017, payable April 3, 2017. The filing flags key risks: REIT qualification requirements, a substantial debt load with a net total lease adjusted leverage ratio of 5.7 against a 6.5 covenant maximum, foreign currency exposure, the risk of declining physical records activity as storage becomes more archival, and pending divestments and integration risk. Management concluded that internal control over financial reporting was effective as of December 31, 2016, excluding Recall, which represented about 13% of consolidated revenues and 7% of consolidated assets.
02—Key points
Key Highlights
- Total revenues grew 16.7% to $3,511.5 million in 2016, driven primarily by the Recall acquisition, which contributed 18.2% to reported consolidated revenue growth.
- Storage rental revenue reached $2,142.9 million in 2016, up from $1,837.9 million, while internal storage rental revenue growth was 2.3%.
- Adjusted EBITDA rose 18.2% to $1,087.3 million, with Adjusted EBITDA margin improving to 31.0% from 30.6%.
- Net income attributable to Iron Mountain declined to $104.8 million from $123.2 million, reflecting higher interest expense of $310.7 million and Recall costs of $131.9 million.
- Total long-term debt increased to approximately $6.3 billion, and the weighted average interest rate was 5.2% at December 31, 2016.
- The Recall acquisition involved about $331.8 million in cash and 50.2 million shares of common stock, with total purchase price of approximately $2,166.9 million, and required divestitures of several businesses completed during 2016.
- Management guides 2017 internal storage rental revenue growth of approximately 2.0% to 2.5% and capital expenditures of approximately $320.0 million to $370.0 million.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 23, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $3.51B$3.01B | +16.7% |
| SG&A Expenses | $988.33M$844.96M | +17.0% |
| Operating Expenses | $3.01B$2.48B | +21.2% |
| Operating Income | $501.61M$524.53M | −4.4% |
| Net Income | $104.82M$123.24M | −14.9% |
| EPS (Basic) | $0.43$0.58 | −25.9% |
| EPS (Diluted) | $0.42$0.58 | −27.6% |
| Shares Outstanding (Basic) | 246.18M210.76M | +16.8% |
| Shares Outstanding (Diluted) | 247.27M212.12M | +16.6% |
05—Questions
Frequently Asked Questions
What drove the increase in Iron Mountain's 2016 revenue and earnings?
Revenue rose to $3,511.5 million from $3,008.0 million, primarily because of the Recall Transaction, which closed May 2, 2016. Net income attributable to Iron Mountain fell to $104.8 million from $123.2 million, mainly due to higher interest expense ($310.7 million vs. $263.9 million), $131.9 million of Recall costs, and higher depreciation and amortization.
How is Iron Mountain's debt position and leverage described in the filing?
Total long-term debt was approximately $6.3 billion at December 31, 2016, with the net total lease adjusted leverage ratio at 5.7 versus a maximum allowable of 6.5 under the Credit Agreement. About 73% of total debt was fixed-rate, and the company stated it is operating above its long-term targeted leverage ratio.
What dividend does Iron Mountain pay and how is it treated for tax purposes?
The board declared a dividend of $0.55 per share on February 15, 2017, payable April 3, 2017. Dividends declared in 2016 totaled $2.04 per share. For 2016, 45.5% of dividends were nonqualified ordinary dividends, 21.0% qualified ordinary dividends, and 33.5% return of capital.
What are the main risks to Iron Mountain's business highlighted in the filing?
Key risks include failure to remain qualified as a REIT, shifts from paper and tape storage to alternative technologies, declining activity rates for stored records that reduce service revenue, pricing pressure, data security and breach exposure, foreign currency translation effects, and integration risk from the Recall acquisition.
06—Continue