Boston-based Iron Mountain Inc. includes expansion in Brazil as part of its new strategic plan designed to enhance stockholder value. The new plan is based on improving its international portfolio and continuing its position in North America, exploring alternatives for its digital business, committing to total stockholder payouts of about $2.2 billion through 2013 and forming a special committee to evaluate financing, capital and tax strategies.
By executing on these initiatives, Iron Mountain says it expects to achieve after-tax returns on invested capital (ROIC) of 11 percent in 2013, up from 7.7 percent in 2010. “These gains will be driven by a combination of higher profitability levels and lower capital intensity,” the company says in a press release announcing its new strategy. In particular, Iron Mountain says it will seek to achieve adjusted operating income before depreciation and amortization (OIBDA) margins of 32 percent while lowering capital spending (excluding real estate) to about 6 percent of revenue by 2013.
Iron Mountain says it also plans to optimize its international portfolio through targeted, market-specific initiatives designed to enhance the portfolio’s average ROIC. In mature markets where Iron Mountain already has a leadership position, it will continue to apply its best practices from the North America business. In mature markets where Iron Mountain does not have a leadership position, the company says it will implement improvement plans and evaluate exit alternatives if unable to achieve its targeted returns. Iron Mountain says it will continue to invest to support profitable growth and market leadership in emerging markets. The company says it is focusing on developing Brazil and furthering its joint venture efforts in Russia, India and China. “Successful implementation of this strategy is expected to drive a 700 basis point improvement in adjusted OIBDA margins and increase after-tax ROIC by 500 basis points to 8 percent in the international business by 2013,” the company says.
“Over the years we have built a great global business with strong operating performance, record cash flows and a strong balance sheet,” says Richard Reese, Iron Mountain chairman and CEO. “Driven by our focus on operational excellence, since 2006 Iron Mountain has increased adjusted OIBDA and free cash flow at compounded annual growth rates of 12 percent and 68 percent, respectively, well ahead of our solid 7 percent revenue growth. In addition, we initiated a stockholder payout program in 2010, comprised of a $350 million share repurchase program and a quarterly dividend, which was increased by 200 percent in December to an annual rate of 75 cents per share.”
Reese adds, “By concentrating on our core strengths, optimizing our international portfolio and increasing our commitment to stockholder payouts, we believe we can further enhance stockholder value.”
Iron Mountain says it will continue to invest in North America, including in its sales effort, to sustain cash flows and tap the unvended opportunity that exists in this market.
“Since 2007, Iron Mountain has driven significant improvements in North America’s gross margin (plus 800 basis points) and adjusted OIBDA margins (plus 800 basis points),” Reese says. “In addition, the company has reduced the segment’s capital expenditures as a percentage of revenues from 10.7 percent in 2007 to an estimated 4.3 percent in 2011.”
Iron Mountain says it is exploring strategic alternatives for its digital business, including a potential sale of its digital archiving, eDiscovery and online backup and recovery solutions.
Reese says, “We first entered the digital business 10 years ago as a natural extension of our core services to address a clear customer need. Recently however, our digital business has faced a number of challenges resulting from a rapidly changing environment. In light of these factors, our board and management undertook a strategic review of the digital business beginning last fall and concluded that the company could not continue investing in technology development and meet its return requirements and that exploring strategic alternatives for the digital business was in the best interest of Iron Mountain’s stockholders.” He adds, “As we move forward, Iron Mountain will continue to deliver technology services to solve our customers’ digital information management challenges through partnerships.”
Iron Mountain says it does not intend to comment on the strategic alternatives process unless and until a definitive agreement is reached.
Iron Mountain’s board of directors has committed to stockholder payouts of approximately $2.2 billion through 2013, with approximately $1.2 billion of capital returned to stockholders within the next 12 months through a combination of share buybacks, ongoing quarterly dividends and potential one-time dividends.
The company currently pays an annual dividend of 75 cents per share and says it intends to grow the dividend as earnings and free cash flow grow.
“Our commitment to significant stockholder payouts demonstrates the board’s confidence in our ability to grow our business profitably as we execute on our comprehensive strategic plan to enhance stockholder value,” Reese says.