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==Trends/Forces== ==Trends/Forces==
-====Business largely non-cyclical and partially shielded from recession====+====Business largely non-cyclical and stable====
-The nature of records-management leads to shielding from some events in the macroeconomic environment. The storage business is inherently-long term since records are kept for the long term and are mission critical to IRM's clients. This has fixed costs for customers, given space requirements of a box of paper filled with records. For each of the three years 2005 through 2007, loss of revenues from customers ending their contracts was less than 2% of total volume.<ref>[http://sec.gov/Archives/edgar/data/1020569/000104746908002061/a2183111z10-k.htm Iron Mountain FY 2007 10-K "Financial Characteristics of our Business" pg. 9]</ref> However although shielded, the company is not immune to downturn. During the prior economic slowdown of 2002-2003, non-acquisition growth slowed to approximately 6-9% year-on-year.<ref>[http://sec.gov/Archives/edgar/data/1020569/000104746908002061/a2183111z10-k.htm Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24]</ref>+The nature of records-management leads to stability outside of macroeconomic trends. The storage business is inherently-long term since records are kept for the long term and are mission critical to IRM's clients. This has fixed costs for customers, given space requirements of a box of paper filled with records. For each of the three years 2005 through 2007, loss of revenues from customers ending their contracts was less than 2% of total volume, so the impact of contract losses has also historically been slight.<ref>[http://sec.gov/Archives/edgar/data/1020569/000104746908002061/a2183111z10-k.htm Iron Mountain FY 2007 10-K "Financial Characteristics of our Business" pg. 9]</ref> However although protected, the company is not immune to downturn. During the prior economic slowdown of 2002-2003, non-acquisition growth slowed to approximately 6-9% year-on-year.<ref>[http://sec.gov/Archives/edgar/data/1020569/000104746908002061/a2183111z10-k.htm Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24]</ref>
====Need for data storage and information management partially mandated by regulation==== ====Need for data storage and information management partially mandated by regulation====

Revision as of 22:08, July 27, 2008

Iron Mountain Incorporated (IRM) provides sells information protection and storage services worldwide. The company helps its customers manage their records, protect data, discard documents securely (over 90% of the business), and archive digital files. These services help companies to reduce the costs and risks (such as litigation, regulatory compliance, and disaster recovery) associated with information protection and storage. IRM sells storage materials, including cardboard boxes and magnetic media, and provides consulting, facilities management, fulfillment, and other outsourcing services. The company also provides off-site data protection services, including backup and recovery services for vital computerized data. The physical backup business is IRM's traditional base of operations, but the digital segment was established recently and is part of the company's ongoing strategy to become a fully-integrated services provider.

The company has a diversified client base, and serves 93% of the Fortune 1000, and more than 90% of the FTSE 100 in some fashion.[1] The company only launched its digital business in 2004[2], and is migrating from a business that sells boxes, fills them with paper, and them put them in a safe cave underground, to a fully integrated data management provider. This presents opportunities in cross-selling and up-selling to its clients, and earning more higher-technology business in addition to the physical storage business. Since records-keeping storage of data is needed for the long-term, and firms are unlikely to bring this service back in-house after out-sourcing it, the nature of IRM's client base and "stickiness" is long-term, partially shielding IRM from the vagaries of the market and the economy at large. During the post-tech bust of 2001, IRM's revenue growth slowed less than the economy at large, to roughly 6-9% a year.[3]

Business Overview

Iron Mountain reports its business in 3 Segments - the North American Physical Business, the International Business, and Worldwide Digital Business.[4] However, for these segments, the activities the company engages in records management, data protection and recovery, and information destruction. The company saves paper and electronic data for storage, and can also help with disaster preparedness for its customers. For example, in the aftermath of the 9/11 Terrorist attacks, the company shipped over one million magnetic data tapes to 94 customers whose businesses were disrupted by the attacks.[5]

IRM's mainstay business is in storing physical paper documents and the materials associated with the storage. In effect, this means driving a van to the customer's location, filling it with documents in boxes that IRM has sold to its customers, driving them to a secure location for safekeeping and retrieval when the customer needs them. However, the company has begun entering the digital archival business as well. Although relatively immature, with much lower margins than the mature paper business, digital archival is an expansion opportunity to up-sell more services to IRM's large client base, which includes over 93% of the Fortune 1000.[6][7] The company's market penetration is high, and it has its "foot in the door", but not all clients use the full gamut of IRM services.

 The Physical business has better margins than the digital business, and the American business is more mature
The Physical business has better margins than the digital business, and the American business is more mature[8]
Operating Segment Results ($MM) 2005 2006 2007
North American Physical[9] 1,529.61,671.01,890.1
International Physical[10] 435.1539.3676.7
Worldwide Digital[11] 113.4140.0163.2
N.A. Physical Margin29%29%29%
International Physical Margin26%22%20%
Worldwide Digital Margin11%7%15%

The three businesses have grown at a 12%, 16%, and 39% CAGR between 2005 and 2007 respectively.[12] It is not a coincidence that this is inversely related to the margins achieved in each business, with the North American business with the best margins and the lowest growth. This is because of reasons of market saturation and maturity. However, regulatory requirements in the U.S. will likely preserve the physical business as a mainstay of the company's revenues.


Financial Analysis

 The overall business' revenue is growing slowly but steadily
The overall business' revenue is growing slowly but steadily[13]
($MM)[14] 2005 2006 2007
Storage1,181.61,327.21,499.1
Services and Materials896.61,023.21,231.0
Total Revenues2,078.22,350.32,730.0
Operating Income386.8407.2454.7
Operating Margin18.6%17.3%16.7%
Revenue Growth-13.1%16.2%

The company's revenues are nearly equally split between actual storage charges ($1.5B in 2007) and the associated services and materials charges ($1.2B in 2007)[15] Operating margins have been stable in the 15%-20% band, although they have decreased due to strategic acquisitions in two lower-margin markets: the international and the digital storage markets.[16]

Most of the company's revenues are earned in the original physical paper management business, but the other shares are growing
Most of the company's revenues are earned in the original physical paper management business, but the other shares are growing [17]
Revenues by Data type ($MM)[18] 2005 2006 2007
Physical Data and Shredding1,614.91,856.92,165.8
Physical Tape349.8353.5401.0
Digital113.4140.0163.2
Physical Data and Shredding Contribution77.7%79.0%79.3%
Physical Tape Contribution16.8%15.0%14.7%
Digital Contribution5.5%6.0%6.0%

As reflected in the Operating Segment information, most of the company's business is still physically oriented - the company ships boxes filled with paper and magnetic tape off-site to their secure locations for long-term safekeeping.

 The company is primarily American-based, but is exploring international expansion
The company is primarily American-based, but is exploring international expansion[19]
Geographic Share ($MM)[20] 2005 2006 2007
North America Share1,637.21,802.12,042.4
U.K275.4312.4368.0
Other165.5235.9319.6
North America Share78.8%76.7%74.8%
U.K. Share13.3%13.3%13.5%
Other Share8.0%10.0%11.7%

Reflecting the company's origin, almost 3/4s of total revenues were earned in the North American region in 2007.[21] The company has only limited foreign exposure, primarily in the U.K., which also outnumbers the share of all other foreign revenues 13.5% to 11.7%.ref>Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24</ref> This reflects the company's bias towards large companies needing data storage - many of which are HQ'd in North America and would thus like to keep their storage backups on hand in North America.

Trends/Forces

Business largely non-cyclical and stable

The nature of records-management leads to stability outside of macroeconomic trends. The storage business is inherently-long term since records are kept for the long term and are mission critical to IRM's clients. This has fixed costs for customers, given space requirements of a box of paper filled with records. For each of the three years 2005 through 2007, loss of revenues from customers ending their contracts was less than 2% of total volume, so the impact of contract losses has also historically been slight.[22] However although protected, the company is not immune to downturn. During the prior economic slowdown of 2002-2003, non-acquisition growth slowed to approximately 6-9% year-on-year.[23]

Need for data storage and information management partially mandated by regulation

Regulation like Sarbanes-Oxley is a tremendous boon to IRM's business, as it requires businesses to more fully document and store records of their business, which introduces an opportunity for records-managers. The company has authored a series of White-Papers on the implications of Sarbanes-Oxley for public businesses, furthur suggesting that it has benefited.[24] Such regulation not only gets the company new customers, but also helps it up-sell more services, such as email archival. Since Sarbanes Oxley, the company has grown from about $1.3B in revenues in 2002[25], to $2.7B in 2007, a two-fold increase in 5 years.

High acquisition/integration risk and international exposure

IRM has an extension acquisition history, acquiring over 150 companies since its IPO in 1996 (as of mid-year 2008).[26] These have given the unique global footprint in the records-management industry. However, these many acquisitions are risky, both in terms of the indebtedness they have placed the company in ($3.3B debt on $8.6B Enterprise value, approximately 1.5x equity:debt ratio)[27], as well as the integration risk associated with buying up many small companies and making them a part of of the big company's plan. Iron Mountain has stated that it has shifted its strategic focus away from acquisitions towards internal growth, but has not ruled out the possibility for more focused acquisitions.[28]

Competition

Iron Mountain is in a fair unique position of having no significant public competitors in its particular space, either in the United States or abroad. It acquired the major ones of note. Anacomp is a private competitor, but its scale is much smaller than IRM's. In addition, competitor MTI Technology (MTIC) filed for bankruptcy in 2007.[29] For much of the potential market, potential clients choose to use in-house storage.

However, as the company expands its digital offerings, it is beginning to step on the technology-services giants, such as International Business Machines (IBM) and EMC (EMC), who have large diversified operations that include digital data archival options for their clients.[30]

Market Share

According to JP Morgan research, IRM has roughly 33% market share for data records management in the United States and the only company in the industry with global reach. Iron Mountain is six times the revenues of its largest competitor in the United States and two times the size of its closest competitor in the U.K.[31]

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References

  1. Iron Mountain FY 2007 10-K "Customers" pg. 12
  2. Iron Mountain "Company History"
  3. Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
  4. Iron Mountain FY 2007 10-K "Segment Analysis" pg. 44
  5. Wall Street Journal (3 Star, Eastern (Princeton, NJ) Edition) "Iron Mountain Is at the Peak of Records-Storage Industry" September 18, 2001
  6. New York Times "Whoops! We Seem to Have Misplaced Your Identity" May 8, 2005
  7. Iron Mountain FY 2007 10-K "Customers" pg. 12
  8. Iron Mountain FY 2007 10-K "Segment Analysis" pg. 44-46
  9. Iron Mountain FY 2007 10-K "Segment Analysis" pg. 44
  10. Iron Mountain FY 2007 10-K "Segment Analysis" pg. 45
  11. Iron Mountain FY 2007 10-K "Segment Analysis" pg. 46
  12. Iron Mountain FY 2007 10-K "Segment Analysis" pg. 44-46
  13. Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
  14. Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
  15. Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
  16. SeekingAlpha Iron Mountain Q4 FY 2007 Earnings Call Transcript March 4, 2008
  17. Iron Mountain FY 2007 10-K "Segment Information" pg. 104
  18. Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
  19. Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
  20. Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
  21. Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
  22. Iron Mountain FY 2007 10-K "Financial Characteristics of our Business" pg. 9
  23. Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
  24. Silicon.com White Papers. "Email-Related Sarbanes-Oxley Compliance" April 2004
  25. Iron Mountain 2002 Annual Report
  26. Iron Mountain "10 Years - History"
  27. Yahoo Finance "IRM" July 23, 2008
  28. Seeking Alpha Iron Mountain Q4 FY 2007 Earnings Call Transcript, March 4, 2008
  29. MTI Technology "MTI Technology Corporation Announces Agreement to Sell European Operations and Commencement of Bankruptcy Proceedings" October 16, 2007
  30. Boston Globe. "Iron Mountain names Brennan chief executive" February 28, 2008
  31. JPMorgan Equity Research, "1Q08 Earnings Above Expectations; Reiterate Outperform Rating" May 2, 2008]
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