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WIKI ANALYSIS
Iron Mountain Incorporated (IRM) helps customers manage records, protect data, archive digital files, and discard documents securely. The lion's share of IRM's business (80% of 2007 revenues) is in storing and discarding physical paper documents. 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. Companies need IRM's services because of compliance regulations - they need to keep information on file for a certain amount of time to protect against lawsuits, and proprietary information must be discarded securely when it is no longer needed.
The company has a diversified client base - it serves 93% of the Fortune 1000, and more than 90% of the FTSE 100 in some fashion.[1] But while its client list is impressive, IRM's clients keep many of their data management functions in-house, so IRM only controls 33% of the overall market. The company's digital segment represents less than 10% of IRM's revenues, but it is a key to the company's growth strategy as it looks to become a fully-integrated data services provider.[2] This segment presents opportunities in cross-selling and up-selling to existing clients and earning more high margin, high-tech business in addition to the physical storage business.
Record keeping and data storage are long-term needs for a company, and most firms are unlikely to bring this service back in-house after out-sourcing it. Thus the nature of IRM's client base and "stickiness" is long-term, partially shielding IRM from the ebbs and flows of the economy at large. For example, 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.
| Operating Segment Results ($MM) | 2005 | 2006 | 2007 |
| North American Physical[9] | 1,529.6 | 1,671.0 | 1,890.1 |
| International Physical[10] | 435.1 | 539.3 | 676.7 |
| Worldwide Digital[11] | 113.4 | 140.0 | 163.2 |
| N.A. Physical Margin | 29% | 29% | 29% |
| International Physical Margin | 26% | 22% | 20% |
| Worldwide Digital Margin | 11% | 7% | 15% |
The three businesses have grown at a 12%, 16%, and 39% CAGR between 2005 and 2007 respectively.[12] It is not a coincidence that this is inversely related to the margins achieved in each business, with the North American business with the best margins and the lowest growth. This is because of reasons of market saturation and maturity. However, regulatory requirements in the U.S. will likely preserve the physical business as a mainstay of the company's revenues.
Contents |
Financial Analysis
| ($MM)[14] | 2005 | 2006 | 2007 |
| Storage | 1,181.6 | 1,327.2 | 1,499.1 |
| Services and Materials | 896.6 | 1,023.2 | 1,231.0 |
| Total Revenues | 2,078.2 | 2,350.3 | 2,730.0 |
| Operating Income | 386.8 | 407.2 | 454.7 |
| Operating Margin | 18.6% | 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 ($1.2B in 2007)[15] Operating margins have been stable in the 15%-20% band, although they have decreased due to strategic acquisitions in two lower-margin markets: the international and the digital storage markets.[16]
| Revenues by Data type ($MM)[18] | 2005 | 2006 | 2007 |
| Physical Data and Shredding | 1,614.9 | 1,856.9 | 2,165.8 |
| Physical Tape | 349.8 | 353.5 | 401.0 |
| Digital | 113.4 | 140.0 | 163.2 |
| Physical Data and Shredding Contribution | 77.7% | 79.0% | 79.3% |
| Physical Tape Contribution | 16.8% | 15.0% | 14.7% |
| Digital Contribution | 5.5% | 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 tapes off-site to their secure locations for long-term safekeeping.
| Geographic Share ($MM)[20] | 2005 | 2006 | 2007 |
| North America Share | 1,637.2 | 1,802.1 | 2,042.4 |
| U.K | 275.4 | 312.4 | 368.0 |
| Other | 165.5 | 235.9 | 319.6 |
| North America Share | 78.8% | 76.7% | 74.8% |
| U.K. Share | 13.3% | 13.3% | 13.5% |
| Other Share | 8.0% | 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%.[22] 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.[23] 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.[24]
Need for data storage and information management partially mandated by regulation
Regulation like Sarbanes-Oxley Act of 2002 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. Sarbanes-Oxley in particular concerned financial reporting, and required companies to keep better records of their transactions and other obligations that hadn't been required before. This in turn gave opportunities to IRM. The company has authored a series of White-Papers on the implications of Sarbanes-Oxley for public businesses to help customers transition[25], and has since grown from about $1.3B in revenues in 2002[26], to $2.7B in 2007, a two-fold increase in 5 years. Such regulation not only gets the company new customers, but also helps it up-sell more services, such as email archival, since these services are also necessary in the face of regulatory oversight, such as email subpoenas.
High acquisition/integration risk and international exposure
IRM has an extensive acquisition history, acquiring over 150 companies since its IPO in 1996 (as of mid-year 2008).[27] These have given the company a unique global footprint in the records-management industry. However, these many acquisitions are risky. For one, they have given the company a high debt-load ($3.3B debt on $8.6B Enterprise value, approximately 1.5x equity:debt ratio)[28]. In addition, there is integration risk associated with buying up many small companies and making them a part 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.[29]
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. However, for much of the potential market, clients choose to use in-house storage, lowering Iron Mountain's market share despite a high market penetration. 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.[30]
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.[31] Some cooperation is in place among these players as of 2008, since the market is at an early-stage[32], but unless the larger competitors are willing to give up on this space, it may evolve into a larger fight.
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. Despite a 93% penetration of Fortune 100 companies, the overall market share is still low, since the market share considers entire-market opportunity, including firms who still keep records-management operations in-house. In addition, the 93% figure includes firms that Iron Mountain only has a single service, or regionally-based service with.
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.[33]
References
- ↑ Iron Mountain FY 2007 10-K "Customers" pg. 12
- ↑ Iron Mountain FY 2007 10-K "Segment Information" pg. 104
- ↑ Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
- ↑ Iron Mountain FY 2007 10-K "Segment Analysis" pg. 44
- ↑ Wall Street Journal (3 Star, Eastern (Princeton, NJ) Edition) "Iron Mountain Is at the Peak of Records-Storage Industry" September 18, 2001
- ↑ New York Times "Whoops! We Seem to Have Misplaced Your Identity" May 8, 2005
- ↑ Iron Mountain FY 2007 10-K "Customers" pg. 12
- ↑ Iron Mountain FY 2007 10-K "Segment Analysis" pg. 44-46
- ↑ Iron Mountain FY 2007 10-K "Segment Analysis" pg. 44
- ↑ Iron Mountain FY 2007 10-K "Segment Analysis" pg. 45
- ↑ Iron Mountain FY 2007 10-K "Segment Analysis" pg. 46
- ↑ Iron Mountain FY 2007 10-K "Segment Analysis" pg. 44-46
- ↑ Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
- ↑ Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
- ↑ Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
- ↑ SeekingAlpha Iron Mountain Q4 FY 2007 Earnings Call Transcript March 4, 2008
- ↑ Iron Mountain FY 2007 10-K "Segment Information" pg. 104
- ↑ Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
- ↑ Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
- ↑ Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
- ↑ Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
- ↑ Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
- ↑ Iron Mountain FY 2007 10-K "Financial Characteristics of our Business" pg. 9
- ↑ Iron Mountain FY 2007 10-K "Selected Financial Data" pg. 24
- ↑ Silicon.com White Papers. "Email-Related Sarbanes-Oxley Compliance" April 2004
- ↑ Iron Mountain 2002 Annual Report
- ↑ Iron Mountain "10 Years - History"
- ↑ Yahoo Finance "IRM" July 23, 2008
- ↑ Seeking Alpha Iron Mountain Q4 FY 2007 Earnings Call Transcript, March 4, 2008
- ↑ MTI Technology "MTI Technology Corporation Announces Agreement to Sell European Operations and Commencement of Bankruptcy Proceedings" October 16, 2007
- ↑ Boston Globe. "Iron Mountain names Brennan chief executive" February 28, 2008
- ↑ Boston Globe "Ascent to the Top of Iron Mountain" June 29 2008
- ↑ JPMorgan Equity Research, "1Q08 Earnings Above Expectations; Reiterate Outperform Rating" May 2, 2008]
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