Iron Mountain Marches On

Iron Mountain met analysts' estimates in its annual results today, buoyed by strong performance in storage and services, although the vendor is still struggling with its digital archiving business. (See Iron Mountain Reports Q4 and 2006 Top 10: On the Hot Seat.)

Speaking on a conference call this morning, CEO Richard Reese explained that there is plenty of work to do in this area. "The challenge is the large digital archive business -- that is still losing money," he said, adding that the firm is developing a new version of its back-end digital archive. "We will continue to invest in that -- it will have much lower operating costs," he explained.

Despite these issues, Iron Mountain posted a solid set of results, with revenues of $2.35 billion, up from just over $2 billion in the previous year, and in line with analyst estimates. The vendor also claimed $610 million in fourth-quarter revenues, an increase of 13 percent from the same period last year. Analysts had estimated quarterly revenues of just over $605 million.

For the quarter, Iron Mountain posted net income of $37 million, or 18 cents per share, up from $26 million, or 13 cents per share, in the year-ago period. Analysts had estimated earnings of 17 cents per share.

The CEO attributed this performance largely to the vendor's physical storage business, which grew 11 percent year-over-year in Q4. Services were also strong, growing 16 percent over the same period.Despite Iron Mountain's rosy figures, a fire that destroyed a facility in London last year was a blot on the vendor's financials. (See Iron Mountain Feels the Heat and Iron Mountain in Hot Water Again.) "The fire and the resulting expenses for clean up, security, etc., did affect our results for the year," said Reese, although he did not break out the exact amount.

At Iron Mountain's analyst day last October, execs predicted that fires at its facilities in London and Ottawa would have a $7 million impact on the firm's operating income for the second half of 2006. (See Smoke Clears for Iron Mountain and Iron Mountain Hosts Analyst Day.)

At least the vendor had the consolation of a $17 million insurance check that will be reported in the vendor's Q1 results, according to CFO John Kenny.

Execs on the call kept returning to the issue of technology, and CEO Reese was grilled by financial analysts over the firm's digital archiving business, which contributed less than 2 percent of total revenues in 2006.

Iron Mountain's overall digital business, which includes archiving, data protection and intellectual property services, contributed 6 percent to the vendor's overall revenues, a 23 percent increase on the previous year.One analyst asked Reese how long he would tolerate losing money on the likes of email archiving. "I have no idea, and I wouldn't tell if I did," he replied, adding that he is confident that the firm's digital archiving business "is going to do well."

Last year Iron Mountain told Byte and Switch that it had embarked on a major overhaul and expansion of its digital archive and associated services, starting with email. The company positioned it as significantly faster and larger than other offerings on the market.

Other vendors tackling this issue include Zantaz, which claims to store more than 11 billion emails in its own archive. (See Email Gets More Outsourced Options, Outsourcing Email Not an Easy Choice, Retention Rules Set to Change, and Insider: Email Archiving Hits Bottom.)

Email archiving has already proved to be crucial in at least one high-profile legal dispute, with the Securities and Exchange Commission (SEC) slamming Morgan Stanley with a $15 million fine when it was unable to produce email evidence in court. (See A Fine Mess.)

That said, CFO Kenny warned that the email archiving market is not as hot as some people may think. (See Managed Email: Who's Watching? and Email Archiving to Grow.) "This market, that was initially fuelled by a spate of litigation, has cooled off considerably," he said.Clearly, Iron Mountain has still got a lot of work to do in its own data centers. Kenny, for example, explained that Iron Mountain had to write off $5.3 million last year thanks to a "discontinued software project."

Iron Mountain nonetheless looks likely to follow up its acquistions of LiveVault and Connected with more technology M&A. (See Iron Mountain to Buy LiveVault and Iron Mountain Lands LiveVault.) "We will likely do more acquisitions in the digital space but there are also things that we will develop internally, said Reese.

James Rogers, Senior Editor Byte and Switch