Specialist
Former director at Iron Mountain Inc
Agenda
- Operating environment for Iron Mountain (NYSE: IRM), noting recent trends in record storage and occupancy/leasing rates
- Iron Mountain’s relative positioning vs competitors, both within RIM (record information management), and the digital cloud-based storage vertical
- Recent operating and financial performance – EBITDA and organic growth, and need to diversify revenue base
- Iron Mountain’s forward vision for the transition towards the digital enterprise information management and data centre space
- Outlook for Q4 2022 and beyond, including future of RIM facilities and their potential conversion to warehouses
Questions
1.
What are your thoughts on the current operating environment for Iron Mountain, highlighting 2-3 different key trends or drivers we should be paying attention to?
2.
How would you describe the evolution of Iron Mountain’s business in recent years? Where is the company coming from, where is it going and how is it potentially positioned to get there?
3.
How would you describe the current state of industrial storage or industrial logistics and warehousing from a real estate perspective?
4.
You mentioned one of the main key metrics specifically for Iron Mountain and other paper storage companies is paper storage volume. How would you describe the general demand environment for RIM [record information management]? The general perception is that it’s in sectorial decline.
5.
Based on Iron Mountain’s Q2 2022 earnings call, it seems the company had a pretty good H1 2022, recording an all-time record high for an EBITDA at USD 455m despite Fx headwinds, and it did achieve 13% total organic growth as well. What are the top 1-3 factors about the company model that you’d attribute most to this growth?
6.
Services comes into play when someone either puts something into storage or takes it out and chooses to destroy it through shredding or any other means. What are the general destruction dates of most of the physical volumes that Iron Mountain currently manages? It’s my understanding that these documents sit there until a certain period when they are valid or are required to be destroyed. Are we reaching a particularly close time when a lot of records are due for shredding?
7.
Iron Mountain’s management has also mentioned that a main driver of company growth is the corporate innovation, the breadth of the sector coverage. Part of that could be probably described by the fact that you covered lending, and that is such a paper-heavy sector as well. What would you consider to be the fastest-growing sectors in need of the company’s RIM service?
8.
We discussed that RIM is generally in sectorial decline, which means that, at least the smaller players are looking for their exit points sooner rather than later. Iron Mountain is long-established and very large, so it’s positioned quite differently. Do you think there’s any potential for M&A on the RIM side for the company to potentially acquire smaller players who are probably looking for exits right now?
9.
You mentioned that Iron Mountain does need to start looking for different revenue sources for moving forward, but in 2022, 88.5% of revenue is still from RIM. What are your expectations for the percent of revenue that could come from the data centre business within the next 1-3-5 years, and what growth rate
can we expect for this vertical?
10.
How confident are you that Iron Mountain can actually get away from RIM and grow this other data centre business fast enough to offset declines? You did mention 5-10 years, so it seems that the company does have some wiggle room for how fast it’s veered away from RIM.
11.
You mentioned the data centre business is probably likely to be the future of Iron Mountain. What do you consider to be the company’s differentiating factor compared to other data centre REIT [real estate investment trust] peers such as Digital Realty or Equinix? It’s a pretty saturated space, and it likely won’t be as dominant as it was in the RIM space.
12.
Could you discuss Iron Mountain’s use of innovative technologies? Is there RPA [robotic process automation], AI or other innovative tech? Does the company have this tech that enables it to scan mass documents for digitisation purposes? Where is the company currently in this digital transformation process?
13.
You noted Iron Mountain being a master of pricing. How aggressive can the company really be? What’s the price ceiling that you can identify based on the relativity of these prices? Can it increase these prices before it starts to actually lose its original clients who think, “If we’re going digital anyways, we’ve had some of our own scanning and transformation efforts within our own enterprise. The prices for us to store our old records are too high now, we’re going to pull out.”? What’s the risk of that, and how far can it go with this aggressive pricing to offset the loss of client reduction, generally speaking?
14.
What is your 10-12-year outlook for Iron Mountain? The RIM segment has decreased from 88.5% to, hypothetically speaking, 50%. How do you expect the company to start repurposing these RIM facilities? Does it convert them to data centres, or sell them? What does the relative NAV [net asset value] look like
for facilities designed for RIM?
15.
You’re saying that it’s not likely that Iron Mountain sells any of its assets, but rather that it would convert them into massive warehouses. There’s been news flow that there is now an excess of warehouse or logistic storage space as a result of the pandemic, and we saw phenomenon such as Amazon building too many fulfilment centres. How might this trend of excess storage space in the market be impacting the NAV of the company’s RIM assets? Can we see these warehouses’ values starting to plummet, given an over-saturation of storage space?
16.
Is there anything that you think Iron Mountain management is being overly optimistic about? You mentioned it as being quite smart and strategic, but is there anything you think the company is overshooting, perhaps in terms of the amount of market share it can assume with the data centre space?
17.
Iron Mountain has quite a large international footprint, operating in about 50 countries. In which exUS geographies do you believe the company is struggling the most?
18.
Is there anything additional you’d like to highlight regarding Iron Mountain?
19.
Can you discuss Iron Mountain’s development plans? Does it have any new facility development plans, or is it redeveloping any others in the states where it may exist? Is it encountering ESG regulations that are driving its OPEX or CAPEX to increase and forcing it to upgrade facilities?