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Iron Mountain's eDiscovery made 2010 a rusty mess

Services priced too high

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Iron Mountain's 2010 business was badly affected by mismanagement of its eDiscovery business, which lead to a $284m impairment charge.

Iron Mountain's revenues for the fourth quarter of its 2010 financial year were flat at $789m, just 1.2 per cent up on the year-ago quarter's $779m. Net income was $33m, down almost a half on the corresponding 2009 quarter's $61m.

Full year 2010 revenue was $3.1bn, up 3.4 per cent on 2009's $3.014bn, but 2010 saw a net loss of $54m compared to the previous year's profit of $221m. What caused the turnaround in a year when economies were recovering from recession and other storage companies made strong profits? It was down to a misconceived eDiscovery offering with services priced too high and insufficient business.

In an earnings call, CFO Brian McKeon said of the fourth quarter 2010 results: "Revenue gains were constrained by continued softness in core service activity levels and lower eDiscovery revenues."

McKeon said: "Our confidence in our business model and outlook supported our board's decision to increase our dividend by 200 per cent in December ... We're targeting moderate revenue growth despite expected constraints from continued soft core service activity trends and lower eDiscovery revenues."

He added: "Gains in our Physical business helped to offset a challenging year in our Digital segment. Economic pressures and recent challenges, specifically in our eDiscovery business, constrained growth and lowered digital profits this year."

eDiscovery business

Iron Mountain already had its Stratify Legal Discovery product, a cloud eDiscovery offering, when it bought Mimosa in February last year for $112m, with its NearPoint email, file and SharePoint archiving offerings. The NearPoint eDiscovery part of that complemented the Stratify product. The NearPoint offering was then going to be put into Iron Mountain's Total Email Management Suite, which was powered by Mimecast technology.

Also Mimosa's CEO, T M Ravi, became chief marketing officer for Iron Mountain Digital.

The eDiscovery business was intended to help Iron Mountain grow but the implementation was flawed.

Here's what McKeon said about eDiscovery and the fourth quarter: "In our Digital segment, reported revenues declined three per cent in the fourth quarter. Gains in backup and archiving services, reflecting our Mimosa acquisition, were offset by the divestiture of our domain name management product line and declines in eDiscovery revenues. Lower billing levels for eDiscovery in 2010 and the associated impact on deferred revenue recognition will continue to pressure overall Digital revenue growth in 2011."

The company aims to improve its eDiscovery business performance, integrating it better into the rest of Iron Mountain's business; it was previously pretty separate. The digital sales force is part of the physical sales force management structure. The service delivery side of the digital business will be similarly integrated.

McKeon said: "In Digital, our CloudRecovery in Digital archiving expanded last year, supported by our Mimosa acquisition. However, we experienced a rapid change in eDiscovery business, which declined 10 per cent and pressured our profits. We also had management execution issues in part of our Digital business that caused us to fell well short of our profit plan."

"These factors caused our Digital segments to suffer a contribution decline of 45 per cent. We’ve corrected these issues and reduced our cost structure in line with current revenues. The impact on revenue growth from eDiscovery will continue into 2011, but our cost actions will offset these impacts, sustain margins and position us well for profit gain as get growth back on track."

CEO Robert Brennan gave more details on the $50m eDiscovery business disaster in the year: "It was a combination of the pricing in the market plummeted very quickly as a result of secular trends in that space, and we weren't quick enough from an execution perspective to right our cost structure. We are righting that cost structure and I think we're doing a much better job identifying and pursuing new opportunities. So I'm confident that, that would stabilise that business. Although because of the way that we booked the revenue, the effects of the down of 2010 will flow into 2011."

Future growth will primarily come from investments in the physical Iron Mountain businesses and international business expansion, including purchasing third-party joint-venture interests and targeted acquisitions. ®

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