Iron Mountain and Envela Corporation Share Market Observations
The declining cost of electronic parts has had an adverse effect on Iron Mountain’s data center decommissioning operations. Despite this, a few ITAD and e-scrap companies succeeded in expanding company profits, despite slower economic activity.
For the second quarter of 2023, Iron Mountain and Envela Corporation, which are both publicly traded companies, reported their financial performance. These reports shed light into the data center decommissioning, e-scrap recycling, and ITAD markets.
The second quarter saw Iron Mountain’s Asset Lifecycle Management’s revenues dragged down by component prices, although various types of memory were starting to rise. In addition, the company is taking steps to move away from working with China as its main market.
Conversely, Envela’s family of ITAD, remarketing and e-scrap recycling companies in the Southwest went through a period of decreased revenue and gross profit. Fortunately, this was accompanied by an increase in their overall recorded profit margin.
The competitive prices of secondhand electronics sourced from data centers have had a detrimental effect on Iron Mountain’s ITAD and data center decommissioning business, resulting in lower revenues for the company.
During the second quarter, a financial supplemental report revealed that revenues generated by the Asset Lifecycle Management (ALM) division of the firm had plummeted year-on-year by 49 percent, totaling $43 million.
Iron Mountain Acquires 80 % of ITRenew
At a cost of $718 million, Iron Mountain recently purchased 80 percent of ITRenew to expand its ALM portfolio. This line-item falls under Iron Mountain’s “Corporate and Other” segment, which also contains a fine art management business along with administrative costs.
In its most recent quarterly report, it was noted that there had been a decrease in service revenue within the ALM branch. This was “as a result of component price declines, partially offset by increased volume.” It was further stated that it anticipates prices for used electronics “to improve from current levels.”
“Turning to asset lifecycle management, we continue to see muted pricing for the largest part of this business, which relies on reselling used memory, hard drives and CPUs we receive from hyperscalers,” the company’s president and CEO, William Meaney, stated during a call with investors.
“That being said, pricing is stabilized, and we do expect to see an improvement as we head into next year. Moreover, you will recall that our ALM business has three components: hyperscale decommissioning, which is highly dependent on component pricing; enterprise ITAD or IT asset disposition; and original equipment manufacturers or OEMs. In these later categories, we are seeing marked growth and traction.”
As evidenced by a contract with Iron Mountain, a long-term customer in the health care industry is taking advantage of the firm’s record management services to manage its IT assets across 2,000 locations in the United States. Meaney stated that Iron Mountain’s duties will include the recovery, decommissioning, disposal and/or recycling of the assets.
Iron Mountain’s CFO Offers Insight
Barry Hytinen, Iron Mountain’s CFO, drew attention to the fact that many of the electronics recovered by Iron Mountain are shipped to China. And, recent virus-related restrictions put in place by the country have made it difficult for year-over-year comparisons. Yet, as the new half of the year begins, conditions are expected to become more favorable.
At the start of this year, when China’s lockdowns were being relaxed, Iron Mountain witnessed an uptick in component sales but “pricing declined to record low levels.” This affected all of the components the organization provides, ranging from memory to CPUs.
Analysts in the industry have suggested that towards the end of this year, and much more noticeably by 2024, there is expected to be a rise in secondary market costs. “To be prudent we have not factored any pricing improvement into our outlook for 2023,” Hytinen commented.
Notably, in the second quarter of 2023, the ALM business’s revenue saw an increase of 4 percent from the first quarter. Additionally, due to OEMs cutting down their manufacturing process for new components, Iron Mountain noticed an increase on its pricing for types of memory.
During the interview, Hytinen also discussed the efforts that the ALM segment has taken to diversify its sales and expand outside of China.
“We are making steady progress, but it is slow because, of course, as we’ve said before, China is the main market for us in that regard,” he stated. “But we are looking at and branching into throughout Southeast Asia there are opportunities we think over the intermediate term in India. We certainly have been selling more components into the U.S. and Europe as well, and that’s a key focus, as well as the Mid-East.”
Envela Corporation Reports Challenges
The second quarter of 2023 proved to be a difficult one for Envela Corporation, which owns various ITAD and e-scrap recycling firms. However, while the company’s revenue and earnings decreased compared to figures from previous quarters, they were able to increase the overall profit margin.
Envela Corporation, which is listed on the public market, has two different divisions. One is focused on the retail sales of jewelry and other luxury items aimed at the consumer segment, while the commercial sector deals in electronic reuse and recycling.
Echo Consolidated Holdings Group is now known as ‘the commercial segment’ and encompasses a range of companies, all but one situated in Carrollton, Texas. These consist of e-scrap processor Echo Environmental, ITAD businesses Avail Recovery Solutions (Chandler, Ariz) and ITAD USA, Teladvance mobile phone reseller, and CExchange trade-in firm.
This past quarter, the commercial sector brought in $10.7 million in sales revenue, a decrease of 13 percent compared to 2022. There was also a decline of 9 percent year-over-year for gross profit at $6.7 million, with profit margin seeing an increase of 63 percent, up from 59 percent.
A Focus on Reuse and Recycling
Throughout 2022, the commercial division posted a profit margin of 55 percent, with the most recent financial disclosure showcasing the reuse and recycling data.
An analysis of current financials revealed a decline in the device resale business with revenues amounting to $7.6 million, a 17 percent decrease compared to last year. Gross profit hit $5.1 million, which was down 9 percent, but interestingly, overall profit margin was still 67 percent despite this, an increase from 61 percent. When asked to explain the discrepancy between revenue and profits, company representatives explained that it is likely due to fewer devices being bought and sold overall.
Revenue for the recycling segment came to a total of $3.1 million, representing a 3 percent drop year-over-year. With that, gross profit was seen at $1.6 million, but still showed a 6 percent decrease. Ultimately, the profit margin was 52 percent, down from its previous 54 percent. The firm again cited lower materials handled as an influencing factor.
Regarding outlays, Envela has forecasted an expenditure of approximately $2.5 million within the upcoming twelve months.
“These expenditures will be driven by the purchase of additional equipment and potential property purchases by both segments seeking to expand the Company into other markets,” the filing concluded.
