Iron Mountain Inc (IRM) — Q3 2025 Earnings Call Transcript

Thanks, Chad. Good morning, everyone, and welcome to our third quarter 2025 earnings conference call. Joining us today are Bill Meaney, our President and Chief Executive Officer; and Barry Hytinen, our Executive Vice President and Chief Financial Officer. After our prepared remarks, we'll open the lines for Q&A. Today's call will include forward-looking statements, which are subject to risks and uncertainties. For a discussion of the major risk factors that could cause our actual results to differ from these statements, please refer to today's earnings materials, including the safe harbor language on Slide 2 of the earnings presentation and our annual and quarterly reports on Form 10-K and 10-Q. Each of these items, as well as reconciliations of non-GAAP financial measures referenced during this call can be found on our Investor Relations website. With that, I'll turn the call over to Bill.

Thank you, Mark, and thank you all for joining us to discuss our third quarter results. We are pleased to report that our team has delivered another quarter of record financial performance and double-digit growth. We achieved an all-time high for quarterly revenue, adjusted EBITDA and AFFO, driven by strength across our business. Revenue increased 13% to $1.8 billion. Adjusted EBITDA grew 16% to $660 million and AFFO increased 18% to $393 million. Our exceptional performance in the third quarter is a result of our team's unwavering focus on meeting our customers' needs with innovative solutions and consistent execution of our strategic priorities. We are delivering revenue growth in our physical storage business, achieving record revenue in Q3, driven by consistent volume growth and higher retention rates as well as revenue management. Our Digital Solutions building business is building momentum. We are winning new contracts with our AI-powered digital solutions across industry verticals and drove record revenue and continued double-digit growth in the third quarter. We are capitalizing on robust data center industry demand with 33% revenue growth in Q3 and a strong outlook that supports more than 25% growth in 2026 based on our currently signed leases. Additionally, we saw a nice uptick in Q3 leasing and into Q4, which together with our pipeline, puts us in a good position to execute against our portfolio capacity of 1.3 gigawatts. We are driving substantial growth in our asset life cycle management business, increasing revenue with existing customers and winning new business through cross-selling, resulting in 65% reported and 36% organic growth in the third quarter. And we expanded profitability with adjusted EBITDA increasing 16% and margin improving 110 basis points as compared to last year. This clearly shows that we have strong momentum behind our commitment to sustain industry-leading revenue and earnings growth. Our portfolio of growth businesses, including data center, digital and ALM drove two-thirds of our revenue growth in the quarter or eight percentage points on a consolidated basis. This will remain an important tailwind going forward as the growth portfolio further increases as a percentage of total revenue, expected to be nearly 30% of total revenue exiting 2025. This is on top of the strength in our physical storage business, which is growing at a mid-single-digit rate and will contribute approximately five points of consolidated growth in 2025. The momentum across our business, as I just highlighted, along with our foundation of established relationships and trust with over 240,000 customers, comprehensive solutions offering, reputation for security and a global footprint firmly position us to deliver our growth commitment for the foreseeable future. Based on our strong outlook and excellent 2025 results, our Board of Directors authorized an increase of our quarterly dividend by 10%. Let me now share some recent commercial wins that illustrate the strength of our synergistic business model. First, in records management in Europe, we were selected as the single vendor for medical record storage for a hospital that has been a customer for more than 15 years, displacing a competitor. Additionally, we secured a new customer with a public sector entity that could no longer manage and store its records in-house. Both of these deals were attributed to our strong reputation for secure records management and our proven ability to provide efficient and cost-effective services. In our Digital Solutions business, we continue to win new business with our DXP platform. In late October, we successfully launched our Insight DXP 2.0 platform. The new platform offers enhanced content management and smart document processing, an easy-to-use secure platform with workflow tools and AI agents. This will allow the customer to make faster and more insightful decisions as well as eliminate obsolete and duplicative data to save costs. And as it relates to our digital award with the Department of Treasury, in September, Iron Mountain was awarded a new long-term contract for digitization services. This new five-year contract with a value of up to $714 million expands our current scope of work subsuming the contract awarded to us in April. This is a significant win for Iron Mountain, and we are thrilled to continue supporting the United States government on this efficiency opportunity. We are currently executing under the new agreement and collaborating with the department on next steps while preparing for the high seasonal volume expected in the spring of 2026. Let me now turn to our data center business. The data center market remains very strong, and we have seen leasing activity and pipeline pick up as hyperscalers resume their focus on building out inference and cloud capacity. We leased 13 megawatts in the quarter, including a couple of larger enterprise deals with financial services firms. And in early Q4, a key hyperscaler leased our entire 36-megawatt Chicago site, transferring and expanding the customer's previous lease of 25 megawatts in London for a net incremental 11 megawatts leased. This is a great outcome for the customer who is looking to transfer to the Chicago market and for us, given the strong interest we have in the London location they are vacating. This London site has the power coming online in 2026. We have high confidence in sustaining our data center revenue growth with the levels we have achieved over the past few years. This is underwritten by our pre-leasing backlog, strong pipeline as well as 450 megawatts, which is available for sale and will be energized over the next 18 to 24 months. These assets coming online within the next two years have a collective capacity, which is the size of our current operating portfolio. The large and expanding pipeline for these assets is from hyperscale customers having the highest credit quality. Turning to our asset life cycle management business. As we previously shared, ALM represents a major growth opportunity for Iron Mountain. The market is very large and highly fragmented, and we are well positioned to capitalize on growth through expanding business with existing customers, gaining new customers through our cross-selling efforts and strategic acquisitions to expand our capabilities and geographic footprint. Our results in Q3 show that we are successfully capitalizing on this meaningful opportunity. And consistent with our strategy, in September, we acquired ACT Logistics, which further strengthens our ALM market leadership position in Australia. Let me now share some of our recent ALM wins that support our confidence in the long-term opportunity. A leading financial services company with more than 200,000 employees globally has selected Iron Mountain as its ALM partner for the first time, building on our decades-long partnership for Records Management and Digital Solutions. Our established relationship, strong reputation for security and compliance and global footprint was an important factor in winning this deal. And a global company headquartered in Germany has engaged Iron Mountain to support a key decommissioning and remarketing program across six data centers in the U.S., Europe and the Asia Pacific region. Iron Mountain has also provided records management, digital and data center co-location services for this customer over many years. We are pleased to extend our solutions, thanks to our ALM team's operational scale and robust sustainability reporting capabilities, which are a critical requirement for this project. This relationship demonstrates the power of our synergistic business model where we successfully cross-sold all of our key lines of business to a long-term customer. In conclusion, I am proud of the exceptional results our dedicated Mountaineers have continued to deliver in 2025 and what that means to our shareholders as we announced another increase in our dividend of 10%. As you heard today, our record results are a testament to our strategic focus on customer needs, innovative solutions and consistent execution. Our strong business momentum continues to build and a tremendous growth opportunity continues to lie ahead of us. We are just scratching the surface of the $165 billion total addressable market for our services. With that, I'll turn the call over to Barry.

Thanks, Bill, and thank you all for joining us to discuss our results. As you've heard this morning, our team continues to successfully execute our strategy, driving strong revenue and earnings growth in the third quarter. We achieved record revenue of $1.75 billion, up $197 million year-on-year. This was an increase of 13% on a reported basis, 12% on a constant currency basis and 10% on an organic growth basis in the quarter. Total storage revenue was $1.03 billion, up $97 million year-on-year and up 9% on an organic basis. Total service revenue was $721 million, up $100 million from last year and up 10% on an organic basis. Adjusted EBITDA of $660 million was an all-time quarterly record and expanded $92 million or 16% year-on-year. This was $10 million ahead of the projection we provided on our last call, driven by operational strength and productivity across the business. Adjusted EBITDA margin was 37.6%, up 110 basis points year-on-year, which primarily reflects improved margins in our data center and ALM businesses. We continue to be pleased with our team's ability to deliver meaningful operating leverage, achieving an incremental flow-through margin of 47%, consistent with last quarter. AFFO was $393 million, up $61 million. This was also an all-time quarterly record and represented strong growth of 18% as compared to last year. And AFFO on a per share basis was $1.32, up 17% to last year. Now turning to segment performance. In our Global RIM business, we achieved record quarterly revenue of $1.34 billion, an increase of $78 million. RIM reported growth was 6%, including organic growth of 5% year-on-year. This was driven by revenue management, higher digital revenue and consistent organic volume. Storage revenue growth increased 5% on an organic basis and was up 6% absent a decline in Clutter revenue. As we discussed last year, Clutter's peak revenue was in the third quarter of 2024 before we began the actions to improve profitability. Global RIM organic service revenue was up 4.7% in the quarter, similar to last quarter, improving retention and consistent levels of destruction pressured revenue growth. All other services increased 7% on an organic basis, reflecting strong growth in our digital business. As it relates to the multiyear Department of Treasury contract, we recognized revenue of approximately $2 million in the third quarter and expect $4 million in the fourth quarter prior to building into tax season in the first half of next year. In the third quarter, we began to staff up to ensure we are fully ready to support the significant ramp in this contract. Global RIM adjusted EBITDA increased $29 million to $598 million, yielding an adjusted EBITDA margin of 44.7%. Turning to our acquisition in India. We are very pleased with CRC's performance with integration ahead of plan. In the quarter, CRC added $6 million to revenue, including $1.2 million to storage revenue, along with 7.4 million cubic feet of volume. For modeling purposes, it's important to note that while the margin for our storage business in India is similar to our margin in the U.S. and Europe, the price per cube is approximately 20% of our company average. As a result, the inclusion of CRC lowered our storage ASP by about 100 basis points in the quarter. Turning to our global data center business. Total data center revenue was $204 million in the third quarter, an increase of $51 million or 33% year-on-year. Organic storage rental growth increased 32%, driven by lease commencements and positive pricing trends. In the third quarter, new commencements were 3 megawatts. We renewed nearly 300 leases for a total of 11 megawatts. Pricing remained strong with renewal pricing spreads of 14% and 19% on a cash and GAAP basis, respectively. Third quarter data center adjusted EBITDA was $107 million, up $41 million year-on-year. Adjusted EBITDA margin was 52.6%, up 900 basis points from the third quarter of last year. Improved pricing, recent commencements and operating leverage were the key drivers of the margin expansion in the quarter. In the fourth quarter, we expect data center revenue growth in excess of 30%. We have high visibility to this forecast as we are commencing 36 megawatts of new leases. This will also drive meaningful EBITDA growth in the period despite beginning to lap the significant step-up in data center margin, which commenced in the fourth quarter of last year. Turning to asset life cycle management. Total ALM revenue was $169 million, an increase of $66 million or 65% year-over-year. On an organic basis, we delivered 36% growth. The strong performance was driven by our team's operational execution, particularly strong growth in our enterprise volume and component pricing trends. Our recent acquisitions are performing well and contributed $30 million to revenue. Regarding our acquisition of ACT Logistics, I should note this was completed in September and contributed less than $2 million to revenue in the third quarter. For modeling purposes, we expect the business will contribute revenue of approximately $7 million to our full year results. From a profitability perspective, our team drove expanded ALM margins in the quarter through improved operating performance across the business and acquisition synergies. Turning to capital allocation. We remain focused on growing the dividend and investing in high-return opportunities that drive double-digit growth while maintaining our strong balance sheet. In light of our performance in 2025 and outlook for AFFO, our Board increased our dividend by 10% effective with the January payout. This will mark the fourth consecutive year in which we increased the dividend and the third consecutive 10% increase. This aligns with our commitment to growing the dividend while maintaining a payout ratio of low 60s as a percentage of AFFO per share. In terms of capital investments, we invested $472 million of growth CapEx and $42 million of recurring CapEx in the third quarter. Turning to the balance sheet. With strong EBITDA performance, we ended the quarter with net lease adjusted leverage of 5.0 times, in line with our expectations for both the quarter and year-end. Reflecting our strong credit profile, our team successfully raised EUR 1.2 billion in a considerably oversubscribed debt offering, achieving a 4.75% fixed coupon maturing in 2034. We appreciate the continued long-term support of our fixed income investors. And now turning to our outlook. With strong performance in the third quarter, we are well on track for the year and are pleased to reiterate our full-year guidance ranges. For the fourth quarter, we expect revenue of approximately $1.8 billion, an increase of 14% to last year on a reported basis and up over 12% on a constant currency basis. Adjusted EBITDA of approximately $690 million, an increase of 14% to last year on a reported basis and up 12% on a constant currency basis. AFFO of approximately $415 million, an increase of 13% to last year on a reported basis and up 10% on a constant currency basis and AFFO per share of approximately $1.39, an increase of 12% to last year on a reported basis and up 9% on a constant currency basis. In conclusion, our team has delivered excellent year-to-date results, driving industry-leading double-digit revenue and earnings growth with record-setting performance across our business. We have strong momentum and significant long-term growth in front of us. I would like to express my thanks to our entire team for their best-in-class customer stewardship and commitment to Iron Mountain. And with that, operator, would you please open the line for Q&A?

I wanted to dive into your new $714 million 5-year contract with the U.S. Treasury Department. You mentioned expectations of high seasonal volumes in the spring of 2026. Can you talk more about the planned phasing of revenues, including whether the contract will ramp linearly across 5 years or whether it will be front-end loaded into 2026?

George, thanks for the question. Yes, I think, first, we're really excited to have the opportunity to work for the federal government on this project for the IRS. And as you can expect, it will be linear with slight growth as you go forward as people get added to the taxpayer role over that 5-year contract. So it isn't front-loaded per se. But there is a seasonality aspect to do with tax season, right, which is generally in the spring for most people. So we do expect a ramp. And we've already started building the capacity, obviously, upfront in terms of putting the people through the necessary clearance process so that they are ready to go when the season starts. But I think first and foremost, we are super excited about it. It's another proof point in terms of the technology that we've built with this DXP platform, which, as you remember, goes back to when we were the AI/ML partner of the year seven years ago with Google. So to me, it's another proof point that what we've built really resonates with customers. And in this particular case, the IRS, which is very sophisticated on these types of things.

Great. I wanted to touch on the ALM business. It looks like you expect about $600 million of revenue this year. I think that's a slight uptick from what you guided last quarter. And I wanted to kind of break down what you're seeing on volume versus price. We've seen a pretty significant increase in memory pricing recently in the last couple of months. Just wondering if you're starting to see that flow through at all in your results and how that could potentially influence growth rates as we look forward into 2026.

Eric, thanks for the question. ALM continues to be very strong, as you point out. And I would say you're correct. We're expecting now for the business to deliver approximately $600 million. That is up some from our guidance last quarter. If anything, we were probably being a little bit conservative with the numbers last quarter in light of the growth trajectory the business has been on. But look, 36% organic growth, and we're expecting something in that same vicinity again in the fourth quarter. So very strong performance coming out of the team. And it is volume-led and it's also enterprise volume led, as I mentioned on the call. And I think that's the important part as we build the business that the enterprise business, as you know, is the higher-margin business, and that's helping drive the improved profitability that we mentioned on the call and that you see in our results as well, Eric. You mentioned memory pricing. Certainly, pricing for some components on the data center decommissioning side has continued to rise. As you know, that can be very subject to change and really component by component. So we've seen some increases on memory. We've seen some increases on hard drives, but not everything is moving in the same, let's say, velocity. And as we get into next year, we'll be happy to update you on what we're seeing as it relates to commodity prices at that time. But we're basically using a current view of pricing for the fourth quarter as we traditionally do.

I was wondering if you could elaborate a bit on the data center pipeline and demand across both enterprise and hyperscalers as we've turned the page into next year.

Thank you, Tobey, for the question. As I mentioned earlier, we have observed a trend starting as early as August, where our largest hyperscale customers are returning to inference and cloud expansion. This was evident in our leasing activity during the quarter, including the 36 megawatts leased at the Chicago site for a customer who initially took 25 megawatts in London. We are definitely noticing an increase in this area. Additionally, looking at the pipeline we are developing for the 450 megawatts that will be activated over the next 24 months, the strength of that pipeline and the number of customers returning for cloud expansion and inference is significantly better compared to the first half of 2025.

I just wanted to follow up on the treasury contract. If I heard you correctly, it's up to $714 million over 5 years. Can you talk about what would get you to the high end versus what might be the low end of what you might be able to capture?

Thanks for the question, Brendan. It's volume, right? In other words, we have agreed pricing with the treasury, and it just is dependent on the volume and which forms that they actually send to us. But I have to say is that we're obviously preparing for tax season. So the team has been working very closely with the treasury. And the feedback from the customer in terms of what we're able to do with our models has been very positive.

Bill, I just want to go back to some of the data center leasing. It's certainly heartening to see we're starting to pick up in terms of the rate of leasing from the last few quarters to what you saw a little bit of an improvement now. I was just wondering, can you talk about how much energy capacity is expected to be energized in the next 12 months that could really spur like the near-term leasing activity? I'm trying to figure out over here is, are we going to start to go back to those quarters where you had some really large leasing numbers in the near term based on some of the stuff that's going to be lit up pretty soon?

Thank you for the question. I'm going to get specific about the 450 megawatts that will be energized over the next 24 months because that's what people tend to focus on. In the next 18 months, we expect to energize 250 megawatts, followed by another 200 megawatts in the next six months, totaling 450 megawatts. The reason I'm highlighting the 18-month mark is that most of our customers are large hyperscale clients that require a customized build-to-suit approach. Therefore, the 18 to 24-month timeframe is crucial, as it aligns with the time needed for design specifications and construction. To directly answer your question, we feel very confident as we move into 2026, as we have 250 megawatts that we can actively discuss with our customers and effectively deliver to them. Additionally, in six months after that, we will nearly double that capacity with another 200 megawatts. Looking at the bigger picture, we anticipate a 25% revenue growth in the data center segment next year, which is already secured through existing contracts and leases. With the 250 megawatts in the next 18 months and an additional 200 megawatts following, we believe we can sustain this revenue growth into 2027 and beyond.

And Shlomo, I'll just add a couple of more granular points to support that is the assets that we have coming on that are energizing are in some fantastic markets. If you look at what we've got in London, we have over 20 megawatts energizing soon. We've got Virginia. We have 28 megawatts. We've got quite a few megawatts energizing soon in Madrid, Miami, Amsterdam. So these are really Tier 1 markets. And then as you get to the outer time frame that Bill was speaking about, you get into some very large capacity in Richmond, which, as you know, is a significantly growing development zone as considerable capacity spills over from Northern Virginia into that market. The other thing I will just add is, as Bill was referring to, the backlog that we have for revenue even beyond 2027 is like $250 million of revenue that will be coming. That's just on the already pre-leased. So we feel like we've got a very good growth trajectory going forward for leasing, Shlomo.

It's Andrew. Could you comment anything on kind of really forward-looking CapEx targets kind of multiyear? Obviously, you raised your dividend here. I'm just really thinking that in the data center industry, there's a real shift towards these more mega projects. And just wanted to know the CapEx approach in '26 and beyond you might be doing to prepare for those opportunities.

Thank you for your question, Andrew. I'll begin, and then Barry can provide further details about what this means for our capital expenditures. The key issue underlying your question seems to be whether we plan to invest in the large language model campus build-outs at 1 gigawatt. We definitely explore large campuses, but our primary focus is on inference and cloud development. That said, it’s possible that someone might want to develop large language models at some of the campuses we’re considering that are over 500 megawatts. However, we are not actively pursuing that market, as our customer base and relationships are primarily centered on building out cloud infrastructure and inference.

And Andrew, I would just add that while we haven't provided guidance for next year, I want to share a couple of thoughts on capital. As we continue to build our pre-leased backlog, we will be spending capital expenditures on that. Given the positive outlook for additional leasing, you can expect that our data center capital expenditures will gradually increase with those expectations. The important point is that we are focused on building pre-leased assets rather than speculative projects. This means the capital is directed towards long-term contracts with high-return potential and clients that have strong credit quality, such as companies with market capitalizations of $500 billion or more.

Great. The one example, I think it was a net 11 megawatts leased. I guess when a client shifts like that, what drives that decision? And given kind of how diversified you folks are, would you expect more of that going forward? I wanted to start there if possible.

Thank you for the question, Kevin. While it's not common, we're always pleased to assist because, as you may have seen in a recent Wall Street Journal poll, we were recognized as the most customer-focused company among publicly traded companies in the U.S. This recognition reflects how we engage with our customers. In this case, the customer needed to shift their load, making Chicago a more important market for them than London. We agreed to accommodate this change, resulting in a very satisfied customer. Additionally, this situation worked out well for us too. The Chicago market is quite intriguing, and we managed to upsell the customer from 25 megawatts in London to 36 megawatts in Chicago. The space they are leaving behind in London is still in high demand for that 25 megawatts, which has always interested us. Moreover, the pricing has actually improved since they made the move to Chicago. It’s beneficial for everyone, even though it's not something we do frequently. As a company, we prioritize our customers, and we make every effort to help them when we can.

What I'd add, Kevin, just to make sure you're clear on this is the client had not commenced in London, right? So we were still in the process of building out that site. And so you wouldn't anticipate seeing this sort of activity on deployments that have already commenced in sites. And the other thing I'll just note is in light of the timing, it's a very good asset for us to be able to lease at higher prices going forward.

Just on the RIM storage business, can you comment on what you're expecting for volumes and pricing into Q4 and next year?

Nate, from a volume perspective, as you saw, our organic volume in physical storage continued to rise and very much in line with our trends of, I think it was 30, 40 basis points in the quarter. We continue to have a positive outlook for organic volume, and that includes next year and frankly, for the foreseeable future, our team continues to find ways to consolidate additional volume from our existing client base. Obviously, as you know, we win new clients, particularly in some of the emerging markets. And as we talked about so often, the volume that we bring in is very much an annuity stream. The average box is staying with us for nearly 15 years, and that has not changed. From a revenue standpoint, we continue to anticipate revenue management actions in that kind of mid-single-digit range. And that would be the case for the fourth quarter as well. I'll just note, we are now lapped over the Clutter consumer storage headwind. As I mentioned in the prepared remarks, that was the peak volume in the peak revenue in the third quarter of last year. The other thing I'll just mention, since it hasn't come up yet, but you asked about the quarters is we have assumed that FX is a little bit more challenging on a sequential basis as you've probably seen the dollar has strengthened recently. So that's embedded in our guidance as well, which I think speaks to the fact that we've got a very nice outlook in light of projecting 14% revenue growth in the fourth quarter.

Barry, I just want to get into kind of the mix of revenue. Both storage and services gross margins were down sequentially. And I assume that it's mix because that's usually what's going on, but I want to ask if you can confirm that and just give us a little bit more detail on the sequential movement.

Thanks, Shlomo. Yes. So if I break it down between the two, on storage, it's mostly about data center, particularly power. As you know, as our clients draw more power and commence, that's a pass-through. So we generate revenue, but we don't generate incremental profit. So if it wasn't for power, it would have been up actually. And so then the other thing that I should mention on storage is data center, as I've talked about before, is a lower gross margin for us on storage as a company. But as you know, it's a very accretive EBITDA margin, and the team is just doing phenomenally well with profitability in data centers. You saw the margins up to 52-plus percent. And that's also with the headwind of power, just as a reminder, on the EBITDA margin. On service, what you saw there in terms of the decline is, as you said, it's much about mix. It's all mix actually. So the ALM business continues to perform very strong as you saw the growth that we've been delivering both year-on-year and sequentially as well as digital. And as we talked about before, both of those are generally kind of lower-margin businesses for us than our average service. And lastly, I'll just point out with better retention rates, we have less permanent withdrawals and terminations. And that's a bit of a headwind to rate as well. But obviously, that's a very good story for the long term in light of seeing retention continue to rise over the last few quarters. Thank you, Shlomo.