Iron Mountain Incorporated Q2 FY2025 earnings call

• Delivered record financial performance with quarterly revenue, adjusted EBITDA, and AFFO at all-time highs.
• Increased guidance across key financial metrics: revenue 12% to $1.7 billion, adjusted EBITDA 15% to $628 million, AFFO 15% to $370 million.
• Strong execution of strategic priorities: continued revenue growth in physical storage, AI-powered digital solutions, growth in Data Center business, and acceleration in Asset Life Cycle Management.
• Recent customer wins: U.S. bank for records storage, health care customers in U.K. and Norway, major global SaaS company for digital HR solution, acquisition of CRC India, and wins in digital solutions with government and other enterprises.
• Data Center business had 26% organic storage growth, 23 megawatts commenced, and 25 megawatts renewed. Pricing remained strong.
• Asset Life Cycle Management business had 42% organic growth, with wins in enterprise and data center decommissioning channels.

Global RIM Business

• Record second quarter revenue of $1.32 billion, up $73 million year-on-year. Storage organic growth 6% year-on-year driven by revenue management and consistent volumes. Organic service revenue up 5% with contributions from digital and core services. Global RIM adjusted EBITDA was $586 million, an increase of $38 million year-on-year. Global RIM adjusted EBITDA margin of 44.3% was up 40 basis points from last year, driven by operating leverage and revenue management.

Global Data Center Business

• Total Data Center revenue was $189 million in the second quarter, an increase of $37 million year-on-year. Organic storage rental growth increased 26%, driven by lease commencements and continued strong pricing trends. Second quarter Data Center adjusted EBITDA was $96 million, up 46%. Adjusted EBITDA margin was up 760 basis points from the second quarter of last year. For 2025, Data Center revenue is expected to be nearly $800 million, approaching 30% growth.

Asset Life Cycle Management Business

• Total ALM revenue was $153 million, an increase of $63 million or 70% year-over-year. On an organic basis, organic growth was 42%. The ALM business performed well driven by strong execution, volume increases in both enterprise and data center decommissioning businesses and improved component pricing trends.

• For full year 2025, total revenue expected to be within $6.79 billion to $6.94 billion (12% growth at midpoint), adjusted EBITDA within $2.52 billion to $2.57 billion (14% growth at midpoint), AFFO within $1.505 billion to $1.53 billion.
• Third quarter 2025 expected revenue ~$1.75 billion, adjusted EBITDA in excess of $650 million, AFFO ~$385 million.
• Data Center revenue expected to be nearly $800 million in 2025, with growth in excess of 25% in 2026, expecting revenue in excess of $1 billion.
• India acquisition expected to add ~$8 million to second half results.

Q: You mentioned the data center signings came in larger than expected and trimmed your guidance for data center new lease signings. Can you elaborate on what you're seeing in the Data Center business that's causing the slowdown?

A: The market remains strong, but in the first half, customers were prioritizing large campuses for large language models. Now they're refocusing on inference campuses and cloud build-out, which is the market Iron Mountain plays in.

Q: Just a follow-up on the data center discussion, do you think that a lot of this is just timing and do you suspect that based on the power delivery timelines you have in places like Virginia and Richmond and maybe a kind of shrinking book-to-bill window from some of the hyperscalers versus a few years ago that the outlook for data center leasing will kind of improve into 2026? And related to that, given the slightly softer outlook, does this have any impact on how you think about data center CapEx beyond this year?

A: It's more a focus shift on large language models. Over the next 2-3 years, power availability for key campuses is good. Vast majority of data center growth capital supports pre-leased assets, which are 100% leased and clients are ready to turn on, so no change in capital deployment.

Q: I just want to pivot a little bit more now to the ALM business, which came out particularly strong. I was just wondering if you could parse the ALM growth in the quarter, how much was enterprise versus data center? How much was volume versus component pricing? And just the trajectory that you're seeing from your clients right now? And are you going to kind of break that out as a separate unit in the near future given the growth that we're seeing there?

A: ALM growth was balanced between enterprise and data center. Volume was the vast driver, with pricing contributing single-digit million increase year-on-year. Clients see synergies with existing relationships. No immediate plan to break out as separate unit but pleased with ALM's support of multiyear growth plan.

Q: Following up on that topic, hyperscale decommissioning. You mentioned a couple of wins in your prepared remarks. I think one of them you mentioned might have been competitive. But can you talk a little bit about the industry dynamics in a sector that's still fragmented? And when you win business from a competitor, what are some of the factors behind that? And then what are you seeing in terms of the pipeline going forward for the sector around hyperscale decommissioning?

A: Strength lies in ability to do decommissioning on site, secure chain of custody, flexibility to reuse/recycle as clients want, and global footprint. Pipeline is good due to synergies with data center development business and large TAM, with enterprise side being even larger and fragmented. Clients turn to few vendors, and Iron Mountain's global footprint is compelling.

Q: I wanted to ask a margin question. I think you cited 47% flow-through. Is there anything unusual propping up that figure? And how do you think about the trajectory going forward?

A: 47% flow-through is due to Global RIM's strong margin, Data Center business reaching 50+% EBITDA margins, and ALM business seeing improvement in trend. All businesses continue to see improving margin trends.

Q: Can you -- I appreciate the details you gave around the treasury contract, but maybe just help us understand the kind of puts and takes there. If I recall correctly, it was announced on the first quarter call, but it wasn't included in guidance. And then the press release suggested that it was going to be rebid, but now it sounds like you are generating some revenue from it already. So maybe just walk us through the path there and what we should expect going forward?

A: Initial $140 million contract is being executed, with digitization work for treasury ramping up. Most revenue expected in 2026 due to seasonality. Bidding for larger, longer-term contract ongoing, with $1 million revenue recognized in Q2 and sub-$5 million expected in Q3.

Q: Great. Thanks for all the detail. Can you just, Barry or Bill, just -- you said it quick, I just want to make sure, on the megawatts, kind of the targets this year, is it $20 million to $80 million? What was the initial targets? And what have you signed year-to-date? I just want to make sure I have the numbers down.

A: Expected range for 2025 is 30 to 80 megawatts. Year-to-date, 6 megawatts leased. Customers were more focused on large language model campuses in first half, but pipeline remains robust with 500 megawatts available in next 2-3 years in key markets.

Q: This is Alex Hess on for Andrew. Just wanted to review maybe the way you guys are positioned in the data center ecosystem broadly. Obviously, there's been a ton of funding for the market of late, including from private capital. But you've also got a sort of tougher reinvestment phase, one of your large competitors where you guys made a large hire from. Can you highlight for us just sort of where you feel you were positioned in today's ecosystem, where you're advantaged, and maybe opportunities for you guys to be an important participant in the next juncture of the AI rollout?

A: Customers have shifted focus from large language model campuses to inference in cloud and build-out, which is where Iron Mountain plays. Prime properties in Northern Virginia, Richmond, Amsterdam, Chicago, Madrid with 500 megawatts available in next 2-3 years. Differentiated by available power and focus on AI inference and cloud build-out.

Q: I just want to ask if you can talk a little bit more about the growth in the digital business. How much was it, some of the additional capabilities that are being added in? And with these additional capabilities, how differentiated is what you have versus no other items that are out there in the market?

A: Digital business has strong growth, with DXP platform enabling end-to-end workflow. Secret sauce is ability to put structure around unstructured data, as seen in win with SaaS company. Projecting a run rate of over $500 million, $540 million this year, with potential to expand quickly due to opportunities like the Department of Treasury contract.