Conference Transcript - IRM 2026-09-29

John, Analyst — on for Brian Peterson)

pleased to have Iron Mountain, CEO and CFO with us. So Bill Meany and Bailey Hodgman, welcome. Thanks. Thank you, John. So we're going to hit on data center, some corporate topics, capital allocation. Let me start with data centers. The energization pipeline declined from roughly 450 megawatts to 325 over the past year as you leased capacity. And at the current leasing pace, the pipeline could substantially shrink within the next 12 to 18 months. So how are you thinking about the cadence and scale of the land and power replenishment needed to sustain 100 plus megawatts of annual leasing beyond next year?

Bill Meaney, CEO

Well, thank you, John. Maybe I'll start with that one. So I think, so first, you know, we're really happy with the leasing momentum that the business has built since January this year. As you noted that when we got on the Q2 call at the beginning of August, We had actually leased already something in the third quarter, 50 megawatts, which brings that land bank down to the 325 that gets energized over in the next 18 to 24 months that's not leased yet or is leasable. So first of all, we feel really good about that, right, over the next 18 to 24 months to have that much energized and fully permitted land available to talk to our customers about pipeline that we see across those assets is both wide and deep. So we feel really good about the momentum that the business is building over the next period. Then your question is really what's beyond that? Well, beyond that is if we think about it as a company, we think about maintaining that kind of freeboard, if you will, kind of the 300 plus megawatts over an 18 to 24 month rolling basis. And if we go the next period out, we have another 300 megawatts piece on additional land that is permitted and is committed to be energized by the utilities after that, 200 of which, I should say, is additional capacity coming online in Manassas. So if I look forward to the next 36 to 48 months, we feel really good. And that's not to say that we aren't continuing to build to our land bank. um in terms of um you know regions or markets um what's your sense of utility delivering type lines lengthening shrinking is it is it any any unexpected developments that you're sensing well i would say both both in north america and in europe they're definitely lengthening but that that being said you know the the land that we talked about when we talked about energize that's where we already have the power that's committed but you know that's why we're going out even further when we're actually acquiring land for the next, you know, 24 months after that. And I think those places have become constrained in terms of the amount of capacity. And the United States, you know, quite frankly, for decades, we relied on efficiency, you know, to take care of economic growth. And we didn't really build a lot of transmission or generating capacity. And now, you know, we see that we're making up for kind of lost time or kind of past sins. Europe has a similar dynamic. It's also a little bit more complicated in Europe because of trying to balance the renewables. We have a data center campus, obviously, in Madrid. I'm happy to say that functioned perfectly during the brownout last summer, but that was really trying to balance the increase of renewables into the grid. Then we go to India, where we is just at least over 50 megalombs, is I can't have a meeting with a chief minister or one of their deputies in one of the states in India where they say, how much power do you need? How much land do you need? We want our state to be the largest data cell market in India. So, you know, in India, we get a lot of support at every level to grow the business.

John, Analyst — on for Brian Peterson)

And then just the kind of the pie chart of demand, And that can fluctuate between enterprise hyperscale, social networking, AI, AI startups. But what are you sort of seeing and expecting over the next several quarters? And then what's your calculus around underwriting deals with AI startups, essentially?

Bill Meaney, CEO

Anyway, I'll start with the first bit, and I'll let Bradley talk about how we think about credit risk in terms of people that we lease to. I think in terms of where we see the demand is that, and I think we talked about this last year when we were here, is that Iron Mountain, at least to date, has not played in the large language model campuses. So, historically, it continues to be focused on what I would call the now inference, right, where they're actually going to run the models. And we still see that, you know, the top hyperscalers by far, you know, are very customers for leasing over 90 percent of our leasing activity as to the usual suspects that you think are the just most secure credit risk of the cloud providers and AI providers into the infrastructure across the globe. And those are typically 10 to 15 year leases. But there you might want to talk about some of the neoclouds and some of the other customers. Yeah.

Barry Hytinen, CFO

So, John, and thanks again for having us here. I would say that the pipeline is very robust, as Bill's mentioning. And we have done a lot of repeat business, as you know, with the major cloud hyperscalers. And I expect that the vast majority of our business going forward will be continuing with those very high investment grade type clients that we've become a clear partner to over many years now. As it relates to smaller clients or new upstarts, et cetera, we like all of our customers, of course, but I would say that it comes down to economics. And we really like the long-duration leases with the major high-profile cloud hyperscalers, the 10 to 15 years or younger that Bill was just alluding to. And we've been writing deals for the last few years in cash-on-cash-on-livered returns of like 10%, 11%, 12%, something of that nature. And, you know, we certainly get inquiries from other customers like Neoclouds and others. And to date, you know, our business with those, that portfolio of clients has been quite small. It's 5% or so of our portfolio. and uh that's partly because you know if you look at what we've had available we've generally been leasing it to the largest players in the industry john and so it hasn't even mentioned enterprise i look a few years ago five six years ago bill and i had a plan with mark our head of data center around okay this asset there's going to be a colo site for enterprise that one as well as that one as well. And none of those three assets I was just referring to ended up that way because we had the opportunity to fully lease them to single tenants for a much longer duration. So that's kind of the continued plan. And in light of the pipeline, that's what I expect it to continue to look like, John.

John, Analyst — on for Brian Peterson)

So we had a hyperscale on one of the earlier panels talk about their topology and kind of the rigid AZ architecture is morphing into something that can be a bit less stringent, still need to be relatively close to GDP centers, but doesn't have to be quite where it used to be. And then there's remote locations. So as you think about your growth into new markets, whether it's domestically or internationally, Greenfield, JVs, like with WebWorks or M&A, what is what the landscape look like in your appetite to allocate capital there versus, say, ALM or other segments?

Bill Meaney, CEO

Maybe I'll start kind of working and then maybe Barry can talk about how we think about the capital allocation across the portfolio, which might be a good segue to talk about ALM a little bit. But I think that to your point is either lucky or clever is that you think about we were the first to move to Manassas, where people were saying, well, that's not Ashburn. And now, you know, Manassas is very much, or Prince William County is very much considered. People thought it was in the UK, went to Prince William County, but now they realize it's just down the road from Ashburn. And then Richmond, almost the same thing. You know, we built conviction around Richmond about, you know, three or four years ago, instead of looking at maybe five years ago. And that's turned out to be a very good asset where people are starting to embrace some of those those areas and i think you know given the scarcity of powered and permitted land i think people are opening the aperture that being said is the key markets are the key markets so we still look when we kind of i would say go out of one of those areas where we have line of sight that it can be kind of a tier one or close to tier one uh data center market because that's where our customers first want to go especially for cloud and inference build up which is where our focus And then more broadly, internationally, we like India a lot, right? We like a number of markets, the key, the flat markets plus Madrid in Europe a lot. I think those will continue to be there. And there is strong demand both from corporates, from cloud providers, as well as the government in the EU on trying to build more data center capacity to catch up on what they feel is their behind. mind on on ai so i think um you know i think across the market in terms of joint ventures as you said we started off in india with a joint venture but that was really because we wanted a partner that we felt comfortable with that could help us navigate the indian market especially when it was acquiring land and you know we actually had a path to take that to majority which we did quite quickly by just putting in all the capital for the growth and then eventually we bought them out. And then in the Middle East, we had a different approach is that, you know, the Middle East is more than one country. So we looked for an operator that could really work with us across the, you know, across the region. And it's someone that kind of understood, you know, foreign capital like ourselves. And so, you know, Ordi, which is the telecom operator, which is controlled by Q&A. I mean, Q&A is a very sophisticated global investor.

Barry Hytinen, CFO

They understand how people like us think, and they understand how to have a partnership and you know i was speaking to the ceo do just um last week and the that partnership is working really he's getting over the head over that we're getting a minority but a footprint across the middle east which made a lot of sense for us yeah and john from a capital allocation standpoint the first thing to note is other than data center the vast majority of our business grows with very limited capex and so and our our core physical storage business which uh continues to grow both on an organic volume basis as well as dollar value uh and you've never stored more physical volume than we're storing right now john for clients is uh it just generates a tremendous amount of cash flow and we are utilizing that cash flow together with uh what I think as a, you know, pretty conservative or prudent level of leverage, which is just under five turns currently, to put that in perspective, seven years ago, we were cresting six times, and we're now at about 4.8. And so with five turns of leverage on the incremental EBITDA we've been generating each year, together with the cash generation from the business, because we have actual retained cash flow from our core business, we can fully fund our build out. And so, generally speaking, you know, we've got a digital business that's growing teens to 20%, and it is not particularly capital intense. We've got our data center business, which obviously is capital intense. It's somewhere between, let's say, $9 to $12 or $13 million a megawatt to build out, but with very good returns and very good cash generation with excellent clients. And then we have our ALN business that you mentioned. And in the ALN business, the asset lifecycle management, for those people that are not as familiar with that part of our business, this is where we are helping clients with IT gear as it either reaches obsolescence or it's time to refresh or renew it. And so in that business, we are addressing a massive total addressable market. It is a $35 billion annual TAM. And of that, 75% of it is in what we call the enterprise side. So think corporate clients, Fortune 100, Fortune 1000, that sort of thing, whereby they have gear that is consistently going obsolete or time to refresh every year, every quarter, year in, year out. And so what we do in that case is it's largely a fee-per-service whereby we are building a worldwide capability to serve clients in a way that they haven't historically been served. Today, that market is extraordinarily fragmented with very significant, large number of small mom-and-pop kind of founder-led IT asset disposition vendors that service very large corporates on a regional basis. And the market, that's just how the market looks. Today, what we're doing is we're building a worldwide capability to service a client. And when you talk to really large corporates, they are very focused on wanting to have this service provided based on chain of custody, consistent process, trust, privacy, security. They recognize, and increasingly so, that anything that's been written to can turn into a liability because you don't want a hard drive with confidential information or personally identifiable information just getting out there. And so having a company of the wherewithal of Iron Mountain, I think, is an extremely compelling proposition. And so that's a business, just to give you a frame for the growth. In 2021, we did about $30 million of business in enterprise asset lifecycle management. This year, we'll do $600 million. And that business is growing both organically and inorganically at a very high rate, and we think we're just getting started there. Cross-sell is very well off of our core, where we have 245,000 clients, most of them standardized with us on our records business decades ago, literally. And so we're working to cross-sell ALM services to them. The other part of our asset lifecycle management business is in hyperscale data center decommissioning. And here what we're doing is helping the largest cloud hyperscalers, many of whom are tenants of ours in our data center leasing business, with the decommissioning of servers inside their and third-party data centers. And so on average, we find that cloud hyperscalers are refreshing that gear about every five years, plus or minus a little bit. And they're refreshing for different reasons than on the corporate side. They're doing it because they can get better compute or better power efficiency with generations of technology that have come along since they installed those older servers. So those servers that come out, they have residual value left in there. And so what we and a few other players do for them is we'll take that gear in, wipe it, and give them a clear certification that we've sanitized anything that's been written to, and then we'll physically disassemble the server and sell the gear off in a revenue share model, which we can talk about further. But this part of the business is also growing quite rapidly because you think about what are we doing? We're working with clients that are refreshing data center infrastructure. And as we all know, data centers have been growing quite rapidly over the last, let's say, decade. And as that continues to refresh, there's more and more gear. To give you a sense, the addressable market for hyperscale data center, we estimate, is about $3.5 billion based on last year's number. and just based on the growth of data centers and what we'll refresh over the next few years, we estimate that the TAM for that piece of the business will double to $7 billion in the next four years. So it's a huge growth area and while we've been acquiring on the enterprise side, we're generally allocating a relatively small amount of capital to that part of the business, John, because it's not a particularly capital intense. As we find new deals, we acquire, hair, but we've been generally buying in between five and seven and a half times trailing EBITDA, synergizing those down very rapidly. We've done, I think, seven deals in the last three years, and all of them have been very significant successes. And as we find more targets to acquire, we are happy to do that. And in every case, it's been founder-led businesses that we've acquired. We've convinced the founders come over and work for us as part of an earn-out process, And all of them are still working for us. So, you know, it's just a super interesting part of our business that is growing rapidly alongside a rapidly growing data center and digital business.

John, Analyst — on for Brian Peterson)

I got one more question, maybe kind of putting it all in the mix here. You got ALM, data centers, digital solutions, obviously the core business. And as the mix maybe approaches more 50-50 for your growth businesses, I don't want to say the core business isn't growing, But, you know, as that profile emerges, there are different margin profiles. So how would you kind of help us think about the next several years and what it puts and takes around margins, given that each of your segments has a different profile?

Bill Meaney, CEO

So first, if you take a step back, is Barry and I have been consistent both five years ago and today that, you know, when we embarked on this growth strategy, we said that we could actually deliver roughly 10% plus AFFO per share growth. And we've done that, and we said that my contacts are pretty good, so I can see pretty far ahead, is that we continue to see 10% plus AFFO per share growth. And, of course, last quarter, so far this year, we've done a lot better than that. But from an underwriting standpoint, we see that capability. So we start there, right? And because we think we're a total TAM for all our products and services of $175 billion, shame on us if we don't continue approaching $8 billion in sales today, but we don't continue to drive growth with that in mind. So when we look at capital allocation across the businesses, and you're right to point out they have different margins. They also have different investment profiles in terms of how much capital it takes or fuel that you need to put in it. So some things you can grow much faster with very little fuel and other things to drive the growth. You have to put more fuel into it. We look at it through the capital allocation because we start with what we've underwritten to the community and what we're going to deliver as a team. So the 10% that people should take away is that as we do that, that's kind of in the back of our mind. So as we go, it gets easier. So what do I mean by that? Usually when you have a story as you're compounding on a bigger base, it gets more difficult. In our case, when we started this, we had 15% of our sales in those growth portfolio, ALM, data center, and digital. Today, it's 35%, and as you point out, it would be 50%. So at 35%, we're delivering 700 basis points of consolidated growth, and that will just build. So the tailwinds of the business become stronger. So the last thing I would just kind of leave you with is that if you think about the story that we're underwriting, If I said to you, there's a company out there that has consistently driven 10% AFFO per share growth that drives 10% annual dividend growth and maintains leverage flat to slightly down, what would you say the dividend yield of that stock should be today? And I think it's probably more like 1% or 2% and today we're 3%. So Barry and I feel that we have a financial model that allows us to do that without using equity, and we're generating the cash, and the track record will speak to itself, and that we'll continue to drive those kind of shareholder returns. Thanks very much for your time, and thank you for having us, John.