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Iron Mountain posts record Q2 FY2025 results, driven by strong Data Center and ALM growth, with raised guidance and continued margin expansion despite FX and cost headwinds.

# Iron Mountain Delivers Record Q2 FY2025: Data Center and ALM Segments Drive Upbeat Guidance

---

## Executive Summary

- **Iron Mountain (IRM) delivered a strong Q2 FY2025**, with **revenue of $1.712B (up 11.6% YoY)** and **Adjusted EPS of $0.48 (up 14% YoY)**, both beating consensus and prior guidance. Growth was broad-based, with standout performances in Data Center (24% YoY revenue growth) and ALM (70% YoY revenue growth), signaling robust organic expansion.
- **Earnings quality was solid**, as Adjusted EBITDA margin improved to **36.7% (+120 bps YoY)**, and Data Center margins remained above 50%. However, service gross margin declined by 120 bps YoY, and SG&A costs rose 13.2%, with stock-based compensation up 101.9% YoY—offset by strong top-line growth.
- **Management struck a bullish tone**, highlighting record results and raising full-year guidance across revenue, Adjusted EBITDA, and AFFO. The Matterhorn strategy remains on track, with management downplaying FX and regulatory risks as manageable.
- **Risks include ongoing FX volatility, service margin pressure, and rising operational costs.** However, opportunities in Data Center and ALM, along with digital platform expansion, position Iron Mountain for continued growth and enhanced cross-sell potential.
- **Catalyst watch:** Q3 2025 results (guidance: revenue ~$1.75B, Adjusted EBITDA >$650M, AFFO ~$385M), further Data Center leasing updates, and progress on digital platform adoption.

---

## Performance Snapshot

| Metric                | Reported   | Consensus | Surprise | YoY Change |
|-----------------------|------------|-----------|----------|------------|
| Revenue               | $1.712B    | $1.67B    | +2.5%    | +11.6%     |
| Adjusted EPS          | $0.48      | $0.45     | +6.7%    | +14.0%     |
| Adjusted EBITDA       | $629M      | $610M     | +3.1%    | +15.0%     |
| AFFO                  | $370M      | $355M     | +4.2%    | +13.0%     |
| Storage Rental Rev.   | $1.01B     | —         | —        | +9.8%      |
| Service Revenue       | $702M      | —         | —        | +14.2%     |
| Data Center Revenue   | $180M      | —         | —        | +24.0%     |
| ALM Revenue           | $85M       | —         | —        | +70.0%     |

---

## Earnings Quality

- **Revenue mix was healthy**, with both Storage Rental and Service Revenue showing double-digit growth. Data Center and ALM segments were key contributors, reflecting organic demand rather than one-off items.
- **Margin strength was evident** in Adjusted EBITDA (36.7%, +120 bps YoY) and Data Center (over 50% margin), though service gross margin declined by 120 bps YoY, indicating some cost pressure in lower-margin service lines.
- **Cost structure:** SG&A rose 13.2% and stock-based compensation more than doubled YoY, but these were offset by operating leverage in high-margin segments. The company maintained a stable leverage ratio (5.0x) and improved working capital, supporting liquidity despite higher long-term debt.

---

## Management Commentary & Guidance

- **Management’s tone was bullish**, emphasizing record results and reiterating confidence in the Matterhorn strategy for long-term growth.
- **Guidance was raised** for FY2025:  
  - Revenue: **$6.79B–$6.94B** (prior: $6.65B–$6.80B)  
  - Adjusted EBITDA: **$2.52B–$2.57B** (prior: $2.48B–$2.53B)  
  - AFFO: **$1.505B–$1.53B** (prior: $1.47B–$1.50B)
- **Q3 2025 guidance:** Revenue ~$1.75B, Adjusted EBITDA >$650M, AFFO ~$385M.
- **Assumptions:** Management expects continued strength in Data Center and ALM, with FX and regulatory risks not expected to materially impact the outlook.

---

## Key Risks

- **Foreign exchange volatility**: Q2 net loss of $43M was driven by non-operational FX losses, and ongoing currency swings remain a risk to reported earnings.
- **Service margin pressure**: Service gross margin declined 120 bps YoY, and further cost inflation could erode profitability in this segment.
- **Rising operational costs**: SG&A and compensation costs are trending higher, which could pressure margins if not offset by revenue growth.
- **Regulatory and demand-side risks**: Standard for the sector, but not flagged as material by management.

---

## Expected Market Reaction

- **Analyst and investor sentiment is likely to be positive**, given the strong beat on key metrics, raised guidance, and robust performance in high-growth segments.
- **Short-term concerns** about FX-driven net loss and rising costs may be noted, but are expected to be outweighed by the company’s operational momentum and strategic positioning.

---

## Final Takeaway

- **Iron Mountain delivered a strong, high-quality quarter**, with broad-based growth, margin expansion in core segments, and raised full-year guidance. The market may be underestimating the strategic value of Data Center and ALM expansion, as well as the company’s ability to drive dividend growth.
- **Risks** around FX and service margin pressure are real but manageable given the company’s operating leverage and liquidity.
- **Upcoming catalysts:** Q3 2025 results and further Data Center leasing wins, as well as updates on digital platform (DXP) adoption and ALM cross-sell traction, will be key to sustaining positive momentum.

Iron Mountain (IRM): Data Center, ALM Fuel Upbeat Outlook

Iron Mountain’s data center growth and conservative guidance set up potential Q2 2025 upside, with additional surprise possible from an unmodeled U.S. Treasury contract.

# Iron Mountain Inc. (IRM): Data Center Momentum and Conservative Guidance Set the Stage for Q2 2025 Upside

## Executive Summary

We are **bullish** on Iron Mountain Inc. (IRM) heading into Q2 FY2025, driven by robust data center segment growth and management’s confident, yet conservative, forward guidance. **Q2 revenue is expected to reach $1.68B** (up from $1.59B in Q1), with **adjusted EBITDA margin likely to expand to 36–38%**. The market may be underestimating the potential upside from the new U.S. Treasury digitalization contract, which is not included in current guidance. However, persistent FX volatility and elevated capex intensity remain key risks to monitor for net income and free cash flow.

## Recent Trends Signal What’s Next

Iron Mountain’s last two quarters have demonstrated accelerating top-line and margin expansion, particularly in the Data Center and Corporate & Other segments. **Q1 2025 revenue grew to $1.59B** (up 7.4% YoY), with **adjusted EBITDA margin improving 130 bps YoY to 36.4%**. The Data Center segment posted **20.3% YoY revenue growth** and a **churn rate drop to 0.3%** (from 4.4% in Q4 2024), signaling strong operational execution.

### Quarterly Financial Trend Table

| Quarter      | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|--------------|--------------|------------------|----------------------|---------------|---------|
| Q2 2024      | 1.52         | 44.1             | 21.2                 | 10.5          | 0.38    |
| Q3 2024      | 1.55         | 44.7             | 22.0                 | 11.0          | 0.41    |
| Q4 2024      | 1.57         | 45.2             | 22.5                 | 11.3          | 0.43    |
| Q1 2025      | 1.59         | 45.8             | 23.1                 | 11.7          | 0.45    |

**Trend:** Consistent sequential growth in revenue and margin expansion, with EPS rising each quarter.

## Management’s Forward Tone and Positioning

Management’s Q1 2025 commentary was notably confident, emphasizing a “strong pipeline” and “robust growth” in the data center and digital segments. They raised full-year revenue and AFFO guidance, and for Q2 specifically, guided to **revenue of ~$1.68B and adjusted EBITDA of ~$620M**. 

> “We’re seeing high visibility in our data center pipeline and remain confident in delivering on our raised guidance.”  
> — Q1 2025 Earnings Call

This tone is more assertive than in prior quarters, where management was more cautious about macro headwinds. The deliberate exclusion of potential upside from the Treasury contract in guidance signals a conservative approach, increasing the likelihood of a positive surprise if the contract ramps sooner than expected.

## KPI Trends & Upcoming Quarter Drivers

Key operational KPIs point to continued strength in Q2:

- **Data Center Churn Rate:** Improved to **0.3% in Q1 2025** (from 4.4% in Q4 2024), indicating strong customer retention.
- **Leasable Data Center MW:** Increased to **424.2 MW** (up from 410.5 MW YoY), supporting future revenue growth.
- **Capacity Utilization:** Rose to **79.9%** (from 79.2% YoY), reflecting efficient asset deployment.

### KPI Movement Table

| KPI                        | Q1 2024 | Q4 2024 | Q1 2025 | YoY Change | QoQ Change |
|----------------------------|---------|---------|---------|------------|------------|
| Data Center Churn Rate (%) | 4.2     | 4.4     | 0.3     | -3.9       | -4.1       |
| Leasable MW                | 390.0   | 410.5   | 424.2   | +34.2      | +13.7      |
| Capacity Utilization (%)   | 79.2    | 79.5    | 79.9    | +0.7       | +0.4       |

**Impact:** These KPIs support higher revenue and margin expansion in Q2, with the data center segment as the primary driver.

## Missed by the Street

A key overlooked signal is management’s **explicit exclusion of the U.S. Treasury digitalization contract upside** from current guidance. As stated in the Q1 2025 10-Q:  
> “Guidance does not include potential upside from the recently awarded Treasury contract.”  
This conservative approach means any early revenue recognition from this contract could deliver a material beat versus consensus.

Additionally, the **$674.8M in Q1 capex** is higher than typical, but management’s commentary suggests this is front-loaded for strategic expansion, not a sign of cost overruns.

## Scenarios for the Upcoming Quarter

### Scenario Table

| Scenario | Revenue ($B) | EPS (Est.) | Adjusted EBITDA Margin (%) | Key Assumptions                                              |
|----------|--------------|------------|----------------------------|--------------------------------------------------------------|
| Bull     | >1.70        | >0.48      | >38                        | Accelerated data center leasing, early Treasury contract ramp |
| Base     | ~1.68        | 0.45       | 36–38                      | Stable KPIs, no Treasury upside, FX stable                   |
| Bear     | <1.65        | <0.43      | <36                        | FX headwinds, slower data center growth, capex drag          |

**Most Likely:** The **Base case** is most probable, given current KPI momentum and management’s conservative guidance. However, the Bull case is plausible if the Treasury contract ramps earlier or data center leasing accelerates further.

## Appendix – Data Tables & Management Quotes

### Quarterly Financials Table

| Quarter      | Revenue ($B) | EPS ($) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) |
|--------------|--------------|---------|------------------|----------------------|---------------|
| Q2 2024      | 1.52         | 0.38    | 44.1             | 21.2                 | 10.5          |
| Q3 2024      | 1.55         | 0.41    | 44.7             | 22.0                 | 11.0          |
| Q4 2024      | 1.57         | 0.43    | 45.2             | 22.5                 | 11.3          |
| Q1 2025      | 1.59         | 0.45    | 45.8             | 23.1                 | 11.7          |

### KPI Movement Table

| KPI                        | Q1 2024 | Q4 2024 | Q1 2025 | YoY Change | QoQ Change |
|----------------------------|---------|---------|---------|------------|------------|
| Data Center Churn Rate (%) | 4.2     | 4.4     | 0.3     | -3.9       | -4.1       |
| Leasable MW                | 390.0   | 410.5   | 424.2   | +34.2      | +13.7      |
| Capacity Utilization (%)   | 79.2    | 79.5    | 79.9    | +0.7       | +0.4       |

### Key Management Quotes

1. **“We’re seeing high visibility in our data center pipeline and remain confident in delivering on our raised guidance.”**  
   — Q1 2025 Earnings Call  
   *Interpretation: Management is signaling strong near-term demand visibility.*

2. **“Guidance does not include potential upside from the recently awarded Treasury contract.”**  
   — Q1 2025 10-Q  
   *Interpretation: Revenue guidance is conservative; upside surprise possible.*

3. **“Our data center segment delivered 20% revenue growth and record-low churn.”**  
   — Q1 2025 Earnings Call  
   *Interpretation: Data center is the key growth engine for Q2.*

4. **“We invested $674.8 million in capex this quarter, primarily to support strategic expansion.”**  
   — Q1 2025 Earnings Call  
   *Interpretation: Elevated capex is intentional, not a sign of cost pressure.*

5. **“We expect continued margin expansion as we scale our digital and ALM businesses.”**  
   — Q1 2025 Earnings Call  
   *Interpretation: Margin outlook is positive, driven by mix shift.*

6. **“FX volatility and higher interest expense remain headwinds for net income.”**  
   — Q1 2025 Earnings Call  
   *Interpretation: Macro risks could pressure bottom line.*

7. **“Retention rates remain above 92%, reflecting strong customer loyalty.”**  
   — Q1 2025 Earnings Call  
   *Interpretation: Churn risk is low, supporting revenue stability.*

---

**Bottom Line:** Iron Mountain is set for another quarter of revenue and margin expansion, with data center momentum and conservative guidance creating the potential for upside surprise if new contract wins materialize faster than expected. Risks remain, but the operational trajectory is strong.

IRM: Data Center Growth and Q2 Upside Potential