Iron Mountain Incorporated (IRM) Q3 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to the Iron Mountain Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mark Rupe, Senior Vice President of Investor Relations. Please go ahead.

Thanks, Rocco. Good morning, everyone, and welcome to our third quarter 2026 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 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 today to discuss our third quarter results. We are pleased to report that our team delivered another exceptional performance in the third quarter with record-breaking results, surpassing our expectations across all key metrics. Revenue increased 13% on both a reported and an organic basis, and adjusted EBITDA and AFFO grew 13% and 17%, respectively. These outstanding results continue to underscore the enduring strength and synergies of our traditional records business and portfolio of growth businesses driven by our team's commitment to creating customer value, coupled with disciplined operational execution. Let me share some of the highlights from the quarter, starting with data center-related performance. In our data center business, we drove 34% revenue growth with impressive profitability expansion, and we achieved record quarterly leasing of 102 megawatts and increased our revenue backlog to $575 million. And in our data center decommissioning business within Asset Lifecycle Management, our team drove double-digit revenue growth. We also saw strength in our performance related to our enterprise customers. Enterprise ALM grew more than 60% in the quarter, continuing its strong trend and benefiting from cross-selling, increased penetration and expanded footprint. Our digital solutions business achieved another record quarter of revenue, whilst continuing to earn analyst recognition for our AI-powered InSight DXP platform and its intelligent document processing capabilities, whether on physical or digital-born information. Our physical storage business grew mid-single digits and is tracking towards its 38th consecutive year of organic storage rental growth. And operationally, our margin expansion efforts across each of our businesses, together with our team's focus on expense discipline, resulted in a strong adjusted EBITDA margin of 37.6%. Based on these strong results, we are pleased to increase our full year financial outlook. We continue to build operational scale, and our commercial efforts are focused on strategic cross-selling to further expand the top line contribution from our growth businesses of data center, enterprise ALM, data center decommissioning and digital. These high-growth businesses have continued to exceed our targets and represent an increasingly large portion of our total revenue as well as our total addressable market of $170 billion. This underwrites our ability to sustain double-digit top and bottom line growth well into the future. In 2026, we expect our growth businesses to represent more than 1/3 of total revenue and contribute 11 of the 16 percentage points of consolidated growth with the remaining 5 points coming from our highly recurring and high-margin traditional record storage business. Based on our strong performance in 2026 and continued positive outlook, our Board of Directors has authorized an increase of our quarterly dividend by 15%. Now let me share some of the wins from the quarter that illustrate the commercial success across industry verticals, including the public sector, where we delivered our second best bookings quarter in our history and have grown bookings 40% year-to-date compared to last year. Contributing to the bookings success in the third quarter was a key win in records management. In the U.S., a new customer within the Federal Government selected Iron Mountain for a 3-year, $25 million contract to support a complex multisite relocation of federal records as part of its real estate optimization and efficiency efforts. Iron Mountain was chosen based on its long history of operational execution for the federal government. We also saw success in the private sector, winning a multimillion dollar 10-year contract with a Fortune 100 customer to provide highly secure climate-controlled storage and premium archival services. In digital solutions, we continue to see strong momentum for our InSight DXP platform with significant growth in the number and average size of deals. Our recent wins demonstrate how customers are using DXP to turn unstructured information, whether in physical or digital form into insights for improving operations, strengthening governance and enabling AI. Some examples are in the Middle East, we signed a multiyear contract with a government for our largest DXP deployment to date, supporting the nation's flagship government digital transformation initiative. DXP will serve as the standardized digital platform underpinning this initiative with a planned rollout across 30 government agencies. The win underscores how DXP, paired with a compliance sovereign cloud architecture and strong local ecosystem partners, enables us to unlock significant value from unstructured government data. I would also like to highlight that Standard Chartered Bank, a long-standing customer, recently deployed our DXP platform in Singapore, the first phase of a broader rollout across its Asia Pacific operations. As one of the largest enterprise scale implementations in the region, DXP will replace a legacy enterprise content management, or ECM, platform and enable Standard Chartered to serve customer accounts with greater speed and agility while strengthening its information governance and reducing regulatory risks. Now let me highlight some of our data center wins. We had an outstanding data center performance in the third quarter, bringing our year-to-date leasing to 137 megawatts. We also expanded our customer base in the quarter, adding our second new hyperscale relationship this year. In India, we signed 74 megawatts, including 51 megawatts in Mumbai and 23 megawatts in Chennai. India is quickly becoming a major hyperscale data center market, and we are well positioned as one of the top developers. We also fully leased our 25-megawatt London-3 asset and leased approximately 3 megawatts to enterprise customers in the quarter. Building on this success, we are well positioned to sustain our momentum with approximately 325 megawatts of leasable capacity expected to energize within the next 24 months. Industry demand remains incredibly strong, and our pipeline of activity on each of our key sites continues to be very high. Turning to our Asset Lifecycle Management business. We continue to successfully execute our strategy of scaling our global capabilities, broadening our customer base through cross-selling initiatives into our 240,000 customers and growing our business within existing customers. In the third quarter, we won several deals across our ALM businesses. In North America, we secured an agreement with a leading global consulting firm, whereby Iron Mountain will become its sole partner for its secure IT asset disposition. This important cross-sell win follows a highly successful 6-month pilot and delivers measurable value across risk mitigation, sustainability, operational efficiency and financial recovery. We also won a deal with a global financial institution to assist in its data center decommissioning program to capitalize on high-value financial recovery by harvesting and reselling components. Our market-leading position around data security and best-in-class remarketing platform were key determinants of securing the deal. And we won a deal with a leading technology manufacturer to perform secure IT asset destruction services of high-value server components, replacing regional ITAD competitors and in-house processing. Iron Mountain was chosen based on its existing relationship, industry reputation and secure chain of custody. In conclusion, our performance in 2026 has been outstanding, and we have a clear view for sustained long-term growth as we are still in the early phases of our growth journey. We look forward to sharing more about our longer-term plans at an investor meeting and site tour in early March. I want to extend my sincere thanks to Mountaineers across the world for their steadfast dedication to serving our more than 240,000 customers. 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 today, our team delivered strong growth across each of our businesses in the third quarter. Revenue of $1.99 billion was up $237 million year-on-year and ahead of the projection we provided on our last call. As compared to last year, revenue increased 13% on both a reported and organic basis. We saw continued strong growth in our ALM and data center businesses and delivered record results in our digital solutions and traditional records businesses. Adjusted EBITDA was ahead of our projections at $748 million, up 13% or $88 million year-on-year and $21 million versus the second quarter. I am especially pleased with our team's operational execution, which resulted in our adjusted EBITDA margin expanding nearly 200 basis points sequentially. EBITDA margin was also consistent with the prior year, which is noteworthy given the strong growth in our services revenue that naturally drives a mix headwind. AFFO of $458 million was up $65 million or 17% as compared to last year. And AFFO on a per share basis was $1.53, up 16% to last year and was $0.06 ahead of the projection we provided on our last call. Both of these are new record highs for us. Now turning to segment performance. In our Global RIM business, third quarter revenue of $1.4 billion grew $94 million as compared to last year. Segment growth was 7% on both a reported and organic basis. This was driven by strong growth across both our storage and service businesses. On a reported and organic basis, storage revenue was up 5%. Adjusting for the Data Management onetime benefit that we called out last year, storage revenue growth was particularly impressive, exceeding 7%. Now this is the highest growth rate the team has delivered on that line in over 2 years. Global RIM service revenue grew 10% and was up 9% on an organic basis. Our digital solutions business delivered another record quarter of revenue, and we drove continued strength in our core services. From a profitability perspective, Global RIM adjusted EBITDA increased $32 million to a record $630 million, representing a 44% margin. Turning to our Global Data Center business. We achieved revenue of $274 million in the third quarter, an increase of $69 million or 34% year-on-year, driven by lease commencements and strong pricing. Year-to-date, we have leased 137 megawatts, including 102 megawatts in the third quarter. With our strong new leasing in India, I want to provide our investors some context on this market. First, as you might expect, leasing rates are below our portfolio average. Correspondingly, our development costs are also meaningfully below our portfolio average. Most importantly, the returns we are underwriting in India are among our highest development yields globally. We commenced 58 leases totaling 29 megawatts in the quarter. Additionally, we renewed 168 leases totaling 9 megawatts with continued strong pricing spreads of 10% and 15% on a cash and GAAP basis, respectively. I'll just also note that pricing is trending up across our portfolio as hyperscale demand for cloud and inference capacity continues to grow faster than supply. Third quarter data center adjusted EBITDA was $154 million, up $47 million year-on-year, resulting in an adjusted EBITDA margin of 56.3%, up 370 basis points to last year. The margin expansion was driven by a greater number of commencements this year and overall expense efficiency. Turning to Asset Lifecycle Management. Total ALM revenue was $241 million, an increase of $72 million or 43% year-over-year. On an organic basis, our team grew revenue by $64 million or 38%. This exceeded our expectations, driven by both our enterprise and decommissioning channels. Our enterprise ALM business continued its strong trajectory, growing greater than 50% organically. This growth was achieved through increased penetration of existing customers and the addition of new wins. As we've discussed on prior calls, we see the enterprise business as a multibillion-dollar opportunity as we cross-sell into our very large customer base and expand our global reach. In our data center decommissioning business, the team drove low double-digit growth, which was ahead of our expectations and impressive in light of the $30 million revenue shift we discussed on our August call. Adjusting for the shift, our third quarter decommissioning growth would have been in excess of 50%. From a profitability perspective, our ALM business continued to show solid improvement in contribution year-over-year, driven by our enterprise ALM business and acquisition synergies. Let me provide additional color on the price environment for memory and our updated outlook for ALM. In the third quarter, memory prices remained elevated as compared to last year and are now relatively consistent with the levels we have seen since the fourth quarter of last year. And compared to the second quarter, mix and average pricing were both relatively consistent. In terms of our outlook, based on our continued strong growth, we now project ALM revenue to be modestly ahead of $1 billion for the full year. Now turning to cash flow on a consolidated basis. Year-to-date operating cash flow was $1.2 billion, up $364 million from last year. This marks the best year-to-date operating cash flow the company has ever achieved. Free cash flow improved nearly $400 million year-to-date as compared to prior year. This significant increase was driven primarily by growth in our business, improved cash conversion cycle and the conclusion of our Matterhorn restructuring, which was $152 million during the first 9 months of 2025 and 0 this year. Turning to capital allocation. As our investors know, our focus is on investing in high-return opportunities that drive double-digit growth and growing our dividend while maintaining our strong balance sheet. In light of our performance in 2026 and outlook for AFFO, our Board increased our quarterly dividend by 15% to $0.993 per share effective with the January payout. This represents the fifth increase of the dividend in the past 4 years and aligns with our commitment of growing the dividend in line with AFFO per share and maintaining a payout ratio of low 60s percent. I would just like to note that over the 5 years ending 2026, the company has returned more than $4 billion to shareholders through dividends. In terms of capital investments, in the third quarter, we invested $545 million of growth CapEx and $45 million of recurring CapEx. Turning to the balance sheet. With strong EBITDA performance, we ended the quarter with net lease adjusted leverage of 4.8x, remaining at the lowest level we've had on this metric since prior to the company's REIT conversion in 2014. And now, as it relates to our outlook for the full year 2026, based on our strong third quarter performance and positive outlook, we are raising our financial guidance for the year. For the full year 2026, we expect total revenue to be within the range of $7.95 billion to $8.02 billion, which represents year-on-year growth of 16% at the midpoint. This is nearly $300 million ahead of our initial guidance with upside across our business, roughly half of which is from ALM and the other half coming from data center and Global RIM. We expect adjusted EBITDA to be within the range of $2.948 billion to $2.978 billion, which represents year-on-year growth of 15% at the midpoint. We expect AFFO to be within the range of $1.78 billion to $1.80 billion or $5.94 to $6 on a per share basis, which are up 16% and 15%, respectively, at the midpoint. Now turning to the fourth quarter. We expect revenue of approximately $2.03 billion, an increase of 10% compared to the fourth quarter of last year and adjusted EBITDA of approximately $780 million, an increase of 11% year-over-year. We expect AFFO of approximately $473 million, an increase of 10% to last year or $1.57 per share. I will note that our updated guidance absorbs the negative impact resulting from the stronger U.S. dollar since our last earnings call. Lastly, given the growth in our ALM business and continued focus on cross-selling, together with the evolution of how we operate the business, we are evaluating how we align our segment reporting. We will provide an update on segments on our next earnings call, which will be held during last week of February. And we look forward to having more time to discuss that and our long-term growth outlook at our investor meeting the following week, which will be accessible both virtually and in person. In conclusion, our team has achieved outstanding year-to-date results, delivering strong double-digit revenue and earnings growth with record-setting performance across our business. With that, I want to express my sincere gratitude to all of our Mountaineers for their continued dedication to serving our customers and executing on our growth plans. And with that, operator, would you please open the line for Q&A?

[Operator Instructions] Today's first question comes from George Tong at Goldman Sachs.

You noted that India data center development yields are among the highest globally. Can you quantify the yield premium relative to the portfolio and compare the capital intensity of these projects with the broader portfolio?

Thanks, George. Thanks for the question. I'll ask Barry to comment on the specific returns. But first, we're really excited about the traction that our Indian portfolio is getting, as you noted, to lease both in Mumbai and Chennai. This quarter has been a huge win for the team. So I want to kind of thank them for all that. I think that just to give you the underlying foundation is the leasing rates in India are lower than they are in some other geographies, but the construction cost and delivery cost of the data center is a lot lower. So the result is, this is amongst our highest yielding assets across our portfolio. But Barry, you probably want to comment a little bit further.

George, I would tell you that on the build cost, of course, it naturally depends on the relative project, whether it be in India or across our portfolio that you're comparing to. But it is a meaningful savings commensurate with the pricing. And from a development yield standpoint, it is anywhere between 200, 300 basis points at the low end to meaningfully beyond that at the high end in terms of the incremental return that we see in the market. So we are very pleased to be both in an advantaged position from a standpoint of what we're building together with having a very significant amount of additional capacity energizing over the next few periods that is open to be leased. And so we feel really good about India.

And our next question today comes from Eric Luebchow at Wells Fargo.

Two, if I may. So first, on the data center side. Obviously, given the midterms and kind of the broad pushback we're seeing on a lot of data center development, maybe you could talk a little bit about whether that's having any impact on your development pipeline? And does that change at all how you underwrite perhaps powered land additions that you may be looking at in the future? And then secondly, I just wanted to touch on enterprise ALM. I believe start of the year, you were targeting about 25% organic growth. It's been more than double that, I believe, year-to-date. So maybe you could talk about whether that's coming from better volume, better customer penetration and cross-selling? Or there's a pricing element in there as well?

Eric, let me start with the -- your data center question. So we feel like we're really well positioned. I mean, first of all, the 325 megawatts that we refer to, that's energizing over the next 24 months. That's all fully permitted and energized. And it's in some of the best markets, not just across the United States, like our Richmond site, for example, but it's also across the globe, and we were just talking about India how well we -- how good we feel about that. And India is a very fertile place to actually build data centers. I mean it's -- you can't speak to a Chief Minister of the state without them bringing up and asking what they can do to help us develop faster and more in their various states across the country. So we feel really good in terms of the positioning we're in. And the -- and as a company, I'm not saying that we are specific, but because of our records management business, we have very good contacts at the local level in most of the parts that we operate, and we operate almost in every state across the United States. And we've always been seen as a good local partner. And that's where it all starts. But we feel -- look at the assets that we already have fully permitted and energized over the next period and the land bank that we have coming in after that, we feel that we're really well positioned. Barry, I don't know if you want to talk a little bit about the specific returns? One thing I would say just before handing it over to Barry on the ALM side is that we feel really good about the positioning that we're building or the position we're building in the whole ALM space, both on the data center decommissioning segment as well as on the enterprise, and we expect that to carry into next year in terms of having similar levels of growth, say, north of 25% on a volumetric basis, right? I mean because, obviously, in Q4 this -- if you remember, Q4 last year in 2025 is we saw the elevated pricing, especially around memory that we are still holding today, and that's been pretty constant for the last 4 quarters starting in Q4 last year. We're forecasting that, that's going to maintain as we go into 2027. So when we think about 25% growth, organic growth next year in the ALM segment, obviously, we're saying that, that's all volumetrically assuming that price levels stay flat, which is our expectation. But Barry, you may want to talk about this year a little bit more.

Yes. I mean, Eric, the drivers on the enterprise growth are all of the above that you mentioned. And so as we look at the opportunity there, it is immense. We see the enterprise ALM business as being a multibillion-dollar revenue business for us. And it is going to be driven off of the fact that we've got a really large client base that cross-sells extraordinarily well, and we are building a solution, which we think clients cannot get from anybody else in the marketplace where we will have a global reach, consistent process, chain of custody, ability to securely handle the material wipe as needed and really give them a very strong value proposition and that is winning. And that is a business whereby we kind of initially take a position at a client and land there and then expand through the ability to show them that the service that we're offering is incredibly valuable. And so as that secularly continues to grow, I think that business for us is going to underpin very significant growth in our total ALM business. To Bill's point, we're certainly planning for 25-plus percent growth next year, again, on consistent pricing. And we're comping over, obviously, the very significant increases in the -- on the memory side, which is more, obviously, prevalent in the data center decomm part of the business. So I think the ALM business is doing great. As it relates to returns on the data center side, more broadly, we continue to see very good returns that we're underwriting to. I think as we've traditionally said, low double digits, so 10%, 11%, 12% cash-on-cash unlevered returns in the principal markets that we operate in, as I just mentioned in response to George's question, a little bit higher, obviously, in India. I will tell you this, pricing continues to rise, both on renewals as well as in the broader marketplace and that's more than offsetting labor and other cost inflation. So we feel very good about where we're positioned. And I'll just tell you that, as I've said before, the commencements that we have coming in light of where we've been writing returns to and the markets that we're going to opening on the data center side going forward, those commencements will continue to drive significant improvement in profit going forward. And so I think the opportunity for us is to, as we said before, continue over time to expand our data center margins quite nicely, both from underwriting standpoint as well as from operating expense leverage.

Our next question today comes from Tobey Sommer at Truist.

I wanted to hear your perspective on ALM and the competitive nature of the market. How are you approaching it? And how do you feel like you're positioned both organically and inorganically to take market share over the near and medium term?

Tobey, thanks for the question. So let me start with the organic, and then I'll ask Barry to comment on the inorganic or anything else that he wants to add in terms of flavor. So I think that as you start seeing in our results is that we're not only growing with the market as we're gaining share. So we feel really good about the positioning. I mean we are the largest global player in ALM business, but still in a very fragmented space, which Barry will probably comment a little bit more in terms of the acquisition aspect of it. But in terms of being able to grow, as I said, 25% next year, volumetrically organically in our ALM business, that -- a big part of that is actually driven by gaining share because if you think about our platform, and we called it out in a couple of our wins is, we have a unique both brand and the capabilities that back that brand about data security and safety in terms of when people come to us, they know that the Iron Mountain brand stands behind making sure that there's no inadvertent data disclosure as we're actually repurposing that equipment, cleansing it or even recycling the component. So I think our brand reputation, especially in the enterprise segment, really stands out, and we're gaining capacity on that. The other part is we're building an ecosystem as we build that edge -- as we already have a market-leading position and we're continuing to build that, albeit in a fragmented space because if you think the other part is, is we help people actually gain additional financial value from their old equipment. In other words, we're able to actually resell parts of that equipment, memories, CPUs, hard drives, GPUs to other people that need that equipment for the new systems that they're building. And because we're building the scaled platform and ecosystem, we're able to give them better financial value on that recycling motion. So I think you put all that together is why we feel like even with flat pricing next year, we expect that business to grow 25% organically, really based on the strength of the ecosystem we're building around that business. But Barry, you probably want to talk about the acquisition side of it.

Yes. Tobey, I would reiterate some of the points we've made in the past is that our -- we have a concerted effort to be in touch with and conducting diligence on opportunities. We will continue to -- expect to continue to supplement growth through very accretive kind of tuck-in acquisitions that further expand our global scale and drive operating leverage and really result in synergies, both revenue synergies and cost synergies. When I look across the recent enterprise ALM acquisitions we've done, in that case, it started with the team at Regency, which is just a phenomenal acquisition for us and gave us a capability that is unmatched in the U.S. And then I think about what we've acquired and brought in the team in Australia as well as in Ireland, and we also acquired a couple of other small tuck-ins in the U.S. And as you know, recently, we acquired in Europe a couple of times. All of these are relatively small deals where we're paying multiples of trailing EBITDA kind of like, call it, 5, 6 to 7, 8x max, and they all synergize down very rapidly to below 5x. And we have driven considerable growth of revenue and earnings in every case. And we continue to see that opportunity to be quite significant. I think our corporate development team is -- over the last year or 2 has been in touch with over 300, if you will, targets. And that doesn't mean that we're apt to acquire all of those, but you've got to -- we want to be the acquirer of choice in this market, and we think we are in a very advantaged position. And as we stitch together a global reach of our own organic capacity and acquiring great operators, which are every single one of the acquisitions I just alluded to were founder-led, and we successfully brought their teams on to our business. We think we've got a huge opportunity for additional growth, Tobey, both organic and supplemented inorganically.

Our next question today comes from Kevin McVeigh at UBS.

I don't know, you, Bill or Barry, alluded to maybe adding hyperscaler on the data center side. I thought you serve the hyperscalers. Was that more the India opportunity? Or maybe help us understand that comment? And then is it the same hyperscalers you're serving in North America and India as well or just maybe the go-to-market motion there?

Kev, the phone was a little crackly at the beginning. So maybe you could repeat the first part.

Sure, Barry. Sorry about that. It's just basically -- did you add a hyperscaler this quarter? Or was it the same? I thought maybe Bill had mentioned a new one. I just wanted to clarify that point.

Yes. Thanks, Kevin. I think I got your question now. So yes, you're asking about the -- we mentioned that this year or this quarter, we've added 2 new hyperscale logos. So first of all, there's roughly 10 to 15, what I would say, large cloud players that are -- depends on who you ask, but let's say this, in the order of around 10 hyperscale customers that all of us in the data center space serve in various capacities. And so we serve more than half of those, right, in terms of if you look at our portfolio. So it is right to say that over 90% of our leasing activity is to hyperscalers. If you look at our trailing basis in terms of what's actually leased and operating, it's less than that because, obviously, when we started off, we had a much larger portfolio of enterprise. But going forward, over 90% of our leasing is in the hyperscale place, which is the reason why you see these larger deployments. What we were calling out is, in this particular quarter, we've added 2 new hyperscale logos, if you will, or customers, but we were already serving more than half of the, say, the global 10 hyperscalers before we added those 2.

And I'll just add, Kevin, that the pipeline that we have lined up against our assets across the globe, as you know, we have power energizing over the next few periods and some incredibly high priced, very strong data center markets like Northern Virginia and across the globe, and including, as we mentioned, a good amount of additional capacity coming in India. So we feel very good about the pipeline, and it's consistent with -- it includes a lot of additional large hyperscale investment-grade clients, and we look forward to talking to you about those as we lease them over the next year plus.

Our next question today comes from Brendan Lynch at Barclays.

This is Annabelle on for Brendan. Can you share some details on your cost savings efforts that were able to offset the mix headwind to your EBITDA margins and any future opportunities for additional cost savings going forward?

Sure, Annabelle. Thanks for that. So one, I think our team has always been focused. It's in our DNA on driving productivity and being very cost driven. And so when I look at the most recent quarter, the team did a very good job driving operational efficiency across the board and particularly across our global operations where the team has been driving strength to strength from a standpoint of productivity and lower cost to serve. We have significant continued opportunities just picking up where we left off on the last call, the data center. We're going to continue to see considerable operating leverage, and we can continue to work on and improve our relative cost position in terms of even the builds. In ALM, as we continue to scale the business, we've been driving considerable cost efficiencies. And as we -- as I noted in Tobey's question, as we continue to acquire, we drive incremental cost synergies across our platform. And in our more classic Global RIM operations, we continue to have meaningful opportunity, whether that be in the form of transportation savings, continued real estate moves, which enable us to get to a lower cost to serve and a lower cost and operating scale within our digital solutions, which continues to be strength to strength. And so from a cost of goods sold standpoint, if you will, I see the opportunity for additional productivity across all lines of business. And then from an SG&A perspective, we're very cost disciplined, as I was mentioning. And I would say various technologies and tools, inclusive of AI, will continue to allow us to drive considerable expense productivity. We have literally dozens of projects underway inside the business to significantly reduce our SG&A expense and thereby drive considerable leverage as we continue to grow the top line. That's across all elements of the business, whether it be in our our customer care organization, which is doing a great job and also driving cost. And our procurement team is reaching to areas -- of spend that we've historically not been able to get after and driving considerable efficiency. And yes, I could go across the entire business, Annabelle. So it's a huge focus. My view on the enterprise margin is that it's kind of an outcome of the strength of the rest of the business. And each business has the opportunity to continue to increase its margin, and we will continue to get cost efficiency on the corporate side as well. So I see a lot of opportunity for productivity.

Our next question today comes from Shlomo Rosenbaum with Stifel.

I have one main and then a couple just for Barry, just tying up some financial stuff. Just, Bill, on the government side, can you talk a little bit more about that government contract? I wasn't sure if it was a storage contract or if it's a services contract to move things? And I remember maybe 12 years, 13 years ago, Richard Reese talking about a huge opportunity in the government side. And I'm wondering, are you starting to see that open up? And should we start to see a little bit more over there? And I know there's just a huge records sitting there that have potential to be moved. And just for Barry, the things I want to ask are the impact of FX on 4Q revenue and EBITDA versus the last call because I think we have some incremental headwinds that would be helpful to call out. And then just what's driving the services gross margin going up 70 basis points sequentially and you've got labor costs going down? Maybe just give a little bit more on the operational side, what's happening?

Shlomo, thanks for the question. I'm sure Richard usually listens to these earnings calls because he's still a major shareholder. So I'll be sure to thank him for your memory. Anyway, and Richard was right then and he'd be right now. I think to your point, specifically on that project that I called out, it is a service contract for the federal government. But it's based on the reputation we've built on not just serving the federal government, but actually storing a lot of their records. In this particular case, we're helping them consolidate their own facilities. And it was really based on the brand and the reliability that we've done on being a service -- a storage provider for them. So we're really proud of the reputation that we build in the federal government. But if you take a step back, the thing I was probably most excited about to report on this call is the 40% increase in government bookings or public sector bookings across the globe. So we really are starting to build a brand reputation, not just with the federal government, but also local governments and also governments across the globe, which I highlighted the DXP win that we had in the Middle East, which is effectively, this country is digitizing their whole government and actually changing the way that they serve their citizens. So this is a digital to digital transformation. In other words, it doesn't involve paper records per se. They're actually using our digital platform, together with our services, on how they can actually change the outcome of their government in terms of the way they serve their citizens, both from a cost and a quality standpoint. So overall, we're really starting to build a reputation. That particular call out is a service contract -- large service contract over the next 3 years, helping them do what we do routinely in our business is consolidate facilities to get more efficiency.

Shlomo, a couple of your follow-ups. On the FX impact in the fourth quarter versus the last guide, obviously, the dollar has been stronger, and we trued up to the relative little bit of incremental weakness that's occurred here recently. So the headwind is like $5 million, could be as much as $10 million to revenue, and I would use your typical margins for us in that regard. That does compare to the last time we gave guidance. And then you asked about the service gross margin being up sequentially. This is largely driven by the fact that we had that large data center decommissioning, which is revenue share oriented in the -- that shifted out of the third quarter into the second quarter. You recall, we discussed last quarter that we had a couple of decommissioning projects for major hyperscalers that they accelerated. They were planning -- we and they were planning to do it in the third quarter, and they moved them forward into the second. That was about $30 million. And so you will see in the storage and service reconciliation that all other service costs are down sequentially related to that. And if you shifted that, that was the point I made in the prepared remarks that our hyperscale data center decommissioning business would have been up in excess of 50% in the third quarter. So we're really pleased with the level of activity. And then you asked about labor being down on a sequential basis. And this too is where you would see some of that shift happening because, as you know, we have costs related to the revenue share of actually selling the gear on behalf of clients, but then we also have the labor to do the actual physical decommissioning as well as we drove some additional productivity across the business in labor. As I mentioned, our operations team is just doing a phenomenal job. So yes, that's -- those are those thoughts.

Our next question today comes from Jon Petersen at Jefferies.

A couple of data center-related questions. So obviously, the elections were, I think, a big surprise, at least in terms of the magnitude of it, and it seems like there was a pushback on data centers. Maybe can you talk through some of your land bank portfolio and projects that you have going on in the U.S. right now? And any areas where maybe we should think about things getting pushed a little further out because of the permitting process? And then I was also curious on Richmond. It looks like you started those projects on a speculative basis. Just curious your kind of thoughts around that and if you expect to get better returns by sort of building first and leasing closer to completion.

Thanks, Jon, for the question. So first of all, the 325 megawatts, as you called out, a big chunk of that is actually Richmond. About 2/3 of that is the Richmond campus. We also have some coming in later in Northern Virginia, but mainly Richmond, India as well as across Europe is that's all fully permitted and we have energy committed to those sites. So that 325 megawatts is pretty -- I mean, it's solid. It's locked in. And in terms of actually starting some of the construction, I wouldn't call it really speculative per se. There is site preparation, right? Because the -- that will almost -- if we look at the pipeline, we have one of the deepest pipelines against that asset that we've ever had since I've joined the company. And these are hyperscale-type companies, right, so deployments. They're very much a custom build. So it is kind of in line with the way we normally do that is when you start seeing beyond the site preparation, the construction cost, that's usually very much a pre-lease situation where it's actually tied to a specific contract. And we feel really good about where we stand on that. Obviously, they want -- when they lease it, they want to be in that 18- to 24-month window. So we have to do the site preparation ahead of time and that's what you see in the SRP. And I think more broadly, beyond that in terms of the land bank, we have additional assets behind that, which are -- we have energized commitments already in permitting. It's just outside the 24-month line. So I think if you look at the land bank we have right now, we don't see any issues in terms of getting those things approved. I mean it is probably interesting to note that the states that are probably the most restrictive right now are looking at instituting some more restrictions is Texas, Ohio and Georgia. We're not developing any sites in those 3 markets. And then the other thing I would point out is being a global company in 61 countries. And then if you look, we're obviously not in 61 countries for data center. But if you look at footprint, both in Europe, India and other places that we're looking around the globe, we feel really well positioned that that these types of growth rates next year will be another 20%-plus year for data center. We don't see any slowdown in our ability to continue to grow data center based on the land bank that we have, the coming land bank that we have, including the United States and then the global footprint we have.

And Jon, I guess the only thing I'd hitchhike on to that is if you look in our investor presentation for the quarter, we did update our 2027 estimate for data center revenue to be $1.3-plus billion, which reflects the new signings we've had. Oftentimes, the stuff we're signing is pre-leased and energized a little bit later. But as some of our investors are well aware, we have the London asset where we fully lease that asset in the quarter. And some may remember that, that was an asset that we originally had leased and was a unique situation where we let a client shift to Chicago. And so the average pricing on that re-leasing of London is meaningfully up versus the initial time it was leased to the tune of like 25%, 30-plus percent. So that is a helpful adder to 2027. And then I would just further note that if we just roll out the entire backlog of what we've already signed, it would -- once it fully energizes and developed, we'll deliver $1.7 billion, nearly $1.8 billion of revenue in a future period on an annual basis. And that's before any additional leasing, that's before any additional pricing. So we feel very, very good about where we are in terms of the operating portfolio and the development portfolio.

And our next question today comes from Andrew Steinerman at JPMorgan.

This is Alex Hess on for Andrew Steinerman. Barry, maybe I want to start with a couple of model-oriented questions and then maybe a high-level question for you and Bill. On the model side, obviously, a nice beat versus your guide on AFFO by about, I think, $18 million, let's call it. And then that's versus a $3 million beat on the EBITDA line. It seems like maybe interest expense came in a little bit favorably and then maybe 1 or 2 other items. Can you just walk us through if there were any onetime items there? And then with that in mind, also maybe talking through why margins were so strong in data center this quarter?

Andy (sic) [ Alex ], did you want to give us the high-level question as well?

Sure, sure. I know it's very early to be previewing the preview for the investor event. But any sort of high-level thoughts that -- on what we should be expecting you guys to discuss and where you're going to want to orient the conversation? Presumably, there's not some project Himalaya in the works, but just sort of anything that we should know about your -- strategically where you want to sort of position messaging for the investor event?

Thanks, Alex. I'll start with the high level and then hand it over to Barry, and he may want to also put a little bit more detail in terms of our investor meeting that we're holding at the beginning of March. I think the high-level message is the continued growth in the company and really a focus on not just the growth portfolio, although that's the part that is the thing that's making the growth easier rather than more difficult, if you will, because if you think about right now, we're over 1/3 of our business is in the growth portfolio, growing north of 20%. So as we highlighted, that's providing the bulk of our consolidated growth as a company. The records business is still growing very strong, mid-single digits, with very high levels of profitability, which gives us a lot of cash to continue to fund our growth as a company. But as we build forward, what you can expect to hear at the Investor Day is to talk about the robustness and the strength of our records business, but then also to talk about how the engine around continued acceleration and growth of the company is driven by that growth portfolio as it becomes a bigger part of the whole. It wasn't that many years ago that, that group of growth businesses, which is around ALM, both on the decommissioning data center side as well as enterprise, digital services and data center were less than 15% of the company. It's now more closer to 35% of the company, and it won't be that many years before it's 50% of the company. And we don't see any slowdown in the growth rate of that. So if you think about just the ability to continue to drive the kind of growth and shareholder returns that we've done over the last 5 years, that's really the theme where we're going to showcase that. And then in terms of there will be a show and tell associated with it in the sense that some people are less familiar with some of our record centers, and I think usually when we take investors or people less familiar, they're kind of blown away by when they actually see the pride of our people in terms of the way they do the job, the way they service the customers. Also the innovation we're doing in that business to provide even more value to our customers in terms of the way we store and allow them to access information from even their hard copy records, but we also intend to actually showcase an ALM facility so that you can see a little bit more on when we say ALM, what the actual operations are behind that. So we're really looking forward to be -- to spend some time with investors. The company has changed a lot over the last 10 years, and we want to give people a chance to both understand that at a high level through commentary that Barry, myself and some other executives will give, but also to see at least a couple of the businesses up close, which would be the records and ALM business.

Okay. So Alex, a few questions you had there. As it relates to AFFO, there's a few things. There's -- as you pointed out, cash interest was a little bit lower and that's related to a variety of operational improvements and just getting better efficiencies. So for example, there's always sort of like timing of when the CapEx disbursements are within a quarter. We've had significantly improved working capital, as I've mentioned on the last few calls. We've optimized our cash pool. We had some currency swaps, which are -- we designate as net investment hedges, as you know, which resulted in a little bit of savings as well. Together with, we had -- cash taxes were a little bit lower than planned as our team continues to work very effectively on that area. And yes, and then the EBITDA, as you mentioned. So we -- you should expect naturally with the fact that we've commenced additional construction across our data center portfolio that we'll both, of course, have more borrowings as we move forward and, therefore, correspondingly more interest. But with the timing of data center capital kickoffs, you get a little bit more of a capitalized interest as well. And then from a standpoint of the margin within data center, look, it's driven by the commencements, the improving returns that we've been generating on pre-leased assets and, of course, the very strong pricing that we've been seeing in the colo book and the renewals. And just to kick it in, we haven't talked about it on the call, the churn was very low in the most recent quarter. So yes, all of that is driving operating efficiencies at the site level together with a very good expense management in the business. So that's -- and then I think Bill hit the investor event quite well. We're looking forward to telling you about another meaningful growth story as we did several years ago. And as we finish up this period, we're looking forward to telling you about the next chapter.

Thank you. And that does conclude our question-and-answer session and the Iron Mountain Third Quarter 2026 Earnings Conference Call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.