The Dark Side of Iron Mountain: from a Melting Ice Cube, to a House on Fire

Gotham City Research LLC
1 minute ago
2 min read

GOTHAM CITY RESEARCH’S OPINIONS

IRM manipulates adjusted leverage & EBITDA to artificially reduce reported leverage to 5x when we calculate it as 9x.
IRM is under scrutiny from government agencies and facing lawsuits over its suspect accounting and exploitative business practices. We expect these to intensify.
Should our estimate of IRM’s true leverage and cash flow be correct, IRM will face higher financing costs and/or a dividend cut. we believe shares are uninvestible.
We believe shares are worth no more than $23-$41 per share, implying 54-74% downside from current price levels.

SUMMARY OF THE BASES OF OPINIONS

IRM claims its Adj EBITDA margins have been improving, leverage declining. We estimate Adj EBITDA is overstated by 25%-35%, margins have declined & leverage has worsened.
We estimate volumes for the core business has declined over the last few years, and that mixshift has worsened.
We calculate American and Europe volumes have declined whereas Other International, grown. Other International is 30-54% less profitable vs NA + Europe on a per unit basis.
2024 & 2025 pricing documents reveal 30%-400% price increases in core services, such as Shredding & Scanning.
Lawsuits and Customer complaints have escalated over the last 12-24 months.
The Company claims ‘Digital’ is a ‘Growth business’ and like SaaS but formers say ‘Digital’ is actually 99% scanning, a lowtech, labor-intensive service.
AFFO & Adj EBITDA show improvement since 2019, while Net income has declined and free cash flow, negative.
We find IRM’s adjustments to Adj EBITDA 2x-3x larger than DLR/EQIX’s adjustments to Adj EBITDA.
Your typical REIT’s AFFO is 15-20% lower than its FFO. IRM’s reported AFFO is 2x greater than its FFO.
IRM’s AFFO has exceeded its FFO every year since it became a REIT 10ish years ago.
IRM claims a 60% Dividend payout ratio, yet cash flow has not covered dividends for 12 years. We estimate payout ratio has been typically over 200% over the last 12 years.
IRM has reported Restructuring costs for 10 years as operating expense yet oddly adds them back to Adj EBITDA.
The SEC has started asking questions about its Adj EBITDA earlier this year, via a series of correspondence letters.
We estimate recurring capex is closer to $300-$350 million per year not $140 million as IRM claims.
IRM’s COO retired in March 2024, and 40 executives have left IRM since then. Insiders have sold $215 million of stock over the last few years, more than half just this year alone.

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