IRON MOUNTAIN INCORPORATED The following discussion and analysis of our financial condition and results of operations for the three months endedMarch 31, 2020 should be read in conjunction with our Condensed Consolidated Financial Statements and Notes thereto for the three months endedMarch 31, 2020 , included herein, and our Consolidated Financial Statements and Notes thereto for the year endedDecember 31, 2019 , included in our Annual Report on Form 10-K filed with theUnited States Securities and Exchange Commission ("SEC") onFebruary 13, 2020 (our "Annual Report"). FORWARD-LOOKING STATEMENTS We have made statements in this Quarterly Report on Form 10-Q (this "Quarterly Report") that constitute "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements concern our operations, economic performance, financial condition, goals, beliefs, future growth strategies, investment objectives, plans and current expectations, such as our (1) commitment to future dividend payments, (2) expected change in volume of records stored with us, (3) expectations that profits will increase in our growth portfolio, including our higher-growth markets, and that our growth portfolio will become a larger part of our business over time, (4) expectations related to our revenue management programs and continuous improvement initiatives, (5) expectations related to our leverage ratio and capital requirements, (6) expected ability to identify and complete acquisitions and drive returns on invested capital, (7) anticipated capital expenditures, (8) expectations and assumptions regarding the possible impact from the COVID-19 (as defined below) pandemic on us and our customers, including on our businesses, financial position, results of operations and cash flows and the goodwill associated with our reporting units and (9) expected benefits, costs and actions related to, and timing of, Project Summit (as defined and discussed below). These forward-looking statements are subject to various known and unknown risks, uncertainties and other factors. When we use words such as "believes," "expects," "anticipates," "estimates" or similar expressions, we are making forward-looking statements. Although we believe that our forward-looking statements are based on reasonable assumptions, our expected results may not be achieved, and actual results may differ materially from our expectations. In addition, important factors that could cause actual results to differ from expectations include, among others:
• the severity and duration of the COVID-19 pandemic and its effects on
the global economy, including its effects on us, the markets we serve
and our customers and the third parties with whom we do business within
those markets;
• our ability to remain qualified for taxation as a real estate investment
trust for
• the adoption of alternative technologies and shifts by our customers to
storage of data through non-paper based technologies;
• changes in customer preferences and demand for our storage and
information management services;
• our ability or inability to execute our strategic growth plan, expand
internationally, complete acquisitions on satisfactory terms, and to
integrate acquired companies efficiently;
• changes in the amount of our growth and maintenance capital expenditures
and our ability to raise capital and invest according to plan;
• our ability to execute on Project Summit and the potential impacts of
Project Summit on our ability to retain and recruit employees and
execute on our strategy;
• the cost and our ability to comply with laws, regulations and customer
demands relating to data security and privacy issues, as well as fire
and safety standards;
• the impact of litigation or disputes that may arise in connection with
incidents in which we fail to protect our customers' information or our
internal records or information technology ("IT") systems and the impact
of such incidents on our reputation and ability to compete;
• changes in the price for our storage and information management services
relative to the cost of providing such storage and information
management services;
• changes in the political and economic environments in the countries in
which our international subsidiaries operate and changes in the global
political climate;
• the impact of executing on our growth strategy through joint ventures;
• our ability to comply with our existing debt obligations and
restrictions in our debt instruments or to obtain additional financing
to meet our working capital needs;
• the impact of service interruptions or equipment damage and the cost of
power on our data center operations;
• changes in the cost of our debt;
• the impact of alternative, more attractive investments on dividends;
• the cost or potential liabilities associated with real estate necessary
for our business;
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• the performance of business partners upon whom we depend for technical
assistance or management expertise; and
• other trends in competitive or economic conditions affecting ourfinancial condition or results of operations not presently contemplated.
Additional risks and facts that may affect us, including as a result of the
COVID-19 pandemic, are set forth in our filings with the
You should not rely upon forward-looking statements except as statements of our present intentions and of our present expectations, which may or may not occur. You should read these cautionary statements as being applicable to all forward-looking statements wherever they appear. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or otherwise. Readers are also urged to carefully review and consider the various disclosures we have made in this Quarterly Report, as well as our other periodic reports filed with theSEC including under "Risk Factors" in this Quarterly Report and in our Annual Report.
Overview
The following discussions set forth, for the periods indicated, management's
discussion and analysis of financial condition and results of operations.
Significant trends and changes are discussed for the three months ended
COVID-19
InDecember 2019 , a novel strain of coronavirus ("COVID-19") was reported to have surfaced inWuhan, China . InJanuary 2020 , COVID-19 spread to other countries, includingthe United States , and theWorld Health Organization subsequently declared COVID-19 a pandemic. This has resulted inU.S. federal, state and local and foreign governments and private entities mandating various restrictions, including travel restrictions, restrictions on public gatherings, stay-at-home orders and advisories and the quarantining of people who may have been exposed to the virus. We have temporarily closed certain of our offices and facilities across the world and implemented certain travel restrictions for our employees, which have disrupted how we operate our business. The preventative and protective actions that the governments have ordered, or we have implemented as an organization, have resulted in a period of reduced operations and business disruption for us, our customers and other third parties with which we do business. The effects of the pandemic, including the effects on the economy, and the preventative and protective actions experienced to date include, but are not limited to, a decline in our service revenues, limited delays in cash collections from customers and the incurrence of incremental costs as a result of such protective actions. The broader impacts of the COVID-19 pandemic on our financial position, results of operations and cash flows remain uncertain and difficult to predict as information is rapidly evolving, and the severity and duration of the COVID-19 pandemic is still unknown, as is our visibility to the COVID-19 pandemic's effect on the markets we serve and our customers within those markets.
Project Summit
InOctober 2019 , we announced our global program designed to better position us for future growth and achievement of our strategic objectives ("Project Summit"). Project Summit focuses on simplifying our global structure by combining our core records and information management operations under one global leader and rebalancing our resources, streamlining managerial structures and leveraging our global and regional customer facing resources. We are also implementing systems and process changes designed to make our organization more agile and dynamic, streamline our organization and reallocate our resources to better align with our strategic goals as part of Project Summit. Since Project Summit was announced, we have identified additional opportunities to streamline our business and operations, as well as accelerated the timing of certain opportunities previously identified. Such opportunities include leveraging new technology capabilities to enable us to adjust our service delivery model and more efficiently utilize our fleet, labor and real estate, which has broadened the initial scope of Project Summit. 36
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The activities associated with Project Summit began in the fourth quarter of 2019 and are expected to be substantially complete by the end of 2021. We now expect the total program benefits associated with Project Summit to be fully realized exiting 2021. Including the expanded scope of Project Summit described above, we now estimate that Project Summit will improve annual Adjusted EBITDA (as defined below) by approximately$375.0 million exiting 2021, an increase from our original estimate of$200.0 million . In addition, we now expect Project Summit to improve annual Adjusted EBITDA by approximately$150.0 million in 2020, an increase from our original estimate of$80.0 million . We will continue to evaluate our overall operating model, as well as various opportunities and initiatives, including those associated with real estate consolidation, system implementation and process changes, which could result in the identification and implementation of additional actions associated with Project Summit and incremental costs and benefits. Including the expanded scope of Project Summit described above, we now estimate that the implementation of Project Summit will result in total costs (including operating expenditures ("Restructuring Charges") and capital expenditures) of approximately$450.0 million , a$210.0 million increase from our original estimate of$240.0 million , of which we expect to incur$240.0 million in 2020. The following table presents (in thousands) the total costs related to Project Summit, comprised of Restructuring Charges, primarily related to employee severance costs and professional fees, and capital expenditures for both the three months endedMarch 31, 2020 and from the inception of Project Summit throughMarch 31, 2020 . From the inception of Project For the Three Months Ended Summit through March 31, 2020 March 31, 2020 Restructuring Charges $ 41,046 $ 89,643 Capital Expenditures associated with Project Summit 1,278 1,278 Total $ 42,324 $ 90,921
See Note 9 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for more information on the Restructuring Charges.
During the fourth quarter of 2019, as a result of the realignment of our global
managerial structure and changes to our internal financial reporting associated
with Project Summit, we reassessed the composition of our reportable operating
segments and reporting units, as discussed in Note 2.h. to Notes to Consolidated
Financial Statements included in our Annual Report. As a result of the
managerial structure changes associated with Project Summit, we now have the
following reportable operating segments: (i) Global Records and Information
Management ("Global RIM") Business (which consists of our former North American
Records and Information Management Business (excluding our technology escrow
services business, which is now included as a component of our Corporate and
Other Business), North American Data Management Business, Western European
Business and Other International Business segments); (ii) Global Data Center
Business; and (iii) Corporate and Other Business (which includes our Adjacent
Businesses and our technology escrow services business). As a result of these
changes, previously reported segment information has been restated to conform to
the current presentation.
Change in Presentation
We have historically classified our significant acquisition costs which
represent operating expenditures associated with (1) the acquisition of Recall
Holdings Limited ("Recall") that we completed on May 2, 2016 (the "Recall
Transaction"), including: (i) advisory and professional fees to complete the
Recall Transaction; (ii) costs associated with the divestments required in
connection with receipt of regulatory approvals (including transitional
services); and (iii) costs to integrate Recall with our existing operations,
including moving, severance, facility upgrade, REIT integration and system
upgrade costs, as well as certain costs associated with our shared service
center initiative for our finance, human resources and information technology
functions; and (2) the advisory and professional fees to complete the
acquisition of IO Data Centers, LLC ("IODC") (collectively, "Significant
Acquisition Costs"), as components of Selling, general and administrative
expenses and Cost of Sales. Beginning in the fourth quarter of 2019, we present
Significant Acquisition Costs as its own line item within Operating Expenses in
our Condensed Consolidated Statements of Operations. The prior period has been
confirmed to this presentation.
There were no Significant Acquisition Costs for the three months ended March 31,
2020 as all of the costs associated with the Recall Transaction and IODC were
incurred as of December 31, 2019 . Significant Acquisition Costs for the three
months ended March 31, 2019 was approximately $2.7 million .
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General
Our revenues consist of storage rental revenues as well as service revenues and are reflected net of sales and value added taxes. Storage rental revenues, which are considered a key driver of financial performance for the storage and information management services industry, consist primarily of recurring periodic rental charges related to the storage of materials or data (generally on a per unit basis) that are typically retained by customers for many years, technology escrow services that protect and manage source code and revenues associated with our data center operations. Service revenues include charges for related service activities, the most significant of which include: (1) the handling of records, including the addition of new records, temporary removal of records from storage, refiling of removed records and courier operations, consisting primarily of the pickup and delivery of records upon customer request; (2) destruction services, consisting primarily of secure shredding of sensitive documents and the related sale of recycled paper, the price of which can fluctuate from period to period, and customer termination and permanent removal fees; (3) other services, including the scanning, imaging and document conversion services of active and inactive records and project revenues; and (4) consulting services. Our service revenue growth has been negatively impacted by declining activity rates as stored records are becoming less active. While customers continue to store their records and tapes with us, they are less likely than they have been in the past to retrieve records for research and other purposes, thereby reducing service activity levels. Cost of sales (excluding depreciation and amortization) consists primarily of wages and benefits for field personnel, facility occupancy costs (including rent and utilities), transportation expenses (including vehicle leases and fuel), other product cost of sales and other equipment costs and supplies. Of these, wages and benefits and facility occupancy costs are the most significant. Selling, general and administrative expenses consist primarily of wages and benefits for management, administrative, IT, sales, account management and marketing personnel, as well as expenses related to communications and data processing, travel, professional fees, bad debts, training, office equipment and supplies. Trends in facility occupancy costs are impacted by the total number of facilities we occupy, the mix of properties we own versus properties we occupy under leases, fluctuations in per square foot occupancy costs, and the levels of utilization of these properties. Trends in total wages and benefits in dollars and as a percentage of total consolidated revenue are influenced by changes in headcount and compensation levels, achievement of incentive compensation targets, workforce productivity and variability in costs associated with medical insurance and workers' compensation. The expansion of our international businesses has impacted the major cost of sales components and selling, general and administrative expenses. Our international operations are more labor intensive relative to revenue than our operations inNorth America and, therefore, labor costs are a higher percentage of international segment revenue. In addition, the overhead structure of our expanding international operations has generally not achieved the same level of overhead leverage as our North American operations, which may result in an increase in selling, general and administrative expenses as a percentage of consolidated revenue as our international operations become a larger percentage of our consolidated results. Our consolidated revenues and expenses are subject to the net effect of foreign currency translation related to our operations outsidethe United States . It is difficult to predict the future fluctuations of foreign currency exchange rates and how those fluctuations will impact our Consolidated Statements of Operations. As a result of the relative size of our international operations, these fluctuations may be material on individual balances. Our revenues and expenses from our international operations are generally denominated in the local currency of the country in which they are derived or incurred. Therefore, the impact of currency fluctuations on our operating income and operating margin is partially mitigated. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we compare the percentage change in the results from one period to another period in this report using constant currency presentation. The constant currency growth rates are calculated by translating the 2019 results at the 2020 average exchange rates. Constant currency growth rates are a non-GAAP measure. 38
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The following table is a comparison of underlying average exchange rates of the foreign currencies that had the most significant impact on ourUnited States dollar-reported revenues and expenses: Percentage of United States Dollar-Reported Average Exchange Revenue for the Rates for the Percentage Three Months Ended Three Months Ended Strengthening / March 31, March 31, (Weakening) of 2020 2019 2020 2019 Foreign Currency Australian dollar 3.1 % 3.4 %$ 0.658 $ 0.712 (7.6 )% Brazilian real 2.2 % 2.7 %$ 0.226 $ 0.265 (14.7 )% British pound sterling 6.1 % 6.6 %$ 1.280 $ 1.302 (1.7 )% Canadian dollar 5.6 % 5.8 %$ 0.746 $ 0.752 (0.8 )% Euro 7.2 % 7.5 %$ 1.103 $ 1.136 (2.9 )% The percentage ofUnited States dollar-reported revenues for all other foreign currencies was 14.0% and 12.7% for the three months endedMarch 31, 2020 and 2019, respectively. 39
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Table of Contents Non-GAAP Measures Adjusted EBITDA Adjusted EBITDA is defined as income (loss) from continuing operations before interest expense, net, provision (benefit) for income taxes, depreciation and amortization, and also excludes certain items that we believe are not indicative of our core operating results, specifically: (1) (gain) loss on disposal/write-down of property, plant and equipment, net (including real estate); (2) intangible impairments; (3) other (income) expense, net (which includes foreign currency transaction (gains) losses, net); (4) Significant Acquisition Costs; and (5) Restructuring Charges. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by total revenues. We use multiples of current or projected Adjusted EBITDA in conjunction with our discounted cash flow models to determine our estimated overall enterprise valuation and to evaluate acquisition targets. We believe Adjusted EBITDA and Adjusted EBITDA Margin provide our current and potential investors with relevant and useful information regarding our ability to generate cash flows to support business investment. These measures are an integral part of the internal reporting system we use to assess and evaluate the operating performance of our business. Adjusted EBITDA excludes both interest expense, net and the provision (benefit) for income taxes. These expenses are associated with our capitalization and tax structures, which we do not consider when evaluating the operating profitability of our core operations. Finally, Adjusted EBITDA does not include depreciation and amortization expenses, in order to eliminate the impact of capital investments, which we evaluate by comparing capital expenditures to incremental revenue generated and as a percentage of total revenues. Adjusted EBITDA and Adjusted EBITDA Margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with accounting principles generally accepted inthe United States of America ("GAAP"), such as operating income, income (loss) from continuing operations, net income (loss) or cash flows from operating activities from continuing operations (as determined in accordance with GAAP). Reconciliation of Income (Loss) from Continuing Operations to Adjusted EBITDA (in thousands): Three Months Ended March 31, 2020 2019 Income (Loss) from Continuing Operations$ 64,892 $
30,476
Add/(Deduct):
Provision (Benefit) for Income Taxes 9,687 10,553 Other (Income) Expense, Net (42,726 ) 15,210 Interest Expense, Net 105,649 102,436 (Gain) Loss on disposal/write-down of property, plant and equipment, net (1,055 ) 602 Depreciation and amortization 162,584 162,483 Significant Acquisition Costs - 2,746 Restructuring Charges 41,046 - Intangible impairments 23,000 - Adjusted EBITDA$ 363,077 $ 324,506 40
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Adjusted EPS
Adjusted EPS is defined as reported earnings per share fully diluted from continuing operations excluding: (1) (gain) loss on disposal/write-down of property, plant and equipment, net (including real estate); (2) intangible impairments; (3) other (income) expense, net (which includes foreign currency transaction (gains) losses, net); (4) Significant Acquisition Costs; (5) Restructuring Charges; and (6) the tax impact of reconciling items and discrete tax items. Adjusted EPS includes income (loss) attributable to noncontrolling interests. We do not believe these excluded items to be indicative of our ongoing operating results, and they are not considered when we are forecasting our future results. We believe Adjusted EPS is of value to our current and potential investors when comparing our results from past, present and future periods.
Reconciliation of Reported EPS-Fully Diluted from Continuing Operations to Adjusted EPS-Fully Diluted from Continuing Operations:
Three Months Ended
March 31,
2020 2019
Reported EPS-Fully Diluted from Continuing Operations
$ 0.10 Add/(Deduct): Income (Loss) Attributable to Noncontrolling Interests - - Other (Income) Expense, Net (0.15 )
0.05
(Gain) Loss on disposal/write-down of property, plant and equipment, net - - Significant Acquisition Costs - 0.01 Restructuring Charges 0.14 - Intangible impairments 0.08 -
Tax Impact of Reconciling Items and Discrete Tax Items(1) (0.02 )
-
Adjusted EPS-Fully Diluted from Continuing Operations(2)
_______________________________________________________________
(1) The difference between our effective tax rates and our structural tax rate
(or adjusted effective tax rates) for the three months ended
2020 and 2019 is primarily due to (i) the reconciling items above, which
impact our reported income (loss) from continuing operations before
provision (benefit) for income taxes but have an insignificant impact on
our reported provision (benefit) for income taxes and (ii) other discrete
tax items. Our structural tax rate for purposes of the calculation of
Adjusted EPS for the three months ended March 31, 2020 and 2019 was 17.1%
and 18.9%, respectively.
(2) Columns may not foot due to rounding.
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FFO (Nareit) and FFO (Normalized)
Funds from operations ("FFO") is defined by the National Association of Real
Estate Investment Trusts ("Nareit") and us as net income (loss) excluding
depreciation on real estate assets, gains on sale of real estate, net of tax and
amortization of data center leased-based intangibles ("FFO (Nareit)"). FFO
(Nareit) does not give effect to real estate depreciation because these amounts
are computed, under GAAP, to allocate the cost of a property over its useful
life. Because values for well-maintained real estate assets have historically
increased or decreased based upon prevailing market conditions, we believe that
FFO (Nareit) provides investors with a clearer view of our operating
performance. Our most directly comparable GAAP measure to FFO (Nareit) is net
income (loss). Although Nareit has published a definition of FFO, modifications
to FFO (Nareit) are common among REITs as companies seek to provide financial
measures that most meaningfully reflect their particular business. Our
definition of FFO (Normalized) excludes certain items included in FFO (Nareit)
that we believe are not indicative of our core operating results, specifically:
(1) (gain) loss on disposal/write-down of property, plant and equipment
(excluding real estate), net; (2) intangible impairments; (3) other (income)
expense, net (which includes foreign currency transaction (gains) losses, net);
(4) real estate financing lease depreciation; (5) Significant Acquisition Costs;
(6) Restructuring Charges; (7) the tax impact of reconciling items and discrete
tax items; (8) (income) loss from discontinued operations, net of tax; and (9)
loss (gain) on sale of discontinued operations, net of tax.
Reconciliation of Net Income (Loss) to FFO (Nareit) and FFO (Normalized) (in
thousands):
Three Months Ended March 31,
2020 2019
Net Income (Loss) $ 64,892 $ 30,452
Add/(Deduct):
Real Estate Depreciation(1) 76,587 73,079
Gains on Sale of Real Estate, Net of Tax (492 ) - Data Center Lease-Based Intangible Assets Amortization(2) 11,353 12,609 FFO (Nareit) 152,340 116,140 Add/(Deduct):
(Gain) Loss on disposal/write-down of property, plant and equipment (excluding real estate), net
(244 ) 602
Other (Income) Expense, Net(3) (42,726 ) 15,210
Real Estate Financing Lease Depreciation 3,163 3,504 Significant Acquisition Costs - 2,746 Restructuring Charges 41,046 - Intangible impairments 23,000 - Tax Impact of Reconciling Items and Discrete Tax Items(4) (6,812 ) (709 ) Loss (Income) from Discontinued Operations, Net of Tax(5) - 24 FFO (Normalized)$ 169,767 $ 137,517
_______________________________________________________________
(1) Includes depreciation expense related to owned real estate assets (land
improvements, buildings, building improvements, leasehold improvements and
racking), excluding depreciation related to real estate financing leases.
(2) Includes amortization expense for Data Center In-Place Lease Intangible
Assets and Data Center Tenant Relationship Intangible Assets as discussed
in Note 2.i. to Notes to Consolidated Financial Statements included in our
Annual Report.
(3) Includes foreign currency transaction (gains) losses, net of $(37.4)
million and $17.7 million for the three months ended March 31, 2020 and
2019, respectively. See Note 2.k. to Notes to Condensed Consolidated
Financial Statements included in this Quarterly Report.
(4) Represents the tax impact of (i) the reconciling items above, which impact
our reported income (loss) from continuing operations before provision
(benefit) for income taxes but have an insignificant impact on our
reported provision (benefit) for income taxes and (ii) other discrete tax
items. Discrete tax items resulted in a (benefit) provision for income
taxes of $0.0 million and $(0.6) million for the three months ended
March 31, 2020 and 2019, respectively.
(5) Net of a de minimis tax benefit for the three months ended March 31, 2020
and 2019.
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Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended. On an ongoing basis, we evaluate the estimates used. We base our estimates on historical experience, actuarial estimates, current conditions and various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities and are not readily apparent from other sources. Actual results may differ from these estimates. Our critical accounting policies include the following, which are listed in no particular order: • Revenue Recognition
• Accounting for Acquisitions
• Impairment of Tangible and Intangible Assets
• Income Taxes Further detail regarding our critical accounting policies can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report, and the Consolidated Financial Statements and the Notes included therein and should be read in conjunction with the disclosure below which addresses updates in light of the COVID-19 pandemic.
Impairment of Tangible and Intangible Assets
Goodwill and other indefinite-lived intangible assets not subject to amortization:Goodwill and intangible assets with indefinite lives are not amortized but are reviewed annually for impairment, or more frequently if impairment indicators arise. Other than goodwill, we currently have no intangible assets that have indefinite lives and which are not amortized. We have selectedOctober 1 as our annual goodwill impairment review date. We performed our annual goodwill impairment review as ofOctober 1, 2019 and concluded that as ofOctober 1, 2019 goodwill was not impaired. As ofDecember 31, 2019 , no factors were identified that would alter ourOctober 1, 2019 goodwill impairment analysis. Our reporting units as ofDecember 31, 2019 are described in detail in Note 2.h. to Notes to Consolidated Financial Statements included in our Annual Report. The goodwill associated with acquisitions completed during the first three months of 2020 (which are described in Note 4 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report) has been incorporated into our reporting units as they existed as ofDecember 31, 2019 . There were no other changes to the composition of our reporting units for the three months endedMarch 31, 2020 . During the first quarter of 2020, we concluded that we had a triggering event related to our Fine Arts reporting unit, requiring us to perform an interim goodwill impairment test. The primary factor contributing to our conclusion was the expected impact of the COVID-19 pandemic to this particular business and its customers and revenue sources, which caused us to believe it was more likely than not that the carrying value of our Fine Arts reporting unit exceeded its fair value. During the first quarter of 2020, we performed an interim goodwill impairment test for our Fine Arts reporting unit utilizing a discounted cash flow model, with updated assumptions on future revenues, operating expenditures and capital expenditures. As a result of the interim goodwill impairment test, we concluded that the fair value of the Fine Arts reporting unit was less than its carrying value, primarily due to near-term revenue declines that are unable to be fully mitigated by the cost reduction measures we have taken. Therefore, we recorded a$23.0 million impairment charge on the goodwill associated with this reporting unit during the first quarter of 2020. The remaining goodwill for this reporting unit as ofMarch 31, 2020 , is approximately$15.0 million . As disclosed in our Annual Report, ourGlobal Data Center reporting unit had an estimated fair value that exceeded its carrying value by less than 20%. AtMarch 31, 2020 , we determined we did not have a triggering event requiring an interim impairment test on the goodwill associated with ourGlobal Data Center reporting unit. Additionally, we concluded that, as ofMarch 31, 2020 , we did not have a triggering event requiring an interim impairment test on the goodwill associated with our other reporting units. 43
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Reporting unit valuations have generally been determined using a combined approach based on the present value of future cash flows (the "Discounted Cash Flow Model") and market multiples. There are inherent uncertainties and judgments involved when determining the fair value of our reporting units for purposes of our annual impairment testing or upon a triggering event. The success of each of these businesses and the achievement of certain key assumptions developed by management and used in the Discounted Cash Flow Model are contingent upon various factors, which may be impacted by the economic effects of the COVID-19 pandemic. Such factors include, but are not limited to: (i) our ability to maintain, or grow, storage rental and service revenues in line with current expectations and (ii) our ability to manage our fixed and variable costs in line with potential future revenue declines. These factors are incremental to those previously outlined in our Annual Report, which included, but were not limited to: (i) achieving growth from existing customers, (ii) sales to new customers, (iii) increased market penetration and (iv) accurately timing the capital investments related to expansions. In addition, the discount rates utilized in our valuation models could be impacted by changes in the underlying interest rates and risk premiums which could also result in future goodwill impairments. However, the duration and severity of the COVID-19 pandemic, as well as the related economic impact on both our business and the businesses of our customers, remain uncertain as of the filing of this Quarterly Report. As such, the current assumptions we used in determining the fair values of our reporting units may materially change as we gain additional visibility into the impact to our business and our customers' businesses. If our reporting units are not able to meet the assumptions we used in the Discounted Cash Flow Model, or there are any future adverse market conditions that are not currently known or are more severe than we currently expect, including relating to the COVID-19 pandemic, it could lead to a fair value that is less than the carrying value in any one of our reporting units and cause future goodwill impairments.
Recent Accounting Pronouncements
See Note 2.l. to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for a description of recently issued accounting pronouncements, including those recently adopted.
Results of Operations
Comparison of the three months ended
Three Months Ended
March 31, Dollar Percentage
2020 2019 Change Change
Revenues $ 1,068,731 $ 1,053,863 $ 14,868 1.4 %
Operating Expenses 931,229 895,188 36,041 4.0 %
Operating Income 137,502 158,675 (21,173 ) (13.3 )%
Other Expenses, Net 72,610 128,199 (55,589 ) (43.4 )%
Income from Continuing Operations 64,892 30,476 34,416 112.9 %
(Loss) Income from Discontinued
Operations, Net of Tax - (24 ) 24 (100.0 )%
Net Income 64,892 30,452 34,440 113.1 %
Net Income (Loss) Attributable to
Noncontrolling Interests 917 891 26 2.9 %
Net Income Attributable to Iron
Mountain Incorporated $ 63,975 $ 29,561 $ 34,414 116.4 %
Adjusted EBITDA(1) $ 363,077 $ 324,506 $ 38,571 11.9 %
Adjusted EBITDA Margin(1) 34.0 % 30.8 %
______________________________________________________________
(1) See "Non-GAAP Measures-Adjusted EBITDA" in this Quarterly Report for the
definitions of Adjusted EBITDA and Adjusted EBITDA Margin, a
reconciliation of Adjusted EBITDA to Income (Loss) from ContinuingOperations and a discussion of why we believe these non-GAAP measures
provide relevant and useful information to our current and potential
investors.
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REVENUES
Consolidated revenues consist of the following (in thousands):
Three Months Ended Percentage Change
March 31 , Dollar
Constant Organic
2020 2019 Change Actual Currency(1) Growth(2)
Storage Rental $ 683,547 $ 662,974 $ 20,573 3.1 % 4.9 % 3.0 %
Service 385,184 390,889 (5,705 ) (1.5 )% 0.3 % (2.3 )%
Total Revenues $ 1,068,731 $ 1,053,863 $ 14,868 1.4 % 3.2 % 1.0 %
________________________________________________________________
(1) Constant currency growth rates are calculated by translating the 2019
results at the 2020 average exchange rates.
(2) Our organic revenue growth rate, which is a non-GAAP measure, represents
the year-over-year growth rate of our revenues excluding the impact of
business acquisitions, divestitures and foreign currency exchange rate
fluctuations. Our organic revenue growth rate includes the impact of
acquisitions of customer relationships.
Storage Rental Revenues
In the three months endedMarch 31, 2020 , the increase in reported consolidated storage rental revenues was driven by consolidated organic storage rental revenue growth and the favorable impact of acquisitions/divestitures, partially offset by unfavorable fluctuations in foreign currency exchange rates. The net impact of acquisitions/divestitures contributed 1.9% to the reported storage rental revenue growth rates for the three months endedMarch 31, 2020 compared to the prior year period, primarily driven by acquisitions in our Global RIM Business segment. While our core storage business remains stable in spite of the COVID-19 pandemic, we have experienced some decreases in new storage volume. Organic storage rental revenue growth of 3.0% in the three months endedMarch 31, 2020 compared to the prior year period was driven by organic storage rental revenue growth of 2.1% in our Global RIM Business segment primarily driven by revenue management. Organic storage rental revenue growth in our Global Data Center Business segment was 8.7% for the three months endedMarch 31, 2020 compared to the prior year period, primarily related to increased customer leasing activity. Excluding the impact of acquisitions/divestitures, our Global RIM Business segment net volumes as ofMarch 31, 2020 decreased by 0.6% over the ending volume as ofMarch 31, 2019 . Including the impact of acquisitions/divestitures, our Global RIM Business segment net volumes as ofMarch 31, 2020 increased by 2.2% over the ending volume as ofMarch 31, 2019 . Foreign currency exchange rate fluctuations decreased our reported storage rental revenue growth rate for the three months endedMarch 31, 2020 by 1.8%, compared to the prior year period.
Service Revenues
In the three months endedMarch 31, 2020 , the decrease in reported consolidated service revenues was driven by negative organic service revenue growth and unfavorable fluctuations in foreign currency exchange rates, partially offset by the favorable impact of acquisitions/divestitures. Foreign currency exchange rate fluctuations decreased our reported service revenue growth rate for the three months endedMarch 31, 2020 by 1.8%, compared to the prior year period. Our reported consolidated service revenues during the three months endedMarch 31, 2020 also was impacted by the COVID-19 pandemic. Our operations in countries, such asChina , that saw a peak in COVID-19 cases during the three months endedMarch 31, 2020 , are limited, and as a result, the majority of our business did not experience service revenue declines until mid-to-lateMarch 2020 . However, we did experience decreases, primarily in our service activity, and particularly in regions where governments have imposed restrictions on non-essential business operations. InApril 2020 , we experienced service activity declines of approximately 40% when compared toApril 2019 . In the three months endedMarch 31, 2020 , organic service revenue growth was negative 2.3% compared to the prior year period, primarily driven by negative organic service revenue growth of 1.8% in our Global RIM Business segment reflecting lower recycled paper prices and reduced retrieval/re-file and related transportation activity, partially offset by growth in our secure shredding revenue and increased project activity. The net impact of acquisitions/divestitures contributed 2.6% to the reported service revenue growth rates for the three months endedMarch 31, 2020 , compared to the prior year period. 45
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Total Revenues
For the reasons stated above, our reported consolidated revenues increased$14.9 million , or 1.4%, to$1,068.7 million for the three months endedMarch 31, 2020 from$1,053.9 million for three months endedMarch 31, 2019 . The net impact of acquisitions/divestitures contributed 2.2% to the reported consolidated revenue growth rate for the three months endedMarch 31, 2020 compared to the prior year period. Consolidated organic revenue growth was 1.0% in the three months endedMarch 31, 2020 compared to the prior year period. Foreign currency exchange rate fluctuations decreased our reported consolidated revenue growth rate for the three months endedMarch 31, 2020 by 1.8%, compared to the prior year period.
Organic Growth-Eight-Quarter Trend
2018 2019 2020
Second Quarter Third Quarter Fourth Quarter First Quarter Second Quarter Third Quarter Fourth Quarter First Quarter
Storage Rental
Revenue 1.9 % 2.3 % 1.9 % 2.0 % 2.4 % 3.0 % 2.5 % 3.0 %
Service Revenue 7.6 % 7.1 % 6.1 % 1.8 % (2.0 )% (3.0 )% (0.7 )% (2.3 )%
Total Revenues 4.1 % 4.1 % 3.5 % 1.9 % 0.7 % 0.7 % 1.3 % 1.0 %
During the past eight quarters, our organic storage rental revenue growth rate
has ranged between 1.9% and 3.0%. Consolidated organic storage rental revenue
growth and consolidated total organic revenue growth were benefited by (i) 0.3%
and 0.2%, respectively, for the second quarter of 2019 related to a $1.7 million
customer lease modification fee in our Global Data Center Business segment, (ii)
0.3% and 0.2%, respectively, for the third quarter of 2019 related to a $1.7
million customer lease modification fee in our Global Data Center Business
segment and (iii) 0.3% and 0.2%, respectively, for the fourth quarter of 2019
related to a $2.0 million customer lease modification fee in our Global Data
Center Business segment. Our organic storage rental revenue growth rates have
increased over the past two fiscal years, as organic storage rental revenue
growth for full year 2018 and 2019 was 2.4% and 2.5%, respectively. At various
points in the economic cycle, organic storage rental revenue growth may be
influenced by changes in pricing and volume. In 2018 and 2019, we experienced
relatively steady net volume in our Global RIM Business segment, with organic
storage rental revenue growth coming primarily from revenue management. While
our core storage business remains stable in spite of the COVID-19 pandemic, we
have experienced some decreases in new storage volume. The impact that the
pandemic will have on our future organic storage rental revenue growth remains
uncertain and will be dependent on the severity and duration of the COVID-19
pandemic.
The organic growth rate for service revenue is inherently more volatile than the
organic growth rate for storage rental revenues due to the more discretionary
nature of certain services we offer, such as large special projects, and, as a
commodity, the volatility of pricing for recycled paper. These revenues, which
are often event-driven and impacted to a greater extent by economic downturns as
customers defer or cancel the purchase of certain services as a way to reduce
their short-term costs, may be difficult to replicate in future periods. The
organic growth rate for total service revenues over the past eight quarters
reflects reduced retrieval/re-file activity and a related decrease in
transportation revenues within our Global RIM Business segment. The increases in
organic service revenue growth rates of 7.6%, 7.1% and 6.1% in the second, third
and fourth quarters of 2018 reflect a strong contribution from our secure
shredding business, which benefited from higher recycled paper prices, higher
destruction activity and acquisitions of customer relationships. Organic service
revenue growth declined to 1.8%, negative 2.0%, negative 3.0% and negative 0.7%
for the first, second, third and fourth quarters of 2019, respectively,
reflecting declining recycled paper prices and moderation of destruction
activity compared to previous quarters. Organic service revenue growth declined
to negative 2.3% in the first quarter of 2020, reflecting continued weakness in
recycled paper prices and to a lesser extent, recycled paper volume decline. The
severity of future service level declines are currently uncertain and are
dependent on the duration and severity of the COVID-19 pandemic, the resulting
government and business actions and the duration and strength of any ensuing
economic recovery that may follow, specifically within the markets in which we
operate and among our customers. As restrictions associated with the COVID-19
pandemic are relaxed, we expect our service activity levels to gradually return.
However, we expect the declines in organic service revenue growth rates to
continue into the second quarter and potentially beyond.
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Table of Contents OPERATING EXPENSES COVID-19 A significant portion of our cost base is fixed, particularly with regard to our storage business. However, at lower service activity levels, we do have a number of options to manage our costs and capital expenditures. In light of the COVID-19 pandemic, we have taken certain actions, which were initiated in lateMarch 2020 but primarily took place inApril 2020 , including, but not limited to: (i) the termination of nearly all of our temporary and contract workers; (ii) reductions in our full-time and part-time work forces; (iii) the introduction of furloughs, reduced hours or other temporary reduction measures impacting approximately one-third of our global workforce; (iv) the deferral of certain previously planned non-essential capital investments and (v) the implementation of a temporary freeze on future acquisitions. While we have implemented cost savings measures to address the decreased level of service activity, we continue to incur costs, such as labor, vehicle and facility costs for service operations that are not being fully utilized, as well as increased costs due to COVID-19-related actions such as heightened safety and cleaning procedures and the purchase of personal protective equipment for employees. In addition, we can provide no assurance that the cost savings measures we have taken, or may take in future periods, will be sufficient to offset any future service level declines, and we continue to evaluate additional cost saving measures as additional information regarding the COVID-19 pandemic and the related economic downturn become known.
Cost of Sales
Consolidated cost of sales (excluding depreciation and amortization) consists of the following expenses (in thousands):
Percentage Change % of Percentage
Three Months Ended Consolidated Change
March 31, Dollar Constant Revenues (Favorable)/
2020 2019 Change Actual Currency 2020 2019 Unfavorable
Labor $ 203,846 $ 205,291 $ (1,445 ) (0.7 )% 1.6 % 19.1 % 19.5 % (0.4 )%
Facilities 184,532 174,719 9,813 5.6 % 7.6 % 17.3 % 16.6 % 0.7 %
Transportation 38,938 41,040 (2,102 ) (5.1 )% (3.5 )% 3.6 % 3.9 % (0.3 )%
Product Cost of
Sales and Other 39,605 39,596 9 - % 2.6 % 3.7 % 3.8 % (0.1 )%
Total Cost of
Sales $ 466,921 $ 460,646 $ 6,275 1.4 % 3.5 % 43.7 % 43.7 % - %
Labor
Labor expenses decreased to 19.1% of consolidated revenues in the three months
ended March 31, 2020 compared to 19.5% in the three months ended March 31, 2019 .
The decrease in labor expenses as a percentage of consolidated revenues was
primarily driven by lower labor expenses in our Global RIM Business segment,
partially attributable to benefits from Project Summit and ongoing cost
management actions. On a constant dollar basis, labor expenses for the three
months ended March 31, 2020 increased by $3.2 million , or 1.6%, compared to the
prior year period, primarily driven by recent acquisitions in our Global RIM
Business segment.
Facilities
Facilities expenses increased to 17.3% of consolidated revenues in the three
months ended March 31, 2020 compared to 16.6% in the three months ended
March 31, 2019 . The 70 basis point increase in facilities expenses as a
percentage of consolidated revenues was driven by increases in rent expense, in
part due to recent acquisitions in our Global RIM Business segment, as well as
property taxes and insurance, partially offset by lower building maintenance
costs. On a constant dollar basis, facilities expenses for the three months
ended March 31, 2020 increased by $13.0 million , or 7.6%, compared to the prior
year period.
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Transportation
Transportation expenses decreased to 3.6% of consolidated revenues in the three months endedMarch 31, 2020 compared to 3.9% in the three months endedMarch 31, 2019 . The decrease in transportation expenses as a percentage of consolidated revenues was primarily driven by lower third-party carrier costs, in part due to lower service revenue activity levels. On a constant dollar basis, transportation expenses for the three months endedMarch 31, 2020 decreased by$1.4 million , or 3.5%, compared to the prior year period.
Product Cost of Sales and Other
Product cost of sales and other, which includes cartons, media and other service, storage and supply costs and is highly correlated to service revenue streams, particularly project revenues, were 3.7% of consolidated revenues for the three months endedMarch 31, 2020 compared to 3.8% in the three months endedMarch 31, 2019 . On a constant dollar basis, product cost of sales and other increased by$1.0 million , or 2.6%, compared to the prior year period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consists of the following expenses (in thousands):
% of Percentage
Three Months Ended Percentage Change Consolidated Change
March 31, Dollar Constant Revenues (Favorable)/
2020 2019 Change Actual Currency 2020 2019 Unfavorable
General and
Administrative $ 129,198 $ 151,332 $ (22,134 ) (14.6 )% (13.2 )% 12.1 % 14.4 % (2.3 )%
Sales,
Marketing and
Account
Management 59,459 66,170 (6,711 ) (10.1 )% (8.8 )% 5.6 % 6.3 % (0.7 )%
Information
Technology 43,879 46,171 (2,292 ) (5.0 )% (4.0 )% 4.1 % 4.4 % (0.3 )%
Bad Debt Expense 6,197 5,038 1,159 23.0 % 23.5 % 0.6 % 0.5 % 0.1 %
Total Selling,
General and
Administrative
Expenses $ 238,733 $ 268,711 $ (29,978 ) (11.2 )% (9.8 )% 22.3 % 25.5 % (3.2 )%
General and Administrative
General and administrative expenses decreased to 12.1% of consolidated revenues
in the three months ended March 31, 2020 compared to 14.4% in the three months
ended March 31, 2019 . The decrease in general and administrative expenses as a
percentage of consolidated revenues was driven by benefits from Project Summit
and ongoing cost management actions. On a constant dollar basis, general and
administrative expenses for the three months ended March 31, 2020 decreased by
$19.6 million , or 13.2%, compared to the prior year period.
Sales, Marketing and Account Management
Sales, marketing and account management expenses decreased to 5.6% of consolidated revenues in the three months endedMarch 31, 2020 compared to 6.3% in the three months endedMarch 31, 2019 . The decrease in sales, marketing and account management expenses as a percentage of consolidated revenues was driven by benefits from Project Summit and ongoing cost management actions. On a constant dollar basis, sales, marketing and account management expenses for the three months endedMarch 31, 2020 decreased by$5.7 million , or 8.8%, compared to the prior year period. Information Technology Information technology expenses decreased to 4.1% of consolidated revenues in the three months endedMarch 31, 2020 compared to 4.4% in the three months endedMarch 31, 2019 . The decrease in information technology expenses as a percentage of consolidated revenues was driven by benefits from Project Summit and ongoing cost management actions. On a constant dollar basis, information technology expenses for the three months endedMarch 31, 2020 decreased by$1.8 million , or 4.0%, compared to the prior year period. 48
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Bad Debt Expense
We maintain an allowance for doubtful accounts based on reasonable and supportable forecasts for expected future collectability of our outstanding receivables that is calculated based on our past loss experience, current and prior trends in our aged receivables, current economic and macroeconomic conditions, and specific circumstances of individual receivable balances. We continually monitor our customers' payment activity and make adjustments to the allowance as necessary. Bad debt expense for the three months endedMarch 31, 2020 increased by$1.2 million on a constant dollar basis compared to the prior year period, primarily driven by higher bad debt expense in our Global RIM Business segment.
Depreciation and Amortization
Our depreciation and amortization charges result primarily from depreciation related to storage systems, which include racking structures, buildings, building and leasehold improvements and computer systems hardware and software. Amortization relates primarily to customer relationship intangible assets, contract fulfillment costs and data center lease-based intangible assets. Both depreciation and amortization are impacted by the timing of acquisitions. Depreciation expense decreased$0.9 million , or 0.8%, on a reported dollar basis for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 . See Note 2.f. to Notes to Consolidated Financial Statements included in our Annual Report for additional information regarding the useful lives over which our property, plant and equipment is depreciated. Amortization expense increased$1.0 million , or 2.1%, on a reported dollar basis for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 . Restructuring Charges
Restructuring Charges for the three months ended
Intangible impairments
The intangible impairment charge for the three months endedMarch 31, 2020 was$23.0 million and related to the write-down of goodwill associated with our Fine Arts reporting unit, as discussed above.
OTHER EXPENSES, NET
Interest Expense, Net
Consolidated interest expense, net increased$3.2 million , or 3.1%, to$105.6 million in the three months endedMarch 31, 2020 from$102.4 million in the three months endedMarch 31, 2019 . This increase was a result of higher average debt outstanding during the three months endedMarch 31, 2020 . See Note 5 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for additional information regarding our indebtedness. 49
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Other (Income) Expense, Net
Other (income) expense, net consists of the following (in thousands):
Three Months Ended
March 31, Dollar
2020 2019 Change
Foreign currency transaction (gains) losses, net $ (37,399 ) $ 17,697 $ (55,096 )
Other, net (5,327 ) (2,487 ) (2,840 )
Other (Income) Expense, Net $ (42,726 ) $ 15,210 $ (57,936 ) Foreign Currency Transaction (Gains) Losses
We recorded net foreign currency transaction gains of$37.4 million in the three months endedMarch 31, 2020 , based on period-end exchange rates. These gains resulted primarily from the impact of changes in the exchange rate of the British pound sterling againstthe United States dollar compared toDecember 31, 2019 on our intercompany balances with and between certain of our subsidiaries. We recorded net foreign currency transaction losses of$17.7 million in the three months endedMarch 31, 2019 , based on period-end exchange rates. These losses resulted primarily from the impact of changes in the exchange rate of the British pound sterling againstthe United States dollar compared toDecember 31, 2018 on our intercompany balances with and between certain of our subsidiaries.
Other, net
Included in Other, net is a gain of approximately
Provision for Income Taxes
We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period they occur. Our effective tax rate is subject to variability in the future due to, among other items: (1) changes in the mix of income between our qualified REIT subsidiaries and our domestic taxable REIT subsidiaries, as well as among the jurisdictions in which we operate; (2) tax law changes; (3) volatility in foreign exchange gains and losses; (4) the timing of the establishment and reversal of tax reserves; and (5) our ability to utilize net operating losses that we generate. Our effective tax rates for the three months endedMarch 31, 2020 and 2019 were 13.0% and 25.7%, respectively. The primary reconciling items between the federal statutory tax rate of 21.0% and our overall effective tax rate for the three months endedMarch 31, 2020 and 2019 were the benefits derived from the dividends paid deduction and the impacts of differences in the tax rates at which our foreign earnings are subject, including foreign exchange gains and losses in different jurisdictions with different tax rates. 50
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INCOME (LOSS) FROM CONTINUING OPERATIONS AND ADJUSTED EBITDA
The following table reflects the effect of the foregoing factors on our
consolidated income (loss) from continuing operations and Adjusted EBITDA (in
thousands):
Three Months Ended March 31, Dollar Percentage
2020 2019 Change Change
Income (Loss) from Continuing
Operations $ 64,892 $ 30,476 $ 34,416 112.9 %
Income (Loss) from Continuing
Operations as a percentage of
Consolidated Revenue 6.1 % 2.9 %
Adjusted EBITDA $ 363,077 $ 324,506 $ 38,571 11.9 %
Adjusted EBITDA Margin 34.0 % 30.8 %
Consolidated Adjusted EBITDA for the three months ended March 31, 2020 increased
by $38.6 million , or 11.9%, and consolidated Adjusted EBITDA Margin increased by
320 basis points compared to the same prior year period, primarily due to lower
selling, general and administrative expenses reflecting benefits from Project
Summit and ongoing cost management actions.
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Segment Analysis (in thousands)
See Note 9 to Notes to Consolidated Financial Statements included in our Annual Report for a description of our reportable operating segments.
Global RIM Business
Percentage Change
Three Months Ended March 31, Dollar Constant Organic
2020 2019 Change Actual Currency Growth
Storage Rental $ 590,013 $ 575,773 $ 14,240 2.5 % 4.5 % 2.1 %
Service 366,406 370,110 (3,704 ) (1.0 )% 0.9 % (1.8 )%
Segment Revenue $ 956,419 $ 945,883 $ 10,536 1.1 % 3.1 % 0.6 %
Segment Adjusted EBITDA(1) $ 391,972 $ 365,836 $ 26,136
Segment Adjusted EBITDA Margin(2) 41.0 % 38.7 %
_______________________________________________________________
(1) See "Non-GAAP Measures-Adjusted EBITDA" in this Quarterly Report for the
definitions of Adjusted EBITDA and Adjusted EBITDA Margin, a
reconciliation of Adjusted EBITDA to Income (Loss) from ContinuingOperations and a discussion of why we believe these non-GAAP measures
provide relevant and useful information to our current and potential
investors.
(2) Segment Adjusted EBITDA Margin is calculated by dividing Segment Adjusted
EBITDA by total segment revenues.
For the three months endedMarch 31, 2020 , reported revenue in our Global RIM Business segment increased 1.1%, compared to the three months endedMarch 31, 2019 , due to organic revenue growth and the favorable net impact of acquisitions/dispositions, partially offset by unfavorable fluctuations in foreign currency exchange rates. Organic revenue growth of 0.6% was primarily the result of organic storage rental revenue growth of 2.1% driven by revenue management. In addition, negative organic service revenue growth of 1.8% was driven by lower recycled paper prices and reduced retrieval/re-file and related transportation activity, partially offset by growth in our secure shredding revenue and increased project activity. The net impact of acquisitions/divestitures contributed 2.5% to the reported revenue growth rate for the three months endedMarch 31, 2020 , compared to the prior year period. Foreign currency exchange rate fluctuations decreased our reported revenue growth rate for the three months endedMarch 31, 2020 by 2.0%, compared to the prior year period. Adjusted EBITDA Margin increased 230 basis points during the three months endedMarch 31, 2020 compared to the prior year period, primarily driven by lower selling, general and administrative expenses reflecting benefits from Project Summit and ongoing cost management actions. 52
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Global Data Center Business
Percentage Change
Three Months Ended March 31, Dollar Constant Organic
2020 2019 Change Actual Currency Growth
Storage Rental $ 64,595 $ 59,718 $ 4,877 8.2 % 8.6 % 8.7 %
Service 2,762 1,818 944 51.9 % 52.3 % 53.4 %
Segment Revenue $ 67,357 $ 61,536 $ 5,821 9.5 % 9.9 % 9.9 %
Segment Adjusted
EBITDA(1) $ 30,895 $ 26,011 $ 4,884
Segment Adjusted EBITDA
Margin(2) 45.9 % 42.3 %
_______________________________________________________________
(1) See "Non-GAAP Measures-Adjusted EBITDA" in this Quarterly Report for the
definitions of Adjusted EBITDA and Adjusted EBITDA Margin, a
reconciliation of Adjusted EBITDA to Income (Loss) from ContinuingOperations and a discussion of why we believe these non-GAAP measures
provide relevant and useful information to our current and potential
investors.
(2) Segment Adjusted EBITDA Margin is calculated by dividing Segment Adjusted
EBITDA by total segment revenues.
For the three months endedMarch 31, 2020 , reported revenue in our Global Data Center Business segment increased 9.5% compared to the three months endedMarch 31, 2019 , due to organic revenue growth, partially offset by unfavorable fluctuations in foreign currency exchange rates. Organic storage rental revenue growth in our Global Data Center Business segment was 8.7% for the three months endedMarch 31, 2020 compared to the prior year period, reflecting increased customer leasing activity. Adjusted EBITDA Margin increased 360 basis points during the three months endedMarch 31, 2020 compared to the prior year period primarily due to ongoing cost management actions. 53
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Corporate and Other Business
Percentage Change
Three Months Ended March 31, Dollar Constant Organic
2020 2019 Change Actual Currency Growth
Storage Rental $ 28,939 $ 27,483 $ 1,456 5.3 % 5.5 % 8.1 %
Service 16,016 18,961 (2,945 ) (15.5 )% (14.8 )% (17.1 )%
Segment Revenue $ 44,955 $ 46,444 $ (1,489 ) (3.2 )% (2.8 )% (2.2 )%
Segment Adjusted
EBITDA(1) $ (59,790 ) $ (67,341 ) $ 7,551
Segment Adjusted
EBITDA(1) as a
percentage of
Consolidated Revenue (5.6 )% (6.4 )%
_______________________________________________________________
(1) See "Non-GAAP Measures-Adjusted EBITDA" in this Quarterly Report for the
definitions of Adjusted EBITDA and Adjusted EBITDA Margin, a
reconciliation of Adjusted EBITDA to Income (Loss) from ContinuingOperations and a discussion of why we believe these non-GAAP measures
provide relevant and useful information to our current and potential
investors.
For the three months ended March 31, 2020 , reported revenue in our Corporate and
Other Business segment decreased 3.2% compared to the prior year period,
primarily due to negative organic service revenue growth. The negative service
revenue organic growth reflects lower service activity levels in our Fine Arts
business. Adjusted EBITDA in our Corporate and Other Business segment increased
$7.6 million for the three months ended March 31, 2020 compared to the prior
year period reflecting benefits from Project Summit and ongoing cost management
actions.
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Liquidity and Capital Resources
COVID-19
While we have broad geographic and customer diversification with operations in more than 50 countries, and no single customer accounting for more than 1% of our revenue during the three months endedMarch 31, 2020 , COVID-19 is a global pandemic impacting numerous industries and geographies. While we do not currently believe that the implications of the COVID-19 pandemic have had a material adverse impact on our ability to collect our accounts receivable, global economic conditions related to the COVID-19 pandemic may have a material adverse effect on our customers, which could impact our future ability to collect our accounts receivable. We continue to monitor the credit worthiness of our customers and customer payment trends, as well as the related impact on our liquidity. Project Summit
As disclosed above, in
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