IRON MOUNTAIN INCORPORATED The following discussion and analysis of our financial condition and results of operations for the three months endedMarch 31, 2021 should be read in conjunction with our Condensed Consolidated Financial Statements and Notes thereto for the three months endedMarch 31, 2021 , included herein, and our Consolidated Financial Statements and Notes thereto for the year endedDecember 31, 2020 , included in our Annual Report on Form 10-K filed with theUnited States Securities and Exchange Commission ("SEC") onFebruary 24, 2021 (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) expectations and assumptions regarding the impact of the COVID-19 (as defined below) pandemic on us and our customers, including on our businesses, financial position, results of operations and cash flows, (2) commitment to future dividend payments, (3) expected change in volume of records stored with us, (4) expected organic revenue growth, including 2021 consolidated organic storage rental revenue growth rate and consolidated organic total revenue growth rate, (5) 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, (6) expectations related to our revenue management programs and continuous improvement initiatives, (7) expectations related to monetizing our owned industrial real estate assets as part of our capital recycling program, (8) expected ability to identify and complete acquisitions and other investments, including joint ventures, and drive returns on invested capital, (9) anticipated capital expenditures, (10) expected benefits, costs and actions related to, and timing of, Project Summit (as defined below), and (11) other forward-looking statements related to our business, results of operations and financial condition. These forward-looking statements are subject to various known and unknown risks, uncertainties and other factors, and you should not rely upon them except as statements of our present intentions and of our present expectations, which may or may not occur. When we use words such as "believes," "expects," "anticipates," "estimates", "plans", "intends" 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 execute on Project Summit and the potential impacts of Project Summit on our ability to retain and recruit employees; •our ability to remain qualified for taxation as a real estate investment trust forUnited States federal income tax purposes ("REIT"); •changes in customer preferences and demand for our storage and information management services, including as a result of the shift from paper and tape storage to alternative technologies that require less physical space; •our ability or inability to execute our strategic growth plan, including our ability to invest according to plan, incorporate new digital information technologies into our offerings, achieve satisfactory returns on new product offerings, continue our revenue management, expand internationally, complete acquisitions on satisfactory terms, integrate acquired companies efficiently and grow our business through joint ventures; •changes in the amount of our capital expenditures; •our ability to raise debt or equity capital and changes in the cost of our debt; •the cost and our ability to comply with laws, regulations and customer demands, including those relating to data security and privacy issues, as well as fire and safety and environmental 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, particularly as we consolidate operations and move records and data across borders;
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Table of Contents Part I. Financial Information •our ability to comply with our existing debt obligations and restrictions in our debt instruments; •the impact of service interruptions or equipment damage and the cost of power on our data center operations; •the cost or potential liabilities associated with real estate necessary for our business; •failures in our adoption of new IT systems; •other trends in competitive or economic conditions affecting our financial condition or results of operations not presently contemplated; and •the other risks described in our periodic reports filed with theSEC , including under the caption "Risk Factors" in Part I, Item 1A of our Annual Report. Except as required by law, we undertake no obligation to update any forward-looking statements appearing in this report. 24 IRON MOUNTAINMARCH 31, 2021 FORM 10-Q
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Table of Conten ts
Part I. Financial Information
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
March 31, 2021 within each section.
COVID-19
In March 2020 , the World Health Organization declared a novel strain of coronavirus
("COVID-19") a pandemic. The preventative and protective actions that governments have
ordered, or we or our customers have implemented, have resulted in a period of reduced
service operations and business disruption for us, our customers and other third parties
with which we do business. While we have broad geographic and customer diversification
with operations in 56 countries and no single customer accounting for a significant
portion of our revenue during the three months ended March 31, 2021 , 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.
We can provide no assurance that the cost savings measures we have previously taken, or
may take in future periods, will be sufficient to offset any future service level
declines, and we continue to evaluate the need for these cost saving measures and
additional cost saving measures as additional information regarding the COVID-19 pandemic
and the related economic downturn becomes known.
PROJECT SUMMIT
Compelling Adjusted EBITDA Benefits Implementation Details
~$375M •Project Summit began in
Q4 2019 and is expected
Expected annual run-rate to be substantiallycomplete by the end of 2021
benefits realized exiting 2021 •Cost to implement is estimated to be
InOctober 2019 , we announced our global program designed to better position us for future growth and achievement of our strategic objectives ("Project Summit"). As a result of the program, we expect to reduce the number of positions at vice president and above by approximately 45%. The total program is expected to reduce our total managerial and administrative workforce by approximately 700 positions by the end of 2021. We have also reduced our services and operations workforce. As ofMarch 31, 2021 , we have completed approximately 80% of our planned workforce reductions. 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 expect the total program benefits associated with Project Summit to be fully realized exiting 2021. We expect that Project Summit will improve annual Adjusted EBITDA (as defined below) by approximately$375.0 million exiting 2021. 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.
Exiting 2021 [[Image Removed: irm-20210331_g4.jpg]]
(expected)
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Part I. Financial Information
We estimate that the implementation of Project Summit will result in total
operating expenditures ("Restructuring Charges") of approximately $450.0 million
that primarily consist of: (1) employee severance costs; (2) internal costs
associated with the development and implementation of Project Summit
initiatives; (3) professional fees, primarily related to third party consultants
who are assisting with the design and execution of various initiatives as well
as project management activities and (4) system implementation and data
conversion costs. The following table presents (in millions) total Restructuring
Charges related to Project Summit primarily related to employee severance costs,
internal costs associated with the development and implementation of Project
Summit initiatives and professional fees from the inception of Project Summit
through March 31, 2021 , for the three months ended March 31, 2021 and for the
three months ended March 31, 2020 :
TOTAL
From the Inception of
Project Summit through $282,804 $282.8 million
March 31, 2021
For the Three Months Ended
For the Three Months Ended
We have also incurred approximately$4.1 million in capital expenditures related to Project Summit during the three months endedMarch 31, 2021 and approximately$14.2 million from the inception of Project Summit throughMarch 31, 2021 . See Note 9 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for more information on the Restructuring Charges. CHANGES IMPACTING COMPARABILITY WITH PRIOR YEAR During the fourth quarter of 2020, we made changes to the definitions of the following non-GAAP measures: Adjusted EBITDA, Adjusted EPS, FFO (Nareit) and FFO (Normalized) (each as defined below). These changes were implemented to align our definitions more closely with our peers. All prior periods have been recast to conform to these changes.
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Table of Conten ts
Part I. Financial Information
GENERAL
RESULTS OF OPERATIONS - KEY TRENDS
•In spite of the COVID-19 pandemic, we have experienced relatively steady volume
in our Global RIM Business segment, with organic storage rental revenue growth
driven primarily by revenue management. We expect organic storage rental revenue
growth to benefit from revenue management and volume to be relatively stable in
the near term. We expect our total organic storage rental revenue growth rate
for 2021 to be approximately 2% to 4%.
•Our organic service revenue continued to be impacted by the COVID-19 pandemic,
with declines primarily due to decreases in our service activity, particularly
in regions where governments have imposed restrictions on our customers'
non-essential business operations. The impact of the COVID-19 pandemic on our
future service revenues is uncertain and is dependent, in part, on the duration
and severity of the COVID-19 pandemic, the resulting governmental and business
actions and the duration and strength of any ensuing economic recovery that may
follow, particularly within the markets in which we operate and among our
customers.
Cost of sales (excluding depreciation and amortization) and Selling, general and
administrative expenses for the three months ended March 31, 2021 consists of
the following:
COST OF SALES SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
[[Image Removed: irm-20210331_g5.jpg]] [[Image Removed: irm-20210331_g6.jpg]]
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Part I. Financial Information
NON-GAAP MEASURES
ADJUSTED EBITDA
We define Adjusted EBITDA as net income (loss) before interest expense, net,
provision (benefit) for income taxes, depreciation and amortization (inclusive
of our share of Adjusted EBITDA from our unconsolidated joint ventures), and
excluding certain items we do not believe to be indicative of our core operating
results, specifically:
EXCLUDED
•Restructuring Charges •Other expense (income), net
•Intangible impairments •Stock-based compensation expense
•(Gain) loss on disposal/write-down of property, •COVID-19 Costs(1)
plant and equipment, net (including real estate)
(1) Costs that are incremental and directly attributable to the COVID-19
pandemic which are not expected to recur once the pandemic ends ("COVID-19
Costs"). These costs include the purchase of personal protective equipment for
our employees and incremental cleaning costs of our facilities, among other
direct costs.
Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by total
revenues. We also show Adjusted EBITDA and Adjusted EBITDA Margin for each of
our reportable operating segments under "Results of Operations - Segment
Analysis" below.
[[Image Removed: irm-20210331_g7.jpg]]
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. 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 in the United States of America ("GAAP"), such as
operating income, net income (loss) or cash flows from operating activities (as
determined in accordance with GAAP).
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA (IN THOUSANDS):
THREE MONTHS ENDED
MARCH 31,
2021 2020
Net Income (Loss) $ 46,631 $ 64,892
Add/(Deduct):
Interest expense, net 104,422 105,649
Provision (benefit) for income taxes 14,640 9,687
Depreciation and amortization 165,642 162,584
Restructuring Charges 39,811 41,046
Intangible impairments - 23,000(Gain) loss on disposal/write-down of property, plant and equipment, net (including real estate)
(4,451) (1,055)
Other expense (income), net, excluding our share of losses (gains) from our unconsolidated joint ventures
2,121 (45,031)
Stock-based compensation expense 10,733 5,111
Our share of Adjusted EBITDA reconciling items from our unconsolidated
joint ventures 1,016 116
Adjusted EBITDA $ 380,565 $ 365,999
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Table of Conten ts
Part I. Financial Information
ADJUSTED EPS
We define Adjusted EPS as reported earnings per share fully diluted from net
income (loss) attributable to Iron Mountain Incorporated (inclusive of our share
of adjusted losses (gains) from our unconsolidated joint ventures) and excluding
certain items, specifically:
EXCLUDED
•Restructuring Charges •Other expense (income), net
•Intangible impairments •Stock-based compensation expense
•(Gain) loss on disposal/write-down of property, plant and •COVID-19 Costs
equipment, net (including real estate) •Tax impact of reconciling items and discrete
tax items
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 NET INCOME (LOSS) ATTRIBUTABLE
TO IRON MOUNTAIN INCORPORATED TO ADJUSTED EPS-FULLY DILUTED FROM NET INCOME
(LOSS) ATTRIBUTABLE TO IRON MOUNTAIN INCORPORATED:
THREE MONTHS ENDED
MARCH 31,
2021 2020
Reported EPS-Fully Diluted from Net Income (Loss) Attributable to Iron
Mountain Incorporated $ 0.16 $ 0.22
Add/(Deduct):
Restructuring Charges 0.14 0.14
Intangible impairments - 0.08(Gain) loss on disposal/write-down of property, plant and equipment, net (including real estate)
(0.02) -
Other expense (income), net, excluding our share of losses (gains) from our unconsolidated joint ventures
0.01 (0.16)
Stock-based compensation expense 0.04 0.02
Tax impact of reconciling items and discrete tax items(1) (0.01) (0.02)
Adjusted EPS-Fully Diluted from Net Income (Loss) Attributable to
$ 0.32 $ 0.28 (1)The difference between our effective tax rates and our structural tax rate (or adjusted effective tax rates) for the three months endedMarch 31, 2021 and 2020 is primarily due to (i) the reconciling items above, which impact our reported net income (loss) 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 endedMarch 31, 2021 and 2020 was 16.6% and 17.0%, respectively. (2)Columns may not foot due to rounding.
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Part I. Financial Information
FFO (NAREIT) AND FFO (NORMALIZED)
Funds from operations ("FFO") is defined by the National Association of Real
Estate Investment Trusts ("Nareit") 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 and adjusting for our share
of reconciling items from our unconsolidated joint ventures from FFO ("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, we modify FFO (Nareit), as is
common among REITs seeking to provide financial measures that most meaningfully
reflect their particular business ("FFO (Normalized)"). Our definition of FFO
(Normalized) excludes certain items included in FFO (Nareit) that we believe are
not indicative of our core operating results, specifically:
EXCLUDED
•Restructuring Charges •Stock-based compensation expense
•Intangible impairments •COVID-19 Costs
•(Gain) loss on disposal/write-down of property, plant and •Real estate financing lease depreciation
equipment, net (excluding real estate) •Tax impact of reconciling items and discrete tax
•Other expense (income), net items
RECONCILIATION OF NET INCOME (LOSS) TO FFO (NAREIT) AND FFO (NORMALIZED) (IN
THOUSANDS):
THREE MONTHS ENDED
MARCH 31,
2021 2020
Net Income (Loss) $ 46,631 $ 64,892
Add/(Deduct):
Real estate depreciation 76,047 76,587
Gain on sale of real estate, net of tax (4,305) (492)
Data center lease-based intangible assets amortization 10,483 11,353
FFO (Nareit) 128,856 152,340
Add/(Deduct):
Restructuring Charges 39,811 41,046
Intangible impairments - 23,000(Gain) loss on disposal/write-down of property, plant and equipment, net (excluding real estate)
(146) (244)
Other expense (income), net, excluding our share of losses (gains) from our unconsolidated joint ventures(1)
2,121 (45,031)
Stock-based compensation expense 10,733 5,111
Real estate financing lease depreciation 3,536 3,162
Tax impact of reconciling items and discrete tax items(2) (3,569) (7,262)
Our share of FFO (Normalized) reconciling items from our unconsolidated joint ventures
(4) (20)
FFO (Normalized) $
181,338
(1)Includes foreign currency transaction losses (gains), net and other, net. See Note 2.j. to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for additional information regarding the components of Other expense (income), net. (2)Represents the tax impact of (i) the reconciling items above, which impact our reported net income (loss) 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$1.0 million and$0.0 million for the three months endedMarch 31, 2021 and 2020, respectively.
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Table of Conten ts
Part I. Financial Information
CRITICAL ACCOUNTING ESTIMATES
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 estimates 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 estimates 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. We have determined that no material changes
concerning our critical accounting estimates have occurred since December 31,
2020 .
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