QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 1-13045
IRON MOUNTAIN INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Delaware
23-2588479
(State or other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
85 New Hampshire Avenue, Suite 150, Portsmouth, New Hampshire03801
(Address of Principal Executive Offices, Including Zip Code)
(617) 535-4766
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $.01 par value
IRM
NYSE
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 28, 2023, the registrant had 291,852,409 outstanding shares of common stock, $.01 par value.
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
JUNE 30, 2023
DECEMBER 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents
$
149,493
$
141,797
Accounts receivable (less allowances of $65,217 and $54,143 as of June 30, 2023 and December 31, 2022, respectively)
1,182,154
1,174,915
Prepaid expenses and other
279,522
230,433
Total Current Assets
1,611,169
1,547,145
Property, Plant and Equipment:
Property, plant and equipment
9,546,766
9,025,765
Less—Accumulated depreciation
(3,943,300)
(3,910,321)
Property, Plant and Equipment, Net
5,603,466
5,115,444
Other Assets, Net:
Goodwill
4,928,145
4,882,734
Customer and supplier relationships and other intangible assets
1,348,679
1,423,145
Operating lease right-of-use assets
2,671,371
2,583,704
Other
515,739
588,342
Total Other Assets, Net
9,463,934
9,477,925
Total Assets
$
16,678,569
$
16,140,514
LIABILITIES AND EQUITY
Current Liabilities:
Current portion of long-term debt
$
102,582
$
87,546
Accounts payable
482,244
469,198
Accrued expenses and other current liabilities (includes current portion of operating lease liabilities)
1,141,613
1,031,910
Deferred revenue
336,068
328,910
Total Current Liabilities
2,062,507
1,917,564
Long-term Debt, net of current portion
11,144,230
10,481,449
Long-term Operating Lease Liabilities, net of current portion
2,513,975
2,429,167
Other Long-term Liabilities
164,242
317,376
Deferred Income Taxes
273,213
263,005
Commitments and Contingencies
Redeemable Noncontrolling Interests
104,059
95,160
Equity:
Preferred stock (par value $0.01; authorized 10,000,000 shares; none issued and outstanding)
—
—
Common stock (par value $0.01; authorized 400,000,000 shares; issued and outstanding 291,824,958 and 290,830,296 shares as of June 30, 2023 and December 31, 2022, respectively)
2,918
2,908
Additional paid-in capital
4,488,492
4,468,035
(Distributions in excess of earnings) Earnings in excess of distributions
(3,692,948)
(3,392,272)
Accumulated other comprehensive items, net
(382,244)
(442,003)
Total Iron Mountain Incorporated Stockholders' Equity
416,218
636,668
Noncontrolling Interests
125
125
Total Equity
416,343
636,793
Total Liabilities and Equity
$
16,678,569
$
16,140,514
The accompanying notes are an integral part of these condensed consolidated financial statements.
Adjustments to reconcile net income (loss) to cash flows from operating activities:
Depreciation
254,395
236,496
Amortization (includes amortization of deferred financing costs and discounts of $8,095 and $9,064 for the six months ended June 30, 2023 and 2022, respectively)
131,161
134,437
Revenue reduction associated with amortization of customer inducements and above- and below-market leases
3,491
3,681
Stock-based compensation expense
34,882
31,597
Provision (benefit) for deferred income taxes
2,799
(18,491)
Loss on early extinguishment of debt
—
671
(Gain) loss on disposal/write-down of property, plant and equipment, net
(14,566)
(51,954)
Loss (gain) on divestments and deconsolidations
—
105,825
Loss (gain) associated with the Clutter transactions
38,000
(35,821)
Foreign currency transactions and other, net
69,183
(58,821)
(Increase) decrease in assets
(31,071)
(194,756)
(Decrease) increase in liabilities
(108,858)
(50,505)
Cash Flows from Operating Activities
446,094
345,924
Cash Flows from Investing Activities:
Capital expenditures
(600,758)
(330,220)
Cash paid for acquisitions, net of cash acquired
(21,465)
(718,657)
Acquisition of customer relationships
—
(148)
Customer inducements
(2,630)
(4,624)
Contract fulfillment costs
(39,989)
(33,951)
Investments in joint ventures and other investments
(15,830)
—
Proceeds from sales of property and equipment and other, net
35,390
96,497
Cash Flows from Investing Activities
(645,282)
(991,103)
Cash Flows from Financing Activities:
Repayment of revolving credit facility, term loan facilities and other debt
(10,087,033)
(5,351,720)
Proceeds from revolving credit facility, term loan facilities and other debt
9,683,880
6,255,829
Net proceeds from sale of senior note
990,000
—
Debt financing and equity contribution from noncontrolling interests
9,900
21,547
Debt repayment and equity distribution to noncontrolling interests
(2,032)
(1,392)
Parent cash dividends
(367,060)
(364,223)
Net (payments) proceeds associated with employee stock-based awards
(15,782)
(8,636)
Other, net
(2,046)
(9,405)
Cash Flows from Financing Activities
209,827
542,000
Effect of Exchange Rates on Cash and Cash Equivalents
(2,943)
(7,903)
Increase (decrease) in Cash and Cash Equivalents
7,696
(111,082)
Cash and Cash Equivalents, Beginning of Period
141,797
255,828
Cash and Cash Equivalents, End of Period
$
149,493
$
144,746
Supplemental Information:
Cash Paid for Interest
$
270,146
$
227,633
Cash Paid for Income Taxes, Net
$
46,502
$
57,135
Non-Cash Investing and Financing Activities:
Financing Leases and Other
$
61,085
$
12,878
Accrued Capital Expenditures
$
192,197
$
98,210
Deferred Purchase Obligations and Other Deferred Payments
$
9,290
$
276,017
Dividends Payable
$
192,597
$
188,556
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data) (Unaudited)
1. GENERAL
The unaudited condensed consolidated financial statements of Iron Mountain Incorporated, a Delaware corporation ("IMI"), and its subsidiaries ("we" or "us"), have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to those rules and regulations, but we believe that the disclosures included herein are adequate to make the information presented not misleading. Certain prior year financial statement amounts have been reclassified to conform to the current year presentation. The interim condensed consolidated financial statements are presented herein and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair presentation. Interim results are not necessarily indicative of results for a full year.
The Condensed Consolidated Financial Statements and Notes thereto, which are included herein, should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended December 31, 2022 included in our Annual Report on Form 10-K filed with the SEC on February 23, 2023 (our "Annual Report").
In September 2022, we announced a global program designed to accelerate the growth of our business ("Project Matterhorn"). See Note 11.
We have been organized and have operated as a real estate investment trust for United States federal income tax purposes ("REIT") beginning with our taxable year ended December 31, 2014.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and cash invested in highly liquid short-term securities, which have remaining maturities at the date of purchase of less than 90 days. Cash and cash equivalents are carried at cost, which approximates fair value.
B. ACCOUNTS RECEIVABLE
We maintain an allowance for doubtful accounts and a credit memo reserve for estimated losses resulting from the potential inability of our customers to make required payments and potential disputes regarding billing and service issues.The rollforward of the allowance for doubtful accounts and credit memo reserves for the six months ended June 30, 2023 is as follows:
Balance as of December 31, 2022
$
54,143
Credit memos charged to revenue
46,222
Allowance for bad debts charged to expense
16,172
Deductions and other(1)
(51,320)
Balance as of June 30, 2023
$
65,217
(1)Primarily consists of the issuance of credit memos, the write-off of accounts receivable and the impact associated with currency translation adjustments.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. LEASES
We lease facilities for certain warehouses, data centers and office space. We also have land leases, including those on which certain facilities are located.
Operating and financing lease right-of-use assets and lease liabilities as of June 30, 2023 and December 31, 2022 are as follows:
DESCRIPTION
JUNE 30, 2023
DECEMBER 31, 2022
Assets:
Operating lease right-of-use assets
$
2,671,371
$
2,583,704
Financing lease right-of-use assets, net of accumulated depreciation(1)
255,015
251,690
Liabilities:
Current
Operating lease liabilities
$
303,615
$
288,738
Financing lease liabilities(1)
49,148
43,857
Long-term
Operating lease liabilities
$
2,513,975
$
2,429,167
Financing lease liabilities(1)
297,190
289,048
(1)Financing lease right-of-use assets, current financing lease liabilities and long-term financing lease liabilities are included within Property, Plant and Equipment, Net, Current portion of long-term debt and Long-term Debt, net of current portion, respectively, within our Condensed Consolidated Balance Sheets.
The components of the lease expense for the three and six months ended June 30, 2023 and 2022 are as follows:
THREE MONTHS ENDED JUNE 30,
SIX MONTHS ENDED JUNE 30,
DESCRIPTION
2023
2022
2023
2022
Operating lease cost(1)
$
161,241
$
139,863
$
317,114
$
283,393
Financing lease cost:
Depreciation of financing lease right-of-use assets
$
10,202
$
10,578
$
20,210
$
22,032
Interest expense for financing lease liabilities
4,416
4,359
8,757
9,037
(1)Operating lease cost, the majority of which is included in Cost of sales, includes variable lease costs of $34,418 and $65,998 for the three and six months ended June 30, 2023, respectively, and $28,788 and $59,296 for the three and six months ended June 30, 2022, respectively.
Other information:Supplemental cash flow information relating to our leases for the six months ended June 30, 2023 and 2022 is as follows:
SIX MONTHS ENDED JUNE 30,
CASH PAID FOR AMOUNTS INCLUDED IN MEASUREMENT OF LEASE LIABILITIES:
2023
2022
Operating cash flows used in operating leases
$
220,764
$
200,958
Operating cash flows used in financing leases (interest)
8,757
9,037
Financing cash flows used in financing leases
22,010
20,084
NON-CASH ITEMS:
Operating lease modifications and reassessments
$
44,779
$
67,699
New operating leases (including acquisitions and sale-leaseback transactions)
163,326
382,890
In addition to the leases signed but not yet commenced that were disclosed in Note 2.j. to Notes to Consolidated Financial Statements included in our Annual Report, we entered into an operating lease in March 2023 that is expected to commence in July 2024, with an initial lease term of 25 years. The total undiscounted minimum lease payments for this lease are approximately $170,100.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. GOODWILL
Our reporting units as of December 31, 2022 are described in detail in Note 2.l. to Notes to Consolidated Financial Statements included in our Annual Report.
The changes in the carrying value of goodwill attributable to each reportable segment for the six months ended June 30, 2023 are as follows:
GLOBAL RIM BUSINESS
GLOBAL DATA CENTER BUSINESS
CORPORATE AND OTHER
TOTAL CONSOLIDATED
Goodwill balance, net of accumulated amortization as of December 31, 2022
$
3,852,946
$
418,502
$
611,286
$
4,882,734
Non-tax deductible goodwill acquired during the period
22,876
—
383
23,259
Fair value and other adjustments
(80)
—
2,333
2,253
Currency translation adjustments
17,169
2,153
577
19,899
Goodwill balance, net of accumulated amortization as of June 30, 2023
$
3,892,911
$
420,655
$
614,579
$
4,928,145
Accumulated goodwill impairment balance as of June 30, 2023
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. FAIR VALUE MEASUREMENTS
The assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2023 and December 31, 2022 are as follows:
FAIR VALUE MEASUREMENTS AT JUNE 30, 2023 USING
DESCRIPTION
TOTAL CARRYING VALUE AT JUNE 30, 2023
QUOTED PRICES IN ACTIVE MARKETS (LEVEL 1)
SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)
SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
Money Market Funds
$
11,761
$
—
$
11,761
$
—
Time Deposits
1,127
—
1,127
—
Trading Securities
10,340
10,322
18
—
Derivative Assets
28,286
—
28,286
—
Derivative Liabilities
4,540
—
4,540
—
Deferred Purchase Obligations(1)
201,190
—
—
201,190
FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2022 USING
DESCRIPTION
TOTAL CARRYING VALUE AT DECEMBER 31, 2022
QUOTED PRICES IN ACTIVE MARKETS (LEVEL 1)
SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)
SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
Money Market Funds
$
11,311
$
—
$
11,311
$
—
Time Deposits
1,102
—
1,102
—
Trading Securities
9,462
9,426
36
—
Derivative Assets
51,396
—
51,396
—
Derivative Liabilities
489
—
489
—
Deferred Purchase Obligations(1)
193,033
—
—
193,033
(1)Primarily relates to the fair value of the Deferred Purchase Obligation (as defined in Note 3 to Notes to Consolidated Financial Statements included in our Annual Report) associated with the ITRenew Transaction (as defined below in Note 3), which was determined utilizing a Monte-Carlo model and takes into account our forecasted projections as it relates to the underlying performance of the business. The Monte-Carlo simulation model incorporates assumptions as to expected gross profits over the applicable achievement period, including adjustments for the volatility of timing and amount of the associated revenue and costs, as well as discount rates that account for the risk of the underlying arrangement and overall market risks. Any material change to these assumptions may result in a significantly higher or lower fair value of the Deferred Purchase Obligation. The change in value of the Deferred Purchase Obligation during the three and six months ended June 30, 2023 was driven by the accretion of the obligation to present value.
There were no material items that were measured at fair value on a non-recurring basis at June 30, 2023 and December 31, 2022 other than (i) those disclosed in Note 2.p. to Notes to Consolidated Financial Statements included in our Annual Report and (ii) assets acquired and liabilities assumed through our acquisitions that occurred during the six months ended June 30, 2023, all of which are based on Level 3 inputs.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. ACCUMULATED OTHER COMPREHENSIVE ITEMS, NET
The changes in Accumulated other comprehensive items, net for the three and six months ended June 30, 2023 and 2022 are as follows:
THREE MONTHS ENDED JUNE 30, 2023
THREE MONTHS ENDED JUNE 30, 2022
FOREIGN CURRENCY TRANSLATION AND OTHER ADJUSTMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
TOTAL
FOREIGN CURRENCY TRANSLATION AND OTHER ADJUSTMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
TOTAL
Beginning of Period
$
(414,832)
$
9,064
$
(405,768)
$
(313,801)
$
19,443
$
(294,358)
Other comprehensive income (loss):
Foreign currency translation and other adjustments
18,155
—
18,155
(186,828)
—
(186,828)
Change in fair value of derivative instruments
—
7,896
7,896
—
34,211
34,211
Reclassifications from accumulated other comprehensive items, net
—
(2,527)
(2,527)
—
—
—
Total other comprehensive income (loss)
18,155
5,369
23,524
(186,828)
34,211
(152,617)
End of Period
$
(396,677)
$
14,433
$
(382,244)
$
(500,629)
$
53,654
$
(446,975)
SIX MONTHS ENDED JUNE 30, 2023
SIX MONTHS ENDED JUNE 30, 2022
FOREIGN CURRENCY TRANSLATION AND OTHER ADJUSTMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
TOTAL
FOREIGN CURRENCY TRANSLATION AND OTHER ADJUSTMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
TOTAL
Beginning of Period
$
(454,509)
$
12,506
$
(442,003)
$
(341,024)
$
2,677
$
(338,347)
Other comprehensive income (loss):
Foreign currency translation and other adjustments
57,832
—
57,832
(159,605)
—
(159,605)
Change in fair value of derivative instruments
—
4,454
4,454
—
50,977
50,977
Reclassifications from accumulated other comprehensive items, net
—
(2,527)
(2,527)
—
—
—
Total other comprehensive income (loss)
57,832
1,927
59,759
(159,605)
50,977
(108,628)
End of Period
$
(396,677)
$
14,433
$
(382,244)
$
(500,629)
$
53,654
$
(446,975)
G. REVENUES
The costs associated with the initial movement of customer records into physical storage and certain commissions are considered costs to obtain or fulfill customer contracts (collectively, "Contract Fulfillment Costs").Contract Fulfillment Costs as of June 30, 2023 and December 31, 2022 are as follows:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred revenue liabilities are reflected in our Condensed Consolidated Balance Sheets as follows:
DESCRIPTION
LOCATION IN BALANCE SHEET
JUNE 30, 2023
DECEMBER 31, 2022
Deferred revenue - Current
Deferred revenue
$
336,068
$
328,910
Deferred revenue - Long-term
Other Long-term Liabilities
22,343
32,960
DATA CENTER LESSOR CONSIDERATIONS
Our Global Data Center Business features storage rental provided to customers at contractually specified rates over a fixed contractual period, which are accounted for in accordance with Accounting Standards Codification ("ASC") 842, Leases.Storage rental revenue, including revenue associated with power and connectivity, associated with our Global Data Center Business for the three and six months ended June 30, 2023 and 2022 is as follows:
THREE MONTHS ENDED JUNE 30,
SIX MONTHS ENDED JUNE 30,
2023
2022
2023
2022
Storage rental revenue(1)
$
110,990
$
89,768
$
218,425
$
177,219
(1)Revenue associated with power and connectivity included within storage rental revenue was $38,692 and $79,364 for the three and six months ended June 30, 2023, respectively, and $30,713 and $59,031 for the three and six months ended June 30, 2022, respectively.
H. STOCK-BASED COMPENSATION
Our stock-based compensation expense includes the cost of stock options, restricted stock units ("RSUs") and performance units ("PUs") (together, the "Employee Stock-Based Awards").
STOCK-BASED COMPENSATION EXPENSE
Stock-based compensation expense for the Employee Stock-Based Awards for the three and six months ended June 30, 2023 and 2022 is as follows:
THREE MONTHS ENDED JUNE 30,
SIX MONTHS ENDED JUNE 30,
2023
2022
2023
2022
Stock-based compensation expense
$
22,373
$
20,256
$
34,882
$
31,597
As of June 30, 2023, unrecognized compensation cost related to the unvested portion of our Employee Stock-Based Awards is $87,880.
I. ACQUISITION AND INTEGRATION COSTS
Acquisition and integration costs represent operating expenditures directly associated with the closing and integration activities of our business acquisitions that have closed, or are highly probable of closing, and include (i) advisory, legal and professional fees to complete business acquisitions and (ii) costs to integrate acquired businesses into our existing operations, including move, severance and system integration costs (collectively, "Acquisition and Integration Costs").
Acquisition and Integration Costs for the three and six months ended June 30, 2023 and 2022 are as follows:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
J. (GAIN) LOSS ON DISPOSAL/WRITE-DOWN OF PROPERTY, PLANT AND EQUIPMENT, NET
(Gain) loss on disposal/write-down of property, plant and equipment, net for the three and six months ended June 30, 2023 and 2022 is as follows:
THREE MONTHS ENDED JUNE 30,
SIX MONTHS ENDED JUNE 30,
2023
2022(2)
2023(1)
2022(2)
(Gain) Loss on disposal/write-down of property, plant and equipment, net(3)
$
(1,505)
$
(51,249)
$
(14,566)
$
(51,954)
(1) The gains for the six months ended June 30, 2023 primarily consist of a gain of approximately $18,500 associated with a sale-leaseback transaction of a facility in Singapore during the first quarter of 2023.
(2) The gains for the three and six months ended June 30, 2022 primarily consist of gains of approximately $49,000 associated with sale and sale-leaseback transactions of 11 facilities and parcels of land in the United States.
(3) The gains recognized during both 2023 and 2022 are the result of our program to monetize a small portion of our industrial assets through sale and sale-leaseback transactions. The terms for these leases are consistent with the terms of our lease portfolio, which are disclosed in detail in Note 2.j. to Notes to Consolidated Financial Statements included in our Annual Report.
K. OTHER EXPENSE (INCOME), NET
Other expense (income), net for the three and six months ended June 30, 2023 and 2022 consists of the following:
(1)The losses for the three and six months ended June 30, 2023 primarily consist of the impact of changes in the exchange rate of the British pound sterling against the United States dollar on our intercompany balances with and between certain of our subsidiaries.
(2)The gains for the three and six months ended June 30, 2022 primarily consist of the impact of changes in the exchange rate of the Euro and the British pound sterling against the United States dollar on our intercompany balances with and between certain of our subsidiaries.
(3)Other, net for the six months ended June 30, 2023 consists primarily of a loss of approximately $38,000 associated with the remeasurement to fair value of our previously held equity interest in the Clutter JV (as defined and discussed in Note 4) as well as losses on our equity method investments and the change in value of the Deferred Purchase Obligation.
(4)Other, net for the six months ended June 30, 2022 consists primarily of (i) a loss of approximately $105,800 associated with the OSG Deconsolidation (as defined in Note 4 to Notes to Consolidated Financial Statements included in our Annual Report), partially offset by (ii) a gain of approximately $35,800 associated with the Clutter Transaction (as defined in Note 5 to Notes to Consolidated Financial Statements included in our Annual Report).
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
L. INCOME TAXES
We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year.Our effective tax rates for the three and six months ended June 30, 2023 and 2022 are as follows:
THREE MONTHS ENDED JUNE 30,
SIX MONTHS ENDED JUNE 30,
2023(1)
2022(2)
2023(1)
2022(2)
Effective Tax Rate
78.8
%
8.2
%
24.0
%
10.4
%
(1)The primary reconciling items between the federal statutory tax rate of 21.0% and our overall effective tax rate for the three and six months ended June 30, 2023 were (i) the loss of approximately $38,000 recorded in Other, net a component of Other expense (income), net during the second quarter of 2023 to reflect the remeasurement of our previously held equity interest in the Clutter JV to fair value, for which there was no tax impact, (ii) the benefits derived from the dividends paid deduction and (iii) the differences in the tax rates to which our foreign earnings are subject.
(2)The primary reconciling items between the federal statutory tax rate of 21.0% and our overall effective tax rate for the three and six months ended June 30, 2022 were the benefits derived from the dividends paid deduction and the differences in the tax rates to which our foreign earnings are subject. In addition, there were gains and losses recorded in Other expense (income), net and Gain (loss) on disposal/write-down of property, plant and equipment net, during the period for which there was an insignificant tax impact. During the first quarter of 2022, there was also a release of valuation allowances on deferred tax assets of our U.S. taxable REIT subsidiaries of approximately $9,900 as a result of our acquisition of Intercept Parent, Inc. ("ITRenew").
M. INCOME (LOSS) PER SHARE—BASIC AND DILUTED
The calculations of basic and diluted income (loss) per share for the three and six months ended June 30, 2023 and 2022 are as follows:
THREE MONTHS ENDED JUNE 30,
SIX MONTHS ENDED JUNE 30,
2023
2022
2023
2022
Net Income (Loss)
$
1,143
$
201,858
$
66,678
$
243,565
Less: Net Income (Loss) Attributable to Noncontrolling Interests
1,029
1,777
1,969
1,185
Net Income (Loss) Attributable to Iron Mountain Incorporated (utilized in numerator of Earnings Per Share calculation)
$
114
$
200,081
$
64,709
$
242,380
Weighted-average shares—basic
291,825,000
290,756,000
291,633,000
290,542,000
Effect of dilutive potential stock options
1,322,000
1,249,262
1,269,000
1,122,444
Effect of dilutive potential RSUs and PUs
380,000
481,972
386,000
501,975
Weighted-average shares—diluted
293,527,000
292,487,234
293,288,000
292,166,419
Net Income (Loss) Per Share Attributable to Iron Mountain Incorporated:
Basic
$
0.00
$
0.69
$
0.22
$
0.83
Diluted
$
0.00
$
0.68
$
0.22
$
0.83
Antidilutive stock options, RSUs and PUs excluded from the calculation
157,132
234,085
151,431
494,833
N. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2021, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"). ASU 2021-08 requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers, and for the related revenue contracts in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), as if it had originated the contracts. We adopted ASU 2021-08 on January 1, 2023 on a prospective basis, and there was no material impact on our condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
3. ACQUISITIONS
CLUTTER
On June 29, 2023, in order to further expand our on-demand consumer storage business, we acquired 100% of the outstanding shares of Clutter Intermediate, Inc. and control of all assets of the Clutter JV (collectively, "Clutter") for total consideration of $59,100 (the “Clutter Acquisition”). During the third quarter of 2023, we anticipate offering up to 15% equity interest in Clutter to certain former stakeholders of the Clutter JV.
PRELIMINARY PURCHASE PRICE ALLOCATION
A summary of the cumulative consideration paid and the preliminary allocation of the purchase price paid for all of our acquisitions closed during the six months ended June 30, 2023 is as follows:
SIX MONTHS ENDED JUNE 30, 2023
Cash Paid (gross of cash acquired)(1)
$
21,215
Deferred Purchase Obligation, Purchase Price Holdbacks and Other
9,290
Fair Value of Previously Held Equity Interest
9,000
Settlement of Pre-Existing Relationships
20,122
Total Consideration
59,627
Fair Value of Identifiable Assets Acquired
56,248
Fair Value of Identifiable Liabilities Assumed
(19,880)
Total Fair Value of Identifiable Net Assets Acquired
36,368
Goodwill Initially Recorded(2)
$
23,259
(1)Cash paid for acquisitions, net in our Condensed Consolidated Statement of Cash Flows includes (i) cash acquired of $1,980 relating to acquisitions completed during the six months ended June 30, 2023 and (ii) contingent and other payments of $2,230 for the six months ended June 30, 2023 relating to acquisitions completed prior to January 1, 2023.
(2)Goodwill is primarily attributable to the assembled workforce, expanded market opportunities and costs and other operating synergies anticipated upon the integration of the operations of us and the acquired businesses.
The preliminary purchase price allocations that are not finalized as of June 30, 2023 relate to the final assessment of the fair values of property, plant and equipment and intangible assets (primarily the customer relationship intangible asset) associated with the acquisitions we closed during the six months ended June 30, 2023. Any adjustments to our estimates of purchase price allocations will be made in the periods in which the adjustments are determined, but no later than the one year measurement period, and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the applicable acquisition date. Adjustments recorded during the six months ended June 30, 2023were not material to our results from operations.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
3. ACQUISITIONS (CONTINUED)
ITRENEW PRO FORMA FINANCIAL INFORMATION
On January 25, 2022, in order to expand our asset lifecycle management operations, we acquired an approximately 80% interest in ITRenew at an agreed upon purchase price of $725,000, subject to certain working capital adjustments at, and subsequent to, the closing (the "ITRenew Transaction"). The unaudited consolidated pro forma financial information (the "Pro Forma Financial Information") below summarizes the combined results of Iron Mountain and ITRenew on a pro forma basis as if the ITRenew Transaction had occurred on January 1, 2021. The Pro Forma Financial Information is presented for informational purposes and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2021. The Pro Forma Financial Information, for the periods presented, includes purchase accounting adjustments (including amortization of acquired customer and supplier intangible assets and depreciation of acquired property, plant and equipment) and related tax effects. We and ITRenew collectively incurred $59,370 of operating expenditures to complete the ITRenew Transaction (including advisory and professional fees). These operating expenditures have been reflected within the results of operations in the Pro Forma Financial Information as if they were incurred on January 1, 2021.
THREE MONTHS ENDED JUNE 30, 2022
SIX MONTHS ENDED JUNE 30, 2022
Total Revenues
$
1,289,534
$
2,555,554
Income from Continuing Operations
$
201,858
$
243,696
In addition to our acquisition of ITRenew, we completed certain other acquisitions in 2023 and 2022. The Pro Forma Financial Information does not reflect these acquisitions due to the insignificant impact of these acquisitions on our consolidated results of operations.
4. INVESTMENTS
CLUTTER JOINT VENTURE
In February 2022, the joint venture formed by MakeSpace Labs, Inc. and us (the "MakeSpace JV") entered into an agreement with Clutter, Inc. pursuant to which the equityholders of the MakeSpace JV contributed their ownership interests in the MakeSpace JV, and Clutter, Inc.’s shareholders contributed their ownership interests in Clutter, Inc., to create a newly formed venture (the "Clutter JV"). In exchange for our 49.99% interest in the MakeSpace JV, we received an approximate 27% interest in the Clutter JV (the "Clutter Transaction"). As a result of the Clutter Transaction, we recognized a gain related to our contributed interest in the MakeSpace JV of approximately $35,800, which was recorded to Other, net, a component of Other expense (income), net, during the first quarter of 2022.
On June 29, 2023, we completed the Clutter Acquisition. In connection with the Clutter Acquisition, our previously held approximately 27% interest in the Clutter JV was remeasured to fair value at the closing date of the Clutter Acquisition. As a result, we recognized a loss of approximately $38,000 to Other, net, a component of Other expense (income), net, during the second quarter of 2023.
WEB WERKS JOINT VENTURE
In April 2021, we closed on an agreement to form a joint venture (the "Web Werks JV") with the shareholders of Web Werks India Private Limited, a colocation data center provider in India. Through December 31, 2022, we made two investments totaling approximately 7,500,000 Indian rupees (or approximately $96,200, based upon the exchange rates between the United States dollar and Indian rupee on the closing date of each investment) in exchange for a noncontrolling interest in the form of convertible preference shares in the Web Werks JV. On July 7, 2023, we made our final contractual investment in the Web Werks JV of approximately 3,750,000 Indian rupees (or approximately $45,300, based upon the exchange rate between the United States dollar and Indian rupee on the closing date of this investment). After the final contractual payment, our interest in the Web Werks JV increased to 63.39% and we assumed control of its board of directors. For financial reporting periods beginning after July 7, 2023, the Web Werks JV will be consolidated within our Global Data Center Business segment.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
4. INVESTMENTS (CONTINUED)
JOINT VENTURE SUMMARY
The following joint ventures are accounted for as equity method investments and are presented as a component of Other within Other assets, net in our Condensed Consolidated Balance Sheets. The carrying values and equity interests in our joint ventures at June 30, 2023 and December 31, 2022 are as follows:
JUNE 30, 2023
DECEMBER 31, 2022
CARRYING VALUE
EQUITY INTEREST
CARRYING VALUE
EQUITY INTEREST
Web Werks JV
$
98,650
53.58
%
$
98,278
53.58
%
Joint venture with AGC Equity Partners (the "Frankfurt JV")
59,394
20.00
%
37,194
20.00
%
Clutter JV
—
—
%
54,172
26.73
%
5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Derivative instruments we are party to include: (i) interest rate swap agreements (which are designated as cash flow hedges) and (ii) cross-currency swap agreements (which are designated as net investment hedges).
INTEREST RATE SWAP AGREEMENTS DESIGNATED AS CASH FLOW HEDGES
In July 2019, we entered into forward-starting interest rate swap agreements to limit our exposure to changes in interest rates on a portion of our floating rate indebtedness. These forward-starting interest rate swap agreements commenced in March 2022 with a total notional amount of $350,000 and provided variable rate interest payments associated with the notional amount of each interest rate swap, based upon one-month London Interbank Offered Rate ("LIBOR"), in exchange for the payment of fixed interest rates as specified in the respective interest rate swap agreements. In April 2023, we terminated these agreements in anticipation of the discontinuance of the LIBOR reference rate on June 30, 2023. The terminated swap agreements had associated unrealized gains at the termination date of approximately $10,100. These gains are included in Accumulated other comprehensive items, net and will be reclassified into earnings as reductions to interest expense from the date of termination through March 2024, the original maturity date of the swaps.
In April 2023, we entered into interest rate swap agreements to limit our exposure to changes in interest rates on a portion of our floating rate indebtedness. Under these interest rate swap agreements, we receive variable rate interest payments associated with the notional amount of each interest rate swap, based upon one-month Secured Overnight Financing Rate, in exchange for the payment of fixed interest rates as specified in the interest rate swap agreements. As of June 30, 2023, we have $350,000 in notional value outstanding associated with these interest rate swap agreements, which expire in February 2026.
In November 2022, we entered into a forward-starting interest rate swap agreement to limit our exposure to changes in interest rates on future borrowings under our Virginia Credit Agreement (as defined in Note 7 to Notes to Consolidated Financial Statements included in our Annual Report). This forward-starting interest rate swap agreement commenced in July 2023 and expires in October 2025. As of both June 30, 2023 and December 31, 2022, we have $4,800 in notional value outstanding on this forward-starting interest rate swap agreement.
We have designated each of the interest rate swap agreements described above as cash flow hedges. These interest rate swap agreements are marked to market at the end of each reporting period, representing the fair values of the interest rate swap agreements, and any changes in fair value are recognized as a component of Accumulated other comprehensive items, net. Unrealized gains are recognized as assets, while unrealized losses are recognized as liabilities.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)
CROSS-CURRENCY SWAP AGREEMENTS DESIGNATED AS A HEDGE OF NET INVESTMENT
We utilize cross-currency interest rate swaps to hedge the variability of exchange rate impacts between the United States dollar and the Euro. As of both June 30, 2023 and December 31, 2022, we have approximately $469,200 in notional value outstanding on cross-currency interest rate swaps, with maturity dates ranging from August 2023 through February 2026.
We have designated these cross-currency swap agreements as hedges of net investments in certain of our Euro denominated subsidiaries and they require an exchange of the notional amounts at maturity. These cross-currency swap agreements are marked to market at the end of each reporting period, representing the fair values of the cross-currency swap agreements, and any changes in fair value are recognized as a component of Accumulated other comprehensive items, net. Unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The excluded component of our cross-currency swap agreements is recorded in Accumulated other comprehensive items, net and amortized to interest expense on a straight-line basis.
The fair value of derivative instruments recognized in our Condensed Consolidated Balance Sheets at June 30, 2023 and December 31, 2022, by derivative instrument, are as follows:
JUNE 30, 2023
DECEMBER 31, 2022
DERIVATIVE INSTRUMENTS(1)
Assets
Liabilities
Assets
Liabilities
Cash Flow Hedges(2)
Interest rate swap agreements
$
6,852
$
—
$
12,995
$
489
Net Investment Hedges(3)
Cross-currency swap agreements
21,434
4,540
38,401
—
(1)Our derivative assets are included as a component of (i) Prepaid expenses and other or (ii) Other within Other assets, net and our derivative liabilities are included as a component of (i) Accrued expenses and other current liabilities or (ii) Other long-term liabilities in our Condensed Consolidated Balance Sheets. As of June 30, 2023, $1,459 is included within Prepaid expenses and other, $26,827 is included within Other assets and $4,540 is included within Accrued expense and other current liabilities. As of December 31, 2022, $2,606 is included within Prepaid expenses and other, $48,790 is included within Other assets and $489 is included within Other long-term liabilities.
(2)As of June 30, 2023, cumulative net gains recorded within Accumulated other comprehensive items, net associated with our interest rate swap agreements are $14,433, which include $7,581 related to our terminated interest rate swap agreements.
(3)As of June 30, 2023, cumulative net gains recorded within Accumulated other comprehensive items, net associated with our cross-currency swap agreements are $37,645, which include $20,751 related to the excluded component of our cross-currency swap agreements.
Unrealized gains (losses) recognized in Accumulated other comprehensive income during the three and six months ended June 30, 2023 and 2022, by derivative instrument, are as follows:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
6. DEBT
Long-term debt is as follows:
JUNE 30, 2023
DECEMBER 31, 2022
DEBT
(INCLUSIVE OF
DISCOUNT)
UNAMORTIZED
DEFERRED
FINANCING
COSTS
CARRYING
AMOUNT
FAIR
VALUE
DEBT
(INCLUSIVE OF
DISCOUNT)
UNAMORTIZED
DEFERRED
FINANCING
COSTS
CARRYING
AMOUNT
FAIR
VALUE
Revolving Credit Facility(1)
$
679,500
$
(5,332)
$
674,168
$
679,500
$
1,072,200
$
(6,790)
$
1,065,410
$
1,072,200
Term Loan A(1)
234,375
—
234,375
234,375
240,625
—
240,625
240,625
Term Loan B(1)
662,685
(3,122)
659,563
663,250
666,073
(3,747)
662,326
666,750
Australian Dollar Term Loan
196,333
(543)
195,790
198,005
202,641
(633)
202,008
204,623
UK Bilateral Revolving Credit Facility
177,277
—
177,277
177,277
169,361
—
169,361
169,361
37/8% GBP Senior Notes due 2025 (the "GBP Notes")
506,506
(2,231)
504,275
472,474
483,888
(2,589)
481,299
445,206
47/8% Senior Notes due 2027 (the "47/8% Notes due 2027")(2)
1,000,000
(6,043)
993,957
932,500
1,000,000
(6,754)
993,246
917,500
51/4% Senior Notes due 2028 (the "51/4% Notes due 2028")(2)
825,000
(5,609)
819,391
770,344
825,000
(6,200)
818,800
754,875
5% Senior Notes due 2028 (the "5% Notes due 2028")(2)
500,000
(3,678)
496,322
461,250
500,000
(4,039)
495,961
450,000
7% Senior Notes due 2029 (the "7% Notes due 2029")(2)
1,000,000
(11,853)
988,147
992,500
—
—
—
—
47/8% Senior Notes due 2029 (the "47/8% Notes due 2029")(2)
1,000,000
(9,041)
990,959
892,500
1,000,000
(9,764)
990,236
865,000
51/4% Senior Notes due 2030 (the "51/4% Notes due 2030")(2)
1,300,000
(10,655)
1,289,345
1,166,750
1,300,000
(11,407)
1,288,593
1,111,500
41/2% Senior Notes due 2031 (the "41/2% Notes")(2)
1,100,000
(9,539)
1,090,461
940,500
1,100,000
(10,161)
1,089,839
891,000
5% Senior Notes due 2032 (the "5% Notes due 2032")
750,000
(11,858)
738,142
645,000
750,000
(12,511)
737,489
622,500
55/8% Senior Notes due 2032 (the "55/8% Notes")(2)
600,000
(5,275)
594,725
535,500
600,000
(5,566)
594,434
520,500
Real Estate Mortgages, Financing Lease Liabilities and Other
457,724
(483)
457,241
457,724
425,777
(578)
425,199
425,777
Accounts Receivable Securitization Program
343,100
(426)
342,674
343,100
314,700
(531)
314,169
314,700
Total Long-term Debt
11,332,500
(85,688)
11,246,812
10,650,265
(81,270)
10,568,995
Less Current Portion
(102,582)
—
(102,582)
(87,546)
—
(87,546)
Long-term Debt, Net of Current Portion
$
11,229,918
$
(85,688)
$
11,144,230
$
10,562,719
$
(81,270)
$
10,481,449
(1)Collectively, the “Credit Agreement”. The Credit Agreement consists of a revolving credit facility (the “Revolving Credit Facility”), a term loan A (the “Term Loan A”) and a term loan B (the "Term Loan B"). The Revolving Credit Facility and the Term Loan A are scheduled to mature on March 18, 2027. The Term Loan B is scheduled to mature on January 2, 2026. The remaining amount available for borrowing under the Revolving Credit Facility as of June 30, 2023 was $1,566,061 (which amount represents the maximum availability as of such date). The weighted average interest rate in effect under the Revolving Credit Facility was 7.0% and 6.2% as of June 30, 2023 and December 31, 2022, respectively.
(2)Collectively, the "Parent Notes". IMI is the direct obligor on the Parent Notes, which are fully and unconditionally guaranteed, on a senior basis, by IMI’s United States subsidiaries that represent the substantial majority of our United States operations (the "Note Guarantors"). These guarantees are joint and several obligations of the Note Guarantors. The remainder of our subsidiaries do not guarantee the Parent Notes.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
6. DEBT (CONTINUED)
See Note 7 to Notes to Consolidated Financial Statements included in our Annual Report for additional information regarding our long-term debt, including the direct obligors of each of our debt instruments as well as information regarding the fair value of our debt instruments (including the levels of the fair value hierarchy used to determine the fair value of our debt instruments). The levels of the fair value hierarchy used to determine the fair value of our debt as of June 30, 2023 are consistent with the levels of the fair value hierarchy used to determine the fair value of our debt as of December 31, 2022 (which are disclosed in our Annual Report).
MAY 2023 OFFERING
On May 15, 2023, IMI completed a private offering of:
SERIES OF NOTES
AGGREGATE PRINCIPAL AMOUNT
MATURITY DATE
INTEREST PAYMENT DUE
PAR CALL DATE(1)
7% Notes due 2029
$
1,000,000
February 15, 2029
February 15 and August 15
August 15, 2025
(1)We may redeem the 7% Notes due 2029 at any time, at our option, in whole or in part. Prior to the par call date, we may redeem the 7% Notes due 2029 at the redemption price or make-whole premium specified in the indenture governing the 7% Notes due 2029, together with accrued and unpaid interest to, but excluding, the redemption date. On or after the par call date, we may redeem the 7% Notes due 2029 at a price equal to 100% of the principal amount being redeemed, together with accrued and unpaid interest to, but excluding, the redemption date.
The 7% Notes due 2029 were issued at 100% of par. The total net proceeds of approximately $990,000 from the issuance of the 7% Notes due 2029, after deducting the initial purchasers' commissions, were used to repay a portion of the outstanding borrowings under our Revolving Credit Facility.
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM
On June 8, 2023, we amended the Accounts Receivable Securitization Program (as defined in Note 7 to Notes to Consolidated Financial Statements included in our Annual Report) to increase the maximum borrowing capacity from $325,000 to $360,000. All other material terms of the Accounts Receivable Securitization Program remain the same as what was disclosed in Note 7 to Notes to Consolidated Financial Statements included in our Annual Report.
MAXIMUM AMOUNT
$360,000
OUTSTANDING BORROWING
$343,100
INTEREST RATE
6.2%
As of June 30, 2023
LETTERS OF CREDIT
As of June 30, 2023, we had outstanding letters of credit totaling $40,410, of which $4,439 reduce our borrowing capacity under the Revolving Credit Facility. The letters of credit expire at various dates between September 2023 and July 2025.
DEBT COVENANTS
The Credit Agreement, our bond indentures and other agreements governing our indebtedness contain certain restrictive financial and operating covenants, including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take other specified corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under the Credit Agreement, our bond indentures or other agreements governing our indebtedness. The Credit Agreement requires that we satisfy a net total lease adjusted leverage ratio and a fixed charge coverage ratio on a quarterly basis and our bond indentures require that, among other things, we satisfy a leverage ratio (not lease adjusted) or a fixed charge coverage ratio (not lease adjusted) as a condition to taking actions such as paying dividends and incurring indebtedness.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
6. DEBT (CONTINUED)
The Credit Agreement uses earnings before interest, taxes, depreciation and amortization and rent expense ("EBITDAR") based calculations and the bond indentures use earnings before interest, taxes, depreciation and amortization ("EBITDA") based calculations as the primary measures of financial performance for purposes of calculating leverage and fixed charge coverage ratios. The EBITDAR- and EBITDA-based leverage calculations include our consolidated subsidiaries, other than those we have designated as "Unrestricted Subsidiaries" as defined in the Credit Agreement and bond indentures. Generally, the Credit Agreement and the bond indentures use a trailing four fiscal quarter basis for purposes of the relevant calculations and require certain adjustments and exclusions for purposes of those calculations, which make the calculation of financial performance for purposes of those calculations under the Credit Agreement and bond indentures not directly comparable to Adjusted EBITDA as presented herein. We are in compliance with our leverage and fixed charge coverage ratios under the Credit Agreement, our bond indentures and other agreements governing our indebtedness as of June 30, 2023. Noncompliance with these leverage and fixed charge coverage ratios would have a material adverse effect on our financial condition and liquidity.
7. COMMITMENTS AND CONTINGENCIES
We are involved in litigation from time to time in the ordinary course of business, including litigation arising from damage to customer assets in our facilities caused by fires and other natural disasters. While the outcome of litigation is inherently uncertain, we do not believe any current litigation will have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
We have estimated a reasonably possible range for all loss contingencies and believe it is reasonably possible that we could incur aggregate losses in addition to amounts currently accrued for all matters up to an additional $18,000 over the next several years, of which certain amounts would be covered by insurance or indemnity arrangement.
8. STOCKHOLDERS' EQUITY MATTERS
In fiscal year 2022 and the six months ended June 30, 2023, our board of directors declared the following dividends:
DECLARATION DATE
DIVIDEND PER SHARE
RECORD DATE
TOTAL AMOUNT
PAYMENT DATE
February 24, 2022
$
0.6185
March 15, 2022
$
179,661
April 6, 2022
April 28, 2022
0.6185
June 15, 2022
179,781
July 6, 2022
August 4, 2022
0.6185
September 15, 2022
179,790
October 4, 2022
November 3, 2022
0.6185
December 15, 2022
179,866
January 5, 2023
February 23, 2023
0.6185
March 15, 2023
180,339
April 5, 2023
May 4, 2023
0.6185
June 15, 2023
180,493
July 6, 2023
On August 3, 2023, we declared a dividend to our stockholders of record as of September 15, 2023 of $0.65 per share, payable on October 5, 2023.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
9. SEGMENT INFORMATION
Our reportable segments as of December 31, 2022 are described in Note 11 to Notes to Consolidated Financial Statements included in our Annual Report and are as follows:
•Global RIM Business
•Global Data Center Business
•Corporate and Other
An analysis of our business segment information and reconciliation to the accompanying Condensed Consolidated Financial Statements for the three and six months ended June 30, 2023 and 2022 is as follows:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
9. SEGMENT INFORMATION (CONTINUED)
Adjusted EBITDA for each segment is defined 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
•Acquisition and Integration Costs
•Restructuring and other transformation
•(Gain) loss on disposal/write-down of property, plant and equipment, net (including real estate)
•Other expense (income), net
•Stock-based compensation expense
Internally, we use Adjusted EBITDA as the basis for evaluating the performance of, and allocating resources to, our operating segments.
A reconciliation of Net Income (Loss) to Adjusted EBITDA on a consolidated basis for the three and six months ended June 30, 2023 and 2022 is as follows:
THREE MONTHS ENDED JUNE 30,
SIX MONTHS ENDED JUNE 30,
2023
2022
2023
2022
Net Income (Loss)
$
1,143
$
201,858
$
66,678
$
243,565
Add/(Deduct):
Interest expense, net
144,178
115,057
281,347
229,499
Provision (benefit) for income taxes
4,255
18,083
21,013
28,163
Depreciation and amortization
195,367
178,254
377,461
361,869
Acquisition and Integration Costs
1,511
16,878
3,106
32,539
Restructuring and other transformation
45,588
—
82,501
—
(Gain) loss on disposal/write-down of property, plant and equipment, net (including real estate)
(1,505)
(51,249)
(14,566)
(51,954)
Other expense (income), net, excluding our share of losses (gains) from our unconsolidated joint ventures
58,694
(46,103)
76,185
7,412
Stock-based compensation expense
22,373
20,256
34,882
31,597
Our share of Adjusted EBITDA reconciling items from our unconsolidated joint ventures
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
9. SEGMENT INFORMATION (CONTINUED)
Information as to our revenues by product and service lines by segment for the three and six months ended June 30, 2023 and 2022 is as follows:
THREE MONTHS ENDED JUNE 30,
SIX MONTHS ENDED JUNE 30,
2023
2022
2023
2022
Global RIM Business
Records Management(1)
$
898,634
$
818,993
$
1,766,622
$
1,621,546
Data Management(1)
130,251
124,394
259,845
258,050
Information Destruction(1)(2)
130,982
127,089
259,926
239,771
Data Center(1)
—
—
—
—
Global Data Center Business
Records Management(1)
$
—
$
—
$
—
$
—
Data Management(1)
—
—
—
—
Information Destruction(1)
—
—
—
—
Data Center(1)
118,033
100,088
230,338
197,075
Corporate and Other
Records Management(1)
$
37,409
$
36,141
$
71,757
$
68,039
Data Management(1)
—
—
—
—
Information Destruction(1)(3)
42,627
82,829
83,797
153,099
Data Center(1)
—
—
—
—
Total Consolidated
Records Management(1)
$
936,043
$
855,134
$
1,838,379
$
1,689,585
Data Management(1)
130,251
124,394
259,845
258,050
Information Destruction(1)(2)(3)
173,609
209,918
343,723
392,870
Data Center(1)
118,033
100,088
230,338
197,075
(1)Each of these offerings has a component of revenue that is storage rental related and a component that is service revenue, except for information destruction, which does not have a storage rental component.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
10. RELATED PARTIES
In October 2020, in connection with the formation of the Frankfurt JV, we entered into agreements whereby we earn various fees, including (i) special project revenue and (ii) property management and construction and development fees for services we are providing to the Frankfurt JV (the "Frankfurt JV Agreements").
In March 2019, in connection with the formation of the MakeSpace JV, we entered into a storage and service agreement with the MakeSpace JV to provide certain storage and related services to the MakeSpace JV (the "MakeSpace Agreement"). In February 2022, in connection with the formation of the Clutter JV, we terminated the MakeSpace Agreement and entered into a storage and service agreement with the Clutter JV to provide certain storage and related services to the Clutter JV (the "Clutter Agreement"). On June 29, 2023, we completed the Clutter Acquisition and terminated the Clutter Agreement.
Revenue recognized in the accompanying Condensed Consolidated Statements of Operations under these agreements for the three and six months ended June 30, 2023 and 2022 is as follows (approximately):
THREE MONTHS ENDED JUNE 30,
SIX MONTHS ENDED JUNE 30,
2023
2022
2023
2022
Frankfurt JV Agreements(1)
$
800
$
5,700
$
1,700
$
12,800
MakeSpace Agreement and Clutter Agreement(2)
7,000
7,400
13,000
14,400
(1)Revenue associated with the Frankfurt JV Agreements is presented as a component of our Global Data Center Business segment.
(2)Revenue associated with the MakeSpace Agreement and the Clutter Agreement is presented as a component of our Global RIM Business segment.
11. RESTRUCTURING AND OTHER TRANSFORMATION
PROJECT MATTERHORN
In September 2022, we announced Project Matterhorn, a global program designed to accelerate the growth of our business. Project Matterhorn investments will focus on transforming our operating model to a global operating model. Project Matterhorn will focus on the formation of a solution-based sales approach that is designed to allow us to optimize our shared services and best practices to better serve our customers' needs. We will be investing to accelerate growth and to capture a greater share of the large, global addressable markets in which we operate. We expect to incur approximately $150,000 in costs annually related to Project Matterhorn from 2023 through 2025. Costs are comprised of (1) restructuring costs, which include (i) site consolidation and other related exit costs, (ii) employee severance costs and (iii) certain professional fees associated with these activities, and (2) other transformation costs, which include professional fees such as project management costs and costs for third party consultants who are assisting in the enablement of our growth initiatives. Total costs related to Project Matterhorn during the three and six months ended June 30, 2023 were $45,588 and $82,501, respectively, and are included in Restructuring and other transformation in our Condensed Consolidated Statement of Operations. There were no Restructuring and other transformation costs related to Project Matterhorn for the three and six months ended June 30, 2022.
Restructuring and other transformation related to Project Matterhorn included in the accompanying Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2023, and from the inception of Project Matterhorn through June 30, 2023, is as follows:
THREE MONTHS ENDED JUNE 30, 2023
SIX MONTHS ENDED JUNE 30, 2023
FROM INCEPTION OF PROJECT MATTERHORN THROUGH JUNE 30, 2023
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data) (Unaudited)
11. RESTRUCTURING AND OTHER TRANSFORMATION (CONTINUED)
Restructuring costs for Project Matterhorn, included as a component of Restructuring and other transformation in the accompanying Condensed Consolidated Statement of Operations, by segment for the three and six months ended June 30, 2023, and from the inception of Project Matterhorn through June 30, 2023, is as follows:
THREE MONTHS ENDED JUNE 30, 2023
SIX MONTHS ENDED JUNE 30, 2023
FROM INCEPTION OF PROJECT MATTERHORN THROUGH JUNE 30, 2023
Global RIM Business
$
15,000
$
24,525
$
37,608
Global Data Center Business
—
78
78
Corporate and Other
1,127
3,481
3,690
Total restructuring costs
$
16,127
$
28,084
$
41,376
Other transformation costs for Project Matterhorn, included as a component of Restructuring and other transformation in the accompanying Condensed Consolidated Statement of Operations, by segment for the three and six months ended June 30, 2023, and from the inception of Project Matterhorn through June 30, 2023, is as follows:
THREE MONTHS ENDED JUNE 30, 2023
SIX MONTHS ENDED JUNE 30, 2023
FROM INCEPTION OF PROJECT MATTERHORN THROUGH JUNE 30, 2023
Global RIM Business
$
4,958
$
8,443
$
12,344
Global Data Center Business
498
1,368
1,426
Corporate and Other
24,005
44,606
69,288
Total other transformation costs
$
29,461
$
54,417
$
83,058
Accrued restructuring costs and accrued other transformation costs included in the accompanying Condensed Consolidated Balance Sheet as of June 30, 2023 were approximately $7,400 and $22,200, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations for the three and six months ended June 30, 2023 should be read in conjunction with our Condensed Consolidated Financial Statements and Notes thereto for the three and six months ended June 30, 2023, included herein, and our Consolidated Financial Statements and Notes thereto for the year ended December 31, 2022, included in our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission ("SEC") on February 23, 2023 (our "Annual Report").
FORWARD-LOOKING STATEMENTS
We have made statements in 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 current expectations regarding our future results from operations, economic performance, financial condition, goals, strategies, investment objectives, plans and achievements. 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", "pursue", "will" 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:
•our ability or inability to execute our strategic growth plan, including our ability to invest according to plan, grow our businesses (including through joint ventures), incorporate alternative technologies into our offerings, achieve satisfactory returns on new product offerings, continue our revenue management, expand and manage our global operations, complete acquisitions on satisfactory terms, integrate acquired companies efficiently and transition to more sustainable sources of energy;
•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;
•the impact of our distribution requirements on our ability to execute our business plan;
•the costs of complying with and our ability to comply with laws, regulations and customer requirements, including those relating to data privacy and cybersecurity issues, as well as fire and safety and environmental standards;
•the impact of attacks on our internal information technology ("IT") systems, including the impact of such incidents on our reputation and ability to compete and any litigation or disputes that may arise in connection with such incidents;
•our ability to fund capital expenditures;
•our ability to remain qualified for taxation as a real estate investment trust for United States federal income tax purposes ("REIT");
•changes in the political and economic environments in the countries in which we operate and changes in the global political climate;
•our ability to raise debt or equity capital and changes in the cost of our debt;
•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;
•unexpected events, including those resulting from climate change or geopolitical events, could disrupt our operations and adversely affect our reputation and results of operations;
•failures to implement and manage 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 the SEC, including under the caption "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on February 23, 2023.
Except as required by law, we undertake no obligation to update any forward-looking statements appearing in this report.
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 and six months ended June 30, 2023 within each section. Trends and changes that are consistent for both the three and six month periods are not repeated and are discussed on a year to date basis only.
PROJECT MATTERHORN
In September 2022, we announced a global program designed to accelerate the growth of our business ("Project Matterhorn"). Project Matterhorn investments will focus on transforming our operating model to a global operating model. Project Matterhorn will focus on the formation of a solution-based sales approach that is designed to allow us to optimize our shared services and best practices to better serve our customers' needs. We will be investing to accelerate growth and to capture a greater share of the large, global addressable markets in which we operate. We expect to incur approximately $150.0 million in costs annually related to Project Matterhorn from 2023 through 2025. Costs are comprised of (1) restructuring costs, which include (i) site consolidation and other related exit costs, (ii) employee severance costs and (iii) certain professional fees associated with these activities, and (2) other transformation costs, which include professional fees such as project management costs and costs for third party consultants who are assisting in the enablement of our growth initiatives. There were no Restructuring and other transformation costs related to Project Matterhorn for the three and six months ended June 30, 2022. The following chart presents (in thousands) total Restructuring and other transformation costs related to Project Matterhorn from the inception of Project Matterhorn through June 30, 2023 and for the three and six months ended June 30, 2023:
From the Inception of Project Matterhorn through June 30, 2023
For the Three Months Ended June 30, 2023
For the Six Months Ended June 30, 2023
See Note 11 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for more information on Restructuring and other transformation costs.
•We have experienced 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.
•Our organic service revenue growth is primarily due to increases in our service activity. We expect organic service revenue growth in 2023 to benefit from our new and existing digital offerings, as well as our traditional services.
•We expect continued total revenue and Adjusted EBITDA growth in 2023 as a result of our focus on new product and service offerings, innovation, customer solutions and market expansion in line with our Project Matterhorn objectives.
Cost of sales (excluding depreciation and amortization) and Selling, general and administrative expenses for the six months ended June 30, 2023 consists of the following:
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
•Acquisition and Integration Costs (as defined below)
•Restructuring and other transformation
•(Gain) loss on disposal/write-down of property, plant and equipment, net (including real estate)
•Other expense (income), net
•Stock-based compensation expense
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 segments under "Results of Operations – Segment Analysis" below.
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.
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA (IN THOUSANDS):
THREE MONTHS ENDED JUNE 30,
SIX MONTHS ENDED JUNE 30,
2023
2022
2023
2022
Net Income (Loss)
$
1,143
$
201,858
$
66,678
$
243,565
Add/(Deduct):
Interest expense, net
144,178
115,057
281,347
229,499
Provision (benefit) for income taxes
4,255
18,083
21,013
28,163
Depreciation and amortization
195,367
178,254
377,461
361,869
Acquisition and Integration Costs(1)
1,511
16,878
3,106
32,539
Restructuring and other transformation
45,588
—
82,501
—
(Gain) loss on disposal/write-down of property, plant and equipment, net (including real estate)
(1,505)
(51,249)
(14,566)
(51,954)
Other expense (income), net, excluding our share of losses (gains) from our unconsolidated joint ventures
58,694
(46,103)
76,185
7,412
Stock-based compensation expense
22,373
20,256
34,882
31,597
Our share of Adjusted EBITDA reconciling items from our unconsolidated joint ventures
4,054
1,672
7,859
3,010
Adjusted EBITDA
$
475,658
$
454,706
$
936,466
$
885,700
(1)Represent operating expenditures directly associated with the closing and integration activities of our business acquisitions that have closed, or are highly probable of closing, and include (i) advisory, legal and professional fees to complete business acquisitions and (ii) costs to integrate acquired businesses into our existing operations, including move, severance and system integration costs (collectively, "Acquisition and Integration Costs").
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
•Acquisition and Integration Costs
•Restructuring and other transformation
•Amortization related to the write-off of certain customer relationship intangible assets
•(Gain) loss on disposal/write-down of property, plant and equipment, net (including real estate)
•Other expense (income), net
•Stock-based compensation expense
•Non-cash amortization related to derivative instruments
•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 JUNE 30,
SIX MONTHS ENDED JUNE 30,
2023
2022
2023
2022
Reported EPS—Fully Diluted from Net Income (Loss) Attributable to Iron Mountain Incorporated
$
0.00
$
0.68
$
0.22
$
0.83
Add/(Deduct):
Acquisition and Integration Costs
0.01
0.06
0.01
0.11
Restructuring and other transformation
0.16
—
0.28
—
Amortization related to the write-off of certain customer relationship intangible assets
—
—
—
0.02
(Gain) loss on disposal/write-down of property, plant and equipment, net (including real estate)
(0.01)
(0.18)
(0.05)
(0.18)
Other expense (income), net, excluding our share of losses (gains) from our unconsolidated joint ventures
0.20
(0.16)
0.26
0.03
Stock-based compensation expense
0.08
0.07
0.12
0.11
Non-cash amortization related to derivative instruments
0.02
—
0.04
—
Tax impact of reconciling items and discrete tax items(1)
(0.05)
(0.03)
(0.06)
(0.07)
Income (Loss) Attributable to Noncontrolling Interests
—
0.01
0.01
—
Adjusted EPS—Fully Diluted from Net Income (Loss) Attributable to Iron Mountain Incorporated(2)
$
0.40
$
0.46
$
0.83
$
0.85
(1)The difference between our effective tax rates and our structural tax rate (or adjusted effective tax rates) for the three and six months ended June 30, 2023 and 2022 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 and six months ended June 30, 2023 and 2022 was 14.0% and 16.5%, respectively. The Tax impact of reconciling items and discrete tax items is calculated using the current quarter's estimate of the annual structural tax rate. This may result in the current period adjustment plus prior period reported quarterly adjustments not summing to the full year adjustment.
Funds from operations ("FFO") is defined by the National Association of Real Estate Investment Trusts as net income (loss) excluding depreciation on real estate assets, losses and gains on sale of real estate, net of tax, and amortization of data center leased-based intangibles ("FFO (Nareit)"). We calculate our FFO measures, including FFO (Nareit), adjusting for our share of reconciling items from our unconsolidated joint ventures. 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).
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
•Acquisition and Integration Costs
•Restructuring and other transformation
•(Gain) loss on disposal/write-down of property, plant and equipment, net (excluding real estate)
•Other expense (income), net
•Stock-based compensation expense
•Non-cash amortization related to derivative instruments
•Real estate financing lease depreciation
•Tax impact of reconciling items and discrete tax items
RECONCILIATION OF NET INCOME (LOSS) TO FFO (NAREIT) AND FFO (NORMALIZED) (IN THOUSANDS):
THREE MONTHS ENDED JUNE 30,
SIX MONTHS ENDED JUNE 30,
2023
2022
2023
2022
Net Income (Loss)
$
1,143
$
201,858
$
66,678
$
243,565
Add/(Deduct):
Real estate depreciation
81,558
75,008
157,687
154,341
(Gain) loss on sale of real estate, net of tax
(1,853)
(48,978)
(17,599)
(48,764)
Data center lease-based intangible assets amortization
4,907
4,040
11,036
8,163
Our share of FFO (Nareit) reconciling items from our unconsolidated joint ventures
562
—
694
—
FFO (Nareit)
86,317
231,928
218,496
357,305
Add/(Deduct):
Acquisition and Integration Costs
1,511
16,878
3,106
32,539
Restructuring and other transformation
45,588
—
82,501
—
(Gain) loss on disposal/write-down of property, plant and equipment, net (excluding real estate)
(1,417)
(2,270)
3,133
(3,189)
Other expense (income), net, excluding our share of losses (gains) from our unconsolidated joint ventures(1)
58,694
(46,103)
76,185
7,412
Stock-based compensation expense
22,373
20,256
34,882
31,597
Non-cash amortization related to derivative instruments
5,817
—
11,651
—
Real estate financing lease depreciation
3,008
3,427
5,996
7,207
Tax impact of reconciling items and discrete tax items(2)
(13,278)
(8,250)
(18,491)
(20,876)
Our share of FFO (Normalized) reconciling items from our unconsolidated joint ventures
(500)
374
(274)
354
FFO (Normalized)
$
208,113
$
216,240
$
417,185
$
412,349
(1)Includes foreign currency transaction (gains) losses, net and other, net. See Note 2.k. 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 $(5.0) million and $(5.5) million for the three and six months ended June 30, 2023, respectively, and $(0.2) million and $(10.2) million for the three and six months ended June 30, 2022, respectively.
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, 2022.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 (IN THOUSANDS):
THREE MONTHS ENDED JUNE 30,
DOLLAR CHANGE
PERCENTAGE CHANGE
2023
2022
Revenues
$
1,357,936
$
1,289,534
$
68,402
5.3
%
Operating Expenses
1,145,410
995,753
149,657
15.0
%
Operating Income
212,526
293,781
(81,255)
(27.7)
%
Other Expenses, Net
211,383
91,923
119,460
130.0
%
Net Income (Loss)
1,143
201,858
(200,715)
(99.4)
%
Net Income (Loss) Attributable to Noncontrolling Interests
1,029
1,777
(748)
(42.1)
%
Net Income (Loss) Attributable to Iron Mountain Incorporated
$
114
$
200,081
$
(199,967)
(99.9)
%
Adjusted EBITDA(1)
$
475,658
$
454,706
$
20,952
4.6
%
Adjusted EBITDA Margin(1)
35.0
%
35.3
%
SIX MONTHS ENDED JUNE 30,
DOLLAR CHANGE
PERCENTAGE CHANGE
2023
2022
Revenues
$
2,672,285
$
2,537,580
$
134,705
5.3
%
Operating Expenses
2,219,097
2,021,669
197,428
9.8
%
Operating Income
453,188
515,911
(62,723)
(12.2)
%
Other Expenses, Net
386,510
272,346
114,164
41.9
%
Net Income (Loss)
66,678
243,565
(176,887)
(72.6)
%
Net Income (Loss) Attributable to Noncontrolling Interests
1,969
1,185
784
66.2
%
Net Income (Loss) Attributable to Iron Mountain Incorporated
$
64,709
$
242,380
$
(177,671)
(73.3)
%
Adjusted EBITDA(1)
$
936,466
$
885,700
$
50,766
5.7
%
Adjusted EBITDA Margin(1)
35.0
%
34.9
%
(1)See "Non-GAAP Measures—Adjusted EBITDA" in this Quarterly Report for the definitions of Adjusted EBITDA and Adjusted EBITDA Margin, reconciliation of Net Income (Loss) to Adjusted EBITDA and a discussion of why we believe these non-GAAP measures provide relevant and useful information to our current and potential investors.
Total revenues consist of the following (in thousands):
THREE MONTHS ENDED JUNE 30,
PERCENTAGE CHANGE
2023
2022
DOLLAR CHANGE
ACTUAL
CONSTANT
CURRENCY(1)
ORGANIC
GROWTH(2)
IMPACT OF ACQUISITIONS
Storage Rental
$
830,756
$
753,126
$
77,630
10.3
%
10.9
%
10.8
%
0.1
%
Service
527,180
536,408
(9,228)
(1.7)
%
(1.0)
%
(1.4)
%
0.4
%
Total Revenues
$
1,357,936
$
1,289,534
$
68,402
5.3
%
6.0
%
5.7
%
0.3
%
SIX MONTHS ENDED JUNE 30,
PERCENTAGE CHANGE
2023
2022
DOLLAR CHANGE
ACTUAL
CONSTANT
CURRENCY(1)
ORGANIC
GROWTH(2)
IMPACT OF ACQUISITIONS
Storage Rental
$
1,640,845
$
1,504,196
$
136,649
9.1
%
10.6
%
11.0
%
(0.4)
%
Service
1,031,440
1,033,384
(1,944)
(0.2)
%
1.1
%
0.2
%
0.9
%
Total Revenues
$
2,672,285
$
2,537,580
$
134,705
5.3
%
6.7
%
6.6
%
0.1
%
(1)Constant currency growth rates, which are a non-GAAP measure, are calculated by translating the 2022 results at the 2023 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.
TOTAL REVENUES
For the six months ended June 30, 2023, the increase in reported revenue was primarily driven by organic storage rental revenue growth. Foreign currency exchange rate fluctuations decreased our reported revenue growth rate for the six months ended June 30, 2023 by 1.4% compared to the prior year period.
STORAGE RENTAL REVENUE AND SERVICE REVENUE
Primary factors influencing the change in reported storage rental revenue and reported service revenue for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 include the following:
STORAGE RENTAL REVENUE
•organic storage rental revenue growth driven by increased volume in faster growing markets and our Global Data Center Business segment and revenue management;
•a 0.1% increase in total global volume; and
•a decrease of $20.0 million due to foreign currency exchange rate fluctuations.
SERVICE REVENUE
•organic service revenue growth driven by increased service activity levels in our Global RIM business, partially offset by service revenue declines in our asset lifecycle management business as a result of component price declines, partially offset by increased volume; and
•a decrease of $13.6 million due to foreign currency exchange rate fluctuations.
Cost of sales (excluding depreciation and amortization) consists of the following expenses (in thousands):
THREE MONTHS ENDED JUNE 30,
PERCENTAGE CHANGE
% OF TOTAL REVENUES
PERCENTAGE CHANGE (FAVORABLE)/ UNFAVORABLE
2023
2022
DOLLAR CHANGE
ACTUAL
CONSTANT CURRENCY
2023
2022
Labor
$
224,398
$
203,459
$
20,939
10.3
%
11.0
%
16.5
%
15.8
%
0.7
%
Facilities
255,535
213,795
41,740
19.5
%
20.3
%
18.8
%
16.6
%
2.2
%
Transportation
41,147
42,391
(1,244)
(2.9)
%
(2.0)
%
3.0
%
3.3
%
(0.3)
%
Product Cost of Sales and Others
71,564
96,831
(25,267)
(26.1)
%
(25.7)
%
5.3
%
7.5
%
(2.2)
%
Total Cost of sales
$
592,644
$
556,476
$
36,168
6.5
%
7.2
%
43.6
%
43.2
%
0.4
%
SIX MONTHS ENDED JUNE 30,
PERCENTAGE CHANGE
% OF TOTAL REVENUES
PERCENTAGE CHANGE (FAVORABLE)/ UNFAVORABLE
2023
2022
DOLLAR CHANGE
ACTUAL
CONSTANT CURRENCY
2023
2022
Labor
$
443,929
$
404,960
$
38,969
9.6
%
11.3
%
16.6
%
16.0
%
0.6
%
Facilities
496,225
432,114
64,111
14.8
%
16.7
%
18.6
%
17.0
%
1.6
%
Transportation
81,122
77,659
3,463
4.5
%
6.2
%
3.0
%
3.1
%
(0.1)
%
Product Cost of Sales and Others
142,994
188,365
(45,371)
(24.1)
%
(23.3)
%
5.4
%
7.4
%
(2.0)
%
Total Cost of sales
$
1,164,270
$
1,103,098
$
61,172
5.5
%
7.1
%
43.6
%
43.5
%
0.1
%
Primary factors influencing the change in reported Cost of sales for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 include the following:
•an increase in labor costs driven by an increase in service activity, primarily within our Global RIM business;
•an increase in facilities expenses driven by increases in rent expense, reflecting the impact of our sale-leaseback activity during 2022 and the first six months of 2023, as well as increases in utilities costs and facility maintenance costs;
•a decrease in product cost of sales in our asset lifecycle management business as a result of component price declines, partially offset by increased volume; and
•a decrease of $15.8 million due to foreign currency exchange rate fluctuations.
Selling, general and administrative expenses consists of the following expenses (in thousands):
THREE MONTHS ENDED JUNE 30,
PERCENTAGE CHANGE
% OF TOTAL REVENUES
PERCENTAGE CHANGE (FAVORABLE)/ UNFAVORABLE
2023
2022
DOLLAR CHANGE
ACTUAL
CONSTANT CURRENCY
2023
2022
General, Administrative and Other
$
217,965
$
220,891
$
(2,926)
(1.3)
%
0.3
%
16.1
%
17.1
%
(1.0)
%
Sales, Marketing and Account Management
93,840
74,503
19,337
26.0
%
26.5
%
6.9
%
5.8
%
1.1
%
Total Selling, general and administrative expenses
$
311,805
$
295,394
$
16,411
5.6
%
7.0
%
23.0
%
22.9
%
0.1
%
SIX MONTHS ENDED JUNE 30,
PERCENTAGE CHANGE
% OF TOTAL REVENUES
PERCENTAGE CHANGE (FAVORABLE)/ UNFAVORABLE
2023
2022
DOLLAR CHANGE
ACTUAL
CONSTANT CURRENCY
2023
2022
General, Administrative and Other
$
424,988
$
427,207
$
(2,219)
(0.5)
%
1.6
%
15.9
%
16.8
%
(0.9)
%
Sales, Marketing and Account Management
181,337
148,910
32,427
21.8
%
23.3
%
6.8
%
5.9
%
0.9
%
Total Selling, general and administrative expenses
$
606,325
$
576,117
$
30,208
5.2
%
7.2
%
22.7
%
22.7
%
—
%
Primary factors influencing the change in reported Selling, general and administrative expenses for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 include the following:
•an increase in sales, marketing and account management expenses, driven by higher compensation expense, primarily reflecting increased headcount; and
•a decrease of $10.6 million due to foreign currency exchange rate fluctuations.
DEPRECIATION AND AMORTIZATION
Depreciation expense increased by $17.9 million, or 7.6%, for the six months ended June 30, 2023 compared to the prior year period. See Note 2.i. 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 decreased by $2.3 million, or 1.8%, for the six months ended June 30, 2023 compared to the prior year period.
ACQUISITION AND INTEGRATION COSTS
Acquisition and Integration Costs for the six months ended June 30, 2023 and 2022 were approximately $3.1 million and $32.5 million, respectively.
RESTRUCTURING AND OTHER TRANSFORMATION
Restructuring and other transformation costs for the six months ended June 30, 2023 were $82.5 million and related to operating expenses associated with the implementation of Project Matterhorn. There were no Restructuring and other transformation costs for the six months ended June 30, 2022.
(GAIN) LOSS ON DISPOSAL/WRITE-DOWN OF PROPERTY, PLANT AND EQUIPMENT, NET
Gain on disposal/write-down of property, plant and equipment, net for the six months ended June 30, 2023 was approximately $14.6 million. The gains primarily consist of a gain of approximately $18.5 million associated with a sale-leaseback transaction of a facility in Singapore during the first quarter of 2023.
Gain on disposal/write-down of property, plant and equipment, net for the six months ended June 30, 2022 was approximately $52.0 million. The gains primarily consist of gains of approximately $49.0 million associated with sale and sale-leaseback transactions of 11 facilities and parcels of land in the United States during the second quarter of 2022.
Interest expense, net increased by $51.8 million to $281.3 million in the six months ended June 30, 2023 from $229.5 million in the prior year period. The increase is primarily due to higher average debt outstanding during the six months ended June 30, 2023 compared to the prior year period as well as an increase in our weighted average interest rate. Our weighted average interest rate, inclusive of the fees associated with our outstanding letters of credit, was 5.4% and 4.6% at June 30, 2023 and 2022, respectively. See Note 6 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for additional information regarding our indebtedness.
OTHER EXPENSE (INCOME), NET
Other expense (income), net for the three and six months ended June 30, 2023 and 2022 consists of the following (in thousands):
(1)The losses for the three and six months ended June 30, 2023 primarily consist of the impact of changes in the exchange rate of the British pound sterling against the United States dollar on our intercompany balances with and between certain of our subsidiaries.
(2)Other, net for the six months ended June 30, 2023 consists primarily of a loss of approximately $38.0 million associated with the remeasurement to fair value of our previously held equity interest in the Clutter JV. See the Investments section of Liquidity and Capital Resources for additional information. We also recognized losses on our equity method investments and the change in value of the Deferred Purchase Obligation (as defined in Note 3 to Notes to Consolidated Financial Statements included in our Annual Report).
PROVISION FOR INCOME TAXES
We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Our effective tax rates for the three and six months ended June 30, 2023 and 2022 are as follows:
THREE MONTHS ENDED JUNE 30,
SIX MONTHS ENDED JUNE 30,
2023(1)
2022
2023(1)
2022
Effective Tax Rate
78.8
%
8.2
%
24.0
%
10.4
%
(1)The primary reconciling items between the federal statutory tax rate of 21.0% and our overall effective tax rate for the three and six months ended June 30, 2023 were (i) the loss of approximately $38.0 million recorded in Other, net a component of Other expense (income), net during the second quarter of 2023 to reflect the remeasurement of our previously held equity interest in the Clutter JV to fair value, for which there was no tax impact, (ii) the benefits derived from the dividends paid deduction and (iii) the differences in the tax rates to which our foreign earnings are subject.
The following table reflects the effect of the foregoing factors on our net income (loss) and Adjusted EBITDA (in thousands):
THREE MONTHS ENDED JUNE 30,
DOLLAR CHANGE
PERCENTAGE CHANGE
2023
2022
Net Income (Loss)
$
1,143
$
201,858
$
(200,715)
(99.4)
%
Net Income (Loss) as a percentage of Revenue
0.1
%
15.7
%
Adjusted EBITDA
$
475,658
$
454,706
$
20,952
4.6
%
Adjusted EBITDA Margin
35.0
%
35.3
%
SIX MONTHS ENDED JUNE 30,
DOLLAR CHANGE
PERCENTAGE CHANGE
2023
2022
Net Income (Loss)
$
66,678
$
243,565
$
(176,887)
(72.6)
%
Net Income (Loss) as a percentage of Revenue
2.5
%
9.6
%
Adjusted EBITDA
$
936,466
$
885,700
$
50,766
5.7
%
Adjusted EBITDA Margin
35.0
%
34.9
%
Adjusted EBITDA Margin for the six months ended June 30, 2023 increased by 10 basis points compared to the same prior year period driven by improved service revenue trends, revenue management and ongoing cost containment measures, partially offset by lower Adjusted EBITDA Margin in our asset lifecycle management business.
See Note 9 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for a description of our reportable segments.
GLOBAL RIM BUSINESS (IN THOUSANDS)
THREE MONTHS ENDED JUNE 30,
PERCENTAGE CHANGE
DOLLAR CHANGE
ACTUAL
CONSTANT CURRENCY
ORGANIC GROWTH
IMPACT OF ACQUISITIONS
2023
2022
Storage Rental
$
704,011
$
649,771
$
54,240
8.3
%
9.2
%
9.2
%
—
%
Service
455,856
420,705
35,151
8.4
%
9.3
%
9.3
%
—
%
Segment Revenue
$
1,159,867
$
1,070,476
$
89,391
8.4
%
9.2
%
9.2
%
—
%
Segment Adjusted EBITDA
$
499,062
$
469,368
$
29,694
Segment Adjusted EBITDA Margin
43.0
%
43.8
%
SIX MONTHS ENDED JUNE 30,
PERCENTAGE CHANGE
DOLLAR CHANGE
ACTUAL
CONSTANT CURRENCY
ORGANIC GROWTH
IMPACT OF ACQUISITIONS
2023
2022
Storage Rental
$
1,391,680
$
1,299,858
$
91,822
7.1
%
8.7
%
9.3
%
(0.6)
%
Service
894,713
819,509
75,204
9.2
%
10.9
%
11.4
%
(0.5)
%
Segment Revenue
$
2,286,393
$
2,119,367
$
167,026
7.9
%
9.5
%
10.1
%
(0.6)
%
Segment Adjusted EBITDA
$
976,846
$
918,163
$
58,683
Segment Adjusted EBITDA Margin
42.7
%
43.3
%
SIX MONTHS ENDED YEAR OVER YEAR SEGMENT ANALYSIS: GLOBAL RIM BUSINESS (IN MILLIONS)
Storage Rental Revenue
Service Revenue
Segment Revenue
Segment Adjusted EBITDA
Primary factors influencing the change in revenue and Adjusted EBITDA Margin in our Global RIM Business segment for the six months ended June 30, 2023 compared to the prior year period include the following:
•organic storage rental revenue growth driven by revenue management;
•organic service revenue growth primarily driven by increases in our traditional service activity levels and growth in our Global Digital Solutions business;
•a decrease in revenue of $31.7 million due to foreign currency exchange rate fluctuations; and
•a 60 basis point decrease in Adjusted EBITDA Margin primarily driven by an increase in compensation and other employee-related costs, partially offset by revenue management.
SIX MONTHS ENDED YEAR OVER YEAR SEGMENT ANALYSIS: GLOBAL DATA CENTER BUSINESS (IN MILLIONS)
Storage Rental Revenue
Service Revenue
Segment Revenue
Segment Adjusted EBITDA
Primary factors influencing the change in revenue, Adjusted EBITDA and Adjusted EBITDA Margin in our Global Data Center Business segment for the six months ended June 30, 2023 compared to the prior year period include the following:
•organic storage rental revenue growth from leases that commenced during the first six months of 2023 and in prior periods, improved pricing and higher pass-through power costs, partially offset by churn of 280 basis points;
•an increase in Adjusted EBITDA primarily driven by organic storage rental revenue growth; and
•a 250 basis point increase in Adjusted EBITDA Margin reflecting ongoing cost management and a decline in lower margin project revenue, partially offset by higher pass-through power costs.
Primary factors influencing the change in revenue and Adjusted EBITDA in Corporate and Other for the six months ended June 30, 2023 compared to the prior year period include the following:
•a decrease in service revenue in our asset lifecycle management business as a result of component price declines, which we expect to improve from current levels, partially offset by increased volume; and
•a decrease in Adjusted EBITDA driven by the flow through of service revenue declines in our asset lifecycle management business.
We expect to meet our short-term and long-term cash flow requirements through cash generated from operations, cash on hand, borrowings under our Credit Agreement (as defined below) and proceeds from monetizing a small portion of our total industrial real estate assets, as well as other potential financings (such as the issuance of debt). Our cash flow requirements, both in the near and long term, include, but are not limited to, capital expenditures, the repayment of outstanding debt, shareholder dividends, potential business acquisitions and normal business operation needs.
PROJECT MATTERHORN
As disclosed above, in September 2022, we announced Project Matterhorn. We estimate that the implementation of Project Matterhorn will result in costs of approximately $150.0 million per year from 2023 through 2025. Total costs related to Project Matterhorn during the three and six months ended June 30, 2023 were approximately $45.6 million and $82.5 million, respectively, and are included in Restructuring and other transformation in our Condensed Consolidated Statement of Operations. Total costs from inception of the program to June 30, 2023 were approximately $124.4 million. There were no Restructuring and other transformation costs related to Project Matterhorn for the three and six months ended June 30, 2022.
CASH FLOWS
The following is a summary of our cash balances and cash flows (in thousands) as of and for the six months ended June 30,
2023
2022
Cash Flows from Operating Activities
$
446,094
$
345,924
Cash Flows from Investing Activities
(645,282)
(991,103)
Cash Flows from Financing Activities
209,827
542,000
Cash and Cash Equivalents, End of Period
149,493
144,746
A. CASH FLOWS FROM OPERATING ACTIVITIES
For the six months ended June 30, 2023, net cash flows provided by operating activities increased by $100.2 million compared to the prior year period, primarily due to an increase in cash from working capital of $105.3 million, primarily related to the timing of accounts receivable collections, partially offset by a decrease in net income (excluding non-cash charges) of $5.1 million.
B. CASH FLOWS FROM INVESTING ACTIVITIES
Our significant investing activity during the six months ended June 30, 2023 included cash paid for capital expenditures of $600.8 million. Additional details of our capital spending are included in the "Capital Expenditures" section below.
C. CASH FLOWS FROM FINANCING ACTIVITIES
Our significant financing activities during the six months ended June 30, 2023 included:
•Net proceeds of $990.0 million associated with the issuance of the 7% Notes due 2029 (as defined below).
•Net payments of $403.2 million primarily associated with repayments on our Revolving Credit Facility (as defined in Note 6 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report).
•Payment of dividends in the amount of $367.1 million on our common stock.
The following table presents our capital spend for the six months ended June 30, 2023 and 2022, organized by the type of the spending as described in our Annual Report (in thousands):
SIX MONTHS ENDED JUNE 30,
NATURE OF CAPITAL SPEND
2023
2022
Growth Investment Capital Expenditures:
Data Center
$
417,861
$
183,815
Real Estate
104,862
66,855
Innovation and Other
37,644
20,958
Total Growth Investment Capital Expenditures
560,367
271,628
Recurring Capital Expenditures:
Real Estate
$
19,552
$
23,672
Non-Real Estate
34,662
37,834
Data Center
6,415
5,678
Total Recurring Capital Expenditures
60,629
67,184
Total Capital Spend (on accrual basis)
$
620,996
$
338,812
Net (decrease) increase in prepaid capital expenditures
(630)
1,407
Net (increase) decrease in accrued capital expenditures
(19,608)
(9,999)
Total Capital Spend (on cash basis)
$
600,758
$
330,220
Excluding capital expenditures associated with potential future acquisitions, we expect total capital expenditures of approximately $1,200.0 million for the year ending December 31, 2023. Of this, we expect our capital expenditures for growth investment to be approximately $1,055.0 million, and our recurring capital expenditures to approach $145.0 million.
DIVIDENDS
See Note 8 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for a listing of dividends that we declared during the first six months of 2023 and fiscal year 2022.
On August 3, 2023, we declared a dividend to our stockholders of record as of September 15, 2023 of $0.65 per share, payable on October 5, 2023.
Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents (including money market funds) and accounts receivable. The only significant concentration of liquid investments as of June 30, 2023 is related to cash and cash equivalents held in money market funds. See Note 2.e. to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for information on our money market funds.
Long-term debt as of June 30, 2023 is as follows (in thousands):
JUNE 30, 2023
DEBT (INCLUSIVE OF DISCOUNT)
UNAMORTIZED DEFERRED FINANCING COSTS
CARRYING AMOUNT
Revolving Credit Facility(1)
$
679,500
$
(5,332)
$
674,168
Term Loan A(1)
234,375
—
234,375
Term Loan B(1)(3)
662,685
(3,122)
659,563
Australian Dollar Term Loan
196,333
(543)
195,790
UK Bilateral Revolving Credit Facility
177,277
—
177,277
37/8% GBP Senior Notes due 2025 (the "GBP Notes")
506,506
(2,231)
504,275
47/8% Senior Notes due 2027 (the "47/8% Notes due 2027")(2)
1,000,000
(6,043)
993,957
51/4% Senior Notes due 2028 (the "51/4% Notes due 2028")(2)
825,000
(5,609)
819,391
5% Senior Notes due 2028 (the "5% Notes due 2028")(2)
500,000
(3,678)
496,322
7% Senior Notes due 2029 (the "7% Notes due 2029")(2)
1,000,000
(11,853)
988,147
47/8% Senior Notes due 2029 (the "47/8% Notes due 2029")(2)
1,000,000
(9,041)
990,959
51/4% Senior Notes due 2030 (the "51/4% Notes due 2030")(2)
1,300,000
(10,655)
1,289,345
41/2% Senior Notes due 2031 (the "41/2% Notes")(2)
1,100,000
(9,539)
1,090,461
5% Senior Notes due 2032 (the "5% Notes due 2032")
750,000
(11,858)
738,142
55/8% Senior Notes due 2032 (the "55/8% Notes")(2)
600,000
(5,275)
594,725
Real Estate Mortgages, Financing Lease Liabilities and Other
457,724
(483)
457,241
Accounts Receivable Securitization Program
343,100
(426)
342,674
Total Long-term Debt
11,332,500
(85,688)
11,246,812
Less Current Portion
(102,582)
—
(102,582)
Long-term Debt, Net of Current Portion
$
11,229,918
$
(85,688)
$
11,144,230
(1)Collectively, the “Credit Agreement”.
(2)Collectively, the "Parent Notes".
(3)Due to the discontinuance of the London Interbank Offered Rate ("LIBOR") reference rate on June 30, 2023, we transitioned the Term Loan B from an interest rate of LIBOR plus 1.75% to a synthetic LIBOR rate plus 1.75%, effective July 1, 2023.
See Note 7 to Notes to Consolidated Financial Statements included in our Annual Report and Note 6 to Notes to Condensed Consolidated Financial Statements included in this Quarterly Report for additional information regarding our long-term debt.
MAY 2023 OFFERING
On May 15, 2023, Iron Mountain Incorporated completed a private offering of (in thousands):
SERIES OF NOTES
AGGREGATE PRINCIPAL AMOUNT
MATURITY DATE
INTEREST PAYMENT DUE
PAR CALL DATE(1)
7% Notes due 2029
$
1,000,000
February 15, 2029
February 15 and August 15
August 15, 2025
(1)We may redeem the 7% Notes due 2029 at any time, at our option, in whole or in part. Prior to the par call date, we may redeem the 7% Notes due 2029 at the redemption price or make-whole premium specified in the indenture governing the 7% Notes due 2029, together with accrued and unpaid interest to, but excluding, the redemption date. On or after the par call date, we may redeem the 7% Notes due 2029 at a price equal to 100% of the principal amount being redeemed, together with accrued and unpaid interest to, but excluding, the redemption date.
The 7% Notes due 2029 were issued at 100% of par. The total net proceeds of approximately $990.0 million from the issuance of the 7% Notes due 2029, after deducting the initial purchasers' commissions, were used to repay a portion of the outstanding borrowings under our Revolving Credit Facility.
On June 8, 2023, we amended the Accounts Receivable Securitization Program (as defined in Note 7 to Notes to Consolidated Financial Statements included in our Annual Report) to increase the maximum borrowing capacity from $325.0 million to $360.0 million. All other material terms of the Accounts Receivable Securitization Program remain the same as what was disclosed in Note 7 to Notes to Consolidated Financial Statements included in our Annual Report.
LETTERS OF CREDIT
As of June 30, 2023, we had outstanding letters of credit totaling $40.4 million, of which $4.4 million reduce our borrowing capacity under the Revolving Credit Facility. The letters of credit expire at various dates between September 2023 and July 2025.
DEBT COVENANTS
The Credit Agreement, our bond indentures and other agreements governing our indebtedness contain certain restrictive financial and operating covenants, including covenants that restrict our ability to complete acquisitions, pay cash dividends, incur indebtedness, make investments, sell assets and take other specified corporate actions. The covenants do not contain a rating trigger. Therefore, a change in our debt rating would not trigger a default under the Credit Agreement, our bond indentures or other agreements governing our indebtedness. The Credit Agreement requires that we satisfy a net total lease adjusted leverage ratio and a fixed charge coverage ratio on a quarterly basis and our bond indentures require that, among other things, we satisfy a leverage ratio (not lease adjusted) or a fixed charge coverage ratio (not lease adjusted) as a condition to taking actions such as paying dividends and incurring indebtedness.
The Credit Agreement uses earnings before interest, taxes, depreciation and amortization and rent expense ("EBITDAR") based calculations and the bond indentures use earnings before interest, taxes, depreciation and amortization ("EBITDA") based calculations as the primary measures of financial performance for purposes of calculating leverage and fixed charge coverage ratios. The EBITDAR- and EBITDA-based leverage calculations include our consolidated subsidiaries, other than those we have designated as "Unrestricted Subsidiaries" as defined in the Credit Agreement and bond indentures. Generally, the Credit Agreement and the bond indentures use a trailing four fiscal quarter basis for purposes of the relevant calculations and require certain adjustments and exclusions for purposes of those calculations, which make the calculation of financial performance for purposes of those calculations under the Credit Agreement and bond indentures not directly comparable to Adjusted EBITDA as presented herein. These adjustments can be significant. For example, the calculation of financial performance under the Credit Agreement and certain of our bond indentures includes (subject to specified exceptions and caps) adjustments for non-cash charges and for expected benefits associated with (i) completed acquisitions, (ii) certain executed lease agreements associated with our data center business that have yet to commence, and (iii) restructuring and other strategic initiatives. The calculation of financial performance under our other bond indentures includes, for example, adjustments for non-cash charges and for expected benefits associated with (i) completed acquisitions and (ii) events that are extraordinary, unusual or non-recurring.
Our leverage and fixed charge coverage ratios under the Credit Agreement as of June 30, 2023 are as follows:
JUNE 30, 2023
MAXIMUM/MINIMUM ALLOWABLE
Net total lease adjusted leverage ratio
5.1
Maximum allowable of 7.0
Fixed charge coverage ratio
2.3
Minimum allowable of 1.5
We are in compliance with our leverage and fixed charge coverage ratios under the Credit Agreement, our bond indentures and other agreements governing our indebtedness as of June 30, 2023. Noncompliance with these leverage and fixed charge coverage ratios would have a material adverse effect on our financial condition and liquidity.
Our ability to pay interest on or to refinance our indebtedness depends on our future performance, working capital levels and capital structure, which are subject to general economic, financial, competitive, legislative, regulatory and other factors which may be beyond our control. There can be no assurance that we will generate sufficient cash flow from our operations or that future financings will be available on acceptable terms or in amounts sufficient to enable us to service or refinance our indebtedness or to make necessary capital expenditures.
In July 2019, we entered into forward-starting interest rate swap agreements to limit our exposure to changes in interest rates on a portion of our floating rate indebtedness. These forward-starting interest rate swap agreements commenced in March 2022 with a total notional amount of $350.0 million and provided variable rate interest payments associated with the notional amount of each interest rate swap, based upon one-month LIBOR, in exchange for the payment of fixed interest rates as specified in the respective interest rate swap agreements. In April 2023, we terminated these agreements in anticipation of the discontinuance of the LIBOR reference rate on June 30, 2023. The terminated swap agreements had associated unrealized gains at the termination date of approximately $10.1 million. These gains are included in Accumulated other comprehensive items, net and will be reclassified into earnings as reductions to interest expense from the date of termination through March 2024, the original maturity date of the swaps.
In April 2023, we entered into interest rate swap agreements to limit our exposure to changes in interest rates on a portion of our floating rate indebtedness. Under these interest rate swap agreements, we receive variable rate interest payments associated with the notional amount of each interest rate swap, based upon one-month Secured Overnight Financing Rate, in exchange for the payment of fixed interest rates as specified in the interest rate swap agreements. As of June 30, 2023, we have $350.0 million in notional value outstanding associated with these interest rate swap agreements, which expire in February 2026.
In November 2022, we entered into a forward-starting interest rate swap agreement to limit our exposure to changes in interest rates on future borrowings under our Virginia Credit Agreement (as defined in Note 7 to Notes to Consolidated Financial Statements included in our Annual Report). This forward-starting interest rate swap agreement commenced in July 2023 and expires in October 2025. As of both June 30, 2023 and December 31, 2022, we have $4.8 million in notional value outstanding on this forward-starting interest rate swap agreement.
We have designated each of the interest rate swap agreements described above as cash flow hedges. These interest rate swap agreements are marked to market at the end of each reporting period, representing the fair values of the interest rate swap agreements, and any changes in fair value are recognized as a component of Accumulated other comprehensive items, net. Unrealized gains are recognized as assets, while unrealized losses are recognized as liabilities.
CROSS-CURRENCY SWAP AGREEMENTS
We utilize cross-currency interest rate swaps to hedge the variability of exchange rate impacts between the United States dollar and the Euro. As of both June 30, 2023 and December 31, 2022, we have approximately $469.2 million in notional value outstanding on cross-currency interest rate swaps, with maturity dates ranging from August 2023 through February 2026.
We have designated these cross-currency swap agreements as hedges of net investments in certain of our Euro denominated subsidiaries and they require an exchange of the notional amounts at maturity. These cross-currency swap agreements are marked to market at the end of each reporting period, representing the fair values of the cross-currency swap agreements, and any changes in fair value are recognized as a component of Accumulated other comprehensive items, net. Unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The excluded component of our cross-currency swap agreements is recorded in Accumulated other comprehensive items, net and amortized to interest expense on a straight-line basis.
ACQUISITIONS
CLUTTER
On June 29, 2023, in order to further expand our on-demand consumer storage business, we acquired 100% of the outstanding shares of Clutter Intermediate, Inc. and control of all assets of the Clutter JV (collectively, "Clutter") for total consideration of $59.1 million (the “Clutter Acquisition”). During the third quarter of 2023, we anticipate offering up to 15% equity interest in Clutter to certain former stakeholders of the Clutter JV.
INVESTMENTS
CLUTTER JOINT VENTURE
In February 2022, the joint venture formed by MakeSpace Labs, Inc. and us (the "MakeSpace JV") entered into an agreement with Clutter, Inc. pursuant to which the equityholders of the MakeSpace JV contributed their ownership interests in the MakeSpace JV, and Clutter, Inc.’s shareholders contributed their ownership interests in Clutter, Inc., to create a newly formed venture (the "Clutter JV"). In exchange for our 49.99% interest in the MakeSpace JV, we received an approximate 27% interest in the Clutter JV (the "Clutter Transaction"). As a result of the Clutter Transaction, we recognized a gain related to our contributed interest in the MakeSpace JV of approximately $35.8 million, which was recorded to Other, net, a component of Other expense (income), net, during the first quarter of 2022.
On June 29, 2023, we completed the Clutter Acquisition. In connection with the Clutter Acquisition, our previously held approximately 27% interest in the Clutter JV was remeasured to fair value at the closing date of the Clutter Acquisition. As a result, we recognized a loss of approximately $38.0 million to Other, net, a component of Other expense (income), net, during the second quarter of 2023.
WEB WERKS JOINT VENTURE
In April 2021, we closed on an agreement to form a joint venture (the "Web Werks JV") with the shareholders of Web Werks India Private Limited, a colocation data center provider in India. Through December 31, 2022, we made two investments totaling approximately 7,500.0 million Indian rupees (or approximately $96.2 million, based upon the exchange rates between the United States dollar and Indian rupee on the closing date of each investment) in exchange for a noncontrolling interest in the form of convertible preference shares in the Web Werks JV. On July 7, 2023, we made our final contractual investment in the Web Werks JV of approximately 3,750.0 million Indian rupees (or approximately $45.3 million, based upon the exchange rate between the United States dollar and Indian rupee on the closing date of this investment). After the final contractual payment, our interest in the Web Werks JV increased to 63.39% and we assumed control of its board of directors. For financial reporting periods beginning after July 7, 2023, the Web Werks JV will be consolidated within our Global Data Center Business segment.
JOINT VENTURE SUMMARY
The following joint ventures are accounted for as equity method investments and are presented as a component of Other within Other assets, net in our Condensed Consolidated Balance Sheets. The carrying values and equity interests in our joint ventures at June 30, 2023 and December 31, 2022 are as follows (in thousands):
The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These rules refer to the controls and other procedures of a company that are designed to ensure that information is recorded, processed, accumulated, summarized, communicated and reported to management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding what is required to be disclosed by a company in the reports that it files under the Exchange Act. As of June 30, 2023 (the "Evaluation Date"), we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, our chief executive officer and chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management, with the participation of our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements.
There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We did not sell any unregistered equity securities during the three months ended June 30, 2023, nor did we repurchase any shares of our common stock during the three months ended June 30, 2023.
ITEM 5. OTHER INFORMATION
On June 2, 2023, Mr. Edward Greene, our Executive Vice President, Chief Human Resources Officer, adopted a 10b5-1 trading plan to sell up to 4,851 shares of our common stock between September 5, 2023 and November 30, 2023.
On June 16, 2023, Mr. John Tomovcsik, our Executive Vice President, Chief Operating Officer, terminated a 10b5-1 trading plan that was adopted on March 3, 2023 to exercise options to purchase up to 36,824 shares of our common stock and sell up to 69,731 shares of our common stock between June 7, 2023 and February 29, 2024. On June 20, 2023, Mr. Tomovcsik adopted a 10b5-1 trading plan to exercise options to purchase up to 11,859 shares of our common stock and sell up to 41,859 shares of our common stock between September 18, 2023 and June 18, 2024.
Each of these arrangements is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Securities Exchange Act of 1934.
ITEM 6. EXHIBITS
(A) EXHIBITS
Certain exhibits indicated below are incorporated by reference to documents we have filed with the SEC.
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
