Iron Mountain(IRM) - 2024 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION ITEM 1. Unaudited Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income (loss), equity, and cash flows, along with detailed notes on significant accounting policies, acquisitions, investments, debt, and segment information Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------------- | :------------------ | | Total Assets | $18,469,629 | $17,473,802 | | Total Liabilities | $18,572,037 | $17,262,029 | | Total (Deficit) Equity | $(102,408) | $211,773 | Condensed Consolidated Statements of Operations (Three Months) This section presents the company's financial performance over the three-month period, highlighting revenues, operating income, and net income (loss) Three Months Ended September 30 (in thousands, except per share data) | Metric | 2024 | 2023 | Change (%) | | :--------------------------------------------------- | :--------- | :--------- | :--------- | | Total Revenues | $1,557,358 | $1,388,175 | 12.2% | | Operating Income (Loss) | $251,164 | $237,833 | 5.6% | | Net (Loss) Income Attributable to Iron Mountain Inc. | $(33,620) | $91,043 | (136.9)% | | Basic EPS | $(0.11) | $0.31 | (135.5)% | Condensed Consolidated Statements of Operations (Nine Months) This section details the company's financial performance over the nine-month period, including total revenues, operating income, and net income (loss) Nine Months Ended September 30 (in thousands, except per share data) | Metric | 2024 | 2023 | Change (%) | | :--------------------------------------------------- | :--------- | :--------- | :--------- | | Total Revenues | $4,568,630 | $4,060,460 | 12.5% | | Operating Income (Loss) | $727,081 | $691,021 | 5.2% | | Net Income (Loss) Attributable to Iron Mountain Inc. | $76,224 | $155,752 | (51.1)% | | Basic EPS | $0.26 | $0.53 | (51.0)% | Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents the comprehensive income (loss) for the three and nine months, including net income and other comprehensive income items Comprehensive Income (Loss) Attributable to Iron Mountain Inc. (in thousands) | Period | 2024 | 2023 | | :--------------------------------------------------- | :--------- | :--------- | | Three Months Ended September 30 | $38,960 | $15,284 | | Nine Months Ended September 30 | $58,869 | $139,752 | - Foreign Currency Translation Adjustment for the three months ended September 30, 2024, was $107,282 thousand, a significant increase from $(80,168) thousand in the prior year[8] Condensed Consolidated Statements of (Deficit) Equity (2024) This section outlines changes in the company's equity (or deficit) for the three and nine months ended September 30, 2024 Total (Deficit) Equity (in thousands) | Date | Total (Deficit) Equity | | :------------------- | :--------------------- | | September 30, 2024 | $(102,408) | | June 30, 2024 | $(132,749) | - Parent cash dividends declared for the three months ended September 30, 2024, totaled $(211,463) thousand[11] - Noncontrolling interests equity contributions and related costs for the three months ended September 30, 2024, were $170,952 thousand[11] Condensed Consolidated Statements of Equity (2023) This section details the changes in the company's equity for the three and nine months ended September 30, 2023 Total Equity (in thousands) | Date | Total Equity | | :------------------- | :----------- | | September 30, 2023 | $262,631 | | December 31, 2022 | $636,793 | - Parent cash dividends declared for the nine months ended September 30, 2023, totaled $(554,274) thousand[15] - Net income for the nine months ended September 30, 2023, was $155,752 thousand[15] Condensed Consolidated Statements of Cash Flows This section outlines the cash inflows and outflows from operating, investing, and financing activities for the nine-month period Nine Months Ended September 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :----------------------------------- | :----------- | :----------- | | Operating Activities | $765,128 | $666,374 | | Investing Activities | $(1,441,829) | $(1,035,083) | | Financing Activities | $639,201 | $403,872 | | Cash and Cash Equivalents, End of Period | $168,515 | $170,502 | - Net cash flows from operating activities increased by $98,754 thousand, primarily due to an increase in net income (excluding non-cash items) and improved working capital[16][130] - Cash paid for capital expenditures was $1,173,968 thousand, and cash paid for acquisitions, net of cash acquired, was $174,445 thousand[16][131] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering significant accounting policies and other financial information 1. General Information This note provides an overview of the company's financial statement preparation, adherence to SEC rules, and its status as a real estate investment trust (REIT) since 2014. It also mentions "Project Matterhorn" as a global program to accelerate business growth - The company has operated as a REIT for U.S. federal income tax purposes since its taxable year ended December 31, 2014[17] - A global program named "Project Matterhorn" was announced in September 2022 to accelerate business growth[17] 2. Summary of Significant Accounting Policies This section details the company's significant accounting policies, covering cash and cash equivalents, accounts receivable, leases, goodwill, fair value measurements, accumulated other comprehensive items, revenues, stock-based compensation, acquisition and integration costs, loss/gain on disposal of assets, other expense (income), income taxes, and income (loss) per share A. Cash and Cash Equivalents This policy defines cash and cash equivalents as highly liquid short-term securities with maturities under 90 days, carried at cost - Cash and cash equivalents include cash on hand and highly liquid short-term securities with remaining maturities of less than 90 days at the date of purchase[18] - These are carried at cost, which approximates fair value[18] B. Accounts Receivable This policy outlines the accounting treatment for accounts receivable, including the allowance for doubtful accounts and credit memo reserves Allowance for Doubtful Accounts and Credit Memo Reserves (in thousands) | Date | Balance | | :------------------- | :-------- | | September 30, 2024 | $84,190 | | December 31, 2023 | $74,762 | C. Leases This policy details the accounting for operating and financing leases, including right-of-use assets and corresponding liabilities Lease Assets and Liabilities (in thousands) | Description | September 30, 2024 | December 31, 2023 | | :----------------------------------- | :------------------- | :------------------ | | Operating lease right-of-use assets | $2,591,238 | $2,696,024 | | Financing lease right-of-use assets, net | $367,500 | $304,600 | | Current Operating lease liabilities | $315,093 | $291,795 | | Long-term Operating lease liabilities | $2,438,905 | $2,562,394 | Operating Lease Cost (in thousands) | Period | 2024 | 2023 | | :----------------------------------- | :--------- | :--------- | | Three Months Ended September 30 | $168,308 | $172,040 | | Nine Months Ended September 30 | $512,789 | $489,153 | D. Goodwill This policy describes the accounting for goodwill, including its balance net of accumulated amortization and acquired amounts Goodwill Balance (in thousands) | Metric | September 30, 2024 | December 31, 2023 | | :--------------------------------------------------- | :------------------- | :------------------ | | Goodwill balance, net of accumulated amortization | $5,198,460 | $5,017,912 | | Tax deductible goodwill acquired during the period | $131,790 | N/A | | Non-tax deductible goodwill acquired during the period | $36,499 | N/A | E. Fair Value Measurements This policy outlines the company's approach to fair value measurements, particularly for deferred purchase obligations Deferred Purchase Obligations (Level 3) (in thousands) | Date | Balance | | :------------------- | :-------- | | September 30, 2024 | $117,050 | | December 31, 2023 | $208,265 | - Payments on deferred purchase obligations for the nine months ended September 30, 2024, totaled $(158,677) thousand[28] F. Accumulated Other Comprehensive Items, Net This policy details the components of accumulated other comprehensive income, including foreign currency translation and derivative fair value changes Accumulated Other Comprehensive Items, Net (in thousands) | Date | Balance | | :------------------- | :--------- | | September 30, 2024 | $(388,511) | | December 31, 2023 | $(371,156) | - For the nine months ended September 30, 2024, foreign currency translation and other adjustments contributed $8,554 thousand, while changes in fair value of derivative instruments resulted in $(23,381) thousand[29] G. Revenues This policy describes the company's revenue recognition practices, including deferred revenue liabilities and data center storage rental revenue Deferred Revenue Liabilities (in thousands) | Description | September 30, 2024 | December 31, 2023 | | :------------------------ | :------------------- | :------------------ | | Deferred revenue - Current | $294,545 | $325,665 | | Deferred revenue - Long-term | $85,795 | $100,770 | Global Data Center Business Storage Rental Revenue (in thousands) | Period | 2024 | 2023 | | :----------------------------------- | :--------- | :--------- | | Three Months Ended September 30 | $150,796 | $123,655 | | Nine Months Ended September 30 | $438,221 | $342,080 | H. Stock-Based Compensation This policy outlines the accounting for stock-based compensation expense, including grants of stock options, RSUs, and PUs Stock-Based Compensation Expense (in thousands) | Period | 2024 | 2023 | | :----------------------------------- | :--------- | :--------- | | Three Months Ended September 30 | $29,563 | $18,313 | | Nine Months Ended September 30 | $73,491 | $53,195 | - Approximately 83,100 stock options, 670,900 RSUs, and 453,000 PUs were granted during the nine months ended September 30, 2024[33] I. Acquisition and Integration Costs This policy details the recognition of costs associated with business acquisitions and their subsequent integration Acquisition and Integration Costs (in thousands) | Period | 2024 | 2023 | | :----------------------------------- | :--------- | :--------- | | Three Months Ended September 30 | $11,262 | $9,909 | | Nine Months Ended September 30 | $28,573 | $13,015 | J. Loss (Gain) on Disposal/Write-Down of Property, Plant and Equipment, Net This policy describes the accounting for gains or losses arising from the disposal or write-down of property, plant, and equipment Loss (Gain) on Disposal/Write-Down of Property, Plant and Equipment, Net (in thousands) | Period | 2024 | 2023 | | :----------------------------------- | :--------- | :--------- | | Three Months Ended September 30 | $5,091 | $(4,416) | | Nine Months Ended September 30 | $8,270 | $(18,982) | - The gains for the nine months ended September 30, 2023, primarily included an $18,500 thousand gain from a sale-leaseback transaction in Singapore[36] K. Other Expense (Income), Net This policy covers various non-operating expenses and income, including foreign currency transactions, debt extinguishment, and other miscellaneous items Other Expense (Income), Net (in thousands) | Description | Three Months 2024 | Three Months 2023 | Nine Months 2024 | Nine Months 2023 | | :----------------------------------- | :---------------- | :---------------- | :--------------- | :--------------- | | Foreign currency transaction losses (gains), net | $46,657 | $(29,310) | $31,291 | $177 | | Debt extinguishment expense | $5,417 | — | $5,417 | — | | Other, net | $34,288 | $13,039 | $42,957 | $67,702 | | Total Other Expense (Income), Net | $86,362 | $(16,271) | $79,665 | $67,879 | - Other, net for the three months ended September 30, 2024, primarily consists of approximately $29,200 thousand in charges associated with the agreement to purchase the remaining interest in the Web Werks JV[38] L. Income Taxes This policy outlines the company's accounting for income taxes, including the effective tax rate and reconciling items Effective Tax Rate | Period | 2024 | 2023 | | :----------------------------------- | :------- | :------- | | Three Months Ended September 30 | 58.3% | 9.8% | | Nine Months Ended September 30 | 35.2% | 16.4% | - The primary reconciling items for the 2024 effective tax rate were the lack of tax benefits recognized for ordinary losses of certain entities, benefits from the dividends paid deduction, and differences in foreign earnings tax rates[40] M. Income (Loss) Per Share—Basic and Diluted This policy defines the calculation of basic and diluted income (loss) per share attributable to Iron Mountain Inc Net (Loss) Income Per Share Attributable to Iron Mountain Inc. | Period | Basic EPS 2024 | Basic EPS 2023 | Diluted EPS 2024 | Diluted EPS 2023 | | :----------------------------------- | :------------- | :------------- | :--------------- | :--------------- | | Three Months Ended September 30 | $(0.11) | $0.31 | $(0.11) | $0.31 | | Nine Months Ended September 30 | $0.26 | $0.53 | $0.26 | $0.53 | 3. Acquisitions The company expanded its Asset Lifecycle Management (ALM) business through the acquisitions of Wisetek Solutions Limited and Regency Technologies in 2024. It also increased its ownership in the Web Werks JV, with further payments scheduled for 2025 - On September 20, 2024, acquired 100% of Wisetek Solutions Limited for approximately €46.6 million cash and up to €4.2 million in additional consideration[42] - On January 3, 2024, acquired 100% of Regency Technologies for an initial purchase price of approximately $200.0 million, with $125.0 million paid at closing and $75.0 million due in January 2025. A contingent earnout of up to $200.0 million is also possible[43] - On July 1, 2024, agreed to acquire the remaining 36.61% interest in Web Werks JV. Acquired an 8.55% interest for approximately $35.0 million, increasing ownership to 71.94%. An additional payment of approximately $114.6 million is due in March 2025 for the remaining 28.06% interest[46] 4. Investments The company holds a 20% equity interest in the Frankfurt JV, which is accounted for as an equity method investment. The carrying value of this investment increased to $65,219 thousand as of September 30, 2024 Frankfurt JV Carrying Value (in thousands) | Date | Carrying Value | | :------------------- | :------------- | | September 30, 2024 | $65,219 | | December 31, 2023 | $57,874 | - The company maintains a 20% equity interest in the Frankfurt JV[47] 5. Derivative Instruments and Hedging Activities The company uses interest rate swap agreements as cash flow hedges and cross-currency swap agreements as net investment hedges to manage exposure to interest rate and exchange rate fluctuations. Notional values for interest rate swaps significantly increased, while cross-currency swaps remained stable Derivative Instruments Notional Value Outstanding (in thousands) | Derivative Type | September 30, 2024 | December 31, 2023 | | :----------------------------------- | :------------------- | :------------------ | | Interest rate swap agreements | $1,354,000 | $520,000 | | Cross-currency swap agreements | $509,200 | $509,200 | - Cumulative net losses recorded within Accumulated other comprehensive items, net, associated with interest rate swap agreements are $23,437 thousand as of September 30, 2024[50] - Cumulative net gains recorded within Accumulated other comprehensive items, net, associated with cross-currency swap agreements are $37,955 thousand as of September 30, 2024[50] 6. Debt Long-term debt, net of current portion, increased to $13,245,462 thousand as of September 30, 2024. The company amended its Credit Agreement, increasing the Term Loan B due 2031 and repaying the Term Loan B due 2026. New credit agreements were also entered for data center construction, and the Accounts Receivable Securitization Program's capacity was increased and maturity extended Long-term Debt, Net of Current Portion (in thousands) | Date | Amount | | :------------------- | :------------- | | September 30, 2024 | $13,245,462 | | December 31, 2023 | $11,812,500 | - The Credit Agreement was amended in July and August 2024, increasing the Term Loan B due 2031 from approximately $1,194.0 million to $1,860.0 million and decreasing its interest rate. The Term Loan B due 2026 was repaid[55] - New Virginia 6 and Virginia 7 Term Loans were entered into during Q2 2024 to finance data center construction, with maximum borrowing amounts of $210.0 million and $300.0 million, respectively[56] - The Accounts Receivable Securitization Program's maximum borrowing capacity increased from $360.0 million to $400.0 million, and its maturity date was extended to July 1, 2027[59] 7. Commitments and Contingencies The company is involved in ordinary course litigation, including those related to customer asset damage. While outcomes are uncertain, no current litigation is expected to have a material adverse effect, with an estimated additional aggregate loss possibility of up to $14,000 thousand - The company estimates a reasonably possible range for all loss contingencies, with potential aggregate losses up to an additional $14,000 thousand over several years[62] - Certain amounts of these potential losses would be covered by insurance or indemnity arrangements[62] 8. Stockholders' Equity Matters The board declared increased dividends per share in August 2024. Changes in noncontrolling interests occurred, with a put option expiry leading to reclassification of $53,400 thousand from redeemable to noncontrolling interests, and a new joint venture adding $103,100 thousand in noncontrolling interests Dividends Declared | Declaration Date | Dividend Per Share | | :------------------- | :----------------- | | August 1, 2024 | $0.7150 | | May 2, 2024 | $0.6500 | | February 22, 2024 | $0.6500 | - A put option expiry in the Iron Mountain Data Centers Virginia 4/5 JV, LP resulted in the reclassification of approximately $53,400 thousand from Redeemable noncontrolling interests to Noncontrolling interests[65] - The formation of the Iron Mountain Data Centers Virginia 6/7 JV, LLC resulted in approximately $103,100 thousand in Noncontrolling interests[65] 9. Segment Information The company operates in Global RIM Business, Global Data Center Business, and Corporate and Other segments. Total revenues and Adjusted EBITDA increased across the consolidated entity for both the three and nine months ended September 30, 2024, with specific growth drivers in each segment Total Consolidated Revenues and Adjusted EBITDA (in thousands) | Metric | Three Months 2024 | Three Months 2023 | Nine Months 2024 | Nine Months 2023 | | :------------------- | :---------------- | :---------------- | :--------------- | :--------------- | | Total Revenues | $1,557,358 | $1,388,175 | $4,568,630 | $4,060,460 | | Adjusted EBITDA | $568,113 | $499,962 | $1,631,329 | $1,436,428 | - Adjusted EBITDA is defined as net income (loss) before interest expense, net, provision (benefit) for income taxes, depreciation and amortization, and excluding certain non-core items[67][68] Segment Revenue by Product and Service Lines (Nine Months Ended September 30, 2024, in thousands) | Segment | Records Management | Data Management | Information Destruction | Data Center | | :------------------------ | :----------------- | :-------------- | :---------------------- | :---------- | | Global RIM Business | $2,901,465 | $390,706 | $428,921 | — | | Global Data Center Business | — | — | — | $449,845 | | Corporate and Other | $121,528 | — | $276,165 | — | | Total Consolidated | $3,022,993 | $390,706 | $705,086 | $449,845 | 10. Related Parties The company earns fees from the Frankfurt JV for special projects, property management, and construction services. Revenue from the Clutter Agreement ceased after the Clutter Acquisition in June 2023 Revenue from Related Party Agreements (in thousands) | Agreement | Nine Months 2024 | Nine Months 2023 | | :------------------- | :--------------- | :--------------- | | Frankfurt JV Agreements | $2,700 | $1,700 | | Clutter Agreement | — | $13,000 | - The Clutter Agreement was terminated on June 29, 2023, following the Clutter Acquisition[72] 11. Restructuring and Other Transformation Project Matterhorn, a global program to accelerate growth and transform the operating model, incurred $124,562 thousand in restructuring and other transformation costs for the nine months ended September 30, 2024, with total costs from inception through September 30, 2024, reaching $341,710 thousand Project Matterhorn Costs (in thousands) | Cost Type | Nine Months 2024 | Nine Months 2023 | From Inception through Sep 30, 2024 | | :----------------------------------- | :--------------- | :--------------- | :---------------------------------- | | Restructuring | $38,618 | $39,828 | $109,229 | | Other transformation | $85,944 | $81,534 | $232,481 | | Total | $124,562 | $121,362 | $341,710 | - The company expects to incur approximately $150.0 million in costs annually related to Project Matterhorn from 2023 through 2025[74] Accrued Restructuring and Other Transformation Costs (in thousands) | Date | Total | | :------------------- | :-------- | | September 30, 2024 | $21,692 | | December 31, 2023 | $35,585 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and operational results for the three and nine months ended September 30, 2024. It highlights key trends, non-GAAP measures, critical accounting estimates, and detailed analysis of revenues, expenses, segment performance, liquidity, and capital resources Forward-Looking Statements This section outlines various known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from the company's forward-looking statements, including strategic execution, customer demand, regulatory compliance, IT system attacks, funding capital expenditures, REIT qualification, geopolitical risks, and debt obligations - Forward-looking statements are subject to risks such as the ability to execute strategic growth plans, changes in customer preferences, compliance costs, IT system attacks, funding capital expenditures, and maintaining REIT status[81] - The company undertakes no obligation to update any forward-looking statements, except as required by law[81] Overview Provides a general introduction to the management's discussion and analysis, emphasizing key trends in organic revenue growth for storage rental and service, and the expected continued total revenue and Adjusted EBITDA growth driven by Project Matterhorn objectives - Organic storage rental revenue growth is primarily driven by revenue management in the Global RIM Business and lease commencements in the Global Data Center Business[84] - Organic service revenue growth is expected to benefit from new and existing digital offerings, asset lifecycle management (ALM) business, and traditional services[85] - Continued total revenue and Adjusted EBITDA growth is expected for the remainder of 2024 and into 2025, driven by new product/service offerings, innovation, customer solutions, and market expansion in line with Project Matterhorn objectives[85] Non-GAAP Measures This section defines and reconciles key non-GAAP financial measures—Adjusted EBITDA, Adjusted EPS, FFO (Nareit), and FFO (Normalized)—which management uses to evaluate core operating results and provide investors with a clearer view of performance, excluding certain non-recurring or non-cash items Adjusted EBITDA This section defines and presents Adjusted EBITDA, a key non-GAAP measure used to evaluate the company's core operating performance - Adjusted EBITDA is defined as net income (loss) before interest expense, net, provision (benefit) for income taxes, depreciation and amortization, and excluding certain non-core operating results[87] Adjusted EBITDA (in thousands) | Period | 2024 | 2023 | Change (%) | | :----------------------------------- | :----------- | :----------- | :--------- | | Three Months Ended September 30 | $568,113 | $499,962 | 13.6% | | Nine Months Ended September 30 | $1,631,329 | $1,436,428 | 13.6% | - Adjusted EBITDA Margin for the nine months ended September 30, 2024, increased 30 basis points to 35.7%, driven by favorable overhead management, offset by a decline in gross profit margin due to revenue mix[117] Adjusted EPS This section defines and presents Adjusted EPS, a non-GAAP measure that excludes items not indicative of ongoing operating results - Adjusted EPS excludes items not indicative of ongoing operating results, such as acquisition and integration costs, restructuring, stock-based compensation, and non-cash amortization related to derivative instruments[90] Adjusted EPS—Fully Diluted | Period | 2024 | 2023 | | :----------------------------------- | :----- | :----- | | Three Months Ended September 30 | $0.44 | $0.45 | | Nine Months Ended September 30 | $1.28 | $1.28 | FFO (NAREIT) and FFO (Normalized) This section defines and presents FFO (Nareit) and FFO (Normalized), key non-GAAP measures for evaluating REIT performance - FFO (Nareit) is defined 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[92] - FFO (Normalized) further excludes certain items not indicative of core operating results, such as acquisition and integration costs, restructuring, and other expense (income), net[93][94] FFO (Nareit) and FFO (Normalized) (in thousands) | Metric | Three Months 2024 | Three Months 2023 | Nine Months 2024 | Nine Months 2023 | | :------------------- | :---------------- | :---------------- | :--------------- | :--------------- | | FFO (Nareit) | $67,756 | $180,732 | $372,831 | $399,228 | | FFO (Normalized) | $233,269 | $223,080 | $682,353 | $642,150 | Critical Accounting Estimates The company's critical accounting estimates, which require significant judgment and affect reported financial amounts, include revenue recognition, accounting for acquisitions, impairment of tangible and intangible assets, and income taxes. No material changes to these estimates have occurred since December 31, 2023 - Critical accounting estimates include Revenue Recognition, Accounting for Acquisitions, Impairment of Tangible and Intangible Assets, and Income Taxes[97] - No material changes concerning critical accounting estimates have occurred since December 31, 2023[97] Results of Operations This section provides a comparative analysis of the company's financial performance for the three and nine months ended September 30, 2024, versus the prior year, detailing changes in revenues, operating expenses, other expenses, income taxes, net income (loss), and Adjusted EBITDA Revenues This section analyzes the company's total revenues, including organic growth and the impact of acquisitions, for the reported periods Total Revenues (in thousands) | Period | 2024 | 2023 | Dollar Change | Percentage Change (Actual) | Organic Growth | Impact of Acquisitions | | :----------------------------------- | :----------- | :----------- | :------------ | :------------------------- | :------------- | :--------------------- | | Three Months Ended September 30 | $1,557,358 | $1,388,175 | $169,183 | 12.2% | 9.5% | 3.0% | | Nine Months Ended September 30 | $4,568,630 | $4,060,460 | $508,170 | 12.5% | 9.2% | 3.6% | - Service revenue growth for the nine months ended September 30, 2024, included a $103.0 million increase due to the recent acquisition of Regency Technologies[102] Operating Expenses This section details changes in the company's operating expenses, including cost of sales, SG&A, depreciation, and amortization Total Operating Expenses (in thousands) | Period | 2024 | 2023 | Dollar Change | Percentage Change | | :----------------------------------- | :----------- | :----------- | :------------ | :---------------- | | Three Months Ended September 30 | $1,306,194 | $1,150,342 | $155,852 | 13.5% | | Nine Months Ended September 30 | $3,841,549 | $3,369,439 | $472,110 | 14.0% | - Cost of sales (excluding depreciation and amortization) increased by $251,145 thousand (14.3%) for the nine months ended September 30, 2024, driven by higher labor, facilities, transportation, and product costs, partly due to recent acquisitions[105] - Selling, general and administrative expenses increased by $84,877 thousand (9.2%) for the nine months ended September 30, 2024, primarily due to higher bonus compensation accruals, recent acquisitions, professional fees, and IT costs, partially offset by lower sales, marketing, and account management expenses[108] - Depreciation expense increased by $79.6 million (20.5%) and amortization expense increased by $10.5 million (5.6%) for the nine months ended September 30, 2024[109] Other Expenses, Net This section analyzes non-operating expenses and income, including interest expense and foreign currency transaction impacts - Interest expense, net, increased by $93.0 million to $527.1 million for the nine months ended September 30, 2024, due to higher average debt outstanding and an increase in the weighted average interest rate (5.7% in 2024 vs 5.5% in 2023)[112] Other Expense (Income), Net (in thousands) | Period | 2024 | 2023 | Dollar Change | | :----------------------------------- | :--------- | :--------- | :------------ | | Three Months Ended September 30 | $86,362 | $(16,271) | $102,633 | | Nine Months Ended September 30 | $79,665 | $67,879 | $11,786 | - Foreign currency transaction losses (gains), net, for the three months ended September 30, 2024, were $46,657 thousand, compared to gains of $(29,310) thousand in the prior year[113] Provision for Income Taxes This section discusses the company's income tax provision, including changes in the effective tax rate and their underlying causes Effective Tax Rate | Period | 2024 | 2023 | | :----------------------------------- | :------- | :------- | | Three Months Ended September 30 | 58.3% | 9.8% | | Nine Months Ended September 30 | 35.2% | 16.4% | - The increase in the effective tax rate for 2024 was primarily due to the lack of tax benefits recognized for year-to-date ordinary losses of certain entities[114] Net Income (Loss) and Adjusted EBITDA This section summarizes the company's net income (loss) and Adjusted EBITDA, highlighting key performance trends and margin changes Net Income (Loss) and Adjusted EBITDA (in thousands) | Metric | Three Months 2024 | Three Months 2023 | Nine Months 2024 | Nine Months 2023 | | :------------------- | :---------------- | :---------------- | :--------------- | :--------------- | | Net (Loss) Income | $(33,665) | $91,391 | $77,981 | $158,069 | | Adjusted EBITDA | $568,113 | $499,962 | $1,631,329 | $1,436,428 | - Adjusted EBITDA Margin for the nine months ended September 30, 2024, increased 30 basis points to 35.7%, driven by favorable overhead management, offset by a decline in gross profit margin due to revenue mix[117] Segment Analysis This section analyzes the performance of the company's three reportable segments: Global RIM Business, Global Data Center Business, and Corporate and Other, detailing revenue and Adjusted EBITDA changes and their primary drivers for the nine months ended September 30, 2024 Global RIM Business This section analyzes the Global RIM Business segment's revenue and Adjusted EBITDA performance, highlighting growth drivers and margin changes Global RIM Business Segment Performance (Nine Months Ended September 30, in thousands) | Metric | 2024 | 2023 | Dollar Change | Percentage Change (Actual) | Organic Growth | | :-------------------------- | :----------- | :----------- | :------------ | :------------------------- | :------------- | | Storage Rental Revenue | $2,253,122 | $2,111,240 | $141,882 | 6.7% | 6.6% | | Service Revenue | $1,467,970 | $1,357,805 | $110,165 | 8.1% | 7.9% | | Segment Revenue | $3,721,092 | $3,469,045 | $252,047 | 7.3% | 7.2% | | Segment Adjusted EBITDA | $1,644,004 | $1,493,394 | $150,610 | N/A | N/A | - Segment Adjusted EBITDA Margin increased by 120 basis points to 44.2%, primarily driven by ongoing cost containment measures and revenue management[118][120] Global Data Center Business This section analyzes the Global Data Center Business segment's revenue and Adjusted EBITDA performance, focusing on storage rental growth and margin impacts Global Data Center Business Segment Performance (Nine Months Ended September 30, in thousands) | Metric | 2024 | 2023 | Dollar Change | Percentage Change (Actual) | Organic Growth | | :-------------------------- | :----------- | :----------- | :------------ | :------------------------- | :------------- | | Storage Rental Revenue | $438,221 | $342,080 | $96,141 | 28.1% | 23.8% | | Service Revenue | $11,624 | $15,793 | $(4,169) | (26.4)% | (26.5)% | | Segment Revenue | $449,845 | $357,873 | $91,972 | 25.7% | 21.6% | | Segment Adjusted EBITDA | $194,381 | $157,660 | $36,721 | N/A | N/A | - Organic storage rental revenue growth was driven by leases that commenced during the first nine months of 2024 and in prior periods, improved pricing, and increased usage of pass-through power[124] - Adjusted EBITDA Margin decreased by 90 basis points, reflecting increased usage of pass-through power and higher overhead costs[124] Corporate and Other This section analyzes the Corporate and Other segment's revenue and Adjusted EBITDA, including the impact of acquisitions and compensation expenses Corporate and Other Segment Performance (Nine Months Ended September 30, in thousands) | Metric | 2024 | 2023 | Dollar Change | Percentage Change (Actual) | Organic Growth | | :-------------------------- | :----------- | :----------- | :------------ | :------------------------- | :------------- | | Storage Rental Revenue | $48,946 | $46,181 | $2,765 | 6.0% | 3.3% | | Service Revenue | $348,747 | $187,361 | $161,386 | 86.1% | 25.3% | | Revenue | $397,693 | $233,542 | $164,151 | 70.3% | 20.9% | | Adjusted EBITDA | $(207,056) | $(214,626) | $7,570 | N/A | N/A | - Service revenue increased by $103.0 million due to the recent acquisition of Regency Technologies[126] - Adjusted EBITDA remained relatively consistent, with service revenue improvement in the ALM business (including Regency Technologies acquisition) offset by higher compensation expense, professional fees, and IT costs[126] Liquidity and Capital Resources This section details how the company plans to meet its cash flow requirements through operations, cash on hand, and borrowings. It covers cash flow activities, capital expenditures, dividends, noncontrolling interests, financial instruments, debt, derivative instruments, and recent acquisitions, highlighting significant changes and future expectations Project Matterhorn This section outlines the costs incurred and expected for Project Matterhorn, a global program aimed at accelerating business growth - Project Matterhorn incurred approximately $124.6 million in costs for the nine months ended September 30, 2024[128] - Total costs related to Project Matterhorn from its inception through September 30, 2024, were approximately $341.7 million[128] - The company expects to incur approximately $150.0 million in costs annually related to Project Matterhorn from 2023 through 2025[128] Cash Flows This section summarizes the company's cash flows from operating, investing, and financing activities for the nine-month period Cash Flows Summary (Nine Months Ended September 30, in thousands) | Cash Flow Activity | 2024 | 2023 | | :----------------------------------- | :----------- | :----------- | | Operating Activities | $765,128 | $666,374 | | Investing Activities | $(1,441,829) | $(1,035,083) | | Financing Activities | $639,201 | $403,872 | | Cash and Cash Equivalents, End of Period | $168,515 | $170,502 | - Net cash flows provided by operating activities increased by $98.8 million, primarily due to an increase in net income (excluding non-cash charges) and an increase in cash from working capital[130] - Significant investing activities included $1,174.0 million in capital expenditures and $174.4 million cash paid for acquisitions, net of cash acquired[131] Capital Expenditures This section details the company's capital expenditures, including growth investments and future spending expectations Total Capital Spend (on cash basis) (Nine Months Ended September 30, in thousands) | Year | Amount | | :--- | :----------- | | 2024 | $1,173,968 | | 2023 | $962,294 | - Growth Investment Capital Expenditures for the nine months ended September 30, 2024, totaled $1,072,420 thousand, with $880,239 thousand allocated to Data Center[133] - The company expects total capital expenditures of approximately $1,750.0 million for the year ending December 31, 2024, including $1,600.0 million for growth investment[133] Dividends This section provides information on dividends declared by the company, including per-share amounts and payment dates - On November 6, 2024, the company declared a dividend of $0.715 per share to stockholders of record as of December 16, 2024, payable on January 7, 2025[134] - The dividend declared on August 1, 2024, was $0.7150 per share, totaling $209,776 thousand[63] Noncontrolling Interests This section discusses changes in noncontrolling interests, including reclassifications due to put option expiries and new joint venture formations - A $53.4 million noncontrolling interest was reclassified from Redeemable noncontrolling interests to Noncontrolling interests due to a put option expiry in the Iron Mountain Data Centers Virginia 4/5 JV, LP[136] - The formation of the Iron Mountain Data Centers Virginia 6/7 JV, LLC resulted in approximately $103.1 million in Noncontrolling interests[136] Financial Instruments and Debt This section details the company's long-term debt, credit agreements, and compliance with financial covenants Long-term Debt, Net of Current Portion (in thousands) | Date | Amount | | :------------------- | :------------- | | September 30, 2024 | $13,245,462 | | December 31, 2023 | $11,812,500 | - The Credit Agreement was amended in July and August 2024, increasing the Term Loan B due 2031 from approximately $1,194.0 million to $1,860.0 million and decreasing its interest rate. The Term Loan B due 2026 was repaid[140] - The Accounts Receivable Securitization Program's maximum borrowing capacity increased from $360.0 million to $400.0 million, and its maturity date was extended to July 1, 2027[143] - The company is in compliance with its net total lease adjusted leverage ratio (5.0 vs max 7.0) and fixed charge coverage ratio (2.4 vs min 1.5) as of September 30, 2024[144] Derivative Instruments This section provides an overview of the company's derivative instruments, including interest rate and cross-currency swap agreements - Notional value outstanding on interest rate swap agreements increased to approximately $1,354.0 million as of September 30, 2024, from $520.0 million at December 31, 2023[145] - Notional value outstanding on cross-currency swap agreements remained stable at approximately $509.2 million as of both September 30, 2024, and December 31, 2023[146] Acquisitions This section summarizes recent acquisition activities, including the purchase of Wisetek Solutions, Regency Technologies, and increased ownership in Web Werks JV - On September 20, 2024, acquired 100% of Wisetek Solutions Limited for approximately €46.6 million cash and up to €4.2 million in additional consideration[147] - On January 3, 2024, acquired 100% of Regency Technologies for an initial purchase price of approximately $200.0 million, with $125.0 million paid at closing and $75.0 million due in January 2025[148] - On July 1, 2024, increased ownership in Web Werks JV to 71.94% by acquiring an 8.55% interest for approximately $35.0 million, with an additional payment of approximately $114.6 million due in March 2025[149] Investments This section provides an update on the company's equity method investment in the Frankfurt JV, including its carrying value Frankfurt JV Carrying Value (in thousands) | Date | Carrying Value | | :------------------- | :------------- | | September 30, 2024 | $65,219 | | December 31, 2023 | $57,874 | - The company holds a 20% equity interest in the Frankfurt JV, accounted for as an equity method investment[150][151] ITEM 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of September 30, 2024, concluding they were effective. No material changes in internal control over financial reporting occurred during the quarter Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as evaluated by management - The company's disclosure controls and procedures were evaluated and concluded to be effective as of September 30, 2024[152] Changes in Internal Control Over Financial Reporting This section states that no material changes in internal control over financial reporting occurred during the quarter - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2024[153] PART II—OTHER INFORMATION ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not sell any unregistered equity securities or repurchase any shares of its common stock during the three months ended September 30, 2024 - No unregistered equity securities were sold during the three months ended September 30, 2024[155] - No shares of common stock were repurchased during the three months ended September 30, 2024[155] ITEM 5. Other Information Executive Vice President and Chief Human Resources Officer, Mr. Edward Greene, and Executive Vice President and Chief Financial Officer, Mr. Barry Hytinen, adopted and/or terminated 10b5-1 trading plans in August and September 2024 for selling shares and gifting, intended to comply with Rule 10b5-1(c) - Mr. Edward Greene adopted and later terminated a 10b5-1 trading plan in August/September 2024 to sell shares and include a stock gifting transaction[156] - Mr. Barry Hytinen adopted a 10b5-1 trading plan in September 2024 to sell up to 16% of net shares from vested PUs[156] - These arrangements were entered into during an open trading window and are intended to satisfy the affirmative defense of Rule 10b5-1(c)[156] ITEM 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to credit agreements, deferred compensation plans, and certifications from the Chief Executive Officer and Chief Financial Officer - Exhibit 10.1 is Amendment No. 4 to Credit Agreement dated August 19, 2024[157] - Exhibits 31.1 and 31.2 are Rule 13a-14(a) Certifications of the Chief Executive Officer and Chief Financial Officer[157] - Exhibits 32.1 and 32.2 are Section 1350 Certifications of the Chief Executive Officer and Chief Financial Officer[157] Signatures The report is duly signed on behalf of Iron Mountain Incorporated by Daniel Borges, Senior Vice President, Chief Accounting Officer, on November 6, 2024 - The report was signed by Daniel Borges, Senior Vice President, Chief Accounting Officer[158] - The report was dated November 6, 2024[158]