IRON MOUNTAIN INC annual report, FY2021

Iron Mountain Incorporated — 2021 Form 10-K Summary

Business context and reporting period

Iron Mountain is a global information-management and data-center company operating in 63 countries, with approximately 225,000 customers and 25,000 employees at December 31, 2021. Its businesses include physical records and backup-media storage, digital information solutions, secure shredding and IT asset disposition, data centers, entertainment services and fine arts. The company has operated as a U.S. REIT since 2014.

This filing covers the fiscal year ended December 31, 2021, with comparisons primarily to the years ended December 31, 2020 and 2019. The filing was signed February 24, 2022.

Financial performance and key metrics

Metric	2021	2020	Change
Total revenue	$4,491.5 million	$4,147.3 million	8.3%
Storage rental revenue	$2,870.1 million	$2,754.1 million	4.2%
Service revenue	$1,621.4 million	$1,393.2 million	16.4%
Operating income	$854.2 million	$934.8 million	(8.6%)
Income from continuing operations	$452.7 million	$343.1 million	32.0%
Net income attributable to Iron Mountain	$450.2 million	$342.7 million	31.4%
Diluted EPS	$1.55	$1.19	31.9%
Adjusted EBITDA	$1,634.7 million	$1,475.7 million	10.8%
Adjusted EBITDA margin	36.4%	35.6%	Up 80 basis points

Revenue growth was driven by revenue management, relatively stable physical storage volumes, higher service activity as COVID-19 restrictions eased, acquisitions and foreign-currency benefits. Organic revenue growth was 6.1%, including 2.6% for storage rental revenue and 13.2% for service revenue.

Global RIM revenue increased 7.5% to $4.0 billion, with Adjusted EBITDA margin rising to 43.6% from 42.6%.
Global Data Center revenue increased 17.0% to $326.9 million. Adjusted EBITDA margin declined to 42.0% from 45.3%, primarily because of a lower-margin project-revenue mix and an 890-basis-point churn impact.
Global Data Center capacity was approximately 89% leased at year-end, with 177 megawatts of leasable capacity and another 427 megawatts under construction or held for development.
Cash flow from operating activities was $758.9 million, down from $987.7 million, primarily because of unfavorable working-capital changes.
Cash capital expenditures were $611.1 million, including $458.2 million of growth investment and $148.2 million of recurring capital expenditures.
Cash and cash equivalents, including restricted cash, were $255.8 million at year-end.

Debt, liquidity and distributions

Total long-term debt was $9.3 billion gross and $9.27 billion carrying value at December 31, 2021; stockholders’ equity was approximately $857.1 million.
Approximately 90% of total debt was fixed-rate. Net interest expense was $418.0 million, and the weighted-average interest rate was approximately 4.7%.
The $1.75 billion revolving credit facility had no outstanding borrowings and approximately $1.747 billion of availability, subject to covenant compliance.
The company paid $718.3 million of common-stock dividends in 2021 and declared dividends of $0.6185 per share for each quarterly distribution.
Credit Agreement ratios were within requirements: net total lease-adjusted leverage of 5.3x versus a 6.5x maximum, net secured debt lease-adjusted leverage of 1.8x versus a 4.0x maximum, and fixed-charge coverage of 2.4x versus a 1.5x minimum.

Material changes versus the prior comparable period

Service revenue recovered materially as customer activity increased following COVID-19-related restrictions, while storage volumes remained relatively steady.
Operating income declined despite revenue growth because operating expenses increased 13.2%, including higher facilities, labor, compensation and restructuring costs.
Net income benefited from lower other expenses and significant nonrecurring gains, including a $179.0 million gain on the sale of the Intellectual Property Management business and a $20.3 million gain related to the deconsolidation of a Netherlands subsidiary.
Project Summit was completed in 2021. Total charges since inception were approximately $450 million, with approximately $375 million of annual Adjusted EBITDA benefits expected at exit from 2021; management stated that the remaining benefit would be delivered in 2022.
The company issued $750 million of 5% senior notes due 2032, generating approximately $737.8 million of net proceeds, primarily to fund the subsequent ITRenew acquisition.
2021 acquisitions included Information Fort, a Frankfurt data-center operation and other records-management and art-storage businesses. Cash paid for acquisitions, net of cash acquired, was $204.0 million.
The company formed the Web Werks data-center joint venture in India and committed to additional investments of approximately $100 million through May 2023.

Guidance, outlook, commentary and risks

Management expected revenue and Adjusted EBITDA growth to accelerate in 2022 through digital offerings, innovation, customer solutions, revenue management and market expansion.
Management expected storage rental revenue growth to continue through pricing and revenue-management initiatives, with physical volumes relatively stable in the near term.
Management expected approximately $850 million of 2022 capital expenditures, excluding potential acquisitions, including approximately $700 million of growth investment and approximately $155 million of recurring capital expenditures. About three-quarters of growth investment was expected to support data-center development.
Key risks include substantial leverage, refinancing and interest-rate exposure, restrictive debt covenants, the ability to sustain dividends while funding capital expenditures and growth, and dependence on continued access to debt and equity markets.
Long-term risks include customer migration from paper and tape to digital alternatives, declining activity levels for stored records, cybersecurity and data-privacy incidents, service interruptions at data centers, power costs and availability, inflationary labor and facility costs, foreign-exchange volatility, acquisitions and integration, environmental liabilities and continued REIT qualification.
The Global Data Center reporting unit had approximately $429 million of goodwill and fair value only 23% above carrying value at the October 1, 2021 impairment test date. No impairment was recorded, but adverse changes in growth, margins, capital expenditures, discount rates or market multiples could result in future impairment.
The company disclosed ongoing cooperation with the U.S. Office of Foreign Assets Control regarding historical services to sanctioned or restricted entities and the unauthorized destruction of one entity’s stored property. The company reported no revenue from the destruction activity and continued remediation and compliance enhancements.
At January 25, 2022, after the reporting period, the company acquired approximately 80% of ITRenew for approximately $725 million, with options concerning the remaining interest requiring at least $200 million in total consideration if exercised.

Most important facts for investors to verify

Reconcile Adjusted EBITDA and Adjusted EPS to GAAP results, particularly the effects of Project Summit charges, real-estate sale-leaseback gains and the IPM divestiture gain.
Assess debt maturities, refinancing requirements and covenant headroom, especially the 2022-2026 maturities and the company’s high debt-to-equity profile.
Compare cash flow from operations with capital expenditures and dividends to evaluate recurring free-cash-flow coverage.
Monitor Global Data Center leasing, churn, project-revenue mix, development spending and goodwill impairment sensitivity.
Evaluate whether storage volumes remain stable as customers digitize records and whether service activity recovery is sustainable after COVID-19 effects.
Review the funding and expected returns of the ITRenew acquisition, Web Werks and other strategic investments.
Confirm continued REIT compliance, dividend capacity, foreign withholding-tax exposure and the status of the OFAC review.