Q2 2025 Earnings Call Transcript

Good morning, and welcome to the Iron Mountain Second Quarter 2025 Earnings Conference Call. [Operator Instructions] please note this event is being recorded. I would now like to turn the conference over to Mr. Mark Rupe, Senior Vice President of Investor Relations. Please go ahead, sir.

Thanks, Chuck. Good morning, everyone, and welcome to our second quarter 2025 earnings conference call. Joining us today are Bill Meaney, our President and Chief Executive Officer; and Barry Hytinen, our Executive Vice President and Chief Financial Officer. After our prepared remarks, we'll open the lines for Q&A.

Today's call will include forward-looking statements, which are subject to risks and uncertainties. For a discussion of the major risk factors that could cause our actual results to differ from these statements, please refer to today's earnings materials, including the safe harbor language on Slide 2 of the earnings presentation and our annual and quarterly reports on Form 10-K and 10-Q. Each of these items as well as reconciliations of non-GAAP financial measures referenced during this call can also be found on our Investor Relations website. With that, I'll turn the call over to Bill.

Thank you, Mark, and thank you all for joining us today to discuss our second quarter results. As you saw in this morning's release, we delivered another quarter of record financial performance and double-digit growth. We achieved an all-time high for quarterly revenue, adjusted EBITDA and AFFO. Our financial results exceeded our expectations and were strong across our business.

Following on from this strong performance, we are pleased to increase our guidance across all key financial metrics. Revenue increased 12% to $1.7 billion. Adjusted EBITDA grew 15% to $628 million and AFFO increased 15% to $370 million. I am impressed with how our team continues to deliver on our growth strategy.

Our double-digit growth reflects continued successful execution of our strategic priorities. We are driving continued revenue growth in our physical storage business achieving record revenue in Q2. We are on pace for our 37th consecutive year of organic storage rental growth. We are delivering AI-powered digital solutions across industry verticals and quickly becoming a key leader, recognized by customers as well as industry analysts with our Insight Digital Experience Platform or DXP. We are growing our Data Center business on a global basis, generating organic storage growth of 26% in the second quarter, with a strong pipeline in place to execute against our portfolio capacity of 1.3 gigawatts.

And we are accelerating growth in our Asset Life Cycle Management business with our investments in this highly fragmented market beginning to pay off, delivering more than 40% organic growth in the second quarter. Our business has never been stronger and more profitable than it is today. Our growth portfolio, including Data Center, Digital and Asset Life Cycle Management will represent nearly 30% of our total revenue exiting 2025 and provide some 6% annual revenue growth on a consolidated basis. And that is on top of the mid-single-digit growth provided by the strength in our physical records management business.

And looking ahead, the strong momentum across our business lines provides a similarly strong outgrowth outlook for revenue and EBITDA going forward beyond 2025. This continued growth is all due to our team's successful execution of our strategy and commitment to delivering value for our customers whilst leveraging our synergistic business model. Iron Mountain is winning as a result of, one, our long-standing relationships and proven track record of reliability and trust as reflected by our #1 ranking in the customer satisfaction by the Wall Street Journal of the top U.S. listed companies. Two, our strong reputation for security, ability to meet stringent compliance requirements and deliver a secure chain of custody.

Three, our comprehensive end-to-end solutions offering, allowing customers to partner with a single vendor to meet all of their needs, which is a focus of our commercial team's cross-selling efforts. And four, our global footprint and operational scale, enabling customers to leverage our services across 61 countries and award us larger deals that only we can effectively manage. Let me now describe some recent customer wins to illustrate the momentum supporting our growth. In Records Management, we continue to see many unvended storage opportunities within our customer base.

A great example is a U.S. bank with more than 300 locations that chose Iron Mountain to store 42,000 cubic feet of records after previously managing them in-house. The strength of our existing relationship, our expertise in storing records, the security of our facilities and the ability to integrate multiple solutions for the customers were key to winning this business. Additionally, we secured two new long-term customer relationships in the health care industry, one in the U.K. and the other in Norway. Both of these wins were captured from competitors and jointly deliver more than 50,000 cubic feet of records.

These customers selected Iron Mountain due to our strong reputation for security, with our service level commitment and transportation network also cited as important factors. Turning to our Digital Solutions business, where we achieved another record quarter of revenue in Q2, the DXP platform continues to accelerate, securing increasingly strategic partnerships and positioning itself as a differentiating technology solution for enterprises globally. We are excited about the upcoming release of AI agents designed to support intelligent, multistep decision-making across complex workflows, which are now being embedded into our industry solutions.

And we're proud that leading analyst firms, including Gartner and Everest, are recognizing Iron Mountain alongside top-tier AI software vendors and business process outsourcing providers. Our continued investment in platform intelligence and customer-driven development is being recognized and positions us well for sustained digital growth. In addition, I am pleased to announce that we have significantly strengthened our position as a leading player in India. Earlier this morning, we signed a definitive agreement to acquire CRC India, a leading Indian digitization services company.

As we've shared in the past, India represents a major growth opportunity for Iron Mountain and this acquisition sets us up well to capitalize on that growth over the coming years as well as expanding our digital product portfolio, both for India and globally. I will now highlight a few of our recent wins in Digital Solutions. A major global SaaS company employing over 75,000 people selected our digital HR solution built on the DXP platform as its enterprise content management or ECM platform for its human resource needs. DXP's modern, user-friendly interface and solution offers this customer greater control over HR processes whilst achieving greater productivity from the AI embedded in our platform.

And as it relates to our digital award with the Department of Treasury, we are actively digitizing documents and leveraging our intelligent digitization solution. More recently, we have submitted our response to the government's request for quotation regarding a larger longer-term engagement, which would incorporate the work we are currently doing under the initial award. We look forward to hearing back from the department on this new government efficiency opportunity. Let me now turn to our Data Center business.

For the quarter, we achieved revenue growth of 24%, driven by 26% organic storage growth as we further execute on our strong leasing backlog. We commenced 23 megawatts, primarily in Northern Virginia and renewed leases totaling 25 megawatts with continued strong pricing spreads. As it relates to new leasing activity, we leased 2 megawatts of enterprise business in the quarter and 6 megawatts year-to-date. The data center market remains very strong.

Pricing continues to be good and returns are high. Our new lease signings this year have been lighter than planned, and we now project new lease signings of 30 to 80 megawatts in 2025. Over the course of the year, we've observed our hyperscale customers have been particularly focused on procuring and developing large deployments to support AI training. More recently, we have seen an increased level of priority for AI inference and cloud infrastructure, which is where our assets are deployed. Correspondingly, we have seen more intense activity and engagement across our pipeline.

Looking out beyond this year, we have high confidence in our ability to drive consistent revenue growth in line with the levels we've achieved over the past few years. This outlook is underwritten by both our backlog as well as the high-value assets we have to sell in prime markets, including Northern Virginia, Richmond, Amsterdam, Madrid and Chicago. Turning to our Asset Life Cycle Management business. We achieved 70% reported revenue growth, including 42% organic growth with strength across both our enterprise and data center decommissioning channels.

Our commercial team continues to cross-sell our portfolio of solutions and win new business, including several single vendor consolidations in the quarter. Let me now share some of the ALM wins achieved, which support our ability to continue driving strong double-digit organic growth. In the enterprise channel, a globally recognized food company has selected Iron Mountain as an exclusive ALM partner for secured disposition of its assets across 1,500 locations in France. The deal represents a cross-sell, building on our long-standing records management relationship with the customer and our reputation for delivering highly secure services.

And a global consulting firm with more than 70,000 employees has asked Iron Mountain to provide secure IT asset disposition services for its business in Canada. This ALM win also represents a cross-sell, building on our 25-year partnership of providing records management services to this customer. Iron Mountain was selected, thanks to our secure chain of custody and global presence. We see additional opportunities in the future as the customer seeks to standardize processes globally.

And in the data center decommissioning channel, we won new business across North America and in the U.K. These wins include decommissioning a data center in the U.K., where we won business previously with a competitor, providing on-site server destruction services at more than 20 data centers for a software company, and managing the remarketing and recycling of racks and equipment for a hyperscale customer. Iron Mountain's reputation as a trusted partner with security expertise contributed to each win. In conclusion, I'm incredibly proud of the results that our Mountaineers continue to deliver.

Our performance during the first half of the year exceeded our expectations, and our second half outlook is equally bright. The momentum we continue to build and service to our customers makes me confident that we can sustain our double-digit revenue and profit growth for the foreseeable future. This same increasing strength and momentum in our business is further evidenced by the increase in our guidance for this year, which Barry will share in more detail. With that, I'll turn the call over to Barry.

Thanks, Bill, and thank you all for joining us to discuss our results. Our team executed very well in the second quarter, delivering another record performance across all of our key financial metrics. We achieved record revenue of $1.71 billion, up $178 million year-on-year, an increase of 12% on a reported basis and 11% on a constant currency basis. We exceeded our projection for the second quarter by $32 million, driven by strength in our ALM business.

Foreign exchange rates accounted for $5 million of the upside relative to our second quarter revenue guidance. We delivered strong organic growth in the quarter of 9.4%. Total storage revenue was $1.01 billion, up $90 million year-on-year and up 9% on an organic basis. Total service revenue was $702 million, up $87 million from last year.

Organic service growth of 10% was ahead of our expectations and notably improved from the first quarter rate. Adjusted EBITDA of $628 million was an all-time quarterly record and expanded $84 million or 15% year-on-year. This was $8 million ahead of the projection we provided on our last call, driven by operational strength across the business. Adjusted EBITDA margin was 36.7%, up 120 basis points year-on-year, which reflects improved margins across all of our businesses.

For me, a key call-out is our team's performance delivering significant operating leverage, resulting in an incremental flow-through margin of 47% in the quarter. AFFO was $370 million, up $49 million, which represents growth as compared to last year of 15%. AFFO on a per share basis was $1.24, also up 15% to last year. Now turning to segment performance.

I'll start with our Global RIM business, which achieved record second quarter revenue of $1.32 billion, driven by Revenue Management and Digital Solutions. This is a marked increase of $73 million year-on-year and represents our best quarter in years in terms of sequential growth in both dollars and percent. Our storage or organic storage was up 6% year-on-year driven by revenue management and consistent volumes. On a 2-year comp basis, organic storage revenue was up 13.5% in the second quarter as compared to 10.8% in the first quarter.

Organic service revenue was up 5% with contributions from digital and core services. Our digital business had another strong quarter, achieving record revenue. I'd like to note that reported service revenue was impacted by a slight decline in terminations, permanent withdrawal and shredding revenue relative to last year. Excluding those items, services revenue was up 8%.

Global RIM adjusted EBITDA was $586 million, an increase of $38 million year-on-year. Global RIM adjusted EBITDA margin of 44.3% was up 40 basis points from last year, driven by operating leverage and revenue management. Turning to our Global Data Center business. Total Data Center revenue was $189 million in the second quarter, an increase of $37 million year-on-year.

Organic storage rental growth increased 26%, driven by lease commencements and continued strong pricing trends. In the second quarter, new commencements were 23 megawatts and renewed leases totaled 25 megawatts. Pricing remained strong with renewal pricing spreads of 13% and 20% on a cash and GAAP basis, respectively. Second quarter Data Center adjusted EBITDA was $96 million, up 46%.

Adjusted EBITDA margin was up 760 basis points from the second quarter of last year. The strong margin expansion in the quarter was primarily driven by improved pricing, recent commencements and operating leverage. For 2025, we expect Data Center revenue of nearly $800 million, which is approaching 30% growth. Together with the leasing outlook Bill shared, I thought it would be helpful to provide some context about 2026 and beyond.

As you would see from our disclosures, we expect to commence a considerable amount of megawatts over the balance of 2025, with more preleased assets to commence next year. With those factors noted, we expect Data Center revenue growth in excess of 25% in 2026. I'd like to note that this projection requires no additional leasing. So when we give financial guidance for 2026, I expect Data Center revenue will be in excess of $1 billion. Turning to Asset Life Cycle Management.

Total ALM revenue was $153 million, an increase of $63 million or 70% year-over-year. On an organic basis, our team delivered 42% growth. The ALM business performed well and exceeded our expectations in the quarter driven by our team's strong execution, volume increases in both our enterprise and data center decommissioning businesses and improved component pricing trends, particularly late in the quarter. On an inorganic basis, our recent acquisitions have performed well and contributed revenue of $25 million.

We also drove significant improvement in ALM profitability in the quarter, driven by improved operating performance across the business as well as acquisition synergies. Looking ahead, we remain confident in our outlook for growth in the ALM business based on our strong customer wins in both our enterprise and data center decommissioning channels. Turning to capital deployment. In the second quarter, we invested $477 million, with $442 million of growth CapEx and $35 million of recurring CapEx.

Turning to our dividend, our Board of Directors declared our quarterly dividend of $0.785 per share to be paid in early October. On a trailing 4-quarter basis, our payout ratio is now 63%, in line with our long-term target range. Turning to the balance sheet. With strong EBITDA performance, we ended the quarter with net lease adjusted leverage of 5.0x, in line with our expectations for both the quarter and year-end.

As you may have seen during the quarter and aligned with our strategy, our team successfully upsized our Term Loan A facility as part of our U.S. credit agreement by $287 million to $500 million. We also upsized our Australian Term Loan B facility by AUD 117 million to AUD 400 million and extended the maturity by 4 years to 2030. And now turning to our outlook. Based on our strong second quarter performance and positive outlook, we are increasing our financial guidance for the year. For the full year 2025, we now expect total revenue to be within the range of $6.79 billion to $6.94 billion, which represents year-on-year growth of 12% at the midpoint.

Relative to our prior guidance, we are raising our revenue range by $50 million. This increase reflects our strong second quarter results and positive outlook, and nearly $10 million resulting from current FX rates. We have also included the India acquisition that Bill mentioned, which we expect will add approximately $8 million to our second half results. We now expect adjusted EBITDA to be within the range of $2.52 billion to $2.57 billion, which represents year-on-year growth of 14% at the midpoint.

Relative to our prior guidance, we are raising adjusted EBITDA by $15 million. And we now expect AFFO to be within the range of $1.505 billion to $1.53 billion and AFFO per share to be $5.04 to $5.13. At the midpoint, this represents 13% and 12% growth, respectively. For the third quarter, we expect revenue of approximately $1.75 billion, an increase of 12% to last year; adjusted EBITDA in excess of $650 million, up more than 14% year-on-year; AFFO of approximately $385 million, up 16%; and AFFO per share of approximately $1.28, up 13% to last year. In conclusion, we have delivered a very strong first half performance with record-breaking results across all of our key financial metrics and business segments.

Our confidence in the business and our forward outlook is reflected in our increased financial guidance for the year. We have a significant runway for growth and remain focused on driving double-digit revenue growth over many years, supported by our strong cross-selling opportunity into what are very large fragmented markets. I want to thank all of our Mountaineers for their continued hard work and dedication in serving our customers and driving our business. And with that, operator, would you please open the line for Q&A.

[Operator Instructions] And the first question will come from George Tong with Goldman Sachs.

You mentioned the data center signings came in larger than expected and trimmed your guidance for data center new lease signings. Can you elaborate on what you're seeing in the Data Center business that's causing the slowdown?

George, thanks for the question. First of all, the market remains very strong. I mean, you see it in all the reporting by analysts, and we see the same in our discussions with our customers across the globe. That being said, it is fair to say that the discussions that we've been having in the first half, they've been prioritizing their large campuses supporting where they build their large language models.

And that's not a market that we play in. But now we see that they're actually now starting to be more engaged and our conversations are becoming increasingly intense or focused on their market where they develop their inference campuses and their cloud build-out, which is the market that we play in. So if you kind of look at it is that in the first half of the year, they were building or prioritizing the building of the large campuses for large language models. And now they're kind of back to where we play, which is if you think over the next 2, 3 years, we have 500 megawatts coming up across Northern Virginia with 175, Richmond 200, Amsterdam 30, Chicago is about 36 megawatts and Madrid 75. So those are the kind of the key markets that we play in, and those are also markets where our customers now are refocusing their efforts as they're building out their cloud and inference.

Next question will come from Eric Luebchow with Wells Fargo.

Just a follow-up on the data center discussion, Bill. Do you think that a lot of this is just timing. And do you suspect that based on the power delivery time lines you have in places like Virginia and Richmond and maybe a kind of shrinking book-to-bill window from some of the hyperscalers versus a few years ago that the outlook for data center leasing will kind of improve into 2026? And I guess related to that, given the slightly softer outlook, does this have any impact on how you think about data center CapEx beyond this year?

Thanks for the question, Eric. I think that first, it really has been more of a focus on their larger campuses and AI, large language models for that part of it. Obviously, the inference is more, it plays in the campuses that we have. So that's been kind of the primary shift.

I mean that being said, is that we feel pretty good that over the next 2 to 3 years, having both the power availability for 500 megawatts across those key campuses that I mentioned earlier, I think we're in pretty good stead. And I think in terms of -- if you think about making sure that we can actually be ready to energize that much faster, which brings our revenue in quicker than, say, previously when you're kind of leasing out 2 to 3 years, I think that plays to our strength. But the primary, I think, difference between having the leasing a little bit lighter in the first half of the year has been their focus on the large language models.

And Eric, I would just -- this is Barry, add on to that as it relates to capital. I'll just remind you that the vast majority of our data center growth capital is going to support the construction of pre-leased assets. If you look at the next few quarters, we have assets in Arizona that will be completing construction, 100% leased. If you look at what we've got in London, same situation.

If you look at what we've got in Northern Virginia, same situation. All of those assets are 100% pre-leased, and the clients are looking forward to having the ability to turn on. So no change in terms of the way we're thinking about capital deployment. It's vastly going to support pre-leased construction.

Next question will come from Shlomo Rosenbaum with Stifel.

I just want to pivot a little bit more now to the ALM business, which came out particularly strong, which were very good after the last few years. I was just wondering if you could parse the ALM growth in the quarter, how much was enterprise versus data center? How much was volume versus component pricing? And just the trajectory that you're seeing from your clients right now?

And are you going to kind of break that out as a separate unit in the near future given the growth that we're seeing there?

So thanks for the question, Shlomo. Let me talk about what we're seeing from our clients, and then I'll let Barry comment on the trends and from the financial standpoint. In terms of the discussions with the clients, as I mentioned in a couple of the wins I highlighted, we really see the synergies that it sits with our 240,000 customers across the globe, including the hyperscale as well as the enterprise. And that's really starting to drive a lot of traction because it's just natural for us to have a conversation on how to handle their IT assets where we've been handling a lot of their information assets over a decade.

So the -- if you see the build that we're able to get with those customer conversations, it reflects with the very strong organic revenue growth that we've seen this quarter. I'll let Barry comment a little bit more in terms of the overall financial trends that we see in the business.

Shlomo, it was very balanced in terms of the growth across the two primary channels. So the enterprise business grew very, very well as did the data center business. And in terms of volume versus price, it was disproportionately volume. As we talked about on the last few calls, we continue to win a lot of business across data center decommissioning.

And then our cross-selling efforts from the large client base we have continues to win really strong books of business on the enterprise side. And as we talked about before, incidentally, the enterprise book of business is a very nice margin business for us and very much an annuity that builds. And so what you're seeing unfold, I think, is the combination of us continue to win what is more project-oriented work on the data center side and becoming a deeper and deeper partner there, together with the natural growth of our wins within enterprise. So volume was the vast driver of the business and pricing was kind of think about in terms of like single-digit million increase year- on-year.

I will note that we have continued to see pricing, particularly on memory be up some here in the early part of the third quarter. And I have not extrapolated that out beyond where it is at this stage. There are certainly indicators that would suggest that there's more opportunity on pricing going forward, but we'll kind of continue to do what we've been doing with that and report it quarterly. So very good volume trends, very strong revenue growth across the business and we're very pleased with how ALM is continuing to support our multiyear growth plan.

The next question will come from Jonathan Atkin with RBC Capital Markets.

So following up on that topic, hyperscale decommissioning. You mentioned a couple of wins in your prepared remarks. I think one of them you mentioned might have been competitive. But can you talk a little bit about the industry dynamics in a sector that's still fragmented?

And when you win business from a competitor, what are some of the factors behind that? And then what are you seeing in terms of the pipeline going forward for the sector around hyperscale decommissioning?

I'll talk about the customer behavior and what leads to our wins, and then I'll ask Barry to talk about the pipeline. So specifically on the hyperscale, I think the thing that one of the parts that is our secret sauce, and I highlighted one of the wins was that we were doing some of the decommissioning and destruction on site is we can do everything either on site or we can make sure that we can remove it from their site with very secure chain of custody and do it in our location. So -- and we can -- for some of our customers is they want more destroyed and less reused and resold or refurbished and resold.

And others want the other mixes that they almost have everything refurbished and resold. So I think it's really the strength of where we win the business is that we can do it on their site. We have software where we can do part of it on their site and move it into our site so that it's highly secure. We can also -- we have very strong chain of custody so we can actually decommission it with very high integrity and bringing into our site to do all the work, which is probably the most cost effective.

And we have the flexibility to reuse and recycle as much as they want or as little as they want. So I think it's -- and then wrapped around, of course, that when we do actually destroy things and sell it on a scrap is we do that in an environmentally sensitive and compliant way. So I think it's really the full menu and scale that we're able to operate. And it's not lost on customers that they use us in one country, almost certainly, they can use us across the globe just given our footprint.

John, it's Barry. Just building on that as it relates to the pipeline. Look, the pipeline is very good within our ALM business across the business. And I'll start with data center decommissioning.

You're right, of course, that the market is huge, call it an $8 billion TAM just for that segment and very fragmented. And I think -- why is our pipeline building out and continuing to increase? I think it's because we're seeing the synergistic nature of our ALM data center decommissioning together with our data center development business, where we are operating largely with the same clients and a level of overlap there. And they see the strength of our offering and how we can help them consistently across what they're doing with their own hyperscale sites.

As it relates to the enterprise side, which is the even larger piece of the TAM, we estimate it to be $22 billion, very fragmented and we're winning more and more business and we see our pipeline growing, largely built on the same reasons that we have built our physical storage business, which is chain of custody, consistency, ability to serve the client around the world. We are continuing to build out our footprint, as you know. And right now, clients are continuing to have to turn to many different small vendors across the world because other than us, there's really no other player with a footprint that's expanding and global in nature.

So we are finding, particularly in regulated portions of the customer base like financial services, health care, insurers, et cetera, that, that is a very compelling message. We're continuing to win business. And as I said before, we're -- we feel like we have a very long runway here for growth in ALM.

Your next question will come from Tobey Sommer with Truist.

I wanted to ask a margin question. I think you cited 43% -- or 47% flow-through. Is there anything unusual propping up that figure? And how do you think about the trajectory going forward?

Yes. Tobey, it's Barry. Thank you for that. We did note it was 47% flow-through.

It's been of that order now for a couple of quarters or more in a row. And part of that is driven off of the fact that, first, our Global RIM business is just fundamentally a great business, and it just gushes cash, right? It requires very limited capital to grow and blended margin is already in the 44% and rising, thanks to revenue management and our operational teams' focus on continuous improvement of productivity and operating leverage. Secondly, as you look at our P&L, a good amount of the EBITDA is continuing to come out of our Data Center business.

That business has now reached 50-plus percent EBITDA margins. We projected that level for some time for it to be rising because we knew that if you look at the commencements that we've been doing this year when we wrote those deals, the underwriting was very good on them. And that's the same case for going forward on our commencements that will occur throughout the remainder of this year and next year. They're all underwritten at very strong returns.

So we're investing in businesses that have very high and increasingly good returns and I think the margin that you should be anticipating on data center, as I mentioned in the prepared remarks, is 50% and rising going forward, thanks to pricing and the other elements I mentioned. That, together with the fact, Tobey, that our ALM business, as I mentioned in the prepared remarks, is seeing significant improvement in trend, driven by operating leverage. And of course, particularly as the enterprise business grows, that's a better mix for us in the ALM portfolio. So it's a variety of factors, but really all of our businesses are continuing to see improving trends in margin, and we are very pleased with the level of flow-through.

The next question will come from Brendan Lynch with Barclays.

Can you -- I appreciate the details you gave around the treasury contract, but maybe just help us understand the kind of puts and takes there. If I recall correctly, it was announced on the first quarter call, but it wasn't included in guidance. And then the press release suggested that it was going to be rebid, but now it sounds like you are generating some revenue from it already. So maybe just walk us through the path there and what we should expect going forward?

Okay. And I'll let Barry comment in terms of the flow-through in terms of how it comes into the revenue, although I should say there's very -- not much came in, in Q2 because as we announced on the last call, it was just ramping up. So we're very pleased to win the initial $140 million contract, and we're executing against that contract. And as we sit here today, we're digitizing the work for the treasury department.

I think we mentioned on the last call is, the contract was always going to be -- most of the revenue was going to come in 2026 because there's a seasonality aspect of this treasury contract. That being said, though, there is work to be done now and our teams are actually busy digitizing a number of these workflows and documents for the treasury. Subsequently, the treasury decided to go out for a larger, much longer-term contract which our expectation would subsume this contract over time, and we bid for that and as did others. And we will see in due course how that bidding or that contract progresses.

But in the meantime, we're actually doing the work. But again, the work has always been more loaded into 2026 because of the seasonality. I don't know, Barry, if you want to add anything about how the revenue flows through this year?

Yes, Brendan, we -- as I said on the last call, we didn't anticipate any revenue of substance in the second quarter. I'm happy to tell you, we only recognized $1 million of revenue from the services we were offering in the quarter. In the third quarter, our expectation is for that to be like sub-$5 million just based on the building, as Bill just mentioned, to a ramp into 2026. As the larger award is processed by the government, we will be looking forward to updating on the investment community on how that would flow. And yes, that's the facts.

[Operator Instructions] Our next question will come from Kevin McVeigh with UBS.

Great. Thanks for all the detail. Can you just, Barry or Bill, just -- you said it quick, I just want to make sure, on the megawatts, kind of the targets this year, is it $20 million to $80 million? What was the initial targets? And what have you signed year-to-date? I just want to make sure I have the numbers down.

The expected range for this year, Kevin, is 30 to 80 megawatts for the year. And you can -- we're halfway through the year right now. If you look at on a rolling 12-month basis in terms of our pipeline, as I said, that we're in discussions with our customers across the portfolio say that's roughly around 500 megawatts that come available in the next 2 to 3 years, and that includes Virginia or Northern Virginia, Richmond, Amsterdam, Chicago and Madrid. If you look at year-to-date, it's about 6 megawatts that we leased.

And the discussion is still robust. The prime markets that we are playing in are the prime markets for our customers but the first half of the year, for sure, the customers that we serve regularly, have been more focused on building out their large language model campuses.

Yes. And Kevin, I'll just add on to that. When we talk about our revenue guidance for data center approaching 30% this year, that requires no additional leasing because, of course, we generally are pre-leased business here. And so we'll be commencing further assets here in the second half, and those will wrap into next year.

And then you can see in the supplemental, we have quite a few assets to commence in 2026. So when I mentioned that we expect data center revenue growth of at least 25% next year, that's not assuming any benefit from the leasing activity that Bill just mentioned going forward. So to the extent we lease something that could commence in year, that would just be simply additive to that 25% growth rate next year. So we feel like the data center team is executing very, very well, and we're pleased that the activity in our pipeline is stepping up as Bill discussed in his prepared remarks.

Your next question will come from Andrew Steinerman with JPMorgan.

This is Alex Hess on for Andrew. Just wanted to review maybe the way you guys are positioned in the data center ecosystem broadly. Obviously, there's been a ton of funding for the market of late, including from private capital. But you've also got a sort of tougher reinvestment phase, one of your large competitors where you guys made a large hire from.

Can you highlight for us just sort of where you feel you were positioned in today's ecosystem, where you're advantaged, and maybe opportunities for you guys to be an important participant in the next juncture of the AI rollout?

Alex, thanks for the question. So I wouldn't say we're in a tougher environment. I would say that the customers that we serve across our campuses have been primarily focused over this last 6 to 12 months on building out their large campuses that serve their large language models. That being said, if you think about the data center market, is now with AI being such a big part, there's where they build their large language models and then there's where they run them in their cloud infrastructure and where they can do inference.

And it's the inference in the cloud infrastructure is where we play and they're now starting to pivot their attention back to that. So if you think about where we play and where we have really, I would say, prime properties is the 500 megawatts that I talked about become available in the next 2 to 3 years. Again, that's in Northern Virginia, which is the largest data center market in the world and it's a place where people just can't get enough capacity. Richmond, we think, is going to be -- we already see a lot of strong interest in the 200 megawatts that we have that will come on board in the next 2 to 3 years in Richmond.

Amsterdam, for instance, 30 megawatts in Amsterdam is like gold these days. There's just no capacity in Amsterdam. So we're really finding that we get a lot of attention and attraction on that market as they're now starting to need more capacity into that market as they run their inference in cloud and build out their cloud. And then Chicago also has become a key market for a number of our customers as well as Madrid.

So we feel -- I wouldn't say that the competition has gotten tougher as opposed to some of our competitors. I think where I'm focused on or we're focused on is really that AI inference and cloud build-out, not so much in terms of the low latency, what I would call, retail side of it. That's not the business that we play in. I mean we do have some data centers that support our customers in those areas, like Amsterdam, what I mentioned because -- or Frankfurt because of the location of those data centers.

But for the most part is the -- I wouldn't say the competition has gotten tougher. If anything, the power that we have available, 500 megawatts is really a differentiator in the market.

The next question is a follow-up from Shlomo Rosenbaum with Stifel.

I just want to ask if you can talk a little bit more about the growth in the digital business. How much was it, some of the additional capabilities that are being added in? And with these additional capabilities, how differentiated is what you have versus no other items that are out there in the market?

Thanks, [ Andrew ]. I think, first of all, we feel really good about what our teams are building in that digital business. And you've been watching this space a long time. It started off as more digitizing physical documents.

And now it really is end-to-end workflow. And a lot of the workflow is already born natively, digitally. So I think a good example of really the secret sauce that we've been able to build with this DXP platform is highlighted in the win I mentioned on the SaaS company. So this is a SaaS company, which itself is an AI company.

And they came to -- came to us because this digital experience platform is really unique and being able to put structure around unstructured data. And this was -- this is actually data that's already in digital form. And I think that's really where we're playing in getting a lot of traction because people are sitting on tons and tons of unstructured data, which is effectively dark unless they have an engine that can automatically generate metadata without a human-in-the-loop and then be able to build workflow on top of that. And so it's really what's driving the strong double-digit growth that we're getting in that business.

And this year, we're projecting a run rate of over $500 million, $540 million.

Yes. That's exactly right, Shlomo. Based on the second quarter, we'd be at that kind of level of run rate. And obviously, the business has very good trajectory.

And I think the source of opportunities that we are bidding on and actively positioning ourselves against with respect to things like the Department of Treasury, among others, has the potential to significantly expand our digital business quickly.

And this will conclude our question-and-answer session and the Iron Mountain Second Quarter 2025 Earnings Conference Call. Thank you for attending today's presentation. You may now disconnect.