Csquare’s 2026 Q2 Call: Labor Constraint Scope, Lease Gain Recurring Status Clash

Date of Call: Aug 6, 2026

Financials Results

• Revenue: $280.4 million, up 14.5% year-over-year
• Operating Margin: Adjusted EBITDA margin expanded to 46.2%, an increase of approximately 330 basis points from the prior year quarter

Guidance:

• Total revenue expected in the range of $1.13B to $1.17B.
• Adjusted EBITDA expected to be $460M to $480M.
• Recurring capital expenditures expected to be $55M to $65M.
• Growth capital expenditures expected to be $610M to $660M.

Business Commentary:

Revenue and EBITDA Growth:

• C-Square reported revenue of $280.4 million for Q2 2026, an increase of 14.5% year-over-year.
• Adjusted EBITDA grew by 21% year-over-year to $120.3 million.
• The growth was driven by the contribution from acquisitions completed in 2025 and strong performance in the core co-location business.

Record Bookings and Demand:

• C-Square achieved record annualized bookings of $64.7 million, marking the 13th consecutive quarter of sequential bookings growth.
• Demand was broad-based across enterprise, cloud, and network providers, with strategic customer conversations indicating long-term planning.
• The increase in bookings was supported by a strong sales pipeline and customer expansions.

Pricing Trends and Customer Retention:

• Approximately 95% of C-Square's revenue was recurring, supported by long-term customer relationships and contractual pricing escalators.
• Renewal pricing improved, and contractual escalators performed as expected, contributing to stable pricing dynamics.
• About 35% of Q2 bookings came from existing customers expanding their deployments, indicating strong customer retention and expansion.

Capital Allocation and Labor Constraints:

• C-Square invested approximately $128 million in growth capital expenditures and $15 million in recurring capital expenditures in Q2 2026.
• Growth investments were aligned with customer demand, focusing on capacity expansion in attractive markets.
• The company faces increasing competition for experienced construction and technical personnel, emphasizing the need for talent retention and development.

Sentiment Analysis:

Overall Tone: Positive

• CEO: 'The second quarter reflected the consistency of the business... Commercial execution remained strong, our pipeline continued to build, and the underlying trends across the business remained very constructive.' CFO: 'We remain comfortable with the assumptions underlying our outlook and are issuing full year guidance.'

Q&A:

• Question from Michael Elias (TD Cohen): What is the largest deal size you'd be willing to take on, and what labor constraints are you facing?
  Response: CEO: Focus is on deals below 20 megawatts, recently signed a 14 MW deal. Labor constraint is competition for experienced construction/commissioning personnel, requiring effort to retain talent.

• Question from Cameron McVeigh (Morgan Stanley): How many megawatts were added organically in the quarter, and what are current leasing trends?
  Response: CFO: Just over 1 megawatt added organically. CEO: Leasing environment remains constructive with broad-based demand, strong renewal pricing, and healthy expansion from existing customers.

• Question from Eric Lubechow (Wells Fargo): What are current renewal pricing trends, and are you still delivering at $4-8M per megawatt net CapEx?
  Response: CEO: Pricing remains strong with one of the best renewal years ever; no material change in underwriting CapEx costs since last discussed.

• Question from Mayor Yagi (Scotiabank): What is the economics of the gain on lease modification, how do the two large deals compare margin-wise, and what is the outlook for interconnection revenue and churn?
  Response: CFO: Gain on lease modification is a one-time event. The large deals met underwriting standards with capital requirements. CEO: Interconnection revenue expected to grow; churn is expected to remain in previously indicated range.

• Question from John Peterson (Jefferies): How are neoclouds/AI companies influencing demand, and what are current cabinet power densities?
  Response: CEO: Focus is on enterprise AI/inference rather than neoclouds; power densities range from 2-4kW to 150-250kW, with enterprise business remaining strong.

• Question from Richard Cho (JP Morgan): Which markets are strengthening, and how much CapEx do the two large deals require?
  Response: CEO: Demand is broad-based across primary and secondary markets. CFO: The large deals required incremental capital but met financial criteria and offer attractive returns, with one being strategic for a secondary market.

Contradiction Point 1

Labor Constraint Description

Contradiction on whether labor constraints are industry-wide or specific to C-Square.

What is Michael Elias's role at TD Cohen? - Michael Elias (TD Cohen)

2026Q2: Constraints exist for construction project managers and technical personnel, especially those experienced in live environments. While not impossible to hire, it requires significant effort... - Spencer Mulley(CFO)

What is the largest deal size C-Square is willing to take on, what constitutes a "bridge too far" in financial commitment or size, and what specific labor constraints are you facing for refreshing existing sites? - Michael Elias (TD Cowen)

2026Q2: Labor constraints are industry-wide, particularly for construction, project managers, and operational staff experienced in live environments. The focus is on retaining talent through effort and motivation... - Spencer Mullee(CFO)

Contradiction Point 2

Gain on Lease Modification Event

Contradiction on whether the gain is a one-time event or could be recurring.

Mayor Yagi (Scotiabank) - Mayor Yagi (Scotiabank)

2026Q2: The gain on lease modification is a one-time event related to the derecognition of a liability from a non-strategic facility lease that was not renewed. - Steve Cook(CFO)

How does the gain on lease modification impact the P&L? - Meir Yagi (Scotiabank)

2026Q2: The gain on lease modification is a one-time event related to the derecognition of a liability from a non-strategic facility lease that was not renewed. - Steven Cook(CFO)