Csquare (CSQR) Q3 2026 earnings review
Csquare's data center rentals accelerate, but IPO costs widen losses
Csquare, which rents space and power inside data centers, grew faster in its first quarter as a public company while IPO costs pushed it deeper into a loss. Revenue excluding pass-through electricity grew 22%, and chief executive Spencer Mullee raised the full-year operating profit outlook after signing a record $66 million in new annual contracts. However, stock grants and bonus settlements quadrupled overhead costs, widening the net loss to $88 million.
| Revenue excluding pass-through power | $276.2M +22.1% from a year ago |
|---|---|
| Adjusted EBITDA margin | 47.8% 40.5% a year ago |
| Annualized bookings | $66.1M +33.5% from a year ago |
| Full-year Adjusted EBITDA outlook | Raised $25M middle of the range: $495M |
⚖️ Verdict: 🟢 Bullish
The story got better because customer installations and operating profit margins both stepped up. Customers have now contracted for 108% of Csquare's available power, and the July stock offering paid off $1.1 billion of debt. One caution: interconnection fees shrank 7% from a year ago, and by our math the unchanged full-year revenue outlook implies a slight sales dip in the fourth quarter.
The question now is how quickly Csquare can turn its oversold power backlog into cash-paying rooms without draining its balance sheet. Either upgrades to existing halls bring the $104 million twelve-month backlog online quickly, or power bottlenecks and slow customer bill collections force heavier borrowing to fund construction. Fourth-quarter commissioned megawatts and receivables will tell.
🐂 Bull Case
Faster Revenue Growth Raised the Profit Plan
Csquare rents space and power inside its data centers. It also bills customers for the electricity they use, which it calls metered power. Because electricity is a pass-through cost, the company tracks revenue and profit margins without it. By that clean measure, revenue growth stepped up from 12.3% last quarter to 22.1% in the third quarter, reaching $276.2 million.
That faster growth lifted profitability because data center operating costs are mostly fixed once a building opens. Cost of revenues (the direct cost of running the buildings, excluding depreciation) fell by 6.7 percentage points of revenue from a year ago, to 47.0%. Adjusted EBITDA — earnings before interest, taxes, depreciation and one-offs — rose 44.3% to $132.1 million, and Csquare raised its full-year Adjusted EBITDA outlook by $25 million at the middle of the range.
What to watch: fourth-quarter Adjusted EBITDA against the $134.3 million implied by the middle of the full-year outlook. Beating that level would show the margin gain is holding as new customer deployments turn on.
Customers Booked More Power Than Csquare Has
"Demand for our offering remains strong and continues to accelerate," chief executive Spencer Mullee said. Csquare signed $66.1 million of new annualized bookings (the yearly value of newly signed contracts), up 33.5% from a year ago and its 14th straight quarterly increase. That left $114 million of signed backlog waiting to start, with $104 million scheduled to begin paying rent over the next 12 months.
Across its portfolio, Csquare has 397 megawatts of sellable power capacity, up 12 megawatts from last quarter, but customers have now contracted for 428 megawatts. Selling 108% of current capacity works because Csquare is building new space and upgrading power in existing halls. The company said third-quarter deals will turn on faster than usual through "utilization of existing capacity and targeted infrastructure upgrades rather than large-scale shell expansion projects".
What to watch: sellable megawatts commissioned in the fourth quarter. Csquare needs to add at least 31 megawatts of working power to fulfill the 428 megawatts it has already sold.
🐻 Bear Case
IPO Bonuses and Stock Grants Caused a Loss
While Csquare's preferred profit measure rose, its accounting bottom line went the other way. The data center operator swung from $26.4 million of operating income a year ago to a $14.6 million operating loss, and its net lossnearly tripled to $88.1 million. Even Funds From Operations (FFO, a standard real estate cash measure that adds back property depreciation) turned negative at minus $3.2 million, down from positive $33.2 million a year ago.
- Selling, marketing, general and administrative expenses: 28.3% of revenue, up 20.0 percentage points from 8.3% a year ago
- Stock-based compensation: $32.1 million, compared with zero before the July initial public offering
- Pre-IPO bonus and loan settlements: $25.3 million inside overhead expenses
- Interest expense: $71.4 million, up 19.7% from a year ago on debt taken on for late-2025 acquisitions
The cash bonuses for the "settlement of legacy pre-IPO incentive compensation arrangements" should not repeat, and the July debt payoff will lower fourth-quarter interest bills. However, public-company stock grants are now a permanent cost, and by our math Csquare still lost $19.5 million even after stripping out all IPO compensation, transaction fees and debt payoff charges.
What to watch: fourth-quarter stock-based compensation and interest expense. They will show Csquare's true quarterly overhead and interest burden now that the IPO is behind it.
Interconnection Shrank and the Plan Implies a Dip
Mullee said customer demand continues to accelerate across the platform, and Csquare's main colocation business (renting server space and power) grew 26.7% from a year ago to $227.0 million. However, two numbers in the release cut against that framing. First, interconnection revenue — the high-margin fees customers pay to plug their servers directly into networks and other customers inside Csquare's buildings — fell 7.0% from a year ago to $24.3 million, and fell 1.5% from the second quarter.
Second, Csquare kept the middle of its full-year revenue outlook at $1.15 billion. Because the company has already recorded $853.1 million in the first nine months, by our math the full-year plan leaves $296.9 million for the fourth quarter. That implies a 1.8% revenue drop from the third quarter, even though Csquare has $104 million of contracted backlog scheduled to start over the next year.
What to watch: fourth-quarter interconnection revenue and total revenue. A fourth-quarter sales drop would mean either seasonal metered power fell or new installations are starting slower than scheduled.
Uncollected Customer Bills Grew Faster Than Sales
Csquare is billing much more revenue, but it is taking longer to collect the cash. Accounts receivable (money customers owe for services already billed) rose 20.8% from last quarter to $162.7 million, while revenue grew 7.8% over the same three months. Since the end of December, uncollected bills have risen 79.4%, absorbing $77.8 million of operating cash flow over the first nine months of the year.
Because of that working-capital drain and higher cash interest payments, nine-month operating cash flow fell 13.0% from a year ago to $103.4 million, even as Adjusted EBITDA grew 30.1%. Meanwhile, Csquare spent $442.6 million in cash on property and equipment over the nine months, nearly triple last year's pace, leaving free cash flow deeply negative.
What to watch: accounts receivable on the year-end balance sheet. If receivables keep outpacing revenue growth in the fourth quarter, Csquare will have to rely more heavily on its credit lines to fund construction.
👓 Other Themes
Power Shortages Push Customers to Book Early
Across North America and the United Kingdom, utility power and ready-to-use data center halls are in short supply. Csquare said these market-wide supply bottlenecks are pushing enterprise and cloud customers to sign leases much further ahead of when they actually need the servers running, which helped lift both its pricing and its advance backlog this quarter.
💲 Other KPIs
Contract liabilities — cash customers have paid upfront before their service starts — rose 30.2% from last quarter and 54.8% since December, far outpacing the 7.8% quarterly rise in revenue. That upfront cash inflow reached $118.8 million in the cash flow statement over the first nine months, helping offset late customer bill collections.
Long-term debt fell by $1.05 billion from the second quarter after Csquare used the $1.16 billion net proceeds from its July initial public offering to pay down its credit facility and term loans. In the second quarter, the US company said this payoff would cut its yearly interest bill by about $63 million.
Weighted average share count rose 45.7% from both a year ago and last quarter after the digital infrastructure provider sold 57.5 million new shares at $21.00 each in its July stock market debut.
🔮 Guidance
Unchanged at the middle of the range. Csquare narrowed the band by $10 million on each side, keeping the middle at $1.15 billion, or 19% growth for the year. By our math, that leaves $296.9 million for the fourth quarter, down 1.8% from the third quarter.
Raised. The middle of the range moved up $25 million to $495 million, after a $40.5 million year-over-year increase in the third quarter. By our math, the new plan leaves $134.3 million for the fourth quarter, up 1.7% from the third quarter.
Cut. The data center operator lowered its plan for maintenance spending on existing buildings by $5 million at the middle of the range, to $55 million. Having spent $41.0 million in the first nine months, by our math that leaves $14.0 million for the fourth quarter, down from $15.8 million in the third.
Cut slightly. Csquare narrowed the construction budget, trimming the middle of the range by $5 million to $630 million. Because it deployed $128 million in the second quarter and $149 million in the third, the full-year target requires a heavy fourth-quarter build.
❓ Key Questions
Why is interconnection revenue shrinking while space rentals boom?
Colocation revenue grew 26.7% from a year ago, but interconnection fell 7.0% in the quarter and 7.8% over the first nine months. Are new high-density customers buying fewer cross-connect cables, or did the two data centers sold in the second quarter carry high interconnection revenue?
How much of the 25.6% revenue growth came from acquisitions?
Csquare cited both existing and newly acquired facilities as drivers of third-quarter revenue and power capacity growth, and noted a 2025 portfolio acquisition. Management has not disclosed the revenue growth rate from buildings it owned a year ago.
Why does the full-year revenue outlook imply a fourth-quarter drop?
The unchanged $1.15 billion middle of the full-year revenue range leaves $296.9 million for the fourth quarter, down $5.5 million from the third quarter, even with $104 million of contracted backlog set to start over the next year.
What caused the $77.8 million jump in uncollected customer bills?
Accounts receivable rose from $90.7 million in December to $162.7 million in September. Investors need to know whether this reflects normal billing cycles on new large contracts or slower collections from specific customers.