Csquare Shares Soar Nearly 20% After Data Center Operator Posts Record Bookings and Raises Profit Guidance

Shares of Csquare Inc. jumped nearly 20% on Tuesday after the data center operator reported faster revenue growth, a 14th straight quarter of record bookings and higher profit guidance. Several analysts raised their price targets after the report.

The stock rose $3.02 to $18.29 in morning trading on the New York Stock Exchange, adding to a 6.5% gain on Monday. About 1 million shares had traded by midmorning. Csquare has a market value of about $3 billion, though the stock is still down about 26% over the past year.

Csquare, based in Dallas, went public in July. It provides carrier-neutral data center space, where enterprise, network and cloud customers can house and connect their computing equipment.

Third-quarter revenue rose 25.6% from a year earlier to $302.3 million, beating analysts' consensus estimate of about $287 million. Adjusted earnings before interest, taxes, depreciation and amortization rose 44.3% to $132.1 million, and the adjusted EBITDA margin widened to 47.8% from 40.5%.

"Our third quarter results demonstrate strong and disciplined execution by our team and continued momentum across the business," said Chief Executive Spencer Mullee.

On the earnings call, Mullee told analysts: "The third quarter was another strong quarter for Csquare. Revenue increased 25.6% year-over-year and adjusted EBITDA grew by 44.3%."

Bookings reached a record $66.1 million, the company's 14th straight quarter of sequential growth. Csquare ended the quarter with 428 megawatts contracted against 397 megawatts of sellable capacity. It brought about 12 megawatts of new capacity online during the period, and Mullee said it sold 21 megawatts of new deals.

Pricing was another bright spot. TD Cowen said the company's disclosures pointed to accelerating prices, with new-deal pricing up 25% from a year earlier and renewal spreads up 17%. Mullee said a large part of the renewal gain came from a deal with Csquare's biggest customer, and that he did not expect another renewal of that size soon. He said the company's historical renewal spread is about 8%.

Csquare now expects full-year revenue of $1.14 billion to $1.16 billion and adjusted EBITDA of $490 million to $500 million.

The bottom line was weaker. Csquare reported a third-quarter net loss of $88.1 million, compared with a loss of $29.8 million a year earlier. The wider loss mainly reflected about $58.6 million in IPO-related transaction costs, stock-based compensation and the cost of ending certain pre-IPO pay agreements. Its adjusted loss of 58 cents per share was wider than analysts expected.

Leverage has been a concern for investors since the IPO. The company used IPO proceeds to repay about $1.1 billion of debt. Analysts said Monday's results should ease worries about its balance sheet.

BMO Capital Markets raised its price target to $27 from $24 and kept an Outperform rating. It said the new guidance implies fourth-quarter EBITDA of $134 million, above its estimate, and called the outlook "seemingly conservative." TD Cowen raised its target to $30 from $28 with a Buy rating. Bernstein raised its target to $28 from $27 and compared Csquare favorably with Equinix. BofA Securities cut its target to $37 from $46 but kept a Buy rating.

Asked how the company would fund growth, Mullee said: "I don't feel as if I'm capital constrained in any way, shape or form." Executives said issuing new equity was off the table.

Mullee said AI is a growing but not dominant part of the business. Deals strictly tied to AI made up about 30% of third-quarter bookings measured by monthly recurring revenue, and he said exposure to so-called neocloud providers is about 10% or less. The company is installing high-density racks of 150 and 250 kilowatts in several facilities.

The stock traded as high as $23.50 in late July, shortly after the IPO, before sliding to a low of about $15.52 in late September. Tuesday's rally recovered a meaningful part of that loss.