Nebius Group N.V. (NBIS) Earnings Call Transcript & Summary

Welcome to Nebius Group's Q2 2026 Earnings Conference Call. [Operator Instructions] I will now hand over to Gili Naftalovich, Head of Investor Relations, to start the call.

Hi, everyone, and welcome to Nebius' Second Quarter 2026 Earnings Conference Call. Joining us on the call today, we have our CEO, Arkady; our CFO, Dado; and the broader Nebius management team. Before we get started, I'll quickly cover the safe harbor. Some of the statements that we make today regarding our business operations and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to our Form 20-F for a list of our risk factors. We undertake no obligation to update any forward-looking statements. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release. All earnings-related documents are distributed and available to the public through our Investor Relations website, which can be found at nebius.com. And now I'd like to turn the call over to Arkady.

Thanks, Gili, and welcome, everyone, to our call today. I would like to provide our investors with a better understanding of our business model. We had an excellent quarter. The demand for what we are building continues to be enormous, and we have the right business model to capture it. We build capacity ahead of contracts and use our multi-tenant cloud and our software stack to support our customers: AI-natives, agentic AI leaders, neo-labs and some of the most sophisticated enterprises. Our strategy is working. We choose when to sell, to whom we sell and on what terms, and how we finance everything. This flexibility allows us to meet the needs of independent AI builders and to support an open, diverse and competitive market. We address customer needs with 3 types of deals, each has a different duration, pricing and [ role in our ] business. First, for our core AI cloud business. We have midterm contracts of 1 to 3 years with the world's most ambitious AI companies. This quarter alone, we closed 4 landmark deals, with [ Reflexion], [ Cohere ] as well as with a scaled U.S. neo-lab and a large U.S.-based quant trading firm. These deals were for an average of more than $1 billion each. They represent [ AE ] of $20 million to $25 million per megawatt, with upfront payments that cover 50%, 60% of the associated CapEx. But most importantly, we could sell today our entire 2027 capacity on these terms if we wanted to. But we are not doing this. We see that we can achieve higher value by retaining some capacity to serve [ further-term ] and immediate client needs. And here we come to the second type of deal, this is shorter-duration capacity, typically for up to 6 months, for customers with an immediate time-bounded needs with high-value requirements. For this, they are ready to pay a significant premium. We're negotiating deals for $40 million to $50 million per megawatt range, and sometimes above, under this model. One of such deals has been signed just recently by the way. Both deal terms I just described are all coming online later this year. So they will not have a material effect on our 2026 revenue guidance. However, there will be -- they will definitely affect our 2027 revenue and beyond. The third deal type, as we noted many times in the past, is our long-term contracts with investment-grade customers. They have an important purpose. They help us to finance our build-out faster and more efficiently. The secured debt facility we raised in July was on the back of one of these deals. And with $40 billion in contracted backlog, we will do more of this. We are constantly building, innovating and developing our software stack, talking logistic offerings and services. But today, I would like to focus on different types of innovations from this quarter. We launched our first capacity auction. It was very successful and cleared at the highest price we have seen for the Blackwell generation of chips, 15% above the highest price we ever charged before. This gives us a strong signal on the value of this capacity in the market in real time. This was an innovation of sorts on the go-to-market side. On the capacity side, we're also innovating in how we build. For example, our asset-light partnership model, which we introduced this quarter, provides an additional way for us to scale. This model addresses the 2 constraints of our industry, which is capital and capacity. Partners finance, build and operate facilities, whereas Nebius brings the full-stack platform and the demand. We provide value-added services that sit on top of our partners' infrastructure, which delivers us with high-margin revenue and requires minimum balance sheet capital. This model has the potential to unlock new capacity for us in 2027 and beyond. We continue to build our future capacity pipeline through our own and colocated sites, and today raised our year-end contracted power target to 5 gigawatts. Our future capacity pipeline effectively makes Nebius one of just a few companies in the world able to build more than 1 gigawatt of new capacity a year. And we plan to do so in 2027. So to close, everything we set out to do this quarter, we have done. And in most cases, we have done more. Landmark deals in our core market, on better terms than we expected. Capacity rising to meet demand and the platform meeting the needs of the industry. We are not just reporting a strong quarter behind us. It's much more than that. We see the demand. We see the supply. We see deal terms for 2027 and beyond. Given our future capacity plans, including for '27, we cannot be more excited about the future. And on this optimistic note, let me hand it over to Dado.

Thank you, Arkady. We entered the second half of the year with strong momentum as we successfully executed our strategy in the first half. We again delivered triple-digit revenue and ARR growth in Q2, even before most of our 2026 capacity comes online in the second half of the year. This was coupled with a significant expansion in adjusted EBITDA margin while strengthening our funding position, which was supported by substantial customer prepayment terms and expanded sources of our capital. This start is strong and keeps us on track to achieve both our strategic and financial objectives for the year. I will touch on the progress we achieved in Q2, share details on our financial results and conclude with our annual guidance, which we are reaffirming today. Please note that all comparisons are year-over-year unless noted otherwise. Let's start with revenue and ARR. In Q2, we grew Group revenue by 454% to $582 million, up 46% from last quarter. Our Nebius AI business grew even faster, increasing 514% from last year to $575 million and generating 98% of Group revenue. Annualized run rate revenue reached $3 billion at the end of June, up 598% and increased 56% from $1.9 billion at the end of March. Revenue was driven by capacity added in Q1, higher utilization and high-margin revenue from our new asset-light business model, Token Factory and our recent acquisitions. Higher utilization was driven by improvements in our underlying infrastructure efficiency. And once again, we sold out of capacity because, as fast as we bring capacity online, we [indiscernible]. Turning to profitability. Group adjusted EBITDA was $236 million, compared to a loss of $21 million a year ago and $129.5 million last quarter. Group adjusted EBITDA margin was 41%, up from 32% in Q1. Our Nebius AI business generated adjusted EBITDA of $286 million at a margin of 50%. The delta between Group and the Nebius AI business margin reflects our investments in Avride and TripleTen, both are still early stage companies. And we expect the Nebius AI business to continue to represent the significant majority of Group adjusted EBITDA. The increase in profitability is a result of higher revenue and the early contribution of our asset-light model as well as Token Factory and our recent acquisitions. Even as we continue to invest in growth, we see a clear path to capturing more margin, not just this year, but in 2027 and well beyond. We have visibility into pricing and expect capacity coming online from our own data center to begin improving margins in the second half of next year. Now turning to our balance sheet. Prepayments from our customers reached an all-time high in the quarter. Roughly 70% of the deals we closed in Q2 included an upfront prepayment. In total, customers' prepayments will bring in more than $9 billion of upfront funding this year, directly reducing the capital we need from debt and equity. Operating cash was $2.3 billion in the quarter, and we ended the period with $8 billion in cash and cash equivalents. In Q2, we also tapped our at-the-market equity program. We issued 12.7 million Class A shares at a weighted average price of $224 per share, generating gross proceeds of approximately $2.8 billion. As of June 30, 12.3 million shares remain available under the program. We view the ATM as a flexible funding tool. It remains an option in our arsenal rather than a commitment. In July, we announced our first asset-backed debt facility for $775 million. This facility is secured against contracted cash flows and priced at a modest spread over benchmark rates [indiscernible] today is equivalent to a mid-single-digit percentage. And we have more than $40 billion of additional customer commitments at similar terms based on the strategic deals we have entered into with investment-grade companies. We will continue to diversify our funding sources while maintaining a balanced mix of debt and equity. We are progressing on additional asset-backed financing and continue to evaluate corporate level debt and additional financing instruments. Turning next to CapEx. In Q2, capital expenditures were approximately $5.7 billion, driven primarily by purchases of GPUs, GPU-related hardware and our data center expansion. Our capital investments to date position us to achieve our capacity plans for the year. Let me turn to outlook. The solid progress we have achieved in the first half of the year bolsters our confidence in our outlook for 2026. As such, we are reaffirming our full year 2026 guidance across all metrics. We continue to expect annualizing [ rate ] revenue of $7 billion to $9 billion, Group revenue of between $3 billion and $3.4 billion, Group adjusted EBITDA margin of approximately 40%, and capital expenditures of $20 billion to $25 billion. And we remain confident in our ability to accelerate capacity deployment in the second half of the year and expect capacity deployed late in Q2 to begin contributing to revenue in Q3. As Arkady said, we are now building capacity for 2027 demand, supported by customer commitments already in place and providing near-term visibility into the revenue associated with this investment. And finally, we are actively pursuing opportunities to generate incremental high-margin revenue from our new models: our auction, our short-term capacity deals as well as our asset-light business. In summary, our strong Q2 performance reflects our rigorous execution to scale the business profitably. We delivered solid revenue growth, we increased profitability. We opened a new capital-efficient path to capacity, and we expanded our funding alternatives. As we look ahead, we will continue to scale rapidly to capture the opportunity in front of us while remaining balanced, disciplined and focused on delivering long-term value for our shareholders. And with that, I will turn the call over to Gili for Q&A.

[Operator Instructions] I'll now hand back to the Nebius management team for the Q&A session.

Thank you, operator, and thank you, Dado. Our first question comes in from Ryan Lountzis from Morgan Stanley. With Vineland, New Jersey data center site hearing adjourning without a vote, can we just get an update on the site? How is capacity tracking and with no vote taking place yet? How could this impact plans to ramp this site. Tom, can you help us answer that?

Yes. Sure. Happy to. I'll start by touching on the public hearing side of things. And I guess maybe just one quick sort of general comment. Obviously, there's a broader set of issues and debate around data centers in the U.S. These are things that we track very closely. And we've generally found that we have an effective approach to moving into new regions, which is based on coming in early, being very open, transparent about what we're doing, engaging the community, and actually answering the questions that come up. And we find that this is an effective approach, and the same approach that we've -- in New Jersey around Vineland. So specifically around Vineland. So overall, we're on track with our delivery, and I'll let Andrey speak a little bit more -- in a bit more detail about that from kind of the construction and build-out side. But with respect to the public hearing, so what's happening right now? DataOne is seeking final approval for the amendment to their originally approved site layout plan. And the amendment to the site layout plan was a result of the decision to switch from the project's power source to Bloom. I'd say generally that the switch to Bloom, we think, significantly enhances the project, including from a community perspective. It's an on-site power solution delivering reliable power, quietly and ultra-low emissions. I'd also say these types of hearing, these are all part of the normal process, and we very much build them into our schedule with these steps in mind. And so with respect to this hearing on the layout plan, so we're confident that the layout complies with all the applicable local, state and federal laws and regulations. And we're optimistic that once the public has been heard, this will move quickly to approval. And we'll definitely keep you updated as we have more news. But with that, maybe I can ask Andrey to add a couple of points just from the build-out side.

Yes. Sure, Tom. Well, we delivered all the tranches that we were required to deliver under the contract up to date. And we have all the reasons to believe that we will continue to deliver the remaining tranches as required by the contract. And probably to add color, construction of the building itself finished earlier this summer, and engineering fit-out is progressing fairly well. And Bloom [indiscernible] deployment should be fast. And overall, the switch to Bloom has been [indiscernible] and a good pivot for the project, we believe, and with no significant impact expected on the project time line.

Our next question is -- we're getting a lot of questions actually on this from the portal. Marc, maybe you can help us talk through our landmark deal announcements. Can you characterize how deals processes run and why these customers chose Nebius?

Certainly. Thank you for the question. And we are very excited about these wins. Closing billion deals in our core AI cloud business is an important milestone in our go-to-market journey. It confirms our fundamental belief that we can build a diversified customer base at scale. All 4 were competitive wins following a similar pattern. Our scale, performance and reliability were the differentiators. Also, each customer sees us as a long-term partner that they can grow with. In all cases, the customer already had an existing supplier; in some cases, hyperscaler. And they're looking to partner and expand with next-generation capacity and a platform. As a matter of fact, let me tell you about one of these wins. They were introduced to us by a key strategic partner late in Q1. The customer was looking for a large-scale, contiguous GB 300 cluster, also flexibility for future expansion as well as strong technical support and a long-term strategic partnership. When we closed with them in May, they cited our responsiveness, our transparency, the white glove support they received, and our ability to provide their current U.S. deployment needs as well as future sovereign expansion as key differentiators. We are now in discussions with them for more capacity and they're exploring our inference solution, Token Factory. All these wins were earned wins, not inbound walk-ins. We had multiple engagement cycles before closing. The customers validated our technology through hands-on POCs. One of them told us it was quite literally the best POC they have ever had. We are already in discussions with several of them on post-training and inference to support their revenue plans and growth, and with all of them on significant additional capacity and next-generation chips, including Vera Rubins. And yes, we have more deals just like them. Our pipeline generation stepped up again in Q2 and includes multiple opportunities over $1 billion, spanning AI-natives, neo-labs and enterprises.

The next question we have comes from [ Alex Duval ] Goldman Sachs. Andrey, a large share of our deals we signed are tied to capacity arriving in late 2026 and through 2027. Given the sentiment around gigawatt scale data center build-out, what gives you the confidence in our capacity ramp? And can you provide an update on our development time line?

Well, we made a very good progress this year with our contracted power, and we exceeded our end of the year projections much earlier for 2026. And we will be raising -- or we are raising actually the contracted power to 5 gigawatt now by the end of 2026. Almost all of that power will come online over the next 3 maybe to 3.5 years out of the contracted power that -- number that we mentioned. And we are not stopping actually. This has been achieved by different regional expansion and the mix of grid power and behind-the-meter power. We're also working [indiscernible] to have the access to the hundreds of megawatts of the generation behind the meter power already as of today. We're also excited about our partnership with Bloom, which allows us to unlock and expedite a lot of our sites. And also, I wanted to mention that the vast majority of our contracts is the cloud contracts, where we have the flexibility where, within the region, we can deliver it, reducing the dependency on any one location. So over-provisioning the [ size], over-provisioning the capacity is our highest priority for today, and they believe that will be the case for tomorrow as well. And general approach is we deploy as much capacity as we can and we try to build in advance as much as we can as well.

Arkady, we've had a number of questions come in on our strategy. The market is moving quickly. You mentioned prices are increasing and you plan to expand capacity by more than 1 gigawatt per year. You also announced a lot of new initiatives this quarter. Help us make sense of how these fit into our broader long-term strategy.

Yes, you're right, the market is evolving rapidly, actually even more rapidly than ever been expected. And the good thing about our business model and our platform as well is that they both allow us to evolve rapidly with the market. I will give you a couple of examples from just this quarter. First, as we all see, prices are changing, changing fast, they're growing. And our model was built to build capacity in advance, but not to presell it in advance. And that is why we have this available capacity now that can allow us to -- allocated to shorter term and much high-margin contracts. The second example would be, as I mentioned, we also launched our first auction this quarter. This is the auction for the midterm contracts. Why were we able to do so? Because, again, we had free unallocated capacity, and we had our multi-tenant platform. And we're just realizing the benefits from it. And we have similar flexibility on the capacity front. And again, it's a strategic advantage of the platform we have. The fact that our platform is universal and able to work on any third-party capacity gives us an opportunity to grow even faster. And this is what is the -- our asset-light model is all about. So we see there are multiple ways to monetize the [ universality ] of our full stack platform, on both software and hardware part of it. And the way we think about all of this is simple. This market is going to continue to move quickly and to grow quickly. And we will be sure that our business model and platform will stay flexible to allow us to capitalize, to use all this growth.

Our next question comes from Arseniy Matovic from Wolfe Research, and was emphasized by many others from our portal. It relates to our new $775 million asset-backed financing. Debt markets have been volatile and all-in costs have generally moved higher. Are you still comfortable leaning on debt from here? Or should we expect greater use of equity through the ATM or perhaps a convertible?

Well, our approach is not about making a call on the market. Really our approach is to match the right financing instrument with the right assets, while remaining disciplined about 3 things: our cost of capital, minimizing shareholder dilution and maintaining a strong, healthy balance sheet. Our first sources of capital remain customer prepayments and operating cash flow. We expect more than $9 billion of upfront customer prepayments in 2026. Clearly, this directly reduces the amount of external financing we need as we continue to scale. Beyond that, asset-backed financing is an important part of our strategy. The $775 million facility we completed in July priced at SOFR plus 250 basis points was backed by deploying GPUs infrastructure and contracted cash flows from an investment-grade customer. It demonstrates that even in a more volatile market, there is a strong demand to finance this contracted cash flows on attractive terms. And look, with more than $40 billion of committed backlog, we believe this is a highly scalable and equitable financing model. Obviously, we expect to continue accessing this market as we deploy additional capacity. And also beyond asset-backed financing, we have significant flexibility. We currently have almost no corporate-level debt, so that represents an additional source of capital that we can evaluate as the business scales. Equity and equity-linked financing, such as the ATM or potentially convertibles, offer additional sources of funding. And we evaluate those alongside all of our other funding options as source of capital. We are actively considering further equity-linked and asset-backed financing options and continue to evaluate corporate-level debt and other financing alternatives. So overall, we remain very comfortable with our funding position. So we do have multiple sources of capital available to us, and we will continue to optimize across them with a focus on cost of capital, limiting dilution and maintaining a disciplined balance sheet.

Our next question comes from Tyler Radke with Citi. And Marc, this one is for you. How do you think about the mix of allocating 2027 capacity between short-dated capacity versus [indiscernible] deals? Is there a threshold of ACV per megawatt you are waiting for on the longer-dated deals to sign into those?

Before I dive in, let me just make sure and clarify the deals with a little bit more nuance, the type of deals that we're doing, with a little bit more nuance. Our long -- our medium-term or midterm contract durations are, for the most part, are AI cloud customer agreements, and that's our core of our business. And that's where we're locking in strong unit economics with some of the world's most ambitious AI companies. And then separately, as you called out, we have the shorter-term opportunities and durations. And these are premium deals. And that includes, as an example, the auction that we described today, as well as the ability to capture sort of the shorter-term scale contracts that we mentioned. In practice, what we strive to do is to optimize across customer type, price, payment structure, duration and deal sizes, rather than strictly looking at a single variable or a compiled metric. Our current emphasis is taking care of existing customers, followed by new logos. And then terms, terms in order of priority, including price, then upfront prepayment, then duration. So a bit wider than purely ACV per megawatt. We have also, at the same time, tactically shortened how far in advance we sell capacity. So in effect, selling closer to deployment, which, at the end of the day, has improved the pricing that we can derive while preserving our agility. We're deliberately allocating a portion of capacity for short-term and immediate needs because that is where we currently see the highest potential for combined realized value. To summarize, as we deploy capacity looking towards the latter half of this year and into next year, we will allocate across both medium and short-term deals using this with our customer and terms lens that I mentioned earlier.

This next question comes from James Kisner of Water Tower. xAI has begun selling computer at premium prices. What does that say about market pricing for AI capacity? And are you seeing similar strength on new contracts and renewals. What does this mean for Nebius?