Nebius Group N.V. Class A Ordinary Shares 2026 Q2 Earnings 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. 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're 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, Neolabs, 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 three types of deals. Each has a different duration, pricing, and role in our business.

First, for our core AI cloud business. We have mid-term contracts of 1-3 years with the world's most ambitious AI companies. This quarter alone, we closed four landmark deals with Reflection, Cohere, as well as with a scale U.S. Neolabs and a large U.S.-based quant trading firm. These deals were for an average of more than $1 billion each. They present a yield of $20 million-$25 million per megawatt, with upfront payments that cover 50%-60% of the associated CapEx. Most importantly, we could sell today our entire 2027 capacity on these terms if we wanted to. We are not doing this. We see that we can achieve higher value by retaining some capacity to serve shorter term and immediate client needs. 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 need with high-value requirements. For this, they are ready to pay a significant premium. We are negotiating deals for $40 million-$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 any material effect on our 2026 revenue guidance. However, 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 serve 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 energetic offerings and services. 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 are 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 two constraints of our industry, which is capital and capacity. Partners finance, build, and operate the facilities. Whereas Nebius brings the full stack platform and the demand. We provide value-added services that sit on top of our partner's 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 co-located sites, and today raise 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.

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 a platform meeting the needs of the industry. We are not just reporting a strong quarter behind us, it is much more than that. We see the demand, we see the supply, we see deal terms for 2027 and beyond. Even our future capacity plans, including for 2027, we cannot be more excited about the future. On this optimistic note, let me hand it over to Dado.

Thank you, Arkady. We enter 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 us 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. Once again, we sold out of capacity because as fast as we bring capacity online, we can sell it. 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 up from prepayment. In total, customers' prepayments will bring in more than $9 billion of up from funding this year, directly reducing the capital we need from debt and equity. Operating cash flow 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 remained available under the program. We view the ATM as a flexible funding tool, and 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. Its rate today is equivalent to a mid-single-digit percentage. 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 by our data center expansion. Our capital investments to date position us to achieve our capacity plans for the year. Let me turn to outlook.