Good afternoon, and welcome to Applied Digital's Fiscal Third Quarter 2025 Conference Call. My name is Jerome, and I'll be your operator today. Before this call, Applied Digital issued its financial results for the fiscal third quarter ended February 28, 2025, in a press release, a copy of which will be furnished in a report on a Form 8-K filed with the SEC and will be available in the Investor Relations section of the company's website. Joining us on today's call are Applied Digital's Chairman and CEO, Wes Cummins; and CFO, Saidal Mohmand. Following their remarks, we will open the call for questions. Before we begin, Matt Glover from Gateway Group will make a brief introductory statement. Mr. Glover, you may begin.

Thank you, Jerome. Good afternoon, everyone, and welcome to Applied Digital's Fiscal Third Quarter 2025 Conference Call. Before management begins formal remarks, we would like to remind everyone that some statements we're making today may be considered forward-looking statements under the securities laws and involve a number of risks and uncertainties. As a result, we caution you that there are a number of factors, many of which are beyond our control which could cause actual results and events to differ materially from those described in the forward-looking statements. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission or SEC. We disclaim any obligation or any undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law. We will also discuss non-GAAP financial metrics and encourage you to carefully read our disclosures and the reconciliation tables to the applicable GAAP measures in our earnings release as you consider these metrics. We refer you to our filings with the SEC for detailed disclosures and descriptions of our business as well as uncertainties and other variable circumstances, including, but not limited to, risks and uncertainties identified under the caption Risk Factors in our Annual Report on Form 10-K and our quarterly report on Form 10-Q. You may get Applied Digital's SEC filings for free by visiting the SEC website at www.sec.gov. I would like to remind everyone, that the call is being recorded and will be made available for replay via a link available in the Investor Relations section of Applied Digital's website. Now I would like to turn the call over to Applied Digital's Chairman and CEO, Wes Cummins. Wes?

Thanks, Matt, and good afternoon, everyone. Thank you for joining our Third Quarter 2025 Conference Call. I want to start by expressing gratitude to our employees for their continued hard work and service in supporting our mission of providing purpose-built infrastructure to the rapidly growing High-Performance Computing industry. Before turning the call over to our CFO, Saidal Mohmand for a detailed review of our financial results, I'd like to share some recent developments across our business. Starting with our Data Center Hosting Business, we currently operate 286 megawatts of fully contracted data center hosting capacity for our current clients across two locations in North Dakota, both of which are running at full capacity. Bitcoin prices remain strong, which is positive for our customers and we remain optimistic about the business and its future prospects. In our HPC Hosting segment, we have achieved significant milestones in advancing our strategic objectives, including two transactions with globally renowned financial institutions. The first transaction with Macquarie Asset Management, one of the world's largest infrastructure investors. Upon closing, it will allow Macquarie to invest up to $5 billion in capital to support the development of Applied Digital's next-generation data centers. We believe this investment underscores Macquarie's strong confidence in the scalability and value of our platform. The second was a $375 million financing arrangement with Sumitomo Mitsui Bank Corporation, one of Japan's top three banking groups and a global leader in data center financing. We believe this arrangement reflects the trust and leading financial institutions place in the value of our data centers, land assets, and power infrastructure pipeline. Macquarie and SMBC are playing instrumental roles in ongoing discussions with customers to lease the Ellendale campus. Their support is especially valuable amid the current crosscurrents in the industry and broader economy. We believe that Ellendale campus represents a highly strategic industry asset with significant expansion opportunities beyond the initial 400 megawatts of critical IT load. Importantly, our construction remains on schedule for our first building, and we expect it to be ready for service and ready to begin generating revenue in the calendar fourth quarter of 2025. Nearly all the equipment for this building is landed, giving us not only confidence in the schedule, but it also means tariffs will not materially impact our build cost. Construction is underway for the second building, which will be 150 megawatts of critical IT load. This building is expected to be ready for service at the end of calendar Q2 of 2026 and ready to begin generating revenue. Building 3, also 150 megawatts, is in planning stages and is expected to be ready for service in calendar Q1 of 2027. The power is secured for all three buildings as is the supply chain. Lastly, we expect to provide an update on leasing discussions in the near term. At that time, we will share updated views on the potential economics of the campus. Next, let's discuss our Cloud Services Business, which provides high-performance computing power for AI applications. After careful consideration, our Board of Directors has determined that reviewing strategic options for this business is in the best interest of shareholders. This decision is driven by several factors. First, our discussions with potential customers regarding leasing our Data Center Business show that our Cloud Business is typically viewed as a competitor. While this has not derailed any discussions, it is a point of friction. We also believe that if we were to transition to a data center REIT in the future, this would lower our cost of capital as investors typically assign higher multiples to data center businesses due to their stability and long-term growth potential. Further recent industry developments, including a large competitor completing their IPO, make this an opportune time for us to explore strategic options. In summary, we're encouraged by the positive trends across our business and remain confident in our growth trajectory. With that, I'll turn the call over to our CFO, Saidal Mohmand, to walk you through our financials. Saidal?

Thanks, Wes, and good afternoon, everyone. Let me begin by highlighting some of our recent financial announcements before providing a detailed overview of the quarter. Over the past year, the company has deployed nearly $1 billion in assets with a significant portion allocated to the construction of our data centers. While our construction teams have done a tremendous job delivering projects on time and within budget, one of the key challenges has been a high cost of capital. Reducing our cost of capital has been one of my top priorities since stepping in as CFO. We began this process with a $450 million convertible note at 2.75%, followed by the strategic transaction of Macquarie Asset Management, providing potential access to up to $5 billion in capital. Most recently, we secured a $375 million financing arrangement with SMBC at highly attractive rates. We believe these transactions have not only strengthened our financial position but have also ensured we have the necessary capital to continue funding our data center build-out as well as positioning us as a strong strategic partner for potential customers as they evaluate future data center development. Now let's turn to the quarter. Revenues for the fiscal third quarter of 2025 were $52.9 million, up 22% over the prior comparable period. This increase was primarily driven by continued growth of our Cloud Services Business due to the deployment of additional GPU clusters. In total, our Data Center Hosting segment generated $35.2 million in revenue, while our Cloud Services segment contributed $17.8 million. Our Cloud Services Business revenue declined sequentially from last quarter due to placing some of our capacity into an on-demand model, a shift from reserve contracts. With this change, we experienced some technical hurdles as we moved from a single-tenant to a multi-tenant configuration. Importantly, those technical issues are now resolved. Cost of revenues increased $2.1 million to $49.1 million from the prior comparable period, primarily driven by the growth in the business as more facilities were energized and additional services were provided to customers. SG&A expense decreased by $7.3 million to $22.7 million, primarily due to GPU cluster deployments as they are now revenue-generating, and the associated depreciation and amortization is now captured as part of cost of revenues. This quarter, our depreciation and amortization expense decreased to $18.8 million compared to $26.2 million in the same period in 2024. Of the current quarter amount, $14.4 million was attributable to depreciation and amortization in our Cloud segment. Interest expense increased $4.1 million to $8.9 million, primarily driven by an increase in finance leases and interest-bearing loans between periods. Net loss attributable to common stockholders was $36.1 million or $0.16 per basic and diluted share. Adjusted net loss attributable to common stockholders was $17.8 million or $0.08 per diluted share. Our adjusted EBITDA increased 878% to $10 million. Now a few items impacted our adjusted EBITDA this quarter compared to Q2 of this year. As we mentioned, early in the quarter, we transitioned some of the GPU capacity to on demand but encountered technical issues moving from a single-tenant to a multi-tenant environment. Those issues have since been resolved. We also experienced margin compression in our Data Center Hosting Business due to expected seasonal fluctuations in power costs. Now moving on to our balance sheet. We ended the fiscal third quarter with $261.2 million in cash, cash equivalents, and restricted cash along with $689.1 million in debt. Now with that, I'll turn over the call to Wes for closing remarks.

Thank you, Saidal. While securing our lease for our Ellendale campus is taking longer than expected, customer interest remains high. Additionally, the Macquarie and SMBC transactions have elevated our status in the industry. Although we cannot control the macro-environment, we can continue to build our campus on time and within budget. We believe our 100-megawatt liquid-cooled data center is uniquely positioned to come online as industry demand accelerates. Furthermore, our 1.4 gigawatt pipeline remains one of the most compelling offerings in the market as customers continue to invest heavily in future capacity. We're proud of the progress achieved this quarter and look forward to sharing further updates as the year unfolds. We welcome your questions at this time.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. We have a question coming from the line of Nick Giles from B. Riley Securities. Your line is now open.

Good afternoon, everyone. First on the sale of the Cloud Services Business. Can you remind us, what the updated split would be between on-demand versus contracted and how you're thinking about total value there?

Yes. Nick, in the quarter, we had four of our six clusters remaining in reserve contracts and two moved to on-demand, and the two in on-demand generated a small amount of revenue later in the quarter. But as Saidal mentioned, we've rectified the technical issues there and expect that to ramp up in the current quarter, but that's the current split.

Got it. And just to clarify, none of the clusters today are in Applied data centers. So there wouldn't be a structure where you would still operate some of the capacity for those GPUs, correct?

That's correct.

Great. And my second question was just on the DTC Hosting Business. Where does this business fit in the long term? And especially, as you remain focused on converting to a REIT structure later down the road?

I believe that the DTC assets will align well with a REIT structure, and there is a long-term compatibility between HPC Data Center capacity and Bitcoin hosting capacity. When examining our operational sites, particularly Ellendale, we have 400 megawatts of critical IT load moving to 530 megawatts of total utility load. However, not all of that power needs to be available at all times; typically, these facilities operate at around 70%, peaking at about 80% capacity on average. This results in a significant amount of unused power, which is ideal for Bitcoin facilities that can dynamically adjust their load. I expect this dynamic to continue at Ellendale, and we will also consider similar opportunities at new sites to potentially increase Bitcoin capacity alongside HPC capacity. I view these operations as essentially one combined business.

Got it. That's very helpful, Wes. I'll turn it over for now, but continue. Best of luck.

Thanks.

Thank you. Your next question comes from the line of Brett Knoblauch from Cantor Fitzgerald. Your line is now open.

Hi, guys. This is Thomas Shinske on for Brett. Thank you for taking my question. So first, I guess, you mentioned Macquarie and SMBC are playing an instrumental role in finding potential leasing partners for Ellendale. I guess with their involvement, are you seeing faster diligence timelines or improved leasing momentum because of their support?

I think the way I would phrase that is, we've seen more interest, but with the people who are already there, I think that it has significantly increased the comfort level with our ability to complete construction and operate facilities with world-class financing partners in the mix.

Awesome. Great. And then just on CapEx, I guess, can you provide an update on your expected capital needs over the next 12 to 18 months and whether the current construction of Ellendale is being built in line with past projections of CapEx?

Yeah. So this is Saidal speaking. In terms of CapEx projections, you are correct. It's in line with past projections. Now, we will always measure the impact, if any, tariffs will have for the second and third buildings and adjust accordingly. But as of now, it is in line and then we've previously kind of pointed out. In terms of the CapEx cadence, you're running anywhere from $30 million to $50 million a month in terms of actual CapEx for the first building.

Awesome. Thanks. And then one more, if I may, on the Bitcoin hosting business, I guess, could you provide clarity on when those contracts are up for expiration and if you see any risk from your large client potentially rolling off at the expiration of those contracts?

There's always the risk of non-renewal. I don't expect that to be the case, but I believe at Ellendale, we have roughly two years left on those contracts. I have to double-check that, and Jamestown is roughly the same.

Awesome. Thank you, guys.

Thanks.

Thank you. Your next question comes from the line of Rob Brown from Lake Street Capital Markets. Your line is now open.

Hi. My first question is on the kind of the remaining steps to complete the Ellendale facility. I think you said that kind of fourth quarter would be running, but what's sort of left there and how much CapEx is left to go just in that facility?

The good benchmark for capital expenditure is typically between $10 million and $13 million per megawatt for Tier 3 data centers. We are constructing 100 megawatts of critical IT load for the Ellendale, which is our first building. As for what's remaining, we've shared updates through our social media about the building and much of the OFCI equipment is already in place. Currently, we're focused on finishing touches and the development of the generator plant and power generation system. I would highlight that a significant amount of property, plant, and equipment is reflected in our segment disclosures, showing the expenditure on these assets as of February on the balance sheet.

Yeah. And Rob, just to add to that, we have been, I believe since February, commissioning equipment at the facility. So you go through a fairly lengthy commissioning process. The facility will start landing IT equipment in the July, August timeframe and then you have the deployment of the IT equipment and this equipment requires a significant amount of cabling and networking. So you have that piece of it as well to go for our customer but we should start landing equipment, like I said, in July, August and then start cabling, racking, and cabling, and have this ready to go. The expectation is to start actually turning on in October.

Okay, excellent. And then in terms of selling the Cloud Business, what's sort of your sense on the plans there? Are you starting to market it now and hope to have it sold by year-end or any kind of timeframe there?

That process, Rob, has just started. I don't think we're prepared to give any update or any expectation on what that might be. I think there are a lot of different ways that could go and a lot of different structures that we could participate in. I wouldn't think of it just as a sale. We're evaluating everything there. But I think it's just too early for us to give any real meaningful comments on that.

Yes, understand. Okay. Thank you. I'll turn it over.

Thank you. Your next question comes from the line of Darren Aftahi of ROTH Capital Partners. Your line is now open.

Hey, guys. Thanks for taking my questions. On the AI Cloud business, did you get any inbounds pre making this announcement about putting the asset up for sale?

I can't make a comment on that, Darren.

Fair enough. And then a clarification, moving from a single-tenant to multi-tenant and the technical issues, was that a prior inter-quarter in February, you guys just reported, meaning is kind of trued up starting the May quarter?

Yes, the issues were resolved there in the first or second week of March. So it should be resolved for the majority of the May quarter.

Got it. And then just one last one, if I may. The existing hyperscalers you've been talking to sort of post-Macquarie, has their disposition about data center build changed at all just given the current macro environment? Maybe has anything changed in the last three to four, five weeks? Thanks.

Yes. I wouldn't say it changed in that timeframe necessarily. What I would say in general, Darren, is for the last year for us and then I've talked to a lot of CEOs that have been operating in this space for a lot longer than we have. When you're dealing with a group of five or six potential customers, maybe seven potential customers, it's a fairly concentrated market from that perspective and you have just kind of patterns of one of those companies is very aggressive and one is not very aggressive in the market. So I would say, what we have seen over the past year and one of the things that has taken longer for us to get to where we want to be on the final lease is, you see demand rotate between the hyperscalers. Overall, we see demand at least what it was, if not higher than it was three months ago when we had our call in January, but it's not always the same players. So you just see it kind of rotate and there are some pretty obvious dynamics in the market that you could guess as to why that is. There are some really big end-users of GPU capacity that have a lot of plans that have been announced over the past few months. So I think that's one of the things that drives it, but my understanding is it's also just not uncommon for some of these to consume a lot of data center capacity, take a break, and then come back.

Thanks.

Thank you. Your next question comes from the line of Mike Grondahl of Northland Securities. Your line is now open.

Hey guys, thanks. And while you covered demand a little bit, Wes, for the 100 megawatts, are you still talking to multiple hyperscalers for that? Or has that been narrowed down to one hyperscaler you're negotiating with? And if you could talk a little bit about pricing trends the last 90 days, what are you seeing?

So I would say on pricing, the last 90 days have been fairly stable. Year-over-year, it's increased, and that's to our comment of updating our financial expectations for the campus versus what we last talked about a year ago, when we gave an update on the leasing activity there. So pricing is up year-over-year, but generally stable on the data center front in the last 90 days. On who we're talking to, we've made a lot of progress over the past three months since our last call, but we continue to have multiple discussions, and there are ongoing discussions with basically all of the hyperscalers. It's not necessarily just Ellendale. We have discussions about our campus in South Dakota as well as other campuses, where we've also made a significant amount of progress.

Got it. And then, the decision to pursue a sale of the Cloud Business. You kind of talked about some of your hyperscale customers viewing that as a friction point or potential competition. Would you say there was a fair bit of pressure from your hyperscale potential customers to exit that business? I'm just trying to understand if that was a little bit more externally driven or internally driven?

So I would say your last comment is a fair comment, but also we've spoken publicly about this quite a bit. These are separate businesses. We've structured these as two separate businesses. It's just the right time to separate those businesses, whether that be from those types of pressures or just what's going on in the market, with a couple of GPU Cloud businesses coming public in the past six months. So we think it's the time to move towards that separation.

Got it. And do you still see that Cloud Business is roughly $110 million to $120 million annual business?

Yes. After the on-demand portion ramps back up, I expect it to be in that neighborhood where it was back in the previous quarter. As this piece of on-demand is increasing in the customer base, you typically get higher pricing for on-demand versus reserve contracts. I think if you look at the H100s that we have, as those reserve contracts all roll off, they will go into an on-demand model. You can do reserve contracts, in my opinion, on newer generation. You could do some reserve contracts, but you're not doing two years again. You probably do six months or maybe one year of additional reserve contracts. But I think this market is just moving more and more to an on-demand model, and we're adapting to react to that.

Got it. Thank you.

Absolutely.

Thank you. Your next question comes from the line of George Sutton from Craig-Hallum. Your line is now open.

Thank you. Just a question on the sale process. With your potential lessors having issues with the ownership, are they okay with an in-process sale? Would they require a definitive agreement? I'm curious how they would view this.

Sure. There's no hard requirements on any of this. But like I said, I think this is just the right time for us to do this for both of the businesses. It will enable the cloud business to continue to grow, whether in a separate form or combined with the company, and then allow us to really focus on the large-scale data center business.

Got you. I know you've been carrying some third-party data center capacity that was unused. I'm curious how that part is involved in this process.

That can go; I will tell you that third-party data center capacity that's at 2023 pricing, in my view, is a very valuable asset that we have. We've been asked by third parties about getting that capacity from us. I view that as one of the big assets of this business as anyone who takes that business has immediate growth potential with available data center capacity that is at attractive pricing, like I said, it's 2023 pricing versus 2025 pricing.

Got you. Okay. Appreciate it. Thank you.

Absolutely.

Thank you. Your next question comes from the line of John Todaro of Needham. Your line is now open.

Thank you for taking my question. I have two inquiries, starting with the AI Cloud business. Regarding the 2023 pricing, how much time remains on those leases? Additionally, what other components would be included in the process aside from the GPUs?

So this is Saidal. On the data center leases, they're generally five to seven years with extensions. So that's a perception of that. I'll let Wes talk about the other assets.

Those are the primary assets that you've used in the data center capacity, and obviously some software. The business we built is separate from the data center business. There's no real overlap in staff, so from that perspective of separating it out, it will be easy for us as a seller and a potential buyer.

Got it. Understood. And then on the HPC side of things, it sounds like you guys are pretty close to a lease just with those expectations for generating revenue. Is the thinking still that whoever takes the 100 megawatts at Ellendale does the full 400 megawatts for the campus? Is that still thinking? And if not, kind of that expectation for building two? It seems like you're far along with someone given that that timeline seems a bit aggressive for Q2 2026 generating revenue?

So think of that as Q3 2026 and ready for service at the end of Q2. My expectation is it remains that one customer takes that campus. The Ellendale campus does grow beyond that 400 megawatts out in 2028 and beyond. So I wouldn't necessarily say that one customer is going to take all of that, but I do think for the 400 they will.

Understood. That's helpful. I'll hop back in the queue. Thank you.

Thanks.

Thank you. And there are no further questions at this time. Turning it over back to Wes Cummins for closing remarks.

Thank you, everyone, for joining our earnings conference call. I look forward to speaking with you. I believe this year it will be in July on the next earnings call and again, thanks to all of our employees for all their hard work in the past quarter. Thanks again. Speak to you soon.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Thank you.