Earnings Call Transcript - APLD Q4 2025

Operator, Operator

Good afternoon, and welcome to the Applied Digital's Fiscal Fourth Quarter 2025 Conference Call. My name is John, and I will be your operator today. Before this call, Applied Digital issued its financial results for the fiscal fourth quarter ended May 31, 2025. In a press release, a copy of which has been furnished in a report on 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.

Matt Glover, Analyst

Thank you, operator. Hello, everyone, and welcome to Applied Digital's Fiscal Fourth Quarter 2025 Conference Call. Before management begins formal remarks, we'd like to remind everyone that some statements we're making today may be considered forward-looking statements under 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 that could cause actual results and events to differ materially from those described in the forward-looking statements. For more detailed risks, uncertainties and assumptions related to our forward-looking statements, please see the disclosures and earnings release and public filings made with the Securities and Exchange Commission or SEC. We disclaim any obligation or 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 also discuss non-GAAP financial measures and encourage you to read our disclosures and the reconciliation tables to the applicable GAAP measures and earnings release carefully 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 in the Risk Factors Section of our annual report on Form 10-K and our quarterly reports on Form 10-Q. You may access Applied Digital's SEC filings for free by visiting the SEC website at www.sec.gov. I'd like to remind everyone that this call is being recorded and will be available for replay via link available in the Investor Relations Section of Applied Digital's website. Now I'd like to turn the call over to Applied Digital's Chairman and CEO Wes Cummins.

Wes Cummins, CEO

Thanks, Matt, and good afternoon, everyone. Thank you for joining our fourth 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 compute 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. Let me start with an update on our HPC data center hosting segment. During the quarter, we signed transformative 15-year lease agreements with CoreWeave, the AI hyperscaler, to deliver 250 megawatts of critical IT load at our Ellendale, North Dakota campus now named Polaris Forge 1. These agreements are expected to generate approximately $7 billion in contracted revenue over the lease terms and to position Applied Digital as a leader in AI and HPC infrastructure. Last week, CoreWeave exercised their option for an additional 150 megawatts in a third building at Polaris Forge 1, underscoring the campus' potential as a scalable hub for next-generation AI workloads. These long-term leases mark a defining moment for Polaris Forge 1, one of North America's most ambitious data center projects. Purpose-built for artificial intelligence and high-performance computing, the campus combines massive power capacity with rapid deployment and is designed to scale up to 1 gigawatt. With the first 100-megawatt facility scheduled to be operational in Q4 of 2025, the second 150-megawatt facility coming online in mid-2026, and the third 150-megawatt facility planned for 2027. Polaris Forge 1 serves as a launch pad for the future of AI infrastructure, and we believe validates our vision to deliver reliable, power-dense solutions and become a category leader in designing and building AI factories. Building on the momentum from these leases and the surging demand for AI infrastructure, we're actively marketing our multi-gigawatt pipeline to a diverse group of customers. We believe one of our key strengths over the past two years has been refining our process by reducing the number of SKUs by approximately 50% and consolidating our suppliers. Our proprietary building design offers greater flexibility, and we've developed a repeatable process with minimal customization supported by a strong supply chain. As a result, we believe we've reduced our projected build times from 24 months to 12 to 14 months, allowing us to deliver on large-scale commitments faster and more efficiently than before. At the same time, we're highlighting the many advantages of building in the Dakotas, along with our unique design that features an innovative closed-loop direct-to-chip liquid cooling system. This design seeks to achieve a projected PUE of 1.18 and near-zero water consumption intended to ensure exceptional efficiency and sustainability. We like this location for its abundant low-cost synergy, some of which is generated from stranded power with over 200 days of free natural cooling. We have calculated that a 100-megawatt data center customer could save up to $2.7 billion over a 30-year period as compared to current industry data centers in other regions. Our strategic decisions in location and design are intended to position us to grow dramatically within the Dakotas and across other regions within our pipeline. Besides CoreWeave, we have completed the diligence and onboarding process with two other investment-grade North American hyperscalers. This is an accomplishment that cannot be overstated. We have learned over the past two years that the onboarding internal approval and contracting process with hyperscalers is longer and more complex than originally anticipated. We believe that the market-leading experience gained from this process and signing our first leases will benefit us as we continue to engage potential tenants and execute on our pipeline. We also expect to benefit from this competitive advantage as new entrants to the market confront the time, money, and effort it takes to overcome these industry-specific barriers to entry. We feel we are now in a position to do business with these companies in the future with a much shorter negotiating and contracting completion process. In fact, we are currently in various stages of negotiation with several investment-grade hyperscalers for large capacity campuses other than our Polaris Forge 1 campus, with one of those negotiations being in an advanced stage. Given our past experience, we know these large and complex lease agreements require multiple levels of approval, making it difficult to determine when and if any of them will be finalized. Now turning to our Data Center Hosting business, we currently operate 286 megawatts of fully contracted data center hosting capacity for our cryptocurrency customers across two locations in North Dakota. Bitcoin prices remain strong, which is positive for our customers, and we remain optimistic about the business and its future prospects. Next, let's discuss our Cloud Services business, which provides high-performance computing infrastructure for AI applications. As announced on our prior quarterly call, our Board of Directors determined that we would be reviewing strategic alternatives for this business. This process is ongoing, and we will provide an update as soon as we have more details to share with shareholders. With that, I will now turn the call over to our CFO, Saidal Mohmand.

Mohammad Saidal L. Mohmand, CFO

Thanks, Wes, and good afternoon, everyone. Now that we've signed leases for Polaris Forge 1, we're actively working with our financing partners to finalize the project financing for these data centers, which we expect to occur over the next four to ten weeks. Since the end of the quarter, we've raised approximately $270 million between our ATM and Series G preferred stock. Combined with the significant equity we already have in the campus, we believe this puts us in a very strong position as we seek to wrap up the new financing package. Now let's turn to the quarter. Please note that unless otherwise specified, the figures we are about to discuss reflect continuing operations only and exclude the Cloud Services business. Revenues for the fiscal fourth quarter of 2025 were $38 million, up 41% year-over-year over the prior comparable period. This increase was driven predominantly by an increase in capacity online in our Data Center Hosting Business. Cost of revenues increased $7.5 million to $30.2 million from the prior comparable period. This increase was also driven by an increase in capacity online in our Data Center Hosting businesses. SG&A expense increased $15 million to $28.1 million. The increase was driven by the company's overall business growth, which included an increase of $9.4 million in stock-based compensation due to an accelerated vesting of certain employee stock awards and expenses related to the PSUs. Personnel expenses increased by $3.4 million, largely driven by increases in headcount to support the business and $2.3 million of other expenses, mainly software expenses and insurance premiums. This quarter, our depreciation and amortization expense increased to $4.1 million compared to $3.6 million in the same period in 2024. Interest expense decreased $9.3 million to $4.5 million. Net loss attributable to common stockholders was $26.6 million or $0.12 per basic and diluted share. The adjusted net loss attributable to common stockholders was $7.6 million or $0.03 per diluted share. Our adjusted EBITDA was $1 million for the quarter, and we provided a reconciliation for these metrics in the press release released earlier today. Moving to our balance sheet, we ended the fiscal fourth quarter with $120.9 million of cash, cash equivalents and restricted cash, along with $688.2 million in debt. As noted earlier, this does not include the additional $268.9 million in proceeds from our ATM and Series G preferred stock offering that occurred post-quarter. Turning to guidance, we historically have not provided specific forward-looking guidance. However, given some of the near-term dynamics related to the core leases, we will provide some directional guidance for the next quarter. We expect revenue to increase significantly sequentially, beginning in the quarter ending for August 2025 due to the technical fit-out of our first Polaris Forge 1 building. Note, our customer pays the cost of this fit-out with a small margin to the company. This fit-out revenue will largely be recognized in both the current fiscal quarter and as well as the quarter ending November 30, 2025. Now this is before the actual lease revenue for the facility begins to be recognized. With that, I'll turn over the call to Wes for closing remarks.

Wes Cummins, CEO

Over the past two years, we've sought to build strong relationships with nearly all major hyperscalers and demonstrated our advanced building capabilities by passing what we believe is some of the most rigorous technical due diligence and processes imposed by them in the industry. As a result, we've established relationships with several hyperscalers, which should position us for future projects. With the CoreWeave lease, we believe we're now roughly halfway toward our internal goal of generating $1 billion in annual net operating income over the next three to five years. We feel confident this is achievable, thanks to what we believe to be our competitive advantages for our multi-gigawatt pipeline, proven design and construction expertise, and strong relationships with hyperscalers who appear to be more active than ever in pursuing land, power, and data center capacity. Overall, we see this as just the beginning for Applied Digital as we help drive the future of AI and high-performance computing infrastructure, and we remain very optimistic about the road ahead. We welcome your questions at this time.

Operator, Operator

Your first question comes from the line of Nick Giles from B. Riley Securities.

Nicholas Giles, Analyst

My first question was just how we should think about development cadence over the course of 2026. And just wondering if there's a window where you could be breaking ground on a second campus, or would this be more of a 2027 groundbreaking on a site other than Polaris Forge?

Wes Cummins, CEO

Nick. We do expect to break ground and work has already started for that on one additional campus and potentially two before the end of this year.

Nicholas Giles, Analyst

Got it. Okay. Maybe just my second question would be, I think you provided a range on the financing for four to ten weeks. So I was just curious if you could add any additional color. What would be the largest gating items at this point? Or what could ultimately take you to either end of that range?

Wes Cummins, CEO

I'll say something first, Nick, and then turn it to Saidal. But I think the biggest gating item in my mind right now in the process is just how things generally slow down in the last part of August before they turn back on in September in the industry in general. And then I'll turn it over to Saidal for any comments you would like to make.

Mohammad Saidal L. Mohmand, CFO

I think that's fair, Wes. I would also add that we are relying on professional service providers like consultants who will provide construction reports, as well as lawyers who can handle document execution. That can always add some lag, but we have a good team and a great identified lead banking partner who's both incentivized to get this done on an expedited timeframe, given there's a lot to do. People are excited in the space in general.

Operator, Operator

Your next question comes from the line of Rob Brown from Lake Street Capital Markets.

Robert Duncan Brown, Analyst

Congratulations on all the progress. You mentioned one customer is in advanced negotiations and is part of your large pipeline. Could you clarify if this is the customer where you've completed most of the onboarding work and are now just waiting on contract negotiations? Also, could you provide an update on the current status of this situation?

Wes Cummins, CEO

We don't want to provide too many details to identify the customer, but it is an investment-grade North American hyperscaler that we are in advanced negotiations with. This is a relatively small group. We are having ongoing discussions with four, five, or six of the hyperscalers for the campuses we are focusing on, both in the Dakotas and outside of the Dakotas. However, I would say that we have seen an acceleration in the market from that perspective over the past month.

Robert Duncan Brown, Analyst

Yes. Okay. Great. And then on the Ellendale facility, I think you're doing fit-out starting this coming quarter. Just what's left to complete on that building? Or is it really just getting the fit-out and the customer started to load in the facility?

Wes Cummins, CEO

Yes. It's mostly fit-out, which is underway. Then the customer will bring gear on-site and conduct cabling and racking, and that's really what's left. The expectation is in calendar Q4 of this year that, that will start to ramp up through October and November.

Operator, Operator

Your next question comes from the line of Mike Grondahl from Northland Securities.

Michael John Grondahl, Analyst

Congratulations on the 150-megawatt options signed by CoreWeave. Related to the first $250 million from CoreWeave, the 100-megawatt building and the 150-megawatt building. How are terms looking on that project financing? Are those kind of coming in how you expected? Any color you could give us there?

Wes Cummins, CEO

Yes. They're largely coming in as expected. I'll let Saidal give any details that he wants to give on that, but it's largely for me as expected.

Mohammad Saidal L. Mohmand, CFO

Yes, correct. I think this is, call it, known within the industry for similar financings for this type of tenant. Think about it, it's your investment grade, you're somewhere in the high twos, think about low interest rates, plus low fours is generally where the cost is coming for this type of tenant, as well as loan-to-cost in the 70% range. That is what we're seeing in the market, and it's becoming somewhat universal.

Michael John Grondahl, Analyst

Got it. And then thinking of the 100 megawatts, then the 150 and then the second 150, do you have rough go-live dates for each of those buildings?

Wes Cummins, CEO

Yes. The first 100, as we mentioned, is Q4 of this year, then mid-2026 for the second building, the 150, and then first half of '27 for the following 150. Rob — sorry, Mike, these are in calendar quarters.

Operator, Operator

Your next question comes from the line of Darren Aftahi from ROTH.

Darren Paul Aftahi, Analyst

Congrats as well. A question on Building 2. I know you said you guys have already broken ground, and I know you've invested a lot of money for the campus in general. The time frame looks like it's 12 months from now, plus or minus. I guess, is that an aggressive time frame? And if there's any slippage, are you penalized in terms of a credit against the lease? Or just kind of help me if you're a month or two late on that with CoreWeave, how that kind of works out. And then my second question, there's a lot of commentary in the release and your white paper that you wrote about the Dakotas. I'm just kind of curious, beyond South Dakota — are you more partial to looking at places where PUEs are super attractive, maybe than the southern part of the United States? Any color on that would be helpful.

Wes Cummins, CEO

Sure, Darren. So on Building 2, I — we got the most recent pictures from the campus today that the building is actually being erected now. So there's been a significant amount of work done already from foundation and dirt work. The building is actually going up quickly, and we feel great about that timeline. As I mentioned in the script, we've worked really hard, and the team has worked diligently over the past year streamlining our operations. We have significantly reduced the number of components and different suppliers, so that we have a very repeatable streamlined process, designed to be deployed in about half of the time that we did Building 1. We've learned a lot from Building 1 and have a design that's much more flexible. I feel good about where that is, especially as we're in the middle of the summer and the building is already going up, so it will be enclosed for construction and fit-out in the winter. There are standard lease terms, and there are late delivery penalties for us. And then to your point on other campuses, it's not exclusively the Dakotas. We feel comfortable in North Dakota. We're working on a site in South Dakota, but we have multiple large campuses in North Dakota. We have the workforce there, as well as a General Contractor that we've worked very well with. So we're really comfortable with all aspects of North Dakota. Then obviously, the fiber connectivity in the state is also enhanced with the new line coming through. We have other sites mostly in MISO, but that extend across to the southern part of the country as well. But we're primarily focused in North Dakota right now.

Operator, Operator

Your next question comes from George Sutton from Craig Hallum.

George Frederick Sutton, Analyst

Mike, congrats as well. So Wes, you mentioned that the hyperscalers are more active than ever. And I'm curious because some of them are seeming to want to own their own infrastructure. Are we talking about scenarios where you would own the campus like Ellendale? Or are we talking in some cases about powered shells?

Wes Cummins, CEO

No. Thanks for the congrats. Right now, we're very focused on full-stack solutions. We want to own the full building and manage operations. That's really where all of the negotiations and interest are focused. There has always been a preference among hyperscalers to self-build or go for powered shell. When conditions are tight, they typically engage in colo agreements like the ones we have and are seeking to establish in the future. But right now, George, we're focused on full-stack colo over powered shell. While it might be interesting for us to blend campuses with some full stack and some powered shell, I don't currently have much interest in just the powered shell model. I don't see it as a great business model for a public company, though it could possibly work better for a private company on the powered shell side. Yes. We have not made much progress in South Dakota, and that's likely something that will be considered in the next legislative session next year. Right now, we're focused on another large campus in North Dakota, where we're in advanced negotiations, and then a campus in the southern part of the U.S. within MISO.

Operator, Operator

There are no further questions at this time. I will now turn the call over to Wes Cummins. Please continue.

Wes Cummins, CEO

Great. Thanks, everyone, for joining, and I look forward to speaking to you in October.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.