Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Applied Digital Corp (APLD, Financial) reported a significant increase in revenues for the fiscal fourth quarter of 2024, reaching $43.7 million compared to $22 million in the same period in 2023.
- The company's 106 megawatt Jamestown facility has consistently met expectations, operating at full capacity with uninterrupted uptime for the seventh consecutive quarter.
- Applied Digital Corp (APLD) has made substantial progress in the construction of its 100-megawatt high-performance computing (HPC) data center in Ellendale, North Dakota.
- The cloud services business continues to experience growth, with four clusters online by the end of the fourth quarter and an additional two clusters brought online in the first quarter of 2025.
- The company secured over $150 million in funding from various financiers and the settlement of the Garden City contingency subsequent to the fiscal year-end.
Negative Points
- The Ellendale facility experienced a significant power outage starting in January due to transformer failures, impacting financial performance.
- The company reported a net loss of $64.8 million for the fiscal fourth quarter of 2024, a substantial increase from the $6.5 million net loss in the same period in 2023.
- Cost of revenue for the fiscal fourth quarter of 2024 increased to $46.3 million from $15.9 million in the same quarter of 2023, driven by higher energy costs and increased depreciation and personnel costs.
- Selling and general administrative expenses rose to $31.3 million in the fiscal fourth quarter of 2024, up from $12.3 million in the prior year's comparable period, due to start-up costs and higher personnel expenses.
- The company is still working on finalizing the lease and project financing for the Ellendale campus, which has caused delays in securing additional capital for ongoing construction.
Q & A Highlights
Q: Wes, to you my first question is on the Ellendale HPC campus. And I wondered if you could speak to the percentage completion on the first 100 megawatts and the remaining capital requirements from here? Thank you very much.
A: Sure, Lucas. So we have a little over $200 million into the facility as it stands today. The building is fully enclosed, we are progressing with MEP at this point, and then we'll do the final fit-out later this year -- early next year. This facility will be roughly $1 billion for the first 100 megawatts. We are working with banks that typically provide project-level finance in this space. We have term sheets and have selected a bank to move forward with. The expectation is that they will fund the remainder with 80% to 90% loan-to-cost quotations.
Q: Wes, did I hear it right that you said kind of fit out early next year? And would that include completion? Or how would you frame that up in terms of that timeline? Thank you.
A: So Lucas, there are a couple of different timelines that we work through here. There is our build timeline, and then there's when our customer wants the facility ready for service. That is not completely locked in at this point. But our schedule from the build perspective is what we've talked about in the past being ready late this year or early next year.
Q: On the cloud services business, can you speak to the ramp in your fiscal first quarter, how many clusters did you have online? And how would you frame up the revenue opportunity Q1 -- fiscal Q1 here versus just this fiscal Q4 period that you just reported? Thank you.
A: Sure, Lucas. We have six clusters online in Q1, and it won't be for the full Q1, but those came online in June, so it will be for the majority of it. With the six clusters up, that business is roughly $110 million revenue run rate on an annual basis. Our team is very focused on the enterprise market. We have been working on financing that we are putting in place that finances this deployment in a way that makes it run through our income statement more fairly versus what it does today.
Q: Just following up on the AI cloud business, I think the six clusters, what's sort of the range of clusters, do you think you can grow that business into? And how do you think about that versus the data center business in terms of capital investments?
A: On both of these businesses, Rob, we think about these businesses in the same way. These are asset-heavy businesses, capital-intensive businesses. We need to have the right mechanisms in place to do asset-level financing for both of them. On the AI cloud portion of the business with the data center capacity that we have in place today and what's available to us as we go through 2025, we can generate significant growth in that business, and we see the demand for it, but we need to get the right capital base in that business to grow it aggressively.
Q: On your hyperscaler contract, I assume the -- just in terms of the timeline, the long lead items there are the due diligence, I assume in the site and the technical due diligence, but sort of what percentage of completion are you at in terms of getting the contract through its process?
A: It's hard to handicap that, but I would say we're north of 90% of the way there.
Q: Just following up on the lease. I guess from a big picture perspective, like how much of this is small details being ironed out versus a larger framework, and I guess my other question in regards to the lease is just how much is a backlog in the law firm that actually doing this holding on this process. Thanks.
A: That's a good question, Darren. So as far as the details, there's large items, and then there's very small items and sometimes the small items can take as long as the large items there. But there is an extensive process around fiber connectivity, power, firm power, redundancy on power that took a significant amount of time to complete, but there is a lot of small details. So I would say it is a split between those, and it's funny, sometimes some of the smaller details take longer.
Q: Could you repeat what you said, the six clusters are driving an annualized run rate of how much revenue? I heard $100 million, but it kind of came through a little garbled.
A: Yes, it's about $100 million to $110 million, Mike.
Q: In the press release, you kind of referred to this development platform on the HPC side with the potential to go from 400 megawatts to 1.4 gigawatts, do you think that first hyperscaler customer is interested in more than the existing 400 you're talking to them about? Could you end up being a one-stop shop for them, for another big project or two?
A: I definitely think we could, but there is other demand in the market as well from similar type customers. There is a significant amount of demand for this capacity, especially near-term power. So '25 power -- 2025 power is done unless we have that for Ellendale. Now we're focused on 2026 power and then 2027 power. But I think near-term power is key, and you need to have the right type of power.
Q: Wes, nothing on the call has surprised me except for one statement. You mentioned it's not clear when the customer might want to go live with the lease. Can you just clarify that statement? My assumption has been we want to get this up and running as fast as humanly possible, and that's why you're building out as rapidly as you are.
A: Yes. So that's correct, George, a correct way to look at it. But there are different stages for this as far as when you're doing fit-out, what we are adding in for the fit-out. So there's a lot of moving parts there. I mean it is fairly buttoned down, but we'll save the details of that for when this is finished, and we can share that publicly.
Q: Relative to the GPU financing structure, our understanding knowing that market pretty well is it's gotten a lot better. It's gotten a lot more financeable, can you just talk about the level of interest you've had from folks in putting a structure together there, kind of where does that stand?
A: Yeah. So we started this process a while ago, and you are correct in that just the interest level has grown and the cost of capital has come down. It really depends on
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
