Applied Digital Corp Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Lucas Pipes - B Riley Securities Inc - Analyst : Thank you very much, operator. Good morning, everyone. My first question is on the HPC hosting side and the conditional agreement that you announced and of the few ones. First, in terms of the total value you cite there, should we kind of think of $220 million of revenue per year? And then are your margin expectations for the segment still around 40% and on the capital cost side? I've been working with a $5 million per megawatt assumption, wondered if that's still a good number to use think. Thank you very much for your details. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2024 / 2:00PM, APLD.OQ - Q2 2024 Applied Digital Corp Earnings Call

Question: Lucas Pipes - B Riley Securities Inc - Analyst : Got it. That's very helpful. Thank you for that. And turning to guidance for a moment. In terms of the components that have been delayed, what exactly has been the bottleneck? Could you add little bit more color on that? And then I think previously you provided some color on GPUs online and the average in fiscal Q3 and Q4. I think you mentioned it in your prepared remarks, but I was trying to take notes and couldn't quite keep up. So if you have maybe expectation around kind of Q3, Q4 GPUs would appreciate color around all of this. Thank you.

Question: Lucas Pipes - B Riley Securities Inc - Analyst : That's very helpful. Thank you, Wes, for all the color. One quick one, the $45.8 million in property equipment. the assets that have been purchased year to date, are you able to provide a breakdown between HPC and GPUs in that number? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2024 / 2:00PM, APLD.OQ - Q2 2024 Applied Digital Corp Earnings Call

Question: Lucas Pipes - B Riley Securities Inc - Analyst : Yes, that's the number of property and equipment that's been purchased to date, year to date.

Question: Lucas Pipes - B Riley Securities Inc - Analyst : Okay.

Question: Lucas Pipes - B Riley Securities Inc - Analyst : That is very helpful. Thank you, Wes, for all the color and best of luck.

Question: George Sutton - Craig-Hallum Capital Group LLC - Analyst : Thank you. It's great to see the conditional agreement. I just wondered if you could walk us through the project level financing side of this, and sort of how do these ultimately come together in your mind? Is it a combination of construction loan financing and project financing? And any sense of the market dynamics there that we should know about? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2024 / 2:00PM, APLD.OQ - Q2 2024 Applied Digital Corp Earnings Call

Question: George Sutton - Craig-Hallum Capital Group LLC - Analyst : So I wondered if you could walk through the 400 megawatts that you're ultimately marketing, obviously, 100 megawatts now effectively spoken for. Just it's very clear to us that the demand side of the equation here is going to be pretty significant. I'm just curious what you're seeing as you're going to market with the other 300 megawatts of opportunity?

Question: George Sutton - Craig-Hallum Capital Group LLC - Analyst : Last question for me on the site computing side, obviously we understand the supply chain challenge. Looking past that, I'm just curious on the demand side. So you mentioned you've got another four clusters that could ship here soon. Is there any demand challenge that you're seeing or has anything changed there? Or is it really just a limitation on the supply chain side?

Question: George Sutton - Craig-Hallum Capital Group LLC - Analyst : Perfect. Thanks for the details.

Question: Darren Aftahi - ROTH Capital Partners, LLC - Analyst : Good morning. Thanks for taking my questions. Just two, if I may, if I heard you correctly pricing's kind of gone up on the GPU side. I think Wes, maybe you said on an annualized basis with the [10,000] to be over $200 million. I'm just kind of curious, I think at the Analyst Day, which is not too long ago, you talked about a $1.5 monthly run rate. I guess what's changed? And then on the GPU side, I know you are targeting 10,000 by the end of your fiscal year. I guess, given there are some uncontrollables on components. What's your level of confidence in that 10,000 number? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2024 / 2:00PM, APLD.OQ - Q2 2024 Applied Digital Corp Earnings Call

Question: Darren Aftahi - ROTH Capital Partners, LLC - Analyst : Well, if I could squeeze one more in. On Garden City, just looks like it is, obviously, going to ramp as fast as everyone expected. With the grid components, can you just maybe talk a little bit about maybe what is needed, how quickly those can get here? And then I'm just kind of curious, your propensity to continue to do business maybe with the next site in somewhere like Texas, like, how would you kind of grade that in terms of wanting to do business in a place like Texas? Thanks

Question: Darren Aftahi - ROTH Capital Partners, LLC - Analyst : Great. Thank you.

Question: Rob Brown - Lake Street Capital Markets LLC - Analyst : Hi, good morning.

Question: Rob Brown - Lake Street Capital Markets LLC - Analyst : Just following up on the new anchor customer, could you give us a sense of sort of what vertical that customer is in? I think you mentioned, I guess, enterprise or VC-backed side, what sort of group is that?

Question: Rob Brown - Lake Street Capital Markets LLC - Analyst : Okay. Thank you. And then just wanted to follow up on the GPU a discussion around, I guess, do you still have commitments to buy the 26,000 GPUs and deploy them after May, or is that still to be determined that contract activity?

Question: Rob Brown - Lake Street Capital Markets LLC - Analyst : Got it. Great. Thank you for the color. I'll turn it.

Question: John Taranto - Needham & Company, LLC - Analyst : Great. Thanks for taking my question, a couple ones here. One, so you called out before, I think you're supposed to be 20,000 GPUs by end of December '23. On the last call or the Analyst Day, maybe you did talk about them some possible delays in the InfiniBand. I'm just kind of curious, did that situation get worse than you expected? Or were those delays kind of on your mind and you guys just miss analyzed it?

Question: John Taranto - Needham & Company, LLC - Analyst : Got it. Okay. And then that's helpful. Another question I had, you had mentioned this this new customer contract in this high compute side, enterprise customer. How are you could move your proof of concept and start delivering on that contract shortly. Just curious with the delay, wouldn't the previously existing contracts come before this one or did anything change with those contracts?

Question: John Taranto - Needham & Company, LLC - Analyst : Okay. Got it. And just to clarify, though, so even with the delays though, the customers are still kind of lining up knocking on doors it sounds like.

Question: John Taranto - Needham & Company, LLC - Analyst : Okay. Got it -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2024 / 2:00PM, APLD.OQ - Q2 2024 Applied Digital Corp Earnings Call

Question: John Taranto - Needham & Company, LLC - Analyst : Got it. Thank you. Appreciate it.

Question: Mike Grondahl - Northland Capital Ltd - Analyst : Hey, guys. What is the rough estimate of Applied's contribution to complete financing of the construction, just the project side of it for the anchor tenant? What do you guys have to pitch into that roughly, just a number? And how should we --

Question: Mike Grondahl - Northland Capital Ltd - Analyst : Got it. Got it. That's helpful. I'm assuming that the anchor tenant will be supplying the GPUs, but could you clarify there?

Question: Mike Grondahl - Northland Capital Ltd - Analyst : Got it. Got it. Roughly, when would you begin to recognize revenue with this anchor customer? What is -- I'm not going to hold you to above, roughly as this plays out, when would you expect that revenue to start? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2024 / 2:00PM, APLD.OQ - Q2 2024 Applied Digital Corp Earnings Call

Question: Mike Grondahl - Northland Capital Ltd - Analyst : Like July, August would be kind of --

Question: Mike Grondahl - Northland Capital Ltd - Analyst : Okay. Yes, great. And then just one last question on the bitcoin hosting business, any contract renewals or extensions have any updated kind of terms or is everything kind of locked down in that business?

Question: Mike Grondahl - Northland Capital Ltd - Analyst : Got it. Okay. Hey, thank you.

Question: Kevin Dede - H.C. Wainwright - Analyst : Hi, Wes. Thanks for taking my question. Curious about the number of facilities that you're running are leasing to supply the power you need for your cloud service at the moment?

Question: Kevin Dede - H.C. Wainwright - Analyst : Yes, Jamestown, you have maxed out at eight megawatts, if I understand correctly.

Question: Kevin Dede - H.C. Wainwright - Analyst : Whatever you're used to is fine. And I'm just -- I guess the real genesis of the question as in meeting cloud builds, right? The amount of - given the market's really tight, how are you securing the power that you need to meet your customer demands on the cloud service side?

Question: Kevin Dede - H.C. Wainwright - Analyst : Right, so 26,000 to 34,000, that delta going into the Ellendale facility that's under construction now.

Question: Kevin Dede - H.C. Wainwright - Analyst : Okay. I think I correctly heard you mentioned a marketing initiative, and I was wondering if you could be more specific about the direction that you're going to take that. Do you think that goes towards that enterprise market that you're seeing starting to develop?

Question: Kevin Dede - H.C. Wainwright - Analyst : Understood, and congrats on that. I guess I'm just still a little shaky in how you see that market developing and I guess sort of your competitive positioning, and if demand is so strong, why would a marketing initiative be necessary at all? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2024 / 2:00PM, APLD.OQ - Q2 2024 Applied Digital Corp Earnings Call

Question: Kevin Dede - H.C. Wainwright - Analyst : It makes sense. Okay. Well, thanks for that. Do need any are offensive kind of looking for clarification? Thanks a lot.

Question: Kevin Dede - H.C. Wainwright - Analyst : I don't disagree. Right marketing makes it happen. Congrats again on the results, Wes. Thank you very much for taking the questions.