Applied Digital Corp Q2 2025 Earnings Call Transcript

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

Question: Nick Giles - B. Riley Securities - Analyst : Wes and team, congratulations on today's announcement. In the release, you noted late-stage discussions with multiple hyperscalers. And I was wondering, can you provide any color on where due diligence processes stand with the other potential hyperscalers at this point? My next question is would there come a point where you would reenter exclusivity with any of these counterparties? Thank you very much. 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 14, 2025 / 10:00PM, APLD.OQ - Q2 2025 Applied Digital Corp Earnings Call Wesley Cummins - Applied Digital Corp - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer) Nick, thanks for the question. So I think we disclosed in either October, November that we had the exclusivity with the first potential customer had expired. We opened up the site for additional customers to look. Those are in varying stages of progress, but it's -- once -- I would say that once it's been done once, everything is prepared for easy access on -- when you're doing the diligence around technicals, the design, fiber, power, all of those things. So a much more accelerated progression of those. Does that answer your question?

Question: Rob Brown - Lake Street Capital Markets - Analyst : Just a little further on the hyperscaler discussions. I know you can't exactly predict, but are they kind of moving forward? Are you working through final details? Or are there kind of roadblocks that you've run into? Just some sense of maybe where it's at and what's left to go? Wesley Cummins - Applied Digital Corp - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer) Rob, thanks. What I would say about it, I think the best way to frame this is the experience we have had thus far, again, very thorough process, we've done great, like from a design, technical perspective, fiber. The work we've done there and what's going into that site, specifically in Ellendale, power, all of that has been great and made a huge amount of progress on that. I think with our -- the announcement today, we're hitting really one of the last piece of the puzzle for us, which is -- I think I've communicated this before, we -- while we have this, I think the demand for this capacity, again, I don't know of anything of this scale available in 2025 is going to allow us to break into full stack development and operations in the hyperscale market. But the last piece here is we're new, we're a new entrant. We're a first-time supplier to any of these hyperscalers and the financial backing from a very well-known partner with a lot of capital, I think, is really helpful in checking the box for the last hurdle we need to get over. But I'm really optimistic about finalizing a lease on that facility and then moving on to the next level. 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 14, 2025 / 10:00PM, APLD.OQ - Q2 2025 Applied Digital Corp Earnings Call

Question: Darren Aftahi - ROTH Capital Partners LLC - Analyst : Two, if I may. Just on the Macquarie announcement this morning, is there anything strategic in terms of the process and timing as it relates to the lease? And then I know you guys already hit this, the multiple hyperscalers in the PR. Is there a scenario where that 400 megawatts in Ellendale could get split amongst two? Or are you kind of down the path of one entity is going to take all the capacity? Thanks. Wesley Cummins - Applied Digital Corp - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer) Thanks, Darren. On the first question, it's really about getting to the right terms, and I'm not going to get into whether there's anything else as far as the timing around that. On the second question, it could split. I strongly believe it's going to be a single customer for the entire campus.

Question: Mike Grondahl - Northland Securities - Analyst : Could you remind us exactly how much money you had invested in Ellendale HPC and how much you'll be able to pull out with this Macquarie financing? 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 14, 2025 / 10:00PM, APLD.OQ - Q2 2025 Applied Digital Corp Earnings Call Wesley Cummins - Applied Digital Corp - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer) Yeah, I'll let Saidal answer that.

Question: Mike Grondahl - Northland Securities - Analyst : Right. So of the $700 million or over $700 million you have invested in Ellendale, you'll end up with a net $400 million with that $180 million of debt paid off and then you'll pull out some other capital. So your net investment is about [$400 million]?

Question: Mike Grondahl - Northland Securities - Analyst : Okay. And then two more questions. One, Wes, if you could maybe define your pipeline right now, it looks like Macquarie can fund 2 gigawatts. Do you -- after the [400], how much more do you have or can you get your hands on? And then secondly, if you could -- I don't know, maybe just demand sounds pretty good with all these hyperscalers, but what's the pricing environment look like? 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 14, 2025 / 10:00PM, APLD.OQ - Q2 2025 Applied Digital Corp Earnings Call Wesley Cummins - Applied Digital Corp - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer) So I'll answer the second one first. So the pricing environment is reflective of the demand environment. And I think there's plenty of data points just even in the last few weeks about data center spend from some of the hyperscalers that is a strong indicator of where the demand in the market remains. And then to the pipeline, Mike, we've talked about this on our last call. We have other campuses. I think the total is 1.6. So that's the 2 outside of Ellendale, 1.6 of campuses where we have 2026 power and 2027 power. So those are the ones that, in some cases, we've already been in market with those campuses.

Question: George Sutton - Craig-Hallum Capital Group LLC - Analyst : Thank you and congratulations on the Macquarie deal today. So I'm curious, Wes, I understand timing is challenging to predict. But in the facility, it looks like there is a February 15, 2025, lease signing date that is necessary for this. Can you just address that specific date? Wesley Cummins - Applied Digital Corp - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer) Yeah. So thanks, George. So the Feb 20 -- 15 is not a lease signing date. I'll have to go back and look, but I think that outside date is maybe in June. But the Feb 15 is for completion of some other items, but it's not a lease signature date.

Question: George Sutton - Craig-Hallum Capital Group LLC - Analyst : Understand. And then lastly, if I could just understand the 15% ownership that Macquarie takes on of the HPC business, what investment are they making for that? Is that the initial $200 million-ish? Or is there a requirement for them to fund a specific portion of the $5 billion in total?

Question: George Sutton - Craig-Hallum Capital Group LLC - Analyst : Beautiful. Okay. So if they don't choose to support a specific project, that would not contain the equity in that case? Wesley Cummins - Applied Digital Corp - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer) That's correct.

Question: Brett Knoblauch - Cantor Fitzgerald - Analyst : Thanks for taking my question and congrats on the announcement this morning. On the ROFR, is that just a ROFR on the perpetual preferreds? Or would you have to use that before, say, you wanted to raise traditional equity through a secondary? Or you would have to use the preferreds before you could go down that route? 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 14, 2025 / 10:00PM, APLD.OQ - Q2 2025 Applied Digital Corp Earnings Call Wesley Cummins - Applied Digital Corp - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer) So it's -- think of it at two different levels. So we want to finance everything at the asset level with the preferred. Anything up at the top company you're talking about like our public equity that there's nothing on that. And if that's not what you meant, then please correct me.

Question: Brett Knoblauch - Cantor Fitzgerald - Analyst : So not like common of the parent? Wesley Cummins - Applied Digital Corp - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer) Not common of the parent. 15% of the HPC subsidiary.

Question: Brian Vieten - Needham & Company - Analyst : You mentioned there's been some learnings on the deliberate approach hyperscalers take. What's one of those learnings that you can apply to the next set of negotiations, some of which may be ongoing? 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 14, 2025 / 10:00PM, APLD.OQ - Q2 2025 Applied Digital Corp Earnings Call Wesley Cummins - Applied Digital Corp - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer) Yeah. So just the preparation of everything that we need to provide going through the process, like I said, it was much more accelerated with anyone else because we have all the prep. We have the knowledge base of what is being looked for potential changes for things in the future as far as design and there's a constant evolution, especially on cooling. So there's that aspect. And then I think one of the biggest is just -- I'll call it being stamped, right, just getting through the process, signing a lease, being stamped by one of these types of customers that we have the ability to do all of these things, I think that's going to help accelerate it. One of the things that we have learned is first-time supplier, it always is going to take longer than if you're already a supplier to that company. And that shouldn't be, I guess, a big surprise, but it's just the delta between existing supplier and first time is a little bit larger than we thought.