Q4 2025 Earnings Call Transcript

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 -- in 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, 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 of Wes Cummins.

Wes?

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 a 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 1 of our key strengths over the past 2 years has been refining our process by reducing the number of SKUs by approximately 50% and consolidating our suppliers. We believe 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 0 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 100-megawatt data center customer could save up to $2.7 billion over a 30-year period as compared to the 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 2 other investment- grade North American hyperscalers. This is an accomplishment that cannot be overstated. We have learned over the past 2 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 game 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 time, money and effort it takes to overcome these industry syncretic barriers to entry for other players. We also, for us, 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 1 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 2 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, to walk through our financials.

Saidal?

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 4 to 10 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 of 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 of 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. $3.4 million of personnel expense also increased, largely driven by increases in head count 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 releases, 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.

Over the past 2 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 5 year -- over the next 3 to 5 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 Instructions] Your first question comes from the line of Nick Giles from B. Riley Securities.

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 [ Pigeon Forge ]?

Nick. We do expect to break ground and work has already started for that on 1 additional campus and potentially 2 before the end of this year.

Got it. Okay. Maybe just my second question would be, I think you provided a range on the financing for 4 to 10 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?

I'll say something first, Nick, and then turn it to at 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.

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

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

Congratulations on all the progress. You talked about 1 customer being in advanced negotiations and part of your large pipeline, but -- could you give us a sense of -- is this the customer that you've gotten through a lot of the onboarding work and it's really down to the contract negotiation at this point? Or just give us a sense of where that's at.

Yes. So there's -- we don't want to give a lot of detail on it, Rob, from -- to identify the customer, but it is an investment-grade North American hyperscaler that we're in advanced negotiations with. So that's a pretty small group. And -- but we're having ongoing discussions with 4, 5, 6 of the hyperscalers for the campuses that we're working on both in the Dakotas and outside of the Dakotas.

But I would say that things have accelerated from that perspective, just in the market in general in the past month.

Yes. Okay. Great. And then on the Ellendale facility, I think you're doing fit out sort of 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?

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

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

Congratulations on the 150-megawatt options signed by CoreWeave. And 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 with how you expected? Any color you could give us there?

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.

Yes, correct. And I think this is, call it, known within the industry for similar financings for this type of tenant. Think about it's your investment grade, you're somewhere in the high 2s, think about it, low [indiscernible] plus low 4s is generally where the cost is coming for this type of tenant as well as loan-to-cost or LTC's in the 70% range. That is what we're seeing in the market, and it's becoming somewhat universal.

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?

Yes. The -- so the first 100, as we mentioned, is Q4 of this year and then mid-26 for the second building, the 150 and then first half of '27 for the following 150. And Rob -- sorry, Mike, these are in calendar quarters.

Got it. So that -- but that continues to progress well?

Yes.

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

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 2 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 like Southern part of the United States. Any color on that would be helpful.

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. So the building is actually going up, and it's going up quickly and feel great about that time line, as I mentioned in the script, we've worked really hard, and the team has worked really hard over the past year streamlining what we do.

And so we significantly reduced the number of components, the difference suppliers. So that we have a very repeatable streamlined process, it's designed to be deployed in about half of the time that we did Building 1. There's a lot of learning for us in Building 1 and some -- and a design that's much more flexible as well. So a higher liquid air mix. So the different tenants require different liquid air mixes, but -- and then also designed to lower cost as well.

So feel good about where that is, especially we're in the middle of the summer there and the building is already going up, so will be enclosed for construction and fit out in the winter. And -- but there are just standard lease, there are late delivery penalties for us. And then to your point on other campuses, it's not exclusively the Dakotas. We feel really good in North Dakota.

We have the site in South Dakota we've been working on, but we have multiple campuses, large campuses in North Dakota. We have workforce there. We have a GC there that we worked really well with. And so we're really comfortable with all of the pieces of the puzzle of North Dakota.

And then obviously, the fiber with the new line coming through as well, really enhancing the fiber connectivity in the state. But we have other sites mostly in MISO, but that go really all the way to the southern part of the country as well. But we're primarily focused in North Dakota right now.

[Operator Instructions] Your next question comes from the line of George Sutton from Craig Hallum.

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?

No. And thanks for the congrats. Right now, we're very focused on full stack. So we want to own the full building we want to do operations, and that's really all of the negotiations and the interest that we're fielding.

There is a preference and there always has been with hyperscalers that do self-build or powered shell. And then when conditions are tight, they typically do colo agreements like the ones that we have and the ones that we're seeking to have in the future. But right now, George, we're really sticking with the full stack colo versus powered shell. I don't -- it might be interesting for us if we blended a campus with some full stack and some powered shell.

But right now, I don't have a lot of interest in just the powered shell. I don't think it's necessarily a great business model as a public company, maybe more so as a private company on the powered shell side.

Great. And then relative to what you're defining as the Dakota advantage. I'm just curious, have you made any progress in South Dakota relative to the sales stack since that's a very key gating item to deals.

Yes. We have not, and that's likely something in the next legislative session next year. So we're -- right now, we're focused on another large campus in North Dakota, that's where we're in the advanced negotiations and then a campus in the southern part of the U.S. and MISO as well.

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

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

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