Q1 2024 Applied Digital Corp Earnings Call

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Good morning, and welcome to apply digital physical first quarter 2020 for a conference call My.

Speaker 1: Good morning and welcome to Applied Digital's fiscal first quarter 2024 conference call. My name is Rob and I'll be your operator for today.

My name is Rob and I'll be your operator for today.

Before this call five digital issued its financial results for the fiscal first quarter ended August 31, 2023, and our press release.

Speaker 1: Before this call, Applied Digital issued its financial results for the fiscal first quarter and at August 31, 2023, in a press release, a copy of which will be furnished in a report on Form 8K filed with the SEC and will be available in the investor relations section of the company's website.

Copy of which will be furnished in our report on form 8-K filed with the SEC it'll be available in the Investor Relations section of the company's website.

Speaker 1: Joining us on today's call are Applied Digital's Chairman and CEO Wes Cummins and CFO David Wrench. Following their remarks, we will open the call.

Joining us on today's call are fine Digital's, Chairman and CEO West Cohen, <unk> CFO David Ranch.

Following their remarks, we will open up the call for questions.

Speaker 1: Before we begin, Alice Covington from Gateway Group will make a brief introductory statement.

Before we begin Alex Kovtun from Gateway group will make a brief introductory statement.

Please proceed.

Speaker 2: Great, thank you, operator. Good morning, everyone, and welcome to Apply Digital's fiscal first quarter 2024 conference call.

Great. Thank you operator, good morning, everyone and welcome to apply digital fiscal first quarter 2024 conference call.

Speaker 2: Before management begins their formal remarks, we would 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.

Before management begins their formal remarks, we would 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.

Speaker 2: As a result, we caution that there are a number of factors, many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward-looking statement.

As a result, we caution you that there are a number of factors many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward looking statements.

Speaker 2: For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission.

For more detailed risks uncertainties and assumptions relating to our forward looking statements. Please see the disclosures in our earnings release and public filings made with the Securities Exchange Commission.

Speaker 2: 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 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.

As required by law.

Speaker 2: We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and the reconciliation tables, applicable GAAP measures in our earnings release carefully as you consider these metrics.

We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and the reconciliation tables.

Applicable GAAP measures in our earnings release carefully as you consider these metrics.

Speaker 2: We refer you to our filings with the Securities and Exchange Commission 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 under the caption, risk factors in our quarterly report on Form 10Q.

We refer you to our filings with the Securities and Exchange Commission.

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 under the caption risk factors in our quarterly report on Form 10-Q.

You may get apply Digital's Securities and Exchange Commission filings for free by visiting the SEC Web site at Www Dot S E C Dot Gov.

Speaker 2: You may get applied to Jules Securities and Exchange Commission filing for free by visiting the SEC website at www.sec.gov.

Speaker 2: I would also like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Invest Relations section of Apply Digital's website.

I would also like to remind everyone that this call is being recorded I believe made available for replay via a link available in the Investor Relations section.

Digital's website.

Speaker 2: Now I will turn the call over to apply Digital's Chairman and CEO , Wes Cummins. Wes?

Now I will turn the call over to apply digital as chairman and CEO Wes Cummins Wes.

Speaker 1: Thanks Alex, good morning everyone. Thank you for joining our fiscal first quarter, 2024 conference.

Thanks, Alex and good morning, everyone. Thank you for joining our fiscal first quarter 2024 conference call.

Speaker 3: I want to start by thanking our employees for their ongoing hard work and service and advancing our mission of providing digital infrastructure solutions to the rapidly growing high performance computing industry.

I want to start by thanking our employees for their ongoing hard work and serviced and advancing our mission of providing digital infrastructure solutions for the rapidly growing high performance computing industry before.

Speaker 3: Before turning a call over to our CFO , David Range for a detailed review of our financial results, I'd like to briefly discuss some recent developments across our business. Let's start.

Before turning the call over to our CFO, David Ranch for a detailed review of our financial results I'd like to briefly discuss some recent developments across our business.

Let's start with our existing blockchain hosting operations. We aim to have all three of our blockchain hosting facilities fully online shortly with high reliability and performance for our customers.

Speaker 3: We intend to have all three of our blockchain hosting facilities fully online shortly with high reliability and performance for our company.

Speaker 3: Our 100 megawatt James Talent Facility continues to perform as expected and operates a full capacity with consistent uptime throughout the quarter. This marks the fourth consecutive quarter in which the James Talent Facilities has operated at full.

Our 100 megawatt Jamestown facility continues to perform as expected and operates at full capacity with consistent uptime throughout the quarter.

This marks the fourth consecutive quarter in which the Jamestown facility has operated at full capacity.

Speaker 3: Our 180 megawatt Ellen Bell facility in North Dakota was fully energized and became fully operational during the first quarter of fiscal year 2024.

180 megawatt Allendale facility in North Dakota was fully energized and became fully operational.

During the first quarter of fiscal year 2024.

Contributed sure.

Speaker 3: Result is quarter of the facility is fully online and operating the consistent uptime during the second quarter bringing our total hosting capacity 280 megawatt across our North Dakota facilities all of which are contracted out to customers on multi-year

Results this quarter at that facility is fully online and operating with consistent uptime during the second quarter, bringing our total hosting capacity.

280 megawatts across our North Dakota facilities, all of which are contracted out to customers on a multi year terms.

Speaker 3: In September , we entered into a facilities extension agreement with encore for the transmission and metering of power to our garden city, Texas.

In September we entered into with facilities expense your agreement with Oncor for the transmission and metering of power to our Garden City, Texas facility.

Speaker 3: With this in place, metering into limited equipment owned by the power provider will be installed and once complete, the site will be energized. This installation is expected to be completed by October 20,

It's in place metering and telemetry equipment owned by the power provider will be installed and once complete the site will be energized. Its installation is expected to be completed by October 20 <unk>.

Once our garden city facility becomes fully energized, we will have approximately 500 megawatts supposedly capacity across our three facilities.

Speaker 3: Once our garden city facility becomes fully energized, we will have approximately 500 megawatts of hosting capacity across our three facilities.

Speaker 3: We expect our three sites to produce around 300 million and rather 100 million in EBITDA on an annualized base.

We expect our three sites to produce around $300 million in revenue about 100 million in EBITDA on an annualized basis.

Speaker 3: presence of all three operational facilities with high up time will provide us with consistent cash flow supporting our capital requirements for the build out of our HPC data centers and purchasing GPUs to serve us our AI club.

Dozens of all three operational facilities with high up time will provide us with consistent cash flow and supporting our capital requirements for the build out of our H P. C data centers and purchasing Gpus to service, our AI cloud customers.

Let's move to our AI cloud services, which launched this calendar year to provide accelerated computing power for AI applications are.

Speaker 3: Our AI cloud service continues to ramp up as we make further progress in supporting our existing contracts and pursue additional opportunities in our

AI cloud service continues to ramp up as we make further progress in supporting our existing contracts and pursue additional opportunities in our pipeline.

Speaker 3: In July , we activated the first cluster of GPUs for character AI. And since then, have made meaningful progress receiving our second cluster of GPUs in September with the expectation of receiving additional GPUs.

In July we activated the first cluster of Gpus for character AI and since then have made meaningful progress receiving our second cluster Gpus in September with the expectation of receiving additional Gpus. This month.

Speaker 3: Since our last earnings announcement, we have added two additional AI cloud customers. Both customers have an established shoe.

Since our last earnings announcement, we have added two additional AI cloud customers. Both customers have an established user base and are growing quickly. These customer agreements have a similar structure to our first two. They also include significant prepayments to fund a large portion of the capital requirements.

Speaker 3: These customer agreements have a similar structure to our first.

Speaker 3: They also include significant prepayments to fund a large portion of the capital requirements.

Are you, saying that your peers.

Speaker 3: This brings our total annual contract value of AI cloud services contracts at full capacity to approximately $378 million.

This brings our total annual contract value of AI cloud services contracts at full capacity to approximately $378 million.

In addition to substantial prepayments we received from customers, who are using vendor financing and actively exploring other tailored financing options to support the capital requirements for the 34000 Gpus, we have on order to support our cloud service. We remain on track for delivery of the majority of these Gpus by April of next year.

Speaker 3: In addition to substantial prepayments we received from customers, we are using vendor financing and actively exploring other tailored financing options to support the capital requirements for the 34,000 GPUs we have on order to support our cloud service. We remain on track for delivery of the majority of these GPUs by April of next year.

Speaker 3: Our established partnerships with leading OEMs like SuperMicro, Sheila Packard Enterprise and Dell, combined with our recent Elite Partner Status and NVIDIA's Partner Network, provides us with visibility into the delivery timeline, ensuring timely receipt of these GPUs. As previously mentioned, we will initially provide this service from our nine megawatt HPC Jank Town Facility, along with third party co-location spaces. We continue to execute on the element of our dedicated next gen HPC data.

Our established partnerships with leading Oems like Supermicro, Hewlett Packard Enterprise and Dell combined with our recent elite elite partner status and then videos partner network provides us with visibility into the delivery timeline, ensuring timely receipt of these gpus as previously mentioned we will initially provide this service from our nine megawatt H P C.

Jamestown facility, along with third party co location space as we continue to execute on the element of our dedicated Nexgen H P. C data centers.

Speaker 3: The pipeline of opportunities for AI cloud service business were main drove.

The pipeline of opportunities for AI cloud service business remains robust.

Speaker 3: We look forward to capitalizing further on this opportunity in providing further updates on our new signed customer school and poll.

We look forward to capitalize even further on this opportunity and providing further updates on our newly signed customers going forward.

Speaker 4: Lastly, let me provide a quick update on our ProcureScope HPC data.

Lastly, let me provide a quick update on our purpose built <unk> data centers.

Speaker 3: We have 300 megawatts of capacity and development and have begun initial groundwork for Ellen Dales' tools.

We have 300 megawatts of capacity in development that have begun initial groundwork for allendale facility.

Speaker 3: in order to proceed with the construction of each facility and obtain the necessary financing where the process is securing a credit rated anchor.

In order to proceed with the construction of these facilities and obtaining the necessary financing we're in the process of securing a credit rated anchor tenant.

Speaker 3: We've been actively engaged in ongoing discussions with several potential anchor tenants for our Ellen Dale and Utah.

We have been actively engaged in ongoing discussions with several potential anchor tenants from our for our Allendale and Utah facilities.

Speaker 3: More toward new customers for AI Cloud Service will provide more information once available.

More towards new customers for our AI cloud service, we will provide more information once available we aim to secure an anchor tenant customer for each facility and have these facilities fully energized and operational within the next 24 months.

Speaker 3: We aim to secure an anchor tenant customer for each facility and have these facilities fully energized and operational within the next twenty four.

Speaker 3: With that, I now turn the call over to our CFO , David Ramesh, to walk you through our financials and provide an update on guidance before providing my closing remarks. David.

With that I'll turn the call over to our CFO, David <unk> to walk you through our financials and provide an update on guidance before providing my closing remarks David.

Thanks, Wes and good morning, everyone.

Speaker 5: Revenues for the fiscal first quarter of 2024 were 36.3 million compared to 6.9 million for the fiscal first quarter of 2023. The increase in hosting revenues was driven by an increase in online capacity due to Elendale, North Dakota site being operational and revenue from the company's first AI cloud service contract, which began during the three months ended August 31, 2023.

Revenues for the fiscal first quarter of 2024 were $36 3 million compared to $6 9 million for the fiscal first quarter of 2023. The increase in hosting revenues was driven by an increase in online capacity due to Allendale, North Dakota site being operational and revenue from the company's first AI cloud service contract, which began.

During the three months ended August 31 2023.

Cost of revenues for the fiscal first quarter of 2024 was $24 4 million compared to $6 1 million for the fiscal first quarter of 2023. The increase in cost was attributable to higher energy costs used to generic hosting revenues depreciation amortization expense and personnel.

Speaker 5: Cost of revenues for the fiscal first quarter of 2024 was 24.4 million compared to 6.1 million for the fiscal first quarter of 2023. The increase in costs was attributable to higher energy costs used to generate hosting revenues, depreciation, amortization expense, and personnel expenses for employees directly working on our Jamestown and Aladel hosting facility.

<unk> expenses for employees directly working on our Jamestown, all adult hosting facilities.

Operating expenses for the fiscal first quarter of 2024 were $17 1 million compared to $5 million in the prior year comparable period. The increase was primarily due to personnel related costs. As a result of the increase in head count as well as an increase in depreciation.

Speaker 5: Operating expenses for the fiscal first quarter of 2024 were 17.1 million compared to 5 million in the prior year comparable period. The increase was primarily due to personnel related costs as a result of the increase in headcount as well as increase in depreciation.

Speaker 5: Net loss for the fiscal first quarter of 2024 was 9.6 million or loss of 10 cents per basic and diluted share based on a weighted average share count during the quarter of approximately 100.5 million. This compares to a net loss of 4.7 million or a loss of 5 cents per basic and diluted share in the fiscal first quarter of 2023 based on a weighted average share count during the quarter of approximately 93.1 million or a loss of 5 cents per basic and diluted share in the fiscal first quarter of 2023.

Net loss for the fiscal first quarter of 'twenty 'twenty, four was $9 6 million or a loss of 10 cents per basic and diluted share based on a weighted average share count during the quarter of approximately a $100 5 million. This compares to a net loss of $4 7 million or a loss of five cents per basic and diluted share in the.

Fiscal first quarter of 2023 based on a weighted average share count during the quarter of approximately $93 1 billion.

Speaker 5: Adjusted net income and non-GAAP measure for the fiscal first quarter of 2024 was 0.1 million or adjusted net income per basic and blue share of less than a six

Adjusted net income a non-GAAP measure for the fiscal first quarter of 'twenty 'twenty four was.

<unk> 1 million or adjusted net income per basic and diluted share of less than six.

Speaker 5: Based on a weighted average share count during the quarter, we're approximately 100.5.

Based on a weighted average share count during the quarter of approximately $100 5 million. This compares to an adjusted net loss a non-GAAP measure of $3 4 million or a loss of four cents per basic and diluted share for the fiscal first quarter of 2023.

Speaker 5: This compares to an adjusted net loss, a non-GAAP measure of 3.4 million, or a loss of four cents per basic and diluted share for the fiscal first quarter of 2020.

Speaker 5: Based on a way to average share count during the quarter, we're approximately 93.1.

Based on a weighted average share count during the quarter of approximately $93 1 million.

Adjusted EBITDA non-GAAP measure for the fiscal first quarter of 'twenty 'twenty, four with 10 million compared to adjusted EBITDA loss for.

Speaker 5: adjusted EBITDA, a non-GAP measure for the fiscal first quarter of 2024, was 10 million compared to a adjusted EBITDA loss.

Speaker 5: for the fiscal first quarter of 2023 of 1.9 million.

For the fiscal first quarter of 2023 of $1 9 million.

Speaker 5: Lastly, on the balance sheet, we ended the fiscal first quarter with 31.2 million in cash, cash equivalents, and restricted cash, and 44 million in debt. During the fiscal first quarter of 2024, we received 39.5 million in customer payments due to the structure of our commercial arrangements with our customers that incorporate upfront deposits and prepayments.

Lastly on the balance sheet, we ended the fiscal first quarter with $31 2 million in cash cash equivalents and restricted cash and 44 million in debt during the fiscal first quarter of 'twenty 'twenty four we received $39 5 million in customer payments due to the structure of our commercial arrangements with our customers that incur.

Right upfront deposits and prepayments and certain contracts, the prepayments or amortize back to the customer over the first year of their contract with no impact on revenue recognition, but the timing of cash flow with upfront cash to us as a major benefit for the company and that it helps our capex funding needs as we build out our data centers.

Speaker 5: In certain contracts, the prepayments are amortized back to the customer over the first year of their contract with no impact on revenue recognition. But the timing of cash flow with upfront cash to us is a major benefit for the company and that it helps our CapEx funding needs as we build out our debt.

Speaker 5: Since the quarter close, we have received an additional 15 million in customer pre-bamettes and are expecting an additional 23 million.

Since the quarter closed we have received the additional $15 million in customer prepayments and are expecting an additional $23 million. This week.

Speaker 5: Now turning to guidance for the full year fiscal 2024, we are reaffirming our expectations for revenue in the range of 385 million to 405 million, and adjusted either in the range of 195 million to 205 million. Now I'll turn the call over to West for close.

Now turning to guidance for the full year fiscal 'twenty 'twenty four we are reaffirming our expectation for revenue in the range of 385 million to $405 million and adjusted EBITDA in the range of a 195 million to 205 million now.

Now I'll turn the call over to west for closing remarks.

Yeah.

Thank you David.

Speaker 3: As we look ahead, we remain confident in our competitive advantages and differentiated capabilities to meet the sophisticated and demanding requirements for businesses and enterprises to run AI workloads and other emerging HPC up.

As we look ahead, we remain confident in our competitive advantages and differentiated capabilities to meet the sophisticated and demanding requirements for businesses and enterprises to run AI workloads and other emerging H P T applications.

Speaker 3: I remain optimistic about the future of applied digital as we solidify our leadership and next generation digital infrastructure for both blockchain and non-blockchain HPC use cases during this era of digital transfer may.

We remain optimistic about the future of apply digital as we solidify our leadership in next generation digital infrastructure for both blockchain and non blockchain HBC use cases during this era of digital transformation.

Speaker 3: I'd like to thank all of our team members for their dedication and making a flag what it is today and our shareholders for trusting us in our mission and execution. We're now happy to take questions. Operator.

I think all of our team members for their dedication in making applied what it is today and our shareholders for trusting us and our mission and execution.

We're now happy to take questions operator.

Yeah.

Thank you.

I'll now be conducting a question and answer session.

Speaker 1: If you like to ask a question at this time, please press star one from your telephone keypad, and the confirmation tone will indicate your line is in the question queue. You mean press star two if you like to remove your

I like to ask a question at this time. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

You can press star two if you like to remove your question from the queue.

Speaker 1: Distance is using a speaker equipment. Maybe necessary to pick up your handset before pressing the star keys. One more.

Participants are using speaker equipment may be necessary to pick up your handset before pressing the star keys.

One moment. Please we poll for questions. Thank you.

Thank you and our first question comes from the line of Rob Brown with Lake Street Capital. Please proceed with your questions.

Speaker 1: Thank you in our first question comes to an line of Rob Brown with Lake Street Capital. Please just see with your questions.

Hi, good morning.

Yeah.

Speaker 5: Good morning, Rob. Questions on your kind of efforts for anchor customers in the AI business. I can't give too much detail, but maybe a sense of kind of the sizing of the center today, do they need to fill out kind of a whole center before you kick off and how does that sort of, okay.

Good morning, Robert on the on your kind of efforts for anchor customers in the AI business.

No I can't give too much detail, but maybe a sense of kind of the the sizing of the of the center today do they need to fill out kind of a whole center.

Before you kick off and then how does that sort of.

Kind of scope out to get really to make a decision to kick off a datacenter bill.

Speaker 3: Yeah, so I think we've, so in the past we've talked about this and it remains the same, which is we think we need to contract roughly 70% of the capacity. It doesn't have to be one customer, but we think we need to contract that, you know, on, on a reasonable, you know, say, eight, you know, seven to 10 year contracts with renewals, to kick off the construction and we're in process of securing that. But Rob, the way.

Yeah.

Well I think so in the past we've talked about this and it remains the same which is we think we need to contract roughly 70% of the capacity. It doesn't have to be one customer, but we think we need to contract out on reasonable, yes, a seven to 10 year contracts.

With renewals.

To kick off the construction and we're in process of securing that but Rob the way.

Speaker 3: I think about these is kicking off roughly 100 megawatts in North Dakota shortly and then followed up with 100 in Utah and then come back, you know kind of mid next year for the second 100 in North Dakota.

I think about these is kicking off roughly 100 megawatts in North Dakota. Shortly and then followed up with 100 and in Utah and then come back you know kind of mid next year for the second hundred in North Dakota.

Okay, great Great and then on the ramp of the AD business.

Speaker 6: Great, great. And then on the ramp of the AI business,

It depends on getting the Gpus sort of delivered.

Speaker 6: delivered, how do you see that ramping of the GPUG border?

How do you see that ramping of the Gpus, you bought or how do you see those coming in in terms of.

The ability to ramp up that business.

Speaker 3: Yes, so I think at this point we're getting pretty good visibility on delivery schedules. It's gotten better since our last call. Then as I mentioned in the prepared remarks that we've received our second cluster in September , expect to receive more this month and really expect to start to receive large volumes in November , December and January .

Yes.

At this point, we're getting pretty good visibility on delivery schedules, it's gotten better since our last call then and as I mentioned in the prepared remarks that we received our second cluster in September and expect to receive more this month and really expect to start to receive large volumes in.

November December and January.

Yeah.

Okay, great. Thank you I'll turn it over.

Thank you.

Speaker 1: The question is from the line of George Sutton. Let's break down. Please just use your-

Question is from the line of George Sutton with Craig Hallum. Please proceed with your question.

Speaker 2: morning is that a month for George. Wes, I was starting with Garden City. Could you provide a little more detail on the pace of energization once on course installed their equipment?

Good morning, it's Adam on for George.

Starting with Garden City could you provide a little more detail on the pace of <unk> once encores installed their equipment.

Speaker 3: Yes, sure. So, you know, the date that we mentioned in the prepared remarks and in the press release, if the expectation that everything will be ready to go for energization, we should start energizing that day. And then the ramp should be faster than we've seen at our North Dakota facilities, where we were continuing to, you know, finish buildings and energize them.

Yes, sure. So you know that.

The data we mentioned.

The prepared remarks and in the press release, if it is the expectation that everything will be ready to go for <unk>, we should start energizing that day.

Then the ramp should be faster than we've seen.

At our North Dakota facilities, where we were continuing to finish buildings and energize them.

Speaker 3: It'll still take weeks to energize, but it won't be the months that we've seen in both Jamestown and Alendale because every construction is complete. The miners are racked and ready to turn on. And so it should go much faster. So at some point, the late November should be fully online from that late October start, the 23rd.

I'll still take weeks to energize, but it won't be the months that we've seen in both Jamestown and Allendale because construction is complete.

The miners, Iraq, and ready to turn on and so it should go much faster. So at some point and kind of that November mid to late November should be fully online from that that late October start to 2000 <unk>.

Speaker 5: Great, thank you. One more follow up for me with respect to current construction efforts. Are there any milestones that you need to hit before you face more adverse weather?

Great. Thank you one more follow up for me with respect to current construction efforts are there any milestones that you need to hit before you face more adverse weather.

Speaker 3: Yeah, in North Dakota, you know, we're, we're, we've started on the ground work there. And it's kind of the same thing we did last year, which is, you know, it's, it'll be a little bit of a rush to get foundations poured to be able to work through the winter, to enclose the facility and work through the winter there. And so that's the, that's what we're doing right now.

Yes.

In North Dakota, where were we.

We started on the groundwork there and it's kind of the same thing we did last year, which is it'll be a little bit of a rush to get foundations poured.

To be able to work through the winter to enclose the facility and work through the winter there.

And so that's the that's what we're doing right now.

Thank you.

Speaker 1: Our next questions from the line of John Tadaro with Dean of a company.

Our next question is from the line of Shawn <unk> with Needham <unk> Company. Please proceed with your questions.

Great. Thanks for taking my question guys.

Speaker 7: Chris, thanks for taking my question, guys. One year on, to the site computing business, I'm just trying to understand, first off congrats on adding through more contracts. But what is the capacity out there? Is there more contracts we can add now? Or are you looking to get those HPC sites on and anchor tenants there? Just wondering really how much capacity if we can expect any more contracts to come on?

One year on suicide computing business I'm, just trying to understand you know first off congrats on adding a few more contracts.

But you know kind of what is the capacity out there can ease the more contracts. We can add now or are you looking to get those that H P. C sites on an.

And anchor tenants there.

Just kind of wondering really how much capacity, if we can expect any more contracts to come on line.

Speaker 3: Yeah, we have some more capacity, not a lot, until we start to bring our own facilities online. So John , if we walk through the math on the despite compute side, so roughly every 1000 GPUs generates approximately 1.5 million of revenue per month. And we've talked about before about getting the 26,000 on by April .

We have some more capacity not a lot until we start to bring our own facilities online.

So John if we walk through.

Is it kind of the math on the to decide compute side. So so roughly every thousand gpus generates approximately $1 $5 million of revenue per month.

And we've talked about before about getting the 26000 on by April.

Speaker 3: And so that gets you to call it a 460 million plus annual revenue business. And then when we go from April on, we'll be looking to put it in our own facilities. So through that ramp in April , you know, we have our James Town facility. And then we've secured third party Colo to support that ramp. And then we're looking to put further deployments in our own facility.

And so that gets you to call it 460 million plus annual revenue business in.

And then when we go from April on we'll be looking to put it in our own facilities. So through that ramp in April we have our Jamestown facility and then we've secured third party Colo to support that ramp and then we're looking to put further deployments in our own facilities.

Got it.

Speaker 7: Got it. Okay, great, that's a helpful thing. And then I got just on the timeline too. So that's when you guys increase from 26,000 to 34,000 GPUs, just any kind of color from the suppliers, that it seemed like certainly doable or is that, you know, what is the difficulty and kind of getting that? I know you guys said you're tracking, but any more color there would be helpful.

Okay great.

That's helpful. Thanks.

And then I guess just on that timeline too so.

When you guys increase from 26000 to 34000 Gpus, just any kind of color from the suppliers did it seem like it's certainly doable.

What is the difficulty in kind of getting at I know you guys said you are tracking but any more color there would be helpful. Yes. So those are the what we expect to deploy post <unk>.

Speaker 3: Yeah, so those are the what we expected to point post, you know, April of next year. And so we've added those in because again, the pipeline of demand that we're seeing, but you should think about those being added after April . So the 26 that we talked about on the last call being added through April and then the additional, you know, eight being added post, but I would, you know, continue to think about it's eight right now, but we'll see where the demand comes through. So if we need to expand that, we should have our own data center capacity coming online to support that.

<unk> of next year and so we've added those in because of the again the pipeline of demand that we're seeing but you should think about those being added after April. So the 26 that we talked about on the last call being added through April and then the additional eight being added post but I would continue to think about it as eight right now, but we'll see where the demand comes.

Through.

So if we need to expand that we should have our own our own datacenter capacity coming online to support that.

Speaker 7: Okay, got it. Thanks for that. Appreciate it.

Okay got it thanks for that I appreciate it.

Yep.

Speaker 1: The next question comes from the line of Lucas Pipes with Beeralei's securities. Please just use your-

The next question is coming from the line of Lucas pipes with B Riley Securities. Please proceed with your question.

Operator: Good morning and welcome to Applied Digital's Fiscal First Quarter 2024 conference call. My name is Robin, I'll be your operator for today. Before this call, Applied Digital issued its financial results for the Fiscal First Quarter and did August 31, 2023 in a press release, a copy of which will be furnished in a report on form 8K, filed with the SEC, and will be held on in the Investor Relations section of the company's website.

Speaker 8: Thank you very much operator, good morning everyone. My first question is on guidance. And with the delays of Garden City, should we think kind of more of the Ipataan revenue contribution having shifted to AI cloud? Thank you very much for it, walk.

Thank you very much operator, and good morning, everyone.

My first question is on guidance.

The delays at Garden City.

She'll be seeing kind of morph, the EBITDA and revenue contribution having shifted to AI cloud. Thank you very much for walking me through sort of those changes.

Speaker 8: Yeah, thanks Lucas for the question. So, so the, you know, if given what I just said about the AI cloud, you can kind of walk through as, you know, GPUs are deployed, how that steps up throughout the year, but it'll be a fairly steep ramp.

Yeah. Thanks, Lucas for the questions. So so the given what I just said about the AI cloud you can kind of walk through it.

Operator: Joining us on today's call are Applied Digital's Chairman and CEO, Wes Cummins, and COFO, David Rench. Following their remarks, we'll open the call for questions.

<unk> Gpus are deployed how that steps up throughout the year, but it'll be a fairly steep ramp.

Speaker 8: especially in our last two quarters as these come online, we'll get the deliveries. Delivering September will get edition on October and then I think the deliveries really ramp for us in November , December .

Especially in our last two quarters as these come online.

Alex Kovtun: Before we begin, Alex Kovtun from Gateway Group will make a brief introductory statement. Mr. Kovtun, please proceed. Great, thank you, operator.

We'll get the deliveries we got the delivering September we'll get additional in October and then the deliveries really ramp for us in November December.

Alex Kovtun: Good morning, everyone, and welcome to Applied Digital's Fiscal First Quarter 2024 conference call. Before management begins our formal remarks, we would like to remind everyone that some statements were made today may be considered forward looking statements under securities laws and involve a number of risks and uncertainties. As a result, we caution that there are a number of factors, many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward looking statements.

Speaker 8: and somewhat into January . So as you see those come online, you'll see a pretty steep revenue ramp on the cloud business through the remainder of the year that should make up for the way that we've seen in Garden City.

And somewhat into January so.

You see those come online you will see it pretty steep revenue ramp on the cloud business through the remainder of the year.

That should make up for the delay that we've seen in garden city.

Thank you Wes.

Speaker 9: On the HPC side, can you walk us through the capital intensity with...

On the HBC side can you walk us through the capital intensity with that with many of the planning completed from what I understand.

Speaker 9: many of the planning completed from what I understand. And in terms of financing, what are your current targets for debt equity? Is it project financing that would cover the majority of the capital?

Alex Kovtun: For more detailed risks, uncertainties, and assumptions relating to our forward looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission. We display any obligation or undertaking to update forward looking statements, sort of like circumstances or events that occur after the date, the forward looking statements are made, except as required by law. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and the reconciliation tables, applicable gap measures in our earnings release carefully as you consider these metrics.

And in terms of financing what are what are your current targets for debt to equity is it project financing that would cover the majority of our capital needs would appreciate your thoughts on that yes sure. So on the on the datacenter business and will go through this in great detail on Thursday.

Speaker 8: Yeah, sure. And so on the data center business, and we'll go through this in great detail on Thursday, but we...

Do we.

Speaker 8: I think a lot of people have seen. So we redesigned the data center with the knowledge we have now. So what we built in Jamestown, which was the initial build that we talked about, it was single level horizontal because that's the cheapest way to do it. And we have a plenty of land in North Dakota. And so it was gonna be just build it as far as you wanted to horizontally. But now that we know how these workloads work and the necessity of them being a much higher density.

I think a lot of people who've seen so we redesigned the data center with the knowledge. We have now so what we built in Jamestown, which was the initial build that we talked about.

It was a single level horizontal because thats the cheapest way to do it and we have plenty of land in North Dakota, and so it is going to be just fill that as far as you wanted to horizontally.

Alex Kovtun: We refer you to our filings with the Securities and Exchange Commission 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 under the caption, risk factors in our quarterly report on form 10Q. You may get applied visuals, Securities and Exchange Commission filings for free by visiting the SEC website at www.sec.gov.

But now that we know how these workloads work and the necessity of them being all need a much higher density.

Speaker 8: closer to the network core. We redesigned our structure to a three story structure that has a network core that runs through the middle so that you can get much more density specifically for training and then in somewhat for inference. But with that redesign, you should be thinking, we talked before about kind of four or four and a half million that we're looking more around six million per megawatt to build those facilities.

Closer to the network core we redesigned our structure to a three storey structure.

It has a network core that runs through the middle So that you can get much more density.

For specifically for training and then somewhat for entrance but.

With that redesign you should be thinking we talked before about kind of for $4 5 million and were looking more around six 6 million.

Operator: I would also like to remind everyone that this call has been recorded and will be made available for replay via a link available in the Invest Relations section of applied visuals website.

<unk> per megawatt to build those facilities.

Speaker 8: We think with the work that we have done that we can get roughly an 80% loan to cost for construction. This looks much more like data center, so we get secure that tenant or tenants that are credit rated. Then we can...

Wes Cummins: Now I will turn the call over to apply visuals chairman and CEO Wes Cummins. Wes? Thanks, Alex.

We think with the work that we have done that we can get roughly an 80% loan to cost for construction. This is looks much more like data centers. So we get secure that tenant or tenants.

Wes Cummins: Good morning, everyone. Thank you for joining our fiscal first quarter, 2024 conference call. I want to start by thanking our employees for their ongoing hard work and service and advancing our mission of providing digital infrastructure solutions to the rapidly growing high performance computing industry.

That our credit rating then we can put the construction financing in place and then there's an equity component but.

Speaker 8: put the construction financing in place. And then there's an equity component, but we call it site level equity, and you can get financing partners on the equity component of that as well, that we've spent a lot of time talking to there. And you should, it's usually in the data center industry is called the equity financing, again, it's at a site level, but I think of it more as what we would see in the capital market, is like a mes debt.

We call it site level equity and you can get financing partners on the equity component of that as well.

Wes Cummins: Before turning the call over to our CFO David Ranch for a detailed review of our financial results, I'd like to briefly discuss some recent developments across our business. Let's start with our existing blockchain. Operations. We aim to have all three of our blockchain hosting facilities fully online shortly with high reliability and performance for our customers. Our 100 megawatt James Talent Facility continues to perform as expected and operates a full capacity with consistent uptime throughout the quarter.

We are.

We've spent a lot of time talking to there and you should.

Usually in the data center industry is called the equity financing again, it's at a site level I think of it more as what we would see in the capital markets as like Mezz debt.

Speaker 8: So, you know, we're working through all those pieces of the capital structure.

So we're working through all those pieces of the capital structure.

Speaker 8: to finalize and start the initial build in North Dakota.

To finalize and start the initial build in North Dakota.

Wes Cummins: This marks the fourth consecutive quarter in which the James Talent Facilities has operated at full capacity. Our 180 megawatt Ellendale Facility in Lotte Dakota was fully energized then became fully operational during the first quarter of fiscal year 2024. And contributed to our result this quarter, the facility is fully online and operating the consistent uptime during the second quarter bringing our total hosting capacity to 280 megawatt across our Lotte Dakota facilities, all of which are contracted out to customers on multi-year terms.

Speaker 8: I guess I'll technically look at not not our initial build. It's the initial build of this design. Understood. Understood.

I guess I was technically Lucas not our initial build its the initial build of this design.

Understood understood. Thank you very much all.

Speaker 9: I'll try to squeeze one more in. In terms of the 34,000 GPs today versus 26,000.

I'll try to squeeze one more in.

In terms of the 34000 Gpus today versus the 26000 Gpus previously.

Wes Cummins: In September, we entered into a facility to continue agreement with encore for the transmission and metering of power to our Garden City Texas facility. With this in place, metering into limited equipment owned by the power provider will be installed and once complete, the site will be energized. This installation is expected to be completed by October 23rd. Once our garden city facility becomes fully energized, we will have approximately 500 megawatts of hosting capacity across our three facilities. We expect our three sites to produce around 300 million and EBITDA on an annualized basis.

Speaker 9: Those be related to the additional two customers you announced or

With dose be related to the additional two customers you announced or are.

Are there other pieces there.

Speaker 8: There's other moving pieces. It's really more related to the demand we continue to see. We haven't seen demand in this area slow down. I think if you go look through the capital raising in the industry hasn't slowed down. There was a large deal, I think, announced with Anthropic. Was that last week with AWS? But we're still seeing robust funding environment for the companies that will be customers for us.

Other moving pieces, it's really more related to the demand. We continue to see we haven't seen demand in this area slow down I think if you go look through.

The capital raising in the industry Hasnt slowed down there was a large deal I think announced with anthropic was that last week with AWS, but we're still seeing the.

Robust funding environment for the companies that will be customers for us we see good demand really strong demand in our pipeline and so it's really just a decision base based upon on what we're seeing from a demand perspective.

Speaker 8: We see good demand, a really strong demand in our pipeline. And so it's really just a decision based upon on what we're seeing from a demand perspective. OK. Very helpful. I appreciate.

Okay very helpful. I appreciate it and talk to you and the team best of luck.

Wes Cummins: The presence of all three operational facilities with high uptime will provide us with consistent cash flow supporting our capital requirements for the build-out of our HPC data centers and purchasing GPUs to service our AI cloud customers.

Thanks Lucas.

The next questions come from the line of Darren <unk> with Roth on Cam. Please proceed with your questions.

Speaker 1: Next questions come from one of Darren Afty with Rosson Cam. Please receive a

Speaker 3: Hey guys, good morning. Thanks for taking the questions. Wes, could you speak a little bit more of the cadence on the...

Hey, guys. Good morning, Thanks for taking the questions West could you speak a little bit more of the cadence on the.

Wes Cummins: Let's move to our AI cloud services which launched this calendar year to provide accelerated computing power for AI applications. Our AI cloud service continues to ramp up as we make further progress in supporting our existing contracts and pursue additional opportunities in our pipeline. In July, we activated the first cluster of GPUs for character AI and since then have made meaningful progress receiving our second cluster of GPUs in September with the expectation of receiving additional GPUs this month.

Speaker 1: the GPU orders, I'm just kind of curious, you can talk months and months in September and in October , are those numbers getting bigger relative to the initial 1000 order? And then I guess why is the cadence kind of hockey picked up into November , December and January for your comments? Is that just a function of backlog, and I guess what's your confidence that that number isn't kind of pushed out further into 24?

The GPU orders I'm, just kind of curious if you can talk a month to month in September.

October or are those numbers getting bigger relative to the initial <unk> thousand order and then I guess why is the cadence kind of hockey Sticked up into November December and January for your comments is that just a function of backlog and I guess, what's your confidence that that.

That number is it kind of pushed out further into 'twenty four.

Wes Cummins: Since our last earnings announcement, we have added two additional AI cloud customers. Both customers have an established user base and are growing quickly. These customer agreements have a similar structure to our first two. They also include significant prepayments to fund a large portion of the capital requirements for purchasing the GPUs. This brings our total annual contract value of AI cloud services contracts at full capacity to approximately $378 million. In addition to substantial prepayments we received from customers, we are using vendor financing and actively exploring other tailored financing options to support the capital requirements for the 34,000 GPUs we have on order to support our cloud service.

Speaker 8: Yeah, so it's a good question, Darren. So what we saw in September is our second 1024 cluster, 1,024 GPUs being delivered.

Yeah. So it's a good question Darren so what we saw in September is our second $10 24 cluster 1024 Gpus being delivered.

Speaker 8: And in October , we could see that be doubled and then get significantly bigger in November and December and into January . And it's just our order book that we put in back in the May time frame starting to be delivered to get small pieces. And then it's the schedule that we've been given as far as when deliveries will happen, really between now and the end of the calendar year. So that's what gives us that.

And in October we could see.

That would be doubled and then get.

Significantly bigger in November and December and into January and it's it's just that our order book that we put in back in the May timeframe, starting to be delivered to get small pieces and then it's the schedule that we've been given as far as when deliveries will happen really between now and the end of the calendar year.

So thats what gives us that confidence in the deliveries can things be pushed.

Speaker 8: confidence in the deliveries can things be pushed. I mean, it could always happen, I suppose, but it seems that we've, you know, this is probably...

It can always happen I suppose but it seems.

Wes Cummins: We remain on track for delivery of the majority of these GPUs by April of next year. Our established partnerships with leading OEMs like SuperMicro, Sheila Packard Enterprise and Dell combined with our recent Elite Partner Status and NVIDIA's Partner Network provide us with visibility into the delivery timeline, ensuring timely receipt of these GPUs. As previously mentioned, we will initially provide this service from our nine megawatt HPC J&C Found Facility along with third-party co-location space as we continue to execute on the element of our dedicated next gen HPC data. Center.

We know this is probably.

Speaker 8: trying to think when it was maybe three weeks ago, you know, we're given a little bit longer than that, kind of a firmer delivery schedule from our suppliers. So feel pretty good about the deliveries for us, and I think it's just a matter of, you know, when we ordered those and when they're being shipped out and kind of the cadence of that ramping up over the next three months. I don't know, I don't think it's for me to say whether there's, you know, better supply in the industry or not, or if it's just related specifically to us, but I don't know.

I'm trying to think of what it was maybe three weeks ago.

Even or a little bit longer than that kind of a firmer delivery schedule from our suppliers.

So feel pretty good about the deliveries for us.

And I think it's just a matter of when we ordered those and when they are they are being shipped out.

The cadence of that ramping up over the next three months.

I don't know I don't think it's for me to say whether there is.

Better supply in the industry or not or if it's just related specifically to us that I don't know.

Wes Cummins: The pipeline of opportunities for AI cloud service business remains robust. We look forward to capitalizing further on this opportunity in providing further updates on our new signed customers going forward.

Speaker 10: That's helpful. Thank you. And then just one last one for me on the anger 10 with HPC.

That's helpful. Thank you and then just one last one for me on the <unk>.

Thank you for attending with HBC.

Speaker 5: You have multiple tenants you're talking to and I guess in terms of slotting people in, I mean, how close are we to North Dakota, VZB Utah, and then I assume your data center financing is probably gonna be right behind that based on kind of your prior comments. So if you just kinda walk through, I'm trying to understand kinda anchor tenant demand relative to the capacity you have and then kind of a longer term plan. Thanks.

Do you have multiple tenants, you're talking to and I guess in terms of slotting people in.

Wes Cummins: Lastly, let me provide a quick update on our purpose-built HPC data centers. We have 300 megawatts of capacity and development that have begun an initial groundwork for our L&DL facility. In order to proceed with the construction of each facility and obtain the necessary financing where the process is securing a credit rated anchor tenant. We have been actively engaged in ongoing discussions with several potential anchor tenants for our L&DL and Utah facilities.

How close are we to no.

North Dakota vis vis, Utah, and then I assume.

Your data center financing is probably going to be right behind that based on kind of your prior comments. So if you can just kind of walk through.

Trying to understand kind of anchor tenant demand relative to the capacity you have and then kind of a longer term plans. Thanks.

Speaker 8: Sure, so we're seeing a lot of interest. We've been having these conversations for a few months now and then in...

Sure. So we're seeing a lot of interest we've been having these conversations.

Wes Cummins: In order to our new customers for our AI cloud service, we will provide more information once available. We aim to secure an anchor tenant customer for each facility and have these facilities fully energized and operational within the next 24 months.

For a few months now and then in the first week. The end of the first week of September we finalized our design than we've been in.

Speaker 8: The first week, the end of the first week of September , we finalized our design. And so we've been in a, what I would call a formal marketing process from that point.

David Rench: With that, I now turn the call over to our CFO, David Rench, to walk you through our financials and provide an update on guidance before providing my closing remarks. David, thanks, Wes, and good morning, everyone. Revenue for the fiscal first quarter of 2024 were 36.3 million compared to 6.9 million for the fiscal first quarter of 2023. The increase in hosting revenues was driven by an increase in online capacity due to L&DL North Dakota site being operational and revenue from the company's first AI cloud service contract, which began during the three months ended August 31, 2023.

In a what I would call a formal marketing process from that point until now and then we'll move that into an LOI stage and into a contracting stage over the next few weeks or a month.

Speaker 8: until now and we'll move that into an LOI stage and then into a contracting stage over the next you know a few weeks or a month or so.

So that's the expectation, but that's kind of how it's come together or is it really started a formal process in call. It mid September.

Speaker 8: That's the expectation, but that's that's kind of how it's come together is it really started a formal process in call it, you know, mid September , and we hope to conclude that, you know, in the coming weeks and but the interest is is high and we'll go through this in more detail on on Thursday, but, you know, it's the demand.

And we hope to conclude that in the coming weeks, but the interest is high and we will go through this.

More detail on on Thursday, but.

The demand.

Speaker 8: for this style of data center with this type of density, because we've been both in the, and out getting co-location space for ourself on the cloud side, and then talking to potential customers on the data center side for building our own. We're seeing a huge amount of demand and really demand for power that is available and capacity that can come online over the next 24, 36 months.

David Rench: Cost of revenues for the fiscal first quarter of 2024 was 24.4 million compared to 6.1 million for the fiscal first quarter of 2023. The increase in costs was attributable to higher energy costs used to generate hosting revenues, depreciation, amortization expense, and personnel expenses for employees directly working on our Jamestown and L&DL hosting facilities. Operating expenses for the fiscal first quarter of 2024 were 17.1 million compared to 5 million in the prior year comparable period.

For this style of data center with this type of density.

Because we've been both in and out getting co location space for our self on the cloud side, and then talking to potential customers on this on the datacenter side.

We're building our own we're seeing.

Huge amount of demand.

And really demand for power that is available and capacity that can come online over the next 24 to 36 months.

Thank you.

Speaker 1: Our next questions are from the line of Mike Grondahl with Northland Securities.

Our next questions are from the line of Mike Grondahl with Northland Securities. Please proceed with your questions.

David Rench: The increase was primarily due to personnel related costs as a result of the increase in headcount as well as increase in depreciation. Net loss for the fiscal first quarter of 2024 was 9.6 million or loss of 10 cents per basic and diluted share based on a weighted average share count during the quarter of approximately 100.5 million. This compares to a net loss of 4.7 million or a loss of 5 cents per basic and diluted share in the fiscal first quarter of 2023 based on a weighted average share count during the quarter of approximately 93.1 million.

Speaker 11: Hey guys, thanks. Couple questions. The first on potential anchor

Hey, guys. Thanks, a couple questions the first on potential anchor tenants.

Speaker 11: Would you say the potential anchor that you're going to announce near term?

Would you say the <unk>.

Potential anchor that youre going to announce the near term.

Speaker 11: Is that still sort of wide open, meaning there's still multiple 5, 6, 7 big potential anchors out there you're talking to or have one or two kind of made it way down the funnel and you're

Is that still sort of wide open meaning there is still multiple 567.

Potential anchors out there youre talking to or.

One or two kind of made it way down the funnel and you're just.

Speaker 11: kind of finalizing who it might be out of a very small group.

Finalizing who it might be out of out of a very small group.

So.

Speaker 8: Mike, I would say that we're right in the, I would say in the middle of the kind of the two scenarios that you described. So the funnel has gotten smaller, but we're not right at the end yet. Does that if that makes sense?

David Rench: Adjusted net income and non-gap measure for the fiscal first quarter of 2024 was 0.1 million or adjusted net income per basic and diluted share of less than a set. Based on a weighted average share count during the quarter of approximately 100.5 million. This compares to an adjusted net loss a non-gap measure of 3.4 million or a loss of 4 cents per basic and diluted share for the fiscal first quarter of 2023.

Mike I would say that we're right and I would say in the middle of the kind of the two scenarios that you described so the funnel has gotten smaller but we're not right at the end yet does that if that makes sense.

Speaker 11: Got it. Yeah, just trying to understand. And then on the prepayment, you mentioned $39.5 million in the August quarter, and then I think a $15 million prepayment and a $23 million prepayment you expect this week.

Yes, just trying to understand.

And then on the prepayments you mentioned $39 5 million in the August quarter.

And then I think a $15 million prepayment and a $23 million prepayment you expect this week.

David Rench: Based on a weighted average share count during the quarter of approximately 93.1 million, of $10 million. Adjusted EBITDA, a non-gap measure for the fiscal first quarter of 2024, was 10 million compared to a adjusted EBITDA loss for the fiscal first quarter of 2023 of $1.9 million. Lastly, on the balance sheet, we ended the fiscal first quarter with $31.2 million in cash equivalents and restricted cash and $44 million in debt. During the fiscal first quarter of 2024, we received $39.5 million in customer payments due to the structure of our commercial arrangements with our customers that incorporate upfront deposits and prepayments.

Can you say are the 15 in the 'twenty three.

Speaker 11: Can you say are the 15 and the 23, are those from customer three and four, or do those relate back to customer one and two?

Those from customers three and four.

Where do those relate back to customer wanting to.

Speaker 8: It's both. It's both for those prepayments.

It's both it's both for those prepayments.

Speaker 8: the ones that we talked about, that we've received already, and then the ones we expect, or one that we expect to receive this.

The ones that we talked about.

And we've received already and then the ones. We expect every one that we expect to receive this week.

Speaker 11: Got it, got it. And then lastly, the 1024 GPUs in August that you put to work, did they all go to...

Got it got it and then lastly, the 1000 2000 for Gpus.

August that you put to work.

Did they all go to customer one.

Speaker 8: So, those came in September , Mike, and they are for customer one.

So those came in September.

And they are for customer one.

Okay.

David Rench: In certain contracts, the prepayments are amortized back to the customer over the first year of their contract with no impact on revenue recognition, but the timing of cash flow with upfront cash to us is a major benefit for the company and that it helps our capex funding needs as we build out our debtors. Since the quarter close, we have received an additional $15 million in customer prepayments and are expecting an additional $23 million this week.

Thanks, guys.

Yes.

The next question is from the line of Kevin Dede with H C. Wainwright. Please proceed with your question.

Speaker 1: Our next question is from the line of Kevin Deedy with H.C. Wainwright. Please proceed.

Hi, Wes.

Speaker 12: Hi, Wes. Thanks for taking the question. Maybe you could just help me understand a little bit better how you're thinking about AI cloud versus AI host, and how that might figure in your calculus, your constraints.

Thanks for taking the question.

Yes.

Maybe you could just help me understand a little bit better or how youre thinking about AI cloud versus AI host and how that might figure in your calculus.

David Rench: Now, turning to guidance for the full year fiscal 2024, we are reaffirming our expectations for revenue in the range of $385 million to $405 million and adjusted EBITDA in the range of $195 million to $205 million.

Youre construction calculus.

Speaker 12: uh in in what way kevin well i i i guess what i'm wondering is

In what way Kevin.

Yeah.

I guess, what I'm wondering is.

Speaker 12: When you go look for your anchor tenants, are you looking at them purely from a cloud customer perspective, or are you looking at some...

And when you when you go look for your anchor tenants are you looking at them purely from.

Wes Cummins: Now, I'll turn the call over to Wes for closing remarks. Thank you, David. As we look ahead, we remain confident in our competitive advantages and differentiated capabilities to meet the sophisticated and demanding requirements for businesses and enterprises to run AI workloads and other emerging HPC applications. I remain optimistic about the future of applied digital resources to modify our leadership and next generation digital infrastructure for both blockchain and non blockchain HPC use cases during this era of digital transformation. I'd like to thank all of our team members for their dedication and making applied what it is today and our shareholders for trusting us in our mission and execution.

Cloud customer perspective or are you looking at some.

Speaker 8: Perhaps from a host perspective, where they're bringing their own GPUs. Yeah, yeah, so the anchor tenants are absolutely a hosting business for us.

Perhaps from a host perspective, where they're bringing their own GP is yeah. Yeah. So the anchor tenants are absolutely a host of hosting business for us.

Speaker 8: where they will bring their own equipment. It's just a data center hosting business for us. When you think about anchor tenants and for these data centers, we've talked about the idea is, 70% goes to the co-location hosting style business, and then we keep 30% for our own cloud capacity.

They will bring their own equipment and it's just a data center hosting business for us when you think about anchor tenants and for these data centers. You know we've talked about the the idea is 70% goes to the co location hosting style business.

And then we keep 30% for our own cloud capacity.

Operator: We're now happy to take questions. Operator? Thank you.

Speaker 12: Then you said you're comfortable in securing the co-location that you need to support the 26,000 to 34,000 GPUs that you have coming in.

Then.

You said your youre comfortable in securing the co location that you need for to support the 26% to 34000 Gpus you have coming in.

Operator: We'll now be conducting a question and answer session. If you'd like to ask a question at this time, please press star 1 from your telephone keypad and the confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants that are using speaker equipment, maybe necessary to pick up your handset before pressing the star keys. One more, please will we poll for questions. Thank you.

Speaker 12: How do you figure moving them once they're at their co-location to your own facilities once they're ready?

How do you figure move.

Moving them once they're at their co location.

To your own facilities once they are ready.

Speaker 8: So we won't ever move those installations and the way that I think about it from a cloud service perspective.

So so we won't ever move that those installations.

The way I think about it from a cloud service perspective.

Rob Brown: Thank you in our first question comes from the line of Rob Brown with Lake Street Capital. Please just use your questions.

Speaker 8: is a lot of that co-location is in what I would call kind of traditional cloud regions. And as we ramp up capacity in North Dakota,

Is a lot of that co location is in what I would call kind of traditional cloud regions and as we ramp up capacity in North Dakota.

Wes Cummins: Good morning. Questions on your kind of efforts for anchor customers in the AI business. I can't give too much detail, but maybe a sense of kind of the sizing of the center today. Do they need to fill out kind of a whole center before you kick off and how does that sort of kind of scope out to get really to make the decision to kick off a data center building? I think we've so in the past we've talked about this and it remains the same, which is we think we need to contract roughly 70% of the capacity.

Speaker 8: It's really being built for very large training clusters. And so I think about the training portion of the business that's being deployed in smaller training clusters in these cloud regions, moving over to the infrastructure that gets put in place in North Dakota, and then using the smaller clusters that we're building out now as inferencing, which I think the way this market splits is...

It's really being built for very large training clusters, and so I think about the training portion of the business that's being deployed in smaller training clusters in these cloud regions.

Moving over to the infrastructure that gets put in place in North Dakota, and then using the smaller clusters that we're building out now is inferencing, which.

<unk>.

I think the way this market splits is.

Speaker 3: There will be training in batch inference and then some inferencing done in these large facilities like we're building in North Dakota. And then a lot of the inference portion of the market will be more in what I would call traditional cloud regions. And so it works well for our cloud business over time to have that type of architecture of just being spread into more cloud regions for the inferencing portion of the business while a lot of the training will move into North Dakota.

There'll be training and <unk>.

Wes Cummins: It doesn't have to be one customer, but we think we need to contract that on a reasonable, say, seven to ten year contracts with renewals to kick off the construction and we're in process of securing that. But Rob, the way I think about these is kicking off roughly 100 megawatts in North Dakota shortly and then followed up with 100 in Utah. And then come back kind of mid next year for the second 100 in North Dakota.

Churn for instance, some inferencing done in these large facilities like we're building in North Dakota.

Then a lot of the inference.

A portion of the market will be more than what I would call traditional cloud regions and so it works well for our cloud business over time to have that type of of.

Architecture of just being spread into more cloud regions for the inferencing portion of the business, while a lot of the training will move into North Dakota.

Okay.

Speaker 12: Okay. The redesign that you did in September , Wes, for your new Allendale facility,

The redesign that you didn't September west for your new Allendale facility.

Wes Cummins: Great, great. And then on the ramp of the AI business, it depends on getting the GPUs delivered. How do you see that ramping of the GPUs you've ordered? How do you see those coming in in terms of the ability to ramp up that business? Yeah, so I think at this point we're getting pretty good visibility on delivery schedules. It's gotten better since our last call. And as I mentioned in the prepared remarks that we've received our second cluster in September, expect to receive more this month and really expect to start to receive large volumes in November, December and January.

unknown: Agreed. Thank you.

Speaker 12: Did you have to rethink latency or?

Did you have to rethink latency or.

Did you have to.

Speaker 12: be more concerned about power backup on those, or do you still think you can operate under the conditions that you built for in Jamestown?

Be more concerned about power backup on those or do you still think you can operate under the conditions that you built form Jamestown.

Speaker 8: No, so it's not about latency or necessarily power backup, it's about it's a redesign specifically for density. So it's designed to be able to basically take a network core and go through multiple floors and put all of the GPU. So, so the design here.

So it's not about latency or necessarily power back up it's about it's a redesigned specifically for density. So it's designed to be able to basically take a network core and go through multiple floors.

And put all of the GPU. So some of the design here.

Speaker 8: for the new North Dakota facility, it's really around, you know, kind of this magic number of...

For the north of the New North Dakota facility.

It's really around.

This magic number of.

Speaker 8: call it 30 meters being the magic number of how far you know a rack can be away from the network core and still be you know in the same cluster same spine for networking you technically Kevin can go out to 50 meters away from the network core but you have to use a single mode transceiver on optics instead of multimode so it gets more expensive a little more difficult so it's it's really designed around how many

I call it 30 meters being the magic number of how far.

Adam: The question is from the line of George Sutton with Craig Allen. Please just hear your question. Morning, this is Adam on for George. Wes, I was starting with Garden City. Could you provide a little more detail on the pace of energization once on course installed their equipment? Yes, sure. So the date that we mentioned in the prepared remarks and in the press release, if the expectation that everything will be ready to go for energization, we should start energizing that day.

<unk> can be away from the network core and still be in the same cluster same spine for networking you technically Kevin can go out to 50 meters away from the network core, but you have to use a single mode transceiver on optics instead of multi mode. So it gets more expensive a little more difficult. So it's really designed around how many.

Speaker 8: racks, and how many servers can we get within 30 meters of the network core, and so that's why it goes through multiple levels in the building instead of the single level. That's the primary piece of the redesign.

Racks and how many servers can we get within 30 meters of the network core and so that's why it goes through multiple levels in the building instead of the single level. That's the primary piece of the redesign.

Adam: And then the ramp should be faster than we've seen at our North Dakota facilities, where we were continuing to finish buildings and energize them. It'll still take weeks to energize, but it won't be the months that we've seen in both Jamestown and Alendale because every construction is complete. The miners are racked and ready to turn on. And so it should go much faster. So at some point in kind of the November, mid to late November should be fully online from that late October start, the 23rd.

Speaker 12: And what are the heat implications, though, is if you've got, you know, multiple racks stacked, right, and heats tend to

And what are the heat implications, though is if you've got.

unknown: Great. Thank you.

Multiple Rob stacked.

Brian and heat tendency to rise.

Speaker 8: Yes, so this is a liquid cool facility. That's the other part of the redesign. So it was air cool.

Yes. So this is a liquid cooled facility that's the other part of the redesign so as air cool.

Speaker 8: You can effectively do air cool, uh, our opinion up to, you know, call it roughly 50 KW per rack. But as you start to go above that, uh, you really need to move to a liquid cool solution. Um, and so the, the new facility is designed for liquid cool. The new facility will go to 150 KW per rack. Uh, it, it can spill. It still has the floor space to do it at 45 KW, which is what we're doing in Jamestown. Um, but, but we've, this will be built for liquid cooling.

You can effectively do air cool, our opinion up to call. It roughly 50 kw per rack, but as you start to go above that.

Really need to move to a liquid cool solution and.

Wes Cummins: One more follow up for me with respect to current construction efforts. Are there any milestones that you need to hit before you face more adverse weather? Yeah. In North Dakota, you know, we're we're we've started on the groundwork there and it's kind of the same thing we did last year, which is, you know, it's it'll be a little bit of a rush to get foundations poured. To be able to work through the winter to enclose the facility and work through the winter there. And so that's the that's what we're doing right now. Thank you.

And so the new facility is designed for liquid cooled the new facility will go to 150 kw per rack.

Can still it still has the floor space to do it at 45 kw, which is what we're doing in Jamestown.

But this.

This will be built for liquid cooling.

Okay.

Speaker 12: Okay. Thanks, Wes. Appreciate it. Appreciate the detail.

Okay.

Thanks, Wes I appreciate it I appreciate the detail.

Sure.

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One moment. Please we poll for questions. Thank you.

John Todaro: Our next question from the line of John Tadaro with Dean of a company. Please just hear their questions. Thanks for taking my question guys. One year on to the site computing business, just trying to understand, you know, first off congrats on adding through more contracts. But, you know, kind of what is the capacity out there can is there more contracts we can add now or are you looking to get those those HPC sites on and anchor tenants there, just kind of wondering really kind of how much capacity if we can expect any more contracts to come online.

Thank you.

Speaker 1: Thank you. At this time, this concludes our question and answer session. I'd now like to turn the call back over to Wes.

At this time. This concludes our question and answer session I would now like to turn the call back over to West Cohen.

Speaker 3: Thank you, Operator, and thanks, everyone, for joining our call. I look forward to speaking with you on Thursday at our Investor Day, which will be held in Midtown Manhattan. And again, thanks to all of our employees for the efforts they put in the last quarter and this quarter to date. I look forward to speaking with you on our next quarterly call.

Thank you operator, and thanks, everyone for joining our call.

I look forward to speaking with you on Thursday at our Investor day, which will be held in Midtown Manhattan and again, thanks to all of our employees for the efforts they put in the last quarter and this quarter to date look forward to speaking with you on our next quarterly call.

John Todaro: Yeah, we have some more capacity, not a lot until we start to bring our own facilities online. So, so John, if we walk through the kind of the math on the despite compute side, so so roughly every thousand GPUs, you know, generates approximately 1.5 million of revenue per month. And we've talked about, you know, before about getting the 26,000 on, you know, by April. And so that gets you to call it a four hundred and 60 million plus annual revenue business.

Yeah.

Yeah.

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John Todaro: And then when we go from April on, we'll be looking to put it in our own facility. So through that ramp in April, you know, we have our James town facility and then we've secured third party collo to support that ramp and then we're looking to put further deployments in our own facility. Thanks. Got it. Okay, great. That's a, it's a full thing. And then I got just on the timeline too.

John Todaro: So that's when you guys increase from 26,000 to 34,000 GPUs, just any kind of color from the suppliers that it seemed like certainly doable or is that, you know, what is the difficulty in kind of getting that? I know you guys said you're tracking, but any more color there would be helpful. Yeah, so those are the, what we expect to deploy posts, you know, April of next year. And so we've added those in because the, again, the pipeline of demand that we're seeing, but you should think about those being added after April.

John Todaro: So the 26 that we talked about on the last call, being added through April. And then the additional, you know, eight being added post, but I would, you know, continue to think about it. It's eight right now, but we'll see where the demand comes through. So if we need to expand that, we should have our own, our own data center capacity coming online to support that. Okay. Got it. Thanks for that. Appreciate it. Yep.

Lucas Pipes: The next question comes from the line of Lucas Pipes with B. Riley Spirits. Please just use your questions. Thank you very much operator. Good morning, everyone. My first question is on on guidance and with the delays of garden city. Should we think kind of more of the epitone revenue contribution? I think shifted to AI cloud. Thank you very much for walking me through through those changes. Yeah. Thank you. Thanks for this for the question.

Wes Cummins: So the, you know, if given what I just had about the AI cloud, you can kind of walk through as, you know, GPUs are deployed, how that steps up throughout the year, but it'll be a fairly steep ramp, especially in our last two quarters is these come online. You know, we'll get the deliveries. We got the delivery in September. We'll get additional in October. And then I think the delivery is really ramp for us in November, December and somewhat in the January.

Wes Cummins: So. As you see those come online, you'll see a pretty steep revenue ramp on the cloud business through the remainder of the year that should, you know, make up for the, the way that we've seen in garden city. Thank you, Wes.

Wes Cummins: On the HPC side, can you walk us through the capital intensity with, with as many of the planning completed from what I understand. And in terms of financing what, what we're going to do. What are your current targets for debt equity? Is it project financing that would cover the majority of, of the capital needs with appreciate your. Thank you. Yeah, sure. And so on the, on the data center business and we'll go through this in, in great detail on Thursday, but the, we, I think a lot of people have seen.

Wes Cummins: So we redesigned the data center with the knowledge we have now. So what we built in Jamestown, which was the initial build that we talked about, you know, it was, it was single level horizontal, because that's the cheapest way to do it. And, you know, we have plenty of land in North Dakota. And so it was going to be just build it as far as you wanted to horizontally. But now that we know how these workloads work and the necessity of them being, you know, all, you know, much higher density closer to the network core.

Wes Cummins: We redesigned our structure that to a three story structure that, you know, has a network core that runs through the middle so that you can get much more, you know, density for specifically for training and then in somewhat for inference. But with that redesign, you should be thinking, you know, we talked before about kind of four or four to half million that we're looking more around six, six million per megawatt to build those facilities.

Wes Cummins: We think with the work that we have done that we can get roughly an 80% loan to cost for construction. This is looks much more like data center. So we get, you know, secure that tenant or tenants that are credit rated, then we can put the construction financing in place. And then there's an equity component, but, you know, it's, we call it site level equity, and you can get, you know, financing partners on the equity component of that as well that we're, you know, we've spent a lot of time talking to there.

Wes Cummins: And you should, you know, it's usually in the data center industry is called the equity financing. Again, it's at a site level, but I think of it more as what we would see in the capital market as I can mess debt. So, you know, we're working through all those pieces of the capital structure to finalize and start the initial build in North Dakota. I guess I'll technically look at not our initial build, it's the initial build of this design. Understood, understood. Thank you very much.

Lucas Pipes: I'll try to squeeze one more in. In terms of the 34,000 GPUs today versus 26,000 GPUs previously, those be related to the additional two customers you announced or are there other moving pieces there. There's other moving pieces, it's really more related to the demand we continue to see. We haven't seen demand in this area, slow down. I think if you go look through the capital raising in the industry, hasn't slowed down.

Lucas Pipes: There was a large deal, I think announced with Anthropic, was that last week with AWS, but we're still seeing robust funding environment for the companies that will be customers for us. We see good demand, a really strong demand in our pipeline. And so it's really just a decision based upon what we're seeing from a demand perspective. Okay, very helpful. I appreciate it and see you on the team best of luck. Thanks, Lucas.

Darren Aftahi: The next questions come from one of Darren, Aftight with Ross, I'm Cam. Please receive your questions. Hey guys, good morning. Thanks for taking questions. Wes, could you speak a little bit more of the cadence on the GPU orders? I'm just kind of curious, you can talk months and months in September and in October, are those numbers getting bigger relative to the initial 1,000 order? And then I guess why is the cadence kind of hockey picked up into November, December and January for your comments? Is that just a function of backlog? And I guess what's your confidence that that number isn't kind of pushed out further to the 24?

Wes Cummins: Yeah, so it's a good question, Darren. So what we saw in September is our second 1024 cluster, 1,024 GPUs being delivered. And in October, we could see that be doubled and then get significantly bigger in November and December and into January. And it's just our order book that we put in back in the May time frame starting to be delivered to get small pieces. And then it's the schedule that we've been given as far as when deliveries will happen, really between now and the end of the calendar year.

Wes Cummins: So that's what gives us that confidence in the deliveries can things be pushed. I mean, it could always happen, I suppose, but it seems that we've, you know, this is probably trying to think when it was maybe three weeks ago. You know, we're given a little bit longer than that kind of a firmer delivery schedule from our suppliers. So feel pretty good about the deliveries for us. And I think it's just a matter of, you know, when we ordered those and when they're being shipped out and kind of the cadence of that ramping up over the next three months. I don't know, I don't think it's for me to say whether there's better supply in the industry or not, or if it's just related specifically to us that I don't know. That's helpful. Thank you.

Wes Cummins: And then just one less one for me on the anger 10 with HPC. You have multiple tenants you're talking to, and I guess in terms of slotting people in, I mean, how close are we to North Dakota, VZD Utah, and then I assume your data center financing is probably going to be right behind that based on kind of your prior comments. So if you just kind of walk through, I'm trying to understand, kind of anchor tenant demand relative to the capacity you have, and then kind of a longer term plans.

Wes Cummins: Thanks. Sure. So we're seeing a lot of interest. We've been having these conversations for a few months now. And then in the first week, the end of the first week of September, we finalized our design. And so we've been, you know, in a, what I would call a formal marketing process from that point. Until now, and then we'll move that into an L.O.I, stage and into a contracting stage over the next, you know, few weeks or months.

Wes Cummins: So that's the expectation, but that's kind of how it's come together is it really started a formal process in, call it, you know, mid September. And we hope to conclude that, you know, in the coming weeks. And that, but the interest is high and we'll go through this in more detail on on Thursday. But, you know, it's the demand for this battle of data center with this type of density because we've been both in the, you know, out getting co location space for ourselves on the cloud side and then talking to potential customers on this on the data center side for building our own. And we're seeing, you know, a huge amount of demand and really demand for power that is available in capacity that can come online, you know, over the next 24 or 36 months.

unknown: Thank you.

Mike Grondahl: The next questions are from the line of Mike Grondahl with Northland Security. Please receive a few questions. Hey guys, thanks. A couple questions. The first on potential anchor tenets. Would you say the, the potential anchor that you're going to announce near term? Is that still sort of wide open meaning there's still multiple five six seven big potential anchors out there you're talking to or have one or two kind of made it way down the funnel and you're just kind of finalizing who it might be out of out of a very small group.

Wes Cummins: So Mike, I would say that we're right in the, I would say in the middle of the kind of the two scenarios that you described, so the funnel has gotten smaller but we're not right at the end yet. Does that make sense? Got it. Yeah, just trying to understand. And then on the prepayments, you mentioned 39 and a half million in the August quarter. And then I think a $15 million prepayment and a $23 million prepayment you expect this week.

Wes Cummins: Can you say are the 15 and the 23 are those from customer three and four or do those relate back to customer one and two? It's it's both it's both for those prepayments. The ones that we talked about that we've received already and then the ones we expect or one that we expect to receive this week. Got it, got it. And then lastly, the 1024 GPUs in August that you put to work, did they all go to customer one?

Wes Cummins: So those came in September, Mike and they are for customer one. Okay, thanks guys. Yep.

Kevin Dede: Next question is from the line of Kevin Dede with HC Wayne, right?

Wes Cummins: Please just use your questions. Hi Wes, thanks for taking the question. I'm maybe could just help me understand a little bit better how you're thinking about AI Cloud versus AI host and how that might figure in your calculus, your construction calculus. In what way, Kevin? Well, I guess what I'm wondering is when you go look for your anchor tenants, are you looking at them purely from a cloud customer perspective, or are you looking at some perhaps from a host perspective where they're bringing your own GPUs?

Wes Cummins: Yeah, yeah, so that the anchor tenants are absolutely a host, a hosting business for us where they will bring their own equipment. It's just a data center hosting business for us. When you think about anchor tenants and for these data centers, we've talked about the ideas, you know, 70% goes to the co location hosting style business. And then we keep, you know, 30% for our own cloud capacity. Then you said you're comfortable in securing the co location that you need to support the 26 to 34,000 GPUs that you have coming in.

Wes Cummins: How do you figure moving them once they're at their co location to your own facilities once they're ready? So we won't ever move those installations and the way that I think about it from a cloud service perspective is a lot of that co location is in what I would call kind of traditional cloud regions. And as we ramp up capacity in North Dakota, it's really being built for very large training clusters.

Wes Cummins: And so I think about the training portion of the business that's being deployed in smaller training clusters in these cloud regions, you know, moving over to the infrastructure that gets put in place in North Dakota. And then using the smaller clusters that we're building out now is as inferencing, which, you know, I think the way this market splits is there be training, you know, in batch inference, and then some inferencing done in these large facilities that we're building in North Dakota.

Wes Cummins: And then a lot of the inference, you know, portion of the market will be more in what I would call traditional cloud regions. And so it works well for our cloud business over time to have that type of architecture of just being spread into more cloud regions for the inferencing portion of the business, while a lot of the training will move into North Dakota.

Wes Cummins: Okay. The redesign that you did in September, West for your new Ellen Dale facility. Did you have to rethink latency or did you have to be more concerned about power back up on those or do you still think you can operate under the conditions that you built for in Jamestown? So, it's not about latency or necessarily power back up. It's about, it's redesigned specifically for density. So, it's designed to be able to basically take a network core and go through multiple floors and put all of the GPUs.

Wes Cummins: So, the design here, the new North Dakota facility, it's really around, you know, kind of this magic number of, I call it 30 meters being the magic number of how far, you know, a rack can be away from the network core and still be, you know, in the same cluster, same spine for networking. You technically, Kevin can go out to the 50 meters away from the network core, but you have to use a single mode transceiver on optics instead of multi-mode, so it gets more expensive, a little more difficult.

Wes Cummins: So, it's really designed around how many racks and how many servers can we get within 30 meters of the network core, and so that's why it goes through multiple levels in the building instead of the single level. That's the primary piece of the redesign. And what are the heat implications, though, if you've got, you know, multiple racks stacked, right, and heat's tendency to rise? Yeah, so this is a liquid cool facility, that's the other part of the redesign.

Wes Cummins: So, as air cool, you can effectively do air cool, our opinion up to, you know, call it roughly 50 KW per rack, but as you start to go above that, you really need to move to a liquid cool solution, and so the new facility is designed for liquid cool. The new facility will go to 150 KW per rack. It can spill, it still has the floor space to do it at 45 KW, which is what we're doing in Jamestown, but we've, this will be built for liquid cooling.

Wes Cummins: Okay, thanks Wes, appreciate it, appreciate the detail. Sure.

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Wes Cummins: At this time, this concludes our question and answer session. I'd like to turn the call back over to Wes Cummins. Thank you, operator, and thanks everyone for joining our call. Look forward to speaking with you on Thursday at our investor day, which will be held in Midtown Manhattan, and again, thanks to all of our employees for the efforts they put in the last quarter and this quarter to date. Look forward to speaking with you on our next quarterly call. Thank you.

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