Applied Digital (APLD) - 2024 Q4 - Annual Report

Data Center Hosting Business - Data Center Hosting Business operated at full capacity with 106 MW in Jamestown, North Dakota, and resolved power outage issues at the 180 MW Ellendale facility, now operating at full capacity[254] - The Garden City hosting facility was sold for $87.3 million in cash, with an additional $10.0 million consideration, resulting in a $15.4 million loss[255] - Data Center Hosting Business revenue increased to $136.6 million in FY 2024 from $55.4 million in FY 2023[341] - Revenue recognition for Data Center Hosting is based on a fixed rate over the term of agreements, with advanced payments recorded as deferred revenue[339] Cloud Services Business - Cloud Services Business generated $29.0 million in revenue during fiscal year 2024 from two customers[258] - Cloud Services revenue is recognized based on a fixed rate over the term of agreements, net of any credits for non-performance[340] HPC Hosting Business - HPC Hosting Business broke ground on a 100 MW HPC data center in Ellendale, North Dakota, with a 369,000-square-foot building expected to support HPC applications[259] - The company entered into a 400 MW capacity lease with a US-based hyperscaler, including the 100 MW facility under construction and two forthcoming buildings in Ellendale[260] Financial Performance and Revenue Growth - Revenue increased by $109.8 million (268%) from $41.0 million in FY2023 to $150.8 million in FY2024, driven by increased capacity and the launch of Cloud Services Business[301] - Related party revenue increased by $0.4 million (2%) from $14.4 million in FY2023 to $14.8 million in FY2024, primarily due to increased uptime at the Jamestown facility[301] - Adjusted EBITDA was $24.5 million in FY2024, representing 15% of revenues, compared to $0.8 million (1% of revenues) in FY2023[298] - Adjusted EBITDA (Non-GAAP) for May 31, 2024 was $24.46 million, compared to $0.81 million in 2023[318] Costs and Expenses - Cost of revenues increased by $104.0 million (234%) from $44.4 million in FY2023 to $148.3 million in FY2024, driven by growth in business and increased energy costs[303] - Selling, general and administrative expenses increased by $43.4 million (79%) from $55.1 million in FY2023 to $98.5 million in FY2024, due to growth in business and increased depreciation and amortization[302] - The company expects general and administrative expenses and operating expenditures to increase as it continues to expand operations[328] Losses and Impairments - Loss on classification of held for sale was $15.4 million in FY2024 due to the write-down of Garden City assets[303] - Loss on change in fair value of debt was $7.4 million in FY2024 due to valuation associated with Yorkville Advisors Loan[306] - Loss on change in fair value of related party debt was $13.8 million in FY2024, with $8.1 million due to AI Bridge Loan and $5.7 million due to warrants issued to AI Bridge Funding LLC[307] - The company recorded impairment expense on long-lived assets of $0.5 million in FY 2024, compared to $0.2 million in FY 2023[346] Debt and Financing Activities - The AI Bridge Loan was issued for up to $20.0 million, with $15.0 million funded immediately, bearing an interest rate of 12.5% per annum[272] - The company recognized a $13.8 million loss on the change in fair value of the AI Bridge Loan during fiscal year 2024[274] - The company issued 8,421,146 shares of common stock to extinguish the $20.0 million principal balance of the AI Bridge Loan[274] - Vantage Transformer Loan: $3.7 million term loan with a 6.50% annual interest rate, fully repaid as of the report date[276] - B. Riley Loan: $50 million term loan with a 9.00% annual interest rate, early repayment of $44.5 million with a $2.5 million loss on debt extinguishment[277][278] - Cornerstone Bank Loan: $16.0 million term loan with an 8.59% annual interest rate, $15.6 million outstanding as of May 31, 2024[279] - Yorkville Convertible Debt: Initial YA Notes totaling $50 million, $26.0 million converted into 7.4 million shares of common stock[280][281] - May Note: $42.1 million convertible note, $38.0 million converted into 8.8 million shares of common stock[282][283] - CIM Promissory Note: Initial borrowing of $15 million, total outstanding balance of $105 million as of the report date[287] Equity and Stock Issuances - The company sold 18.9 million shares for net proceeds of $121.2 million under an at-the-market sale agreement with Craig-Hallum Capital Group LLC[261] - The company entered into a Dealer Manager Agreement for the offering of up to 2,000,000 shares of Series E Preferred Stock at $25.00 per share, with no shares sold as of May 31, 2024[264] - Series E Preferred Stock: 301,673 shares sold for net proceeds of $6.9 million[286] - At-the-Market Sales Agreement: 2.9 million shares of common stock issued for proceeds of $16.4 million[292] - SEPA Agreement: Option to sell up to $250.0 million of common stock to YA Fund, with a $2.125 million commitment fee paid in shares[294][295] Cash Flow and Liquidity - As of May 31, 2024, the company had unrestricted cash and cash equivalents of $3.3 million and negative working capital of $355.3 million[320] - During the fiscal year ended May 31, 2024, the company received $148.1 million in payments for future data center hosting services[323] - The company sold approximately 18.9 million shares under an "at the market" sales agreement, generating net proceeds of $121.2 million[322] - The company received net cash proceeds of approximately $61.1 million from the sale of its data center facility in Garden City, Texas[323] - Net cash provided by operating activities decreased by $44.9 million, or 77%, from $58.7 million in 2023 to $13.8 million in 2024[332] - The company expects to have sufficient liquidity to support ongoing operations for at least the next 12 months[327] - Net cash used in investing activities increased by $40.3 million, from $132.1 million in FY 2023 to $172.4 million in FY 2024, primarily due to increased lease prepayments for hosting equipment to support the Cloud Services Business[333] - Net cash provided by financing activities increased by $76.1 million (108%), from $70.6 million in FY 2023 to $146.8 million in FY 2024, driven by net proceeds from common stock offerings and related party debt[334] Business Segments and Operations - The company operates three reportable business segments: Data Center Hosting Business, Cloud Services Business, and HPC Hosting Business[337] - The company assesses going concern uncertainty quarterly, evaluating cash, working capital, and projected cash expenditures to ensure operational viability for at least one year[347] Fair Value and Valuation Models - The fair value of the YA Notes was estimated at $80.2 million, with a loss on the change in fair value of debt recorded at $7.4 million[344] - The company uses a Black-Scholes Option Pricing model to determine the fair value of AI Warrants, with Level 3 inputs including expected share-price volatility and risk-free interest rate[343] Net Loss and Adjusted Operating Loss - Net loss attributable to Applied Digital Corporation was $149.3 million in FY2024, compared to $44.6 million in FY2023[298] - Adjusted operating loss (Non-GAAP) for May 31, 2024 was $50.99 million, compared to $7.32 million in 2023, with an adjusted operating margin of (31)% versus (13)% in 2023[316] - Net loss attributable to Applied Digital Corporation (GAAP) for May 31, 2024 was $149.27 million, compared to $44.65 million in 2023[318]