Applied Digital (US:APLD)2024-10-09 21:14Revenue and Financial Performance - Total revenue for the three months ended August 31, 2024, was $60.7 million, a 67.1% increase compared to $36.3 million in the same period in 2023[14] - Net loss attributable to common stockholders improved to $4.3 million for the three months ended August 31, 2024, compared to a net loss of $11.5 million in the same period in 2023[14] - Basic and diluted net loss per share improved to $0.03 for the three months ended August 31, 2024, compared to $0.11 in the same period in 2023[14] - Operating income for the three months ended August 31, 2024, was $9.5 million, compared to an operating loss of $7.4 million in the same period in 2023[14] - Net loss decreased to $4.247 million in August 2024 from $11.854 million in August 2023, showing a significant improvement in financial performance[22] - Revenue increased by $26.6 million (83%) from $32.1 million in Q3 2023 to $58.8 million in Q3 2024, driven by increased data center capacity and the launch of Cloud Services[179] - Adjusted EBITDA was $19.993 million in Q3 2024, representing 33% of revenues, compared to $9.864 million (27% of revenues) in Q3 2023[176] - Adjusted EBITDA for the three months ended August 31, 2024, was $19.9 million, compared to $9.8 million for the same period in 2023[200] - Adjusted operating loss for the three months ended August 31, 2024, was $14.3 million, compared to an adjusted operating income of $1.6 million for the same period in 2023, reflecting a significant decline in performance[199] - Adjusted net loss attributable to Applied Digital Corporation for the three months ended August 31, 2024, was $21.6 million, compared to a net loss of $129,000 for the same period in 2023[199] Costs and Expenses - Cost of revenues increased to $61.1 million for the three months ended August 31, 2024, compared to $25.2 million in the same period in 2023[14] - Cost of revenues increased by $35.8 million (142%) from $25.2 million in Q3 2023 to $61.1 million in Q3 2024, primarily due to higher depreciation, lease expenses, and personnel costs[180] - Selling, general, and administrative expenses decreased by $1.8 million (11%) from $16.2 million in Q3 2023 to $14.3 million in Q3 2024, mainly due to reduced stock-based compensation[182] - Depreciation and amortization expenses increased to $34.316 million in August 2024 from $7.86 million in August 2023[22] - Depreciation expense for the three months ended August 31, 2024, was $3.0 million, compared to $2.2 million for the same period in 2023[45] - Total net lease cost for the three months ended August 31, 2024, was $44.643 million, including $8.962 million in operating lease cost and $35.626 million in finance lease cost[103] - Interest expense, net increased by $5.2 million (243%) from $2.1 million in Q3 2023 to $7.3 million in Q3 2024, driven by higher finance leases and interest-bearing loans[185] Cash Flow and Liquidity - Cash flow from operating activities was negative at $75.89 million in August 2024, compared to a positive $4.517 million in August 2023[22] - Cash flow from financing activities increased to $163.365 million in August 2024 from $23.663 million in August 2023, driven by borrowings and stock issuances[22] - Total cash, cash equivalents, and restricted cash increased to $86.557 million in August 2024 from $31.688 million in May 2024[42] - The company had a working capital deficit of $302.6 million, raising substantial doubt about its ability to continue as a going concern, but subsequent events alleviated this doubt[43] - As of August 31, 2024, the company had unrestricted cash and cash equivalents of $58.2 million and negative working capital of $302.6 million[201] - The company expects to have sufficient liquidity to support operations and meet working capital needs for at least the next 12 months[209] - Liquidity sources include cash on hand, customer payments, debt financing, and access to public capital markets[209] - The company may face challenges in raising additional funds on favorable terms, which could negatively impact financial conditions[209] - Failure to secure necessary financing could force delays, reductions, or termination of operations and development plans[209] - The company's liquidity estimates are based on assumptions that may prove incorrect, potentially leading to faster capital depletion[209] - If capital resources are used sooner than expected, the company may need to seek additional financing earlier than projected[209] - Additional financing may not be available on acceptable terms or at all, posing risks to the company's financial stability[209] - The inability to raise capital as needed would negatively impact the company's ability to pursue its business strategy[209] Debt and Equity Transactions - The company issued 6.1 million shares in an offering, net of costs, during the three months ended August 31, 2024[18] - The company converted $56.2 million of debt into equity during the three months ended August 31, 2024[18] - The company issued $60.726 million in preferred stock in August 2024, with issuance costs of $5.444 million[22] - Long-term debt increased to $106.2 million as of August 31, 2024, up from $79.5 million as of May 31, 2024, primarily due to the CIM Promissory Loan of $105.0 million[59] - Remaining principal payments on long-term debt total $156.7 million, with $112.7 million due in FY28 and $12.0 million from SAFE agreements[60] - During the three months ended August 31, 2024, $48.0 million of Yorkville Convertible Debt was converted into approximately 11.4 million shares of common stock[63] - The CIM Promissory Note balance was $105.0 million as of August 31, 2024, with warrants issued to purchase up to 9,265,366 shares of Common Stock[64] - CIM Warrants were issued in two tranches: 6,300,449 Common Shares (Initial Warrants) at $4.8005 per share and 2,964,917 Common Shares (Additional Warrants) at the same price, with a five-year term[65] - The fair value of the Initial Warrants and Additional Warrants was $4.36 and $3.04 per warrant, respectively, totaling $36.5 million[67] - The Company entered into two SAFE agreements totaling $12.0 million, which may convert into preferred stock or entitle the investor to proceeds in liquidity or dissolution events[70][71] - The Company sold approximately 3.1 million shares for net proceeds of $14.6 million under a $25 million "at the market" sale agreement with Roth Capital Partners[76] - The Company entered into a Sales Agreement allowing the sale of up to $125,000,000 in shares of common stock, with $16.4 million net proceeds from 3.0 million shares sold as of August 31, 2024[77] - The Company entered into a Standby Equity Purchase Agreement (SEPA) with YA Fund, allowing the sale of up to $250.0 million of common stock, with a $2,125,000 commitment fee paid in 456,287 shares of common stock[78][79] - The Company issued approximately 9.6 million shares of common stock under equity incentive plans, with $(2.9) million and $5.6 million of stock-based compensation recognized in the three months ended August 31, 2024 and 2023, respectively[80] - The Company sold 301,673 shares of Series E Redeemable Preferred Stock for proceeds of $6.9 million, with a fixed dividend rate of 9.0% per annum[87][88] - The Series E Preferred Stock has a $25.00 per share liquidation value, with optional redemption fees ranging from 9.00% to 0.00% based on the redemption timing[91] - Series F Convertible Preferred Stock private placement closed on August 30, 2024, for total proceeds of $50.0 million, with a 3.5% fee paid to Northland Securities, Inc.[93] - Series F Convertible Preferred Stock holders are entitled to cumulative preferential dividends at an annual rate of 8.0% of the Stated Value of $1,000 per share[93] - The fair value of Yorkville convertible debt was $30.463 million as of August 31, 2024, calculated on an as-converted basis using quoted market prices[98][99] - The Company recorded a loss on the change in fair value of debt of $6.4 million in its unaudited condensed consolidated statements of operations[99] - The company completed a private placement on September 5, 2024, issuing 49.4 million shares of common stock at $3.24 per share, raising approximately $160 million in gross proceeds[128] - The company received the final $20.0 million of funding associated with the CIM Promissory Note on October 8, 2024, bringing the total balance outstanding under the note to approximately $125 million[131] - The company entered into a Dealer Manager Agreement on September 23, 2024, to offer up to 2.5 million shares of Series E-1 Redeemable Preferred Stock at $25.00 per share[130] - The company converted $17.8 million of Initial YA Notes into approximately 5.8 million shares of common stock and $4.1 million of the May Note into approximately 1.4 million shares of common stock, leaving $6.2 million outstanding across all YA Notes[129] - The company borrowed $125 million under the CIM Promissory Note as of August 31, 2024[202] - During the quarter ended August 31, 2024, the company sold approximately 3.1 million shares for net proceeds of $14.6 million[203] - The company entered into a securities purchase agreement for the private placement of Series F Convertible Preferred Stock, raising $50.0 million[206] - The company closed a private placement of common stock, raising approximately $160 million in gross proceeds[207] - The company received $17.4 million in payments for future cloud services and $26.9 million in payments for future data center hosting services during the three months ended August 31, 2024[207] Segment Performance - Total revenue for the three months ended August 31, 2024, was $60.7 million, with the data center hosting segment contributing $34.8 million and the cloud services segment contributing $25.9 million[118] - The data center hosting segment reported a segment profit of $35.9 million, while the cloud services segment reported a segment loss of $15.8 million for the three months ended August 31, 2024[119] - Total segment profit for the three months ended August 31, 2024, was $17.1 million, compared to $0.8 million for the same period in 2023[119] - Data Center Hosting segment operating profit increased by $26.9 million (298%) from $9.0 million in Q3 2023 to $35.9 million in Q3 2024, largely due to the Garden City facility sale[189] - Cloud Services segment operating loss increased by $8.4 million from $7.4 million in Q3 2023 to $15.8 million in Q3 2024, driven by higher amortization and occupancy costs[190] - HPC Hosting segment operating loss increased by $2.2 million (290%) from $0.8 million in Q3 2023 to $2.9 million in Q3 2024, due to stock-based compensation and payroll expenses[191] - Data Center Hosting Business operates at full capacity with 106 MW in Jamestown and 180 MW in Ellendale, North Dakota as of August 31, 2024[147] - Cloud Services Business recognized $25.9 million in revenue during the fiscal quarter ended August 31, 2024[149] - HPC Hosting Business is negotiating a 400 MW capacity lease with a US-based hyperscaler, including a 100 MW facility under construction in Ellendale, North Dakota[150] Asset and Liability Management - Total stockholders' equity increased to $241.8 million as of August 31, 2024, compared to $127.9 million as of August 31, 2023[18][19] - The company received $25 million in connection with the sale of its Garden City facility[14] - Restricted cash related to letters of credit totaled $28.3 million, held in money market funds[39] - Property and equipment increased to $495.6 million as of August 31, 2024, up from $354.8 million as of May 31, 2024, driven by construction in progress which rose to $313.6 million from $190.2 million[45] - Deferred revenue balance decreased to $16.9 million as of August 31, 2024, from $39.4 million at the beginning of the period, primarily due to revenue recognition of $60.4 million[48] - Customer deposits balance decreased to $13.7 million as of August 31, 2024, from $15.4 million at the beginning of the period, with $2.8 million received and $1.5 million refunded during the quarter[49] - The Company had letters of credit totaling $28.3 million as of August 31, 2024, with restricted cash held in separate accounts[61] - Future minimum lease payments as of August 31, 2024, total $318.554 million, with $150.292 million for operating leases and $168.262 million for finance leases[105] - The Company has a minimum commitment of approximately $68.1 million related to the energy services agreement for its Jamestown, North Dakota co-hosting facility[108] - The Company has entered into leases which are executed but not yet commenced with total minimum payments of approximately $18.9 million[106] - As of August 31, 2024, the company had total assets of $937.7 million, with the data center hosting segment accounting for $143.1 million and the cloud services segment accounting for $338.8 million[124] - The company received the remaining $25 million of the purchase price held in escrow related to the sale of its Garden City hosting facility, which was included in the gain on classification of held for sale[116] - Company sold Garden City hosting facility for up to $87.3 million, with $25 million released from escrow after meeting conditional approval requirements[147][148][161] Legal and Regulatory Matters - The Company is involved in a putative securities class action lawsuit, with potential material impact on results of operations if an unfavorable outcome occurs[111][112] - A derivative action was dismissed without prejudice on June 5, 2024, with no pending or threatened lawsuits as of August 31, 2024, that could materially affect the Company's operations[114][115] Revenue Recognition and Customer Contributions - Revenue recognition for data center hosting and cloud services is based on fixed rates over the term of agreements, with advanced payments recorded as deferred revenue[32][33] - Revenue from Customer A decreased to 48% of total revenue for the three months ended August 31, 2024, down from 68% in the same period in 2023, while Customer G contributed 16% of revenue in 2024[47] - Gain on classification of held for sale was $24.8 million in Q3 2024, primarily due to $25.0 million released from escrow funds related to the sale of the Garden City facility[183] Stock-Based Compensation and Equity Plans - Stock-based compensation expense was $2.9 million for the three months ended August 31, 2024[18] - The Company issued approximately 9.6 million shares of common stock under equity incentive plans, with $(2.9) million and $5.6 million of stock-based compensation recognized in the three months ended August 31, 2024 and 2023, respectively[80] Future Commitments and Agreements - The Company entered into a CIM Promissory Note for initial borrowing of $15 million, with potential subsequent borrowings of up to $110 million and an additional $75 million accordion feature[151][153] - YA Fund converted $64.0 million of YA Notes into 16.2 million shares of common stock, with $6.2 million principal amount outstanding as of August 31, 2024[155] - Company entered into a Standby Equity Purchase Agreement with YA Fund for up to $250.0 million of common stock, with a commitment fee of $2,125,000 paid in shares[162][163] - Series F Preferred Stock offering closed on August 30, 2024, raising $50.0 million with an annual dividend rate of 9.0%[165][166]