Applied Digital (APLD) - 2024 Q3 - Quarterly Results

Financial and Operational Highlights Applied Digital reported $43.3 million revenue and a $2.3 million Adjusted EBITDA loss in Q3 FY2024, while strengthening its balance sheet and securing a 400 MW LOI post-quarter Q3 FY2024 Financial Highlights | Metric | Value | | :--- | :--- | | Total Revenue | $43.3 million | | Adjusted EBITDA | -$2.3 million | - Post-quarter, the company secured $160 million through asset sales and financing transactions to significantly strengthen its balance sheet[3] - Entered into an exclusivity and letter of intent (LOI) with a US-based hyperscaler for a 400 MW capacity lease at the Ellendale campus[3] - The company is incrementally restoring capacity at the Ellendale facility, targeting 65%-75% capacity by the end of May 2024 following outages[3] Management Commentary Management acknowledged Q3 financial impacts from power outages but highlighted progress in Cloud Services and a pivotal 400 MW LOI for the Ellendale campus - Management acknowledged that facility power outages in the datacenter hosting business impacted financial performance during the quarter[4] - A key achievement was entering into an LOI with a US-based hyperscaler for a 400 MW capacity lease at the Ellendale HPC campus, which includes the current 100 MW facility and two future buildings[4] - The company strategically decided to divest its Garden City Facility and welcomed Together AI as a new Cloud Services customer[4] Business Segment Updates Business segment updates include Cloud Services earnings drag, a 400 MW LOI for Ellendale HPC, and Ellendale datacenter recovery from power outages Cloud Service Update Cloud Services earnings and EBITDA were negatively impacted by expenses from non-revenue-generating equipment, with positive financial impact expected in Q4 - Earnings were negatively impacted by expenses from increased levels of in-service equipment that were not yet generating revenue[6] - The company anticipates a positive impact on financial performance in the fiscal fourth quarter as more equipment began generating revenue near the end of Q3[6] High-Performance Computing (HPC) Datacenter Hosting Update The company executed a 400 MW LOI with a US-based hyperscaler for its Ellendale HPC campus, covering current and future facilities, and is in advanced financing discussions - Executed a letter of intent (LOI) with a US-based hyperscaler for a 400 MW capacity lease at the Ellendale, North Dakota campus[8] - The company is in advanced discussions with traditional financing counterparties for this investment-grade tenant[8] Datacenter Hosting Update Jamestown operated at full capacity, while the 180 MW Ellendale facility experienced a power outage due to transformer failures, targeting 65%-75% restoration by May 2024 - The 180 MW facility in Ellendale, North Dakota experienced a power outage starting in January due to transformer failures[9] - The company has begun re-energization and targets restoring the Ellendale facility to approximately 65%-75% of full capacity by the end of May 2024[9] Financial Results (Fiscal Third Quarter 2024) Q3 FY2024 revenue grew 208% to $43.3 million, but increased costs led to a $62.8 million net loss and a $2.3 million Adjusted EBITDA loss, with $41.0 million cash and $61.8 million debt at quarter-end Balance Sheet As of February 29, 2024, Applied Digital held $41.0 million in cash and equivalents, with $61.8 million in total debt outstanding Key Balance Sheet Items (as of Feb 29, 2024) | Metric | Value | | :--- | :--- | | Cash, cash equivalents, and restricted cash | $41.0 million | | Debt outstanding | $61.8 million | Operating Results Q3 FY2024 revenue grew 208% to $43.3 million, but increased costs led to a $62.8 million net loss and a $2.3 million Adjusted EBITDA loss, impacted by non-revenue-generating facilities Q3 FY2024 vs. Q3 FY2023 Operating Results | Metric | Q3 FY2024 | Q3 FY2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $43.3M | $14.1M | +208% | | Cost of Revenues | $47.1M | $10.5M | +349% | | SG&A Expenses | $30.4M | $10.5M | +190% | | Net Loss | $(62.8)M | $(7.3)M | Increased Loss | | Net Loss per Share | $(0.52) | $(0.07) | Increased Loss | | Adjusted EBITDA | $(2.3)M | $0.9M | Decreased | - Adjusted net loss was $28.9 million ($0.24 per share), negatively impacted by $15.6 million of expenses associated with facilities and equipment not yet generating revenue[15] Cash Flows For the nine months ended February 29, 2024, net cash decreased by $2.6 million, with significant outflows for property, leases, and debt repayments, partially offset by operating cash, borrowings, and stock issuance - Primary uses of cash for the nine months ended Feb 29, 2024 included: - Purchase of property and equipment: $87.0 million[16] - Finance lease payments (prepayments and recurring): $62.6 million[16] - Debt repayments: $52.3 million[16] - Primary sources of cash for the nine months ended Feb 29, 2024 included: - Net cash from operating activities: $47.9 million[16] - Net cash from issuance of common stock: $121.0 million[16] - Borrowings (including related party): $54.4 million[16] Non-GAAP Financial Measures The company uses non-GAAP measures like Adjusted Operating Loss, Adjusted Net Loss, and Adjusted EBITDA for operational insight, with a Q3 2024 update to exclude start-up costs from calculations - The company uses non-GAAP measures to facilitate comparison of past and present operations by excluding one-time or significant non-cash items[21] - A change in presentation was made in Q3 2024: the company no longer excludes start-up costs as an adjustment in its calculation of Adjusted operating loss, Adjusted net loss, and Adjusted EBITDA[24] - Adjusted EBITDA is defined as EBITDA adjusted for stock-based compensation, litigation expenses, non-recurring professional service and R&D costs, and various losses on asset sales, debt, and legal settlements[26] Financial Statements This section presents Applied Digital's unaudited condensed consolidated financial statements, including Balance Sheets, Statements of Operations, Cash Flows, and GAAP to Non-GAAP reconciliations for specified periods Condensed Consolidated Balance Sheets Total assets grew to $643.2 million from $264.0 million, and total liabilities increased to $524.7 million from $194.3 million between May 2023 and February 2024 Condensed Consolidated Balance Sheets (in thousands) | | February 29, 2024 | May 31, 2023 | | :--- | :--- | :--- | | Total Assets | $643,168 | $263,957 | | Total current assets | $105,701 | $45,668 | | Property and equipment, net | $211,172 | $195,593 | | Total Liabilities | $524,680 | $194,278 | | Total current liabilities | $349,160 | $115,460 | | Total Stockholders' Equity | $118,488 | $69,679 | Condensed Consolidated Statements of Operations For Q3 FY2024, total revenue was $43.3 million with a $62.8 million net loss; for the nine-month period, revenue was $121.9 million with an $85.2 million net loss Condensed Consolidated Statements of Operations (in thousands, except per share data) | | Three Months Ended Feb 29, 2024 | Three Months Ended Feb 28, 2023 | Nine Months Ended Feb 29, 2024 | Nine Months Ended Feb 28, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $43,348 | $14,090 | $121,876 | $33,354 | | Operating loss | $(55,822) | $(6,989) | $(71,420) | $(37,875) | | Net loss attributable to Applied Digital | $(62,838) | $(7,025) | $(84,824) | $(38,173) | | Basic and diluted net loss per share | $(0.52) | $(0.07) | $(0.77) | $(0.41) | Condensed Consolidated Statements of Cash Flows For the nine months ended February 29, 2024, net cash from operations was $47.9 million, investing activities used $122.5 million, and financing activities provided $72.0 million, primarily from stock issuance Condensed Statements of Cash Flows (in thousands) | | Nine Months Ended Feb 29, 2024 | Nine Months Ended Feb 28, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $47,896 | $54,144 | | Net cash used in investing activities | $(122,518) | $(96,314) | | Net cash provided by financing activities | $72,028 | $18,792 | | Net decrease in cash | $(2,594) | $(23,378) | | Cash, end of period | $40,980 | $22,921 | Reconciliation of GAAP to Non-GAAP Measures Q3 FY2024 GAAP Net Loss of $62.8 million was adjusted to a non-GAAP Adjusted Net Loss of $28.9 million and a non-GAAP Adjusted EBITDA of -$2.3 million after various adjustments Adjusted EBITDA Reconciliation - Q3 FY2024 vs Q3 FY2023 (in thousands) | | Three Months Ended Feb 29, 2024 | Three Months Ended Feb 28, 2023 | | :--- | :--- | :--- | | Net loss (GAAP) | $(62,838) | $(7,341) | | Interest expense, net | $4,404 | $352 | | Depreciation and amortization | $26,204 | $1,927 | | EBITDA (Non-GAAP) | $(32,230) | $(5,062) | | Stock-based compensation | $3,194 | $4,480 | | Loss on classification as held for sale | $21,723 | — | | Other adjustments | $5,000 | $1,491 | | Adjusted EBITDA (Non-GAAP) | $(2,346) | $909 |