Applied Digital Corporation (APLD) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlighted strong revenue growth projections with significant lease revenues expected. The company is advancing major projects, like Polaris Forge 2, with strategic geographic expansions. The spin-off of the cloud business could unlock additional value. While there are some uncertainties in lease negotiations, the company's focus on securing favorable terms and the completion of major projects suggests optimism. The Q&A session reflected confidence in managing challenges and maintaining high NOI margins. Overall, the strategic initiatives and positive guidance outweigh the concerns, indicating a positive stock price movement.
Key Financial Performance
Total Revenues $126.6 million, a 139% increase year-over-year. The increase was driven by growth in the HPC hosting business and the Data Center segment.
HPC Hosting Business Revenue $71 million, consisting of $44.1 million related to base rents, $18.9 million related to tenant fit-out services, and $8.1 million related to power pass-through arrangements and other ancillary revenue streams. This segment generated an operating profit of $17.6 million.
Data Center Segment Revenue $37.5 million, up 7% year-over-year. This segment generated $13.9 million in operating profit, showcasing its high return on assets.
Cloud Business Revenue $18.1 million for the quarter. However, the segment reported a loss of $52.2 million due to a $59.7 million noncash write-down of the business.
Adjusted EBITDA $44.1 million for the quarter, reflecting strong operational performance.
Net Loss Attributable to Common Stockholders $100.9 million or $0.36 per share. Adjusted net income was $33.2 million or $0.09 per share.
SG&A Expense $79.7 million, an increase of $57 million. The increase was primarily driven by $39.3 million in stock-based compensation, $8.6 million in professional service expenses, $5.1 million in personnel expenses, and $8 million in other SG&A expenses.
Cost of Revenues Increased by $23.7 million for the quarter. This was driven by $18 million in tenant fit-out services, $4.8 million in personnel expenses, $4.1 million in energy costs, and $2 million in D&A expense, partially offset by a $5.2 million decrease in lease-related expenses.
Cash and Cash Equivalents $2.1 billion at the end of the quarter, against $2.7 billion in debt.
Depreciation Approximately $18.5 million for the quarter.
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Operating Highlights
100-megawatt direct-to-chip liquid cooled data center: Applied Digital operates one of the only 100-megawatt direct-to-chip liquid cooled data centers in the world, showcasing their ability to execute on time and deliver state-of-the-art facilities.
Delta Forge 1 AI factory campus: A 300-megawatt critical IT load AI factory campus spanning 600 acres in the Southern U.S. is under construction, with initial operations expected in mid-2027.
Expansion of development pipeline: The company is actively marketing four development sites, including Delta Forge 1, an additional site in North Dakota, and two unnamed sites, with a total grid power capacity of approximately 1 gigawatt.
Hyperscaler demand: Demand for high-performance AI data center capacity is accelerating, with hyperscalers increasing annual capital expenditures from $400 billion to nearly $700 billion.
Construction progress: All buildings under construction at PF1 and PF2 are progressing on time and on budget, including the 400-megawatt CoreWeave campus and the 200-megawatt hyperscaler campus.
Power strategy: The company is supporting Base Electron to develop a 1.2-gigawatt natural gas-fired power plant in the Dakotas to meet growing power demands.
Cloud business separation: The cloud business is being separated and merged with EKSO Bionic Holdings to form ChronoScale Corporation, allowing it to raise capital independently and focus on GPU-optimized AI infrastructure.
Long-term vision: The company aims to build a dominant data center region in the Dakotas and expand strategically across the U.S., targeting $1 billion of NOI within 5 years.
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Risk or Challenges
Regulatory Approvals and Power Infrastructure Development: The company faces uncertainties and challenges in developing large-scale power infrastructure, including new power plant construction, transmission lines, and obtaining regulatory approvals. These factors could delay or complicate project execution.
Site Viability and Power Agreements: The decision to delay the South Dakota site due to concerns about its long-term viability and the need to reallocate associated power agreements highlights risks in site selection and power contract management.
Debt Financing and Cost of Capital: The company has one remaining tranche of debt to place for a 150-megawatt building and acknowledges that its current cost of capital is higher than desired. This could impact financial flexibility and profitability until refinancing is achieved.
Cloud Business Write-Down: A $59.7 million noncash write-down of the cloud business due to reclassification from held for sale indicates financial challenges and potential risks in the cloud segment's strategic direction.
Energy Costs and Operational Expenses: Increased energy costs and operational expenses, including personnel and professional services, could pressure margins and profitability.
Power Supply and Infrastructure Constraints: The intense demand for power and infrastructure, coupled with limited grid capacity, poses risks to the company's ability to meet future data center demands effectively.
Dependence on Hyperscaler Partnerships: The company's growth strategy heavily relies on securing long-term leases with hyperscalers. Any delays or failures in these partnerships could significantly impact revenue and expansion plans.
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Guidance & Outlook
Revenue Growth: Revenues are expected to ramp significantly over the next 12 months as two 150-megawatt buildings come online.
Data Center Expansion: The company is advancing construction on multiple data center campuses, including Polaris Forge 1, Polaris Forge 2, and Delta Forge 1, with initial operations for Delta Forge 1 expected in mid-2027. Additionally, four development sites are being actively marketed, with a total grid power capacity of approximately 1 gigawatt.
Debt and Financing: The company has completed most of its equity and debt financing for its first two campuses and expects to place the remaining tranche of debt for Polaris Forge 1. Longer-term plans include refinancing debt at more attractive rates.
Power Strategy: The company is supporting the development of a 1.2-gigawatt natural gas-fired power plant in the Dakotas region to meet increasing demand for data center power. Applied Digital shareholders will own approximately 10% of this new power company.
Cloud Business Strategy: The cloud business will merge with EKSO Bionic Holdings to form ChronoScale Corporation, which will focus on GPU-optimized AI infrastructure. This move is expected to drive accelerated growth and allow the cloud business to raise capital independently.
Long-Term Financial Goals: The company aims to exceed $1 billion in net operating income (NOI) within five years, with internal targets set for $1 billion and $2 billion NOI levels.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Could you provide more insight into the restructured leases at PF1 and estimate potential cost savings from refinancing?
A:The restructured leases at PF1 have seen significant improvement in pricing due to factors like high investment-grade offtake for CoreWeave, a lockbox structure ensuring lease payments, and structural protections like letters of credit. CoreWeave has significantly lowered financing costs, and the company expects borrowing costs to align more with investment-grade tenants, though no guarantees were provided.
Q:How has the demand environment changed over the last 90 days, and what is the breadth of discussions with hyperscalers?
A:Demand shifts quarter-to-quarter, with hyperscalers remaining engaged aggressively. The company focuses on diversifying customers and achieving 70% investment-grade contracted revenue. Currently, $16 billion of total contracted revenue is split between $11 billion from CoreWeave and $5 billion from an investment-grade hyperscaler. The company is in advanced negotiations for new campuses and prioritizes grid power for its assets.
Q:What does the potential operational timeline for Delta Forge 1 imply about lease signing, and is there an update on the exclusivity with a hyperscaler for 3 sites?
A:The company expects a lease for Delta Forge 1 in the near term to meet the mid-2027 operational goal. They are still in exclusivity with a hyperscaler for 3 sites and feel optimistic about signing leases this year, though they prioritize securing favorable terms over speed.
Q:What is the spread differential between BB and single A ratings in the refinance market?
A:Single A spreads are sub-300 basis points (low to mid-2s), while BB spreads range from 350 to 450 basis points, depending on structure and offtake.
Q:Does the value of contracts and properties increase over time despite delays?
A:Yes, the company has observed that the ultimate value of contracts and properties tends to rise over time. They are working through moratoriums and zoning issues, particularly in North Dakota, where they have demonstrated economic benefits and grid impact.
Q:What drew the company to new geographic locations in the south, and how do they compare to Dakota sites?
A:The primary driver is power availability, followed by fiber and market density. Southern locations offer a less crowded market and a better labor force. The company prioritizes grid power over off-grid solutions and seeks pro-business states with supportive legislatures.
Q:When will revenue recognition for the next building at PF1 begin?
A:The RFS date for PF1 is July 1, 2026. Revenue will ramp up as data halls are energized between July and September 2026, with full quarters of revenue expected by November 2026.
Q:When might power constraints occur in North Dakota, and how will they be addressed?
A:Power constraints in North Dakota are expected by 2028. The Base Electron initiative will add grid power to support data center expansion, ensuring resilience and benefiting all stakeholders.
Q:Have there been any changes in lease terms or rates that have made negotiations more difficult?
A:While each lease has unique nuances, there have been no market-wide changes. Some delays are due to utility-related guarantees and negotiations, but the company remains focused on securing favorable terms.
Q:What is the status of fit-out service revenue recognition?
A:Most fit-out revenue for ELN-02 has been recognized, with a small amount remaining. Revenue for ELN-03 will ramp up later, but this is a low-margin, nonrecurring line item.
Q:What still needs to happen for the PF2 financing escrow tied to the $2.15 billion of 2031 notes to be released?
A:The ESA between the utility and counterparties needs to be finalized. Progress has been made, particularly on substation construction, which is the longest pole in the tent.
Q:Why was Base Electron structured outside of Applied Digital?
A:Base Electron was structured separately due to the fundamentally different risk and return profiles of power generation and data center businesses. Applied Digital shareholders retain upside through ownership in Base Electron without taking on its risks.
Q:Is there still 100 megawatts uncontracted at PF2, and will an announcement be made when it is contracted?
A:Yes, 100 megawatts at PF2 remain uncontracted. The company expects to contract it in the near term and will make an announcement when finalized.
Q:Are the site NOI margins for PF1 and PF2 still consistent with previous guidance?
A:Yes, the site NOI margins remain consistent with previous guidance, in the high 80s to 90s on a cash basis.
Q:What will the firm's capital structure look like in 5 years?
A:The company aims for a leverage ratio of 5 to 6 times NOI, balancing prudence with growth opportunities. Financing will evolve as construction risks are removed, and the company remains opportunistic in its approach.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact timing of lease signings, particularly for Delta Forge 1 and the 3 sites in exclusivity with a hyperscaler. They also did not clarify the exact terms or sticking points in lease negotiations, citing unique nuances for each lease. Additionally, while optimistic about contracting the remaining 100 megawatts at PF2, no concrete timeline was given.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CEO Cummins
Dakota site
Delta Forge
EKSO
ELN
Forge megawatt
PF
Polaris Forge
SPV
approval
capacity location
capital
center site
cloud
debt financing
decrease lease
enhancement
equity
expense increase
experience
goal
grid power
guarantee
headcount
increase decrease
interest income
investment grade
investor
majority
megawatt building
megawatt facility
personnel increase
professional
rating
return asset
scale power
stage negotiation
tranche
variable
APLD Transcript
Applied Digital Corporation (APLD) Q3 2026 Earnings Call Transcript
Positive4-8
The earnings call highlighted strong revenue growth projections with significant lease revenues expected. The company is advancing major projects, like Polaris Forge 2, with strategic geographic expansions. The spin-off of the cloud business could unlock additional value. While there are some uncertainties in lease negotiations, the company's focus on securing favorable terms and the completion of major projects suggests optimism. The Q&A session reflected confidence in managing challenges and maintaining high NOI margins. Overall, the strategic initiatives and positive guidance outweigh the concerns, indicating a positive stock price movement.
Applied Digital Corporation (APLD) Q2 2026 Earnings Call Transcript
Positive1-7
The earnings call reflects strong financial performance, with significant expansion plans and robust demand in the AI infrastructure market. The Q&A section highlights confidence in future projects and favorable contract terms. Despite increased interest expenses and a net loss, the optimistic guidance and strategic growth initiatives, including the ChronoScale spinout, suggest positive stock movement. The market's focus on AI infrastructure and Applied Digital's positioning in this sector further support a positive outlook.
Applied Digital Corporation (APLD) Q1 2026 Earnings Call Transcript
Positive10-9
The earnings call summary indicates strong financial metrics, optimistic guidance, and strategic growth plans, particularly with the development of Polaris Forge facilities and expected significant revenue. The Q&A section highlights management's confidence in financing and power infrastructure, although some details were vague. Positive factors like the $5 billion MAM financing and no additional funding needed for Polaris Forge 1 bolster the sentiment. Despite some uncertainties, the overall outlook is positive, suggesting a stock price increase in the 2% to 8% range.
Applied Digital Corporation (APLD) Q4 2025 Earnings Call Transcript
Unknown7-30
The earnings call presents a mixed picture. While revenue and adjusted EBITDA have increased, there are significant expenses and a notable net loss. The Q&A reveals positive developments, such as advanced negotiations with a hyperscaler and potential expansion, but also highlights uncertainties, like industry slowdowns and vague management responses. The lack of a clear market cap and the absence of new partnerships or guidance changes suggest a neutral sentiment, with no strong catalysts for significant stock movement in the short term.
APLD Report
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