Applied Digital (APLD) 9 Oct 232024 Q1 Earnings call transcript

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 ended August 31, 2023, in a press release, a copy of which will be furnished in a report on Form 8-K filed with the SEC and will be available in the Investor Relations section of the company's website.

call CFO, Digital's David today's Wes and on and Cummins; Rench. us are Chairman Applied CEO, Joining

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

we Kovtun, from brief Kovtun begin, will Before a make Gateway introductory proceed. please Group Mr. statement. Alex

Great. to Digital's Thank Call. Fiscal welcome Conference Applied XXXX you, morning, Quarter and Good operator. everyone, First

number we're uncertainties. remarks, securities be may considered statements under their Before like remind today management formal begins and everyone making to and of involve a laws would we that risks some statements forward-looking

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

see made reflect the as public events or in release law. after detailed and the any We forward-looking earnings except with statements disclosures more to by circumstances are statements uncertainties relating risks, to please For our filings and assumptions to made, update required obligation disclaim the forward-looking or and Exchange Securities undertaking date Commission. the occur our statements, that forward-looking

the non-GAAP variable under these and including, identified metrics but you and detailed as our We our discuss to, report GAAP Risk descriptions other and on filings disclosures release uncertainties the our Exchange quarterly in read you reconciliation uncertainties tables, and circumstances, XX-Q. financial and for well not Commission of Factors our as Form refer also and applicable business measures risks to in limited caption encourage earnings as Securities carefully our metrics. will We disclosures consider you the with to

Digital's SEC at free, Securities www.sec.gov. Applied Exchange and may for the Commission website by visiting You filing get

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

Applied over turn will I call CEO, the Wes? Cummins. and Digital's to Chairman Now Wes

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

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

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

perform which fourth consistent at the as Our capacity to the operates in with throughout expected at XXX-megawatt facilities consecutive uptime quarter has Jamestown Jamestown the marks This facility full capacity. operated continues and quarter. full

during Dakota fiscal capacity XXX-megawatt to second our the Our XXX energized are out our uptime first with facility became year on Ellendale during is results megawatts total in the of our operating fully facility to consistent fully of and online hosting which Dakota North across XXXX operational and and multiyear the fully quarter, North to contributed contracted bringing quarter, was terms. this facilities, customers quarter all

be XXX fully energized, completed and megawatts of metering agreement provider into becomes will be expected facility complete, place, Texas will the installed will in our This facilities. the With X and facility Once facility. City Garden Oncor approximately across telemetry this entered is energized. we our capacity site of and September, extension owned once installation to power for October hosting In transmission a be to Garden by we power XXrd. the equipment our by have with City, metering

GPUs to us operational data cash for capital uptime around of build-out sites purchasing customers. requirements our to X million with million our will facilities high of flow, $XXX EBITDA HPC consistent $XXX in our service revenue basis. AI provide in our produce Presence and expect X on the annualized We an all with cloud centers and supporting

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

service in activated GPUs our first as receiving and receiving and of In GPUs made further up our contracts continues September for month. pipeline. July, Our our opportunities AI of GPUs to the we meaningful the cloud ramp character cluster then progress second cluster make progress additional we additional supporting AI in since pursue this have in expectation existing of with

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

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

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

elite our partnerships Supermicro, the combined with in into time ensuring line, these delivery like OEMs network established receipt with Dell, Our with status NVIDIA's Packard of recent visibility timely partner and Enterprise partner GPUs. leading Hewlett provide us

data Jamestown element facility we initially third-party execute to next-gen space of continue with from the our as on mentioned, HPC previously dedicated X-megawatt provide As centers. along this will we our service colocation HPC

opportunities service The customers updates further signed our further pipeline our on providing remains cloud capitalizing business to robust. We look opportunity forward. going this newly AI for and of on forward

update me let HPC our centers. a Lastly, provide on purposeful quick data

necessary facility. of securing of to groundwork facilities for in We have Ellendale and the these tenant. obtain in process the development financing, of credit-rated a XXX capacity construction begun the we're megawatts order anchor proceed with have and In initial our

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

CFO, energized these walk provide you customers AI now to XX call to within through for With the that, our and financials Rench, guidance operational secure before our and on will We closing fully once remarks. next an update I our months. information customer to for over our provide facilities to David service, and cloud my David? turn new providing the available. facility anchor aim Similar we tenant an each more have

XXXX. Thanks, Wes, Revenues compared quarter increase quarter good fiscal by three $X.X an increase for the in North hosting and Ellendale, Dakota capacity ended The online million was first to fiscal driven from XXXX first operational due began August of and contract, million company's being XXXX. revenues the which cloud site everyone. the first to service in for $XX.X during revenue XX, were months the morning, of AI

expenses first for employees the to attributable XXXX in on of expense fiscal of quarter revenues, of $XX.X to the Ellendale million The increase for was quarter facilities. higher XXXX. energy hosting Jamestown generate for our fiscal Cost working costs and was hosting compared to costs first amortization directly and $X.X revenues million depreciation, personnel used

$X year $XX.X count Operating expenses compared share the in XXXX increase increase result XXX.X a count of $X.XX in XXXX and of an or as per depreciation. during well for to period. loss average on million. first million fiscal Net of of increase for a of the in diluted to share prior were basic the first loss million as was approximately as head million the was the quarter based The primarily due a comparable fiscal quarter personnel-related $X.X weighted costs quarter

diluted based quarter $X.X million. per quarter basic a or This a loss count XX.X share in million during of approximately the weighted XXXX net of share $X.XX of of compares and fiscal to a the first average on loss

basic a average income $X.X a Adjusted per $X.XX. during XXXX or per diluted weighted the share XX.X of quarter compares basic net XXX.X loss, a non-GAAP the of was of for to This an fiscal non-GAAP our Based count for during average million measure loss adjusted share $X.XX of the the share income, a fiscal and of adjusted share quarter million. quarter measure $X.X approximately and XXXX. on approximately million net on million. less of net than count weighted of first quarter diluted Based or first

XXXX fiscal XXXX measure first Adjusted EBITDA million. compared of for $XX loss the to for an of million first quarter non-GAAP quarter fiscal $X.X of was a the EBITDA, adjusted

balance debt. the we in with sheet, equivalents million cash and ended restricted quarter the first cash, cash and in million on Lastly, fiscal $XX.X $XX

we upfront payments to our arrangements structure first $XX.X due that the of commercial quarter During XXXX, deposits with and customer received incorporate prepayments. fiscal the million customers in our of

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

$XX are million additional the quarter $XX million in closed, an received have customer expecting an week. this additional we prepayments and Since

for guidance full the to XXXX. turning fiscal year Now

of in in revenue of and for to $XXX $XXX million expectations We million. to million EBITDA are reaffirming range million adjusted our range $XXX the $XXX the

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

Thank you, David.

remain transformation. future next-generation of we about competitive blockchain ahead, infrastructure the HPC our of look emerging and we leadership meet as Digital confident our for enterprises capabilities non-blockchain we digital applications. digital AI during other Applied differentiated the era optimistic cases demanding HPC to this and for sophisticated requirements As run I and businesses and remain to advantages in in workloads both and solidify use

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

[Operator And first line Capital. our you. Rob Brown Street of Thank Instructions] Lake the from with comes question

Good morning.

customers out -- that the of kind a Do the And center center give to efforts the too off? business. fill does a kind I but -- data kind on much sort to before anchored on kind off the in sizing kick of of make detail, of get to your out to kick of whole for of maybe can't need AI build? decision sense scope you a how of question First the center. they

Yes.

we contract the I past, think and think about same, that we to need we're of securing customer, roughly in it we've Doesn't contracts have reasonable, which to shown and be we we've X- on capacity. kick this, process to is the to of off a contract say, remains to one that. we in construction, need but XX-year the talked with renewals XX% the think

next XXX the year in then But kind second XXX of Rob, kicking shortly up megawatts in back North off North I come mid then XXX and about is roughly Dakota. in the and for Utah Dakota way followed think with these

ramp Okay. sort to depends delivered. the see of of in you Great. And up then terms you've How AI in, GPU's see the ability the of that order? ramping GPUs business? do coming sort the you the that on of it those business, ramp of do on getting How

Yes.

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

Hallum. from of is Sutton question George the next Our with line Craig

on equipment? is once little more with you pace This Oncor for installed provide has the their on a Adam Wes, George. could Garden starting of City, energization detail

Sure. Yes.

date the day. ready in miners where won't for that expectation both faster at the months energization. still take remarks be to that is energize Jamestown will but go finish to the buildings are turn will release because facilities ramp racked were we've in our than mentioned Dakota we and energizing it that that So seen the we we've North energize, ready We Ellendale them. It the to is seen and on. in continuing press prepared And the then and be should the and everything construction complete, to start be weeks should

much should so And it go faster.

be late kind -- fully the point So November XXrd. November in the online that October of should to mid- from at some start, late

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

facility on Dakota, to the be and North To started of and of groundwork get through we to winter there, enclose In work is to through Yes. be poured. able a a it it's will kind thing work we the the foundations rush we're year, there. the same which winter did last the -- bit little

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

the question Todaro John from Our is next line with Needham & of Company.

how on is on One much get few just capacity more contracts on we Just computing is of out what so the But anchor we contracts. to there? understand -- Can and contracts here congrats trying site can tenants to business, a -- you off, the kind first those looking add are there to more kind adding -- come HPC really if can online? any more Or there? sites wondering now? capacity expect of

Yes.

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

So we through math compute if John, side. walk kind the on site the of

GPUs talked And of on XX,XXX So $X.X before million month. roughly April. by getting we've revenue per to about about every X,XXX generates approximately

gets we'll when annual it And plus to from our to, so business. go be million $XXX you then we looking put call own facilities. that revenue And it, in April on,

we've So ramp ramp April, we facilities. through then have put colo looking and then our in secured in we're that and deployments third-party that Jamestown to facility support own to our further

it. Got

helpful. And on the timeline, That's guess too. Great. Okay. just then I

color So guys when you from of in is know get the more said you doable? there would XX,XXX of difficulty what be any that's GPUs, you're to kind increased tracking, suppliers -- I guys like helpful. Or that from the XX,XXX kind seemed color is it any just that certainly but that?

Yes.

post next April those what So the are deploy expect to of year. -- we

again, seeing. being after demand the you April. of think should so of, we've pipeline But about in added those because we're And that those added

we and post, So to being that it's see I last April X X through. the call additional now, then comes continue through the would talked demand the but where on but being the we'll about think right added XX added about

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

comes Next B. of from with the line Securities. Lucas Pipes question Riley

and you is question changes. to Garden on think very kind the of delays me through walking of with My City revenue much first we AI guidance. those EBITDA the And Thank more Cloud. shifted having for contribution at should

Yes. Thanks, the for question. Lucas,

about GPUs what the get deployed, of can especially the a as additional cloud, in these We in how be the in year, the but steps So I are get you September. kind October. that as the we'll X -- fairly deliveries. through throughout said walk will it last got We'll up steep given just delivery ramp, AI come quarters online, our

for and And deliveries ramp into us really January. December somewhat then I November, think in the

That revenue online, for see come that up the a we've So remainder delay Garden the as those pretty should you the on of City. you'll cloud year. see through the steep ramp business in seen make

on through financing with of the On us targets are walk the what many your needs the would that. you of I HPC completed the in to cover thoughts for And capital equity? understand. planning terms the side, majority debt financing, current Is can project would your that from what capital intensity of it appreciate

Yes, sure.

think Thursday. of great and through lot we we'll people But this have on data the business, So center go seen. in detail on I -- a

the center have the redesigned we with data now. we So knowledge

the was wanted So have do built of in it be because what and you just we was initial in Jamestown, to we about, it. far it that's North going so Dakota, which land the build build to as way to that we as horizontally. horizontal And talked cheapest single-level it's plenty

inference. middle to network being that and so But the structure X-story a density now the network how workloads core our that that know thinking, $X work can density through that them with you higher specifically we of we're million, $X more to and structure necessity about all should for before we closer per build million, the these redesign, more million -- runs those We for much that has much then somewhat redesigned facilities. core. kind you training be $X.X But megawatt around of for talked get to looking

we is it and put this of equity we then like for place. think can -- we site component, are on you level then tenant that an loan partners the And financing that or We but XX% get can construction centers, that financing credit-rated, that we work we well. in as data component have equity that the there's equity -- get get can construction, an roughly to more much with tenants cost done the secure looks so call

should spent like see we're financing, capital in at there, data more time -- of equity I That to the of we've but and lot debt. is the center talking industry it's a as you would we -- again, what the site level, it a markets in usually think as Mezz it's called

all build. of initial initial I our build working pieces technically, Dakota. design. and finalize through the guess the not It's in structure we're those of start this the build capital North Lucas, So initial to

squeeze Understood. I'll try more in. to one

related versus previously, of are customers moving two pieces GPUs additional the would the XX,XXX GPUs there you other to In terms -- be announced today XX,XXX or those there?

to It's demand related moving really continue There's other pieces. we more see. the to

demand haven't We slow seen in this down. area

AWS. with see in we companies I think the look if pipeline. with a really Anthropic, last demand, will down. week in industry still But deal, There funding go strong you be we're environment through for think, capital demand that the the customers announced hasn't for seeing raising I us good our a that robust slowed was large was

really a based decision on demand it's perspective. a from so seeing just what And we're

Okay. to and of And it. Very the helpful. team, I you appreciate luck. best

Thanks, Lucas.

ROTH next the with Aftahi comes Darren of line Our from question MKM.

bit X,XXX on further of I'm of cadence you of curious numbers that I in September then your number is I in November, guess, more just orders? could a comments. why speak that, kind kind order? isn't October. December that relative the And Wes, for initial January the your what's confidence function and to of 'XX? if a bigger getting up guess ticked talk and to cadence into the Are those little the backlog? GPU you just month-to-month can pushed up Is hockey into And kind

Yes.

Darren. question, good a it's So

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

I So seems gives that that's bit happen, -- maybe be delivery trying that suppliers. things we're we've but longer could that, our firmer weeks is deliveries, us schedule confidence that given probably little in it to the what when was always I a suppose, ago, it X from mean kind a think can pushed. or it this than of

I months. for we just the shipped about of up kind and a the deliveries that those ordered they're being when over pretty think And And of out. good next of feel X matter when us. So ramping the cadence it's

I don't for to if not there's related know. to that in say better or know. the or supply I just whether don't industry think it's it's don't me I us specifically

That's helpful. And then just one last for me. one

On mean, assume anchor HBC, tenants you with your tenant on is your of guess, in, right I multiple And you're then I vis-a-vis how we of terms to to I slotting have center comments. financing the in close that are to? going behind probably be Utah? Dakota talking data North prior kind And people based

of through demand just kind plan. tenant and So I'm -- then capacity to walk of relative to if kind understand longer-term a just you kind anchor the of have trying you

Sure.

interest. the for week, design. in seeing we're having And of end few the a first been We've conversations week then lot now. of a we months of September, So our these the finalized first

and we a kind conclude a, formal a an we've contracting a how that the in, so it, over or hope as of that into formal in few from mid-September, coming in next to until or point. really now, that's and a that's it marketing together but process call, the expectation, weeks. come process stage what we'll so it's into LOI started been the and month call weeks that stage And would move I

type the style Thursday. own. in the and XX our available demand space power then online customers go we've both to this side the it's with detail next and data in the high, come over on been on or But side more center that we'll the for out interest is in can data through on We're a is amount talking seeing of that density potential colocation huge ourselves -- really for demand months. and capacity building of cloud of XX center getting because this But for demand this for

is Mike question from Grondahl the Securities. line of with Next Northland

questions. of couple A

five, on potential sort might way near anchor or kind there of still Or is the seven first there's the a tenants, who big down be very you're six, out anchor that anchors of The you announce made potential would say meaning going talking to have multiple group? potential that out still term, just wide you're funnel to? of it two small of kind you're and one finalizing open, it

I Mike, middle would scenarios say that the So of say, two kind that the would I we're you in the, in described. the of right

end has Does gotten the that makes right smaller, we're So at not but yet. sense. the funnel

Got it. Yes.

August Or to Can those the and you customers I And two? $XX.X you then mentioned million $XX prepayment Just are understand. expect And three the million, $XX $XX then the on this prepayments, trying customer do million those million quarter. in are and the think and a relate in one $XX you week. to say from four? million a prepayment back

receive those about ones then this to and that It's we The we prepayments. received both expect talked week. the that one for we've already

it. August the Got to you GPUs all to And they then it. work, go in X,XXX one? put customer Got did that lastly,

those came for And September, customer So one. they Mike. are in

the H.C. Our line next from is of Kevin Wainwright. Dede question with

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

Kevin? what In way,

some look are wondering a you perhaps they're them Well, purely I looking from her perspective? are guess where cloud when tenants, for from you a your what GPUs. looking you anchor host is at I'm perspective, Or own at go bringing customer

Yes, yes.

and these host equipment. XX% XX% So colocation ideas, talked for the about for style our centers, will to goes then us. we the When for we've just It's anchor business a and you data business capacity. data cloud the think center keep hosting own a about business anchor tenants hosting their are for bring where tenants us. hosting own they absolutely

the XX,XXX facilities them colocation your in their once how figure comfortable you're said they're to own once that -- have they're do coming you moving at in, to ready. XX,XXX to you the you Then you colocation need support GPUs for

the perspective, is So of call in clusters. I lot way And really those ever would And ramp up traditional from it a installations. for capacity I large a Dakota, North move we cloud built about it's service regions. as what being that of think in is cloud training kind won't very that we colocation

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

portion of lot a will in what I market more be regions. the cloud then would And traditional call the inference of

that move works of training cloud a business, our And for the lot well inferencing while just North the business spread over of of to type of portion the being so have regions will cloud into it architecture time into more Dakota. for

more for September, on new to that in Okay. for think Ellendale facility, you to Or can about operate Jamestown? rethink did do The did power redesign under be you the you you you that have have Wes Or you backup those? built latency? conditions concerned still in your did

density. a specifically not it's redesigned -- power about about for it's So necessarily latency It's or backup.

it's take So to And through and basically the to a be GPU. go put network of core multiple designed able all floors.

Dakota what still meters from number call networking. of, North magic spine the be away XX around magic new kind of be for network and it's can rack the the being in really it, for I of here same design how facility, this same the cluster, core the far number -- So

have from technically, network difficult. meters a mode gets You XX so multimode, a more optics the expensive, on use out can it but transceiver you to go of single away Kevin core, little instead more to

many really within racks the core. of designed how and we around how get it's servers meters can XX many network So

goes it of the multiple through why single building level. the piece levels redesign. the instead that's primary so in And the of That's

racks got implications, right, tendency heat are heat's the stacked, what you've if rise? and multiple And to though,

Yes.

is this cool of So That's redesign. liquid the other a facility. part the

cool. air was it So

our can You per call need effectively opinion cool cool, that, solution. air But to to, move you start roughly you kW liquid to really as above rack. a do XX to it, go up

And to doing XX will do for kW, the floor facility we've so this will still kW new built which Jamestown, is in -- but at liquid rack. XXX it -- designed The we're is cooling. can go space still to cool. It the for what new it be facility per has liquid

[Operator At over now our like session. the call Instructions] Cummins. this time, question-and-answer this concludes Wes I'd to to back turn

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

today call. joining you for Applied us conference for Thank Digital's

disconnect. You may now