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Management Commentary

"We remain in late stage negotiations for our Ellendale campus," said Applied Digital Chairman and CEO Wes Cummins. "Over the past year, we've gained valuable insights into the thorough and deliberate approach hyperscalers take. While their timelines may extend longer than initially expected, we remain steadfast in our commitment to delivering our 400 MW data center campus on time and within budget."

"The rapid expansion of hyperscale data centers, driven by the growing demand for AI capabilities, is presenting significant challenges to electricity availability in the U.S. According to a recent Morgan Stanley report, there could be a shortfall of approximately 36 GW in power availability for U.S. data centers by 2028. To put this into perspective, that’s equivalent to the output of around 36 nuclear power plants. Addressing this issue is not straightforward, as adding new capacity requires lengthy planning, regulatory approvals, and the development of new generation and transmission infrastructure, processes that can span years or even decades. Based on these dynamics, we believe that much of the U.S.’s currently available excess power could be under contract within the next few years."

"Applied Digital was one of the first companies to recognize this growing demand for power and data centers. Anticipating these needs, we began construction of our facilities ahead of many hyperscalers fully grasping the shifting demand landscape. As a result, we believe we are well-positioned to capitalize on these trends. Our strategy has been further validated over the past year by securing strategic investments from CIM Group, NVIDIA, and now Macquarie Asset Management, a division of one of the world’s largest infrastructure investors. We believe these investments not only validate our vision and approach but also lower our cost of capital and accelerate the development of our pipeline, transforming it into highly valuable assets for our shareholders."

"Our vision is to establish a platform for building and operating multiple HPC data centers. This journey began with our Ellendale campus and continues with the development of additional campuses. We are proud of the significant progress achieved this quarter and look forward to sharing further updates as the year unfolds."

Cloud Services Update

Applied Digital’s Cloud Services Business provides high-performance computing power for artificial intelligence and machine learning applications. During the three months ended November 30, 2024, the Company generated $27.7 million in revenues from the Cloud Services Business segment, representing an increase of 523% compared to $4.5 million during the three months ended November 30, 2023.

HPC Data Center Hosting Update

Applied Digital’s HPC Data Center Hosting Business designs, builds, and operates next-generation data centers designed to provide massive computing power and support high-performance computing applications within a cost-effective model. During the prior fiscal year, the Company broke ground on its first 100 MW HPC facility in Ellendale, North Dakota. The new 369,000+ square-foot building will provide ultra-low-cost and highly efficient liquid-cooled infrastructure for HPC applications.

Applied Digital is in late-stage discussions with multiple hyperscalers to finalize a lease agreement for its 100 MW facility, which is currently under construction. Additionally, we plan to bring an extra 300 MW online through two additional buildings currently in the design stage. This will ultimately increase Ellendale's total HPC capacity to 400 MW.

Data Center Hosting Update

Applied Digital’s Data Center Hosting Business operates data centers to provide energized space to crypto mining customers. As of November 30, 2024, the Company’s 106 MW facility in Jamestown, N.D., and 180 MW facility in Ellendale, N.D., are operating at full capacity.

During the three months ended November 30, 2024, the Company generated $36.2 million in revenue from the Data Center Hosting Business segment.

Financial Results for Fiscal Second Quarter 2025

Operating Results

Total revenues in the fiscal second quarter 2025 were $63.9 million, up 51% from the fiscal second quarter 2024. The growth was primarily driven by the continued expansion of the Company’s Cloud Services business during the latter period, fueled by the deployment of additional GPU clusters.

Cost of revenues in the fiscal second quarter 2025 was $52.4 million compared to $29.8 million in the fiscal second quarter 2024. The increase in cost of revenues was primarily driven by the growth in the business as more facilities were energized and additional services were provided to customers compared to the same year-ago quarter.

Selling, general and administrative expenses in the fiscal second quarter 2025 were $29.8 million compared to $20.3 million in the fiscal second quarter of 2024.

Interest expense, net in the fiscal second quarter of 2025 increased $4.9 million, or 186%, from $2.6 million for the three months ended November 30, 2023 to $7.5 million for the three months ended November 30, 2024. The increase in interest expense, net was primarily driven by an increase in finance leases and interest-bearing loans between periods.

Loss on conversion of debt was $25.4 million for the three months ended November 30, 2024 due to the difference in fair value to the price at which the Yorkville Promissory Notes (the "YA Notes") were converted. There was no such activity recorded in the prior year comparative period.

Loss on change in fair value of debt was $87.2 million for the three months ended November 30, 2024 due to the adjustments to the fair value of the 2.75% Convertible Senior Notes during the 2 week period in which the conversion option was recorded as a derivative, prior to the Company receiving shareholder approval on November 20, 2024 to increase authorized share count. The loss on change in fair value of debt was also driven by adjustments to the fair value of the YA Notes. There was no such activity recorded in the prior year comparative period.

Net loss for the fiscal second quarter 2025 was $139.4 million, or $0.66 per basic and diluted share, based on a weighted average share count during the quarter of 209.6 million shares. This compares to a net loss of $10.5 million, or $0.10 per basic and diluted share, based on a weighted average share count of 109.7 million shares for the fiscal second quarter 2024.

Adjusted net loss, a non-GAAP measure, for the fiscal second quarter of 2025, was $12.6 million or adjusted net loss per basic and diluted share of $0.06, based on a weighted average share count during the quarter of approximately 209.6 million shares. This compares to an adjusted net loss, a non-GAAP financial measure, of $5.0 million, or $0.05 per basic and diluted share, for the fiscal second quarter of 2024 based on a weighted average share count during the quarter of approximately 109.7 million shares.

Adjusted EBITDA, a non-GAAP financial measure, for the fiscal second quarter 2025 was $21.4 million compared to an Adjusted EBITDA of $11.1 million for the fiscal second quarter 2024.

Balance Sheet

As of November 30, 2024, the Company had $314.6 million in cash, cash equivalents, and restricted cash, along with $479.6 million in debt.

Conference Call

Applied Digital will host a conference call today, January 14, 2025, at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) to discuss these results. A question-and-answer session will follow the management’s presentation.

U.S. dial-in number: 1-877-407-0792
International number: 1-201-689-8263
Conference ID: 13750721

The conference call will be broadcast live and will be available for replay here.

Please call the conference telephone number approximately 10 minutes before the start time. An operator will register your name and organization. If you have difficulty connecting with the conference call, please get in touch with Applied Digital’s investor relations team at 1-949-574-3860.

A replay of the call will be available from 8:00 p.m. Eastern Time through Tuesday, January 28, 2025, at 11:59 p.m. Eastern Time.

Replay Dial-In: 1-844-512-2921 or 1-412-317-6671
Access ID: 13750721

About Applied Digital

Applied Digital Corporation (Nasdaq: APLD) designs, develops, and operates next-generation digital infrastructure across North America to provide digital infrastructure solutions and cloud services to the rapidly growing industries of High-Performance Computing ("HPC") and Artificial Intelligence ("AI"). Find more information at www.applieddigital.com. Follow us on X (formerly Twitter) at @APLDdigital.

Forward-Looking Statements

This press release contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 regarding, among other things, future operating and financial performance, product development, market position, business strategy and objectives and the closing of the transaction described herein. These statements use words, and variations of words, such as “will,” “continue,” “build,” “future,” “increase,” “drive,” “believe,” “look,” “ahead,” “confident,” “deliver,” “outlook,” “expect,” “project” and “predict.” Other examples of forward-looking statements may include, but are not limited to, (i) statements of Company plans and objectives, including our evolving business model, or estimates or predictions of actions by suppliers, (ii) statements of future economic performance, (iii) statements of assumptions underlying other statements and statements about the Company or its business, and (iv) the Company’s ability to effectively apply the net proceeds from the transaction as described above. You are cautioned not to rely on these forward-looking statements. These statements are based on current expectations of future events and thus are inherently subject to uncertainty. If underlying assumptions prove inaccurate or known or unknown risks or uncertainties materialize, actual results could vary materially from the Company’s expectations and projections. These risks, uncertainties, and other factors include: our ability to complete construction of the Ellendale HPC data center; our ability to complete the negotiation and execution of the definitive transaction documents required to close the MAM facility; our ability to raise additional capital to fund the ongoing data center construction and operations; our dependence on principal customers, including our ability to execute leases with key customers, including leases for our Ellendale HPC campus; our ability to timely and successfully build new hosting facilities with the appropriate contractual margins and efficiencies; power or other supply disruptions and equipment failures; the inability to comply with regulations, developments and changes in regulations; cash flow and access to capital; availability of financing to continue to grow our business; decline in demand for our products and services; and maintenance of third party relationships. Information in this release is as of the dates and time periods indicated herein, and the Company does not undertake to update any of the information contained in these materials, except as required by law.

Use and Reconciliation of Non-GAAP Financial Measures

To supplement our consolidated financial statements presented under GAAP, we are presenting certain non-GAAP financial measures. We are providing these non-GAAP financial measures to disclose additional information to facilitate the comparison of past and present operations by providing perspective on results absent one-time or significant non-cash items. We utilize these measures in the business planning process to understand expected operating performance and to evaluate results against those expectations. We believe that these non-GAAP financial measures, when considered together with our GAAP financial results, provide management and investors with an additional understanding of our business operating results regarding factors and trends affecting our business and provide a reasonable basis for comparing our ongoing results of operations.

These non-GAAP financial measures are provided as supplemental measures to the Company’s performance measures calculated in accordance with GAAP and therefore, are not intended to be considered in isolation or as a substitute for comparable GAAP measures. Further, these non-GAAP financial measures have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. Because of the non-standardized definitions of non-GAAP financial measures, we caution investors that the non-GAAP financial measures as used by us in this Quarterly Report on Form 10-Q have limits in their usefulness to investors and may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies. Further, investors should be aware that when evaluating these non-GAAP financial measures, these measures should not be construed as an inference that the Company’s future results will be unaffected by unusual or non-recurring items. In addition, from time to time in the future there may be items that we may exclude for purposes of our non-GAAP financial measures and we may in the future cease to exclude items that we have historically excluded for purposes of our non-GAAP financial measures. Likewise, we may determine to modify the nature of the adjustments to arrive at our non-GAAP financial measures. Investors should review the non-GAAP reconciliations provided below and not rely on any single financial measure to evaluate the Company’s business.

Change in Presentation

Beginning in the third quarter of 2024, we updated our presentation of non-GAAP measures. As a result of this updated presentation, we no longer exclude start-up costs as an adjustment to Operating loss, Net loss attributable to Applied Digital Corporation, or EBITDA in our calculation of Adjusted operating loss, Adjusted net loss attributable to Applied Digital Corporation, Adjusted net loss attributable to Applied Digital Corporation per diluted share, and Adjusted EBITDA. EBITDA, Adjusted EBITDA, Adjusted operating loss, Adjusted net loss attributable to Applied Digital Corporation, and Adjusted net loss attributable to Applied Digital Corporation per diluted share are non-GAAP measures and are defined below.

Adjusted Operating Loss, Adjusted net loss attributable to Applied Digital Corporation, and Adjusted net loss attributable to Applied Digital Corporation per diluted share

“Adjusted Operating Loss” and “Adjusted net loss attributable to Applied Digital Corporation” are non-GAAP financial measures that represent operating loss and net loss attributable to Applied Digital Corporation, respectively. Adjusted Operating Loss is Operating loss excluding stock-based compensation, non-recurring repair expenses, diligence, acquisition, disposition and integration expenses, litigation expenses, non-recurring research and development expenses, loss on abandonment of assets, loss/(gain) on classification of held for sale, accelerated depreciation and amortization, loss on legal settlement, as well as other non-recurring expenses that Management believes are not representative of the Company’s expected ongoing costs. Adjusted net loss attributable to Applied Digital Corporation is Adjusted Operating Loss further adjusted for the loss on conversion of debt, loss on change in fair value of debt and loss on the extinguishment of debt. We define “Adjusted net loss attributable to Applied Digital Corporation per diluted share” as Adjusted net loss attributable to Applied Digital Corporation divided by weighted average diluted share count.

EBITDA and Adjusted EBITDA

“EBITDA” is defined as earnings before interest, taxes, and depreciation and amortization. “Adjusted EBITDA” is defined as EBITDA adjusted for stock-based compensation, non-recurring repair expenses, diligence, acquisition, disposition and integration expenses, litigation expenses, research and development expenses, loss/(gain) on classification of held for sale, loss on abandonment of assets, loss on conversion of debt, loss on change in the fair value of debt, loss on extinguishment of debt, and legal settlement as well as other non-recurring expenses that Management believes are not representative of our expected ongoing costs.

Investor Relations Contacts
Matt Glover or Ralf Esper
Gateway Group, Inc.
(949) 574-3860
APLD@gateway-grp.com

Media Contact
Buffy Harakidas, EVP
JSA (Jaymie Scotto & Associates)
(856) 264-7827
jsa_applied@jsa.net